An important federal appeals court has determined that a Connecticut court has jurisdiction over a Canadian citizen whose only act in Connecticut was accessing information on a computer server located in Connecticut.  In MacDermid, Inc. v. Deiter, 702 F.3d 72 (Dec. 26. 2012), a Connecticut-based company, MacDermid, Inc., sued its former employee, Deiter, a Canadian citizen who worked from Canada, in federal court in Connecticut for misappropriation of MacDermid’s trade secrets.  MacDermid alleged that Deiter sent confidential company information from her company email account to her personal email account.  The lower court dismissed the case, saying that Connecticut courts did not have jurisdiction over Deiter because she never set foot in Connecticut and only used a computer terminal in Canada.  MacDermid appealed.  The U.S. Court of Appeals for the Second Circuit, in New York, reversed, holding that it was proper for a Connecticut court to exercise personal jurisdiction over a Canadian employee of a Connecticut company because, even though she was located in Canada and physically interacted only with a computer in Canada, she “used” a server in Connecticut.


Background

MacDermid is a chemical company located in Connecticut.  Dieter, a resident of Ontario, Canada, worked for MacDermid’s Canadian subsidiary.  The email system for both MacDermid and its Canadian subsidiary is located on a server in Waterbury, Connecticut.  Just before Dieter was about to be fired, she forwarded what MacDermid claims is confidential information from her MacDermid email account to her personal email account.  In doing so, Dieter accessed MacDermid’s email server in Connecticut, even though she did so while located in Canada and physically interacting only with her computer terminal in Canada (albeit a company computer).  MacDermid sued Dieter in Connecticut for trade secrets misappropriation, and Dieter moved to dismiss, arguing that Connecticut courts did not have jurisdiction over her, as she had never left Canada.  The issue was whether the Connecticut “long arm” statute gave Connecticut courts jurisdiction over someone outside of Connecticut, and whether such jurisdiction would be constitutional.  One section of the “long arm” statute gives Connecticut courts jurisdiction over someone who “uses a computer” or “a computer network” located in Connecticut.  Therefore, the issue became whether accessing email via a server located in Connecticut constituted “using” a Connecticut computer or network.

Analysis

The lower court dismissed the case because it found that Dieter had not “used” a Connecticut computer or Connecticut computer network, but had only sent email from one computer in Canada to another computer in Canada.  The Second Circuit court disagreed.  It concluded that “using” a computer or network may involve more than just the act of physically interacting with a computer.  While Dieter had physically interacted only with her terminal in Canada, she had “used” MacDermid’s network in Connecticut by accessing it electronically when she sent an email from her company account to her personal account.  The Second Circuit pointed out that the “long arm” statute does not require that user be located in Connecticut, but only that the computer or network – i.e., the thing that is “used” – be located there.  In other words, the “long arm” statute extends to people who access Connecticut computers or networks remotely.

But, having determined that Connecticut’s “long arm” statute extended to Dieter, the Second Circuit still had to determine whether exercising jurisdiction over Dieter would be  constitutional.  It found that it was.  The court found that Dieter knew that, in using MacDermid’s email system, she was accessing a server in Connecticut.  Even though Dieter would have to travel from Ontario to Connecticut to defend herself in the lawsuit, that would not be an unreasonable burden on her.  Furthermore, according to the court, Connecticut has a significant interest in interpreting its misappropriation laws.  The Second Circuit concluded that it was proper for Dieter to be sued in Connecticut for the wrong she was alleged to have committed.

Implications

While this decision was based on Connecticut law, the Second Circuit federal appeals court covers New York, Connecticut, and Vermont.  Moreover, it is considered an important authority on commercial law.  So its analysis on personal jurisdiction could be persuasive in other courts.

Lesson

The lesson here is that if you think you are safe from suit in a particular state in the U.S. just because you access a computer from the comfort of a faraway state – or even, as in this case, another country – you might be gravely mistaken.

Walter Judge is a litigation partner at Downs Rachlin Martin PLLC who blogs on intellectual property litigation topics
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On February 20, 2013, department stores  J.C. Penney Inc. and Macy’s Inc. faced off in a new arena – a New YorkState courtroom.  The two retailers are going to trial over Martha Stewart.  Macy’s suit accuses J.C. Penney of attempting to convince Martha Stewart to break her company’s exclusive merchandise contract with the department store chain – a contract Macy’s says gives them the exclusive rights to sell certain Martha Stewart products until 2018.  Part of Macy’s lawsuit reads: “J.C. Penney want[s] to rob Macy’s of market share and destroy the competitive advantage that it enjoys as a result of its existing exclusive agreement with (Martha Stewart Living).”

J.C. Penney argues that Macy’s rights to the Martha Stewart merchandise are not nearly as broad as Macy’s claims.  According to J.C. Penney: “Macy’s should stop competing in the courtroom and start competing in the marketplace.”

The move to market the Martha Stewart line is one of several initiatives by J.C. Penney to revive its struggling business.  As part of its new plan, J.C. Penney acquired a 16.6% stake in Martha Stewart’s company in December of 2011, subsequently announcing its plan to open up Martha Stewart ‘mini shops’ in most of its stores.  In response, Macy’s immediately sued J.C. Penney and was granted a preliminary injunction prevent the sale of the Martha Stewart goods at J.C. Penney while the trial played out.

A central issue of the case is whether or not the court agrees that the mini-shops fall under the exclusivity clause of the Macy’s/Stewart agreement.

Macy’s, J.C. Penney go to court over Martha Stewart

As originally posted on February 22 at sportslawinsider.com

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What does Rocky Mariciano, one of the greatest heavyweight boxers of all time, have to do with evidentiary privileges? Plenty, as it turns out, for it was a libel case arising from Mariciano’s comments following his famous 1952 fight against Jersey Joe Walcott that solidified the then-evolving theory that the government-information privilege applies in civil actions.


The Government-Informant Privilege

The government-informant privilege protects from compelled disclosure the identity of persons, or informers, who supply information about legal violations to the appropriate law-enforcement personnel. Despite the name’s implication, the privilege belongs to the government, not the informer, but protects informers from retaliation or retribution and encourages citizens to communicate their knowledge of violations of law to government officials.

The privilege is qualified, meaning that it may be overcome upon a sufficient showing of need by the defendant. In a landmark decision, the Supreme Court in Roviaro v. United States, 353 U.S. 53 (1957), explained that the privilege must “give way” when disclosure of the informer’s identity is relevant and helpful to the defense or is essential to a fair determination of the cause. And to determine whether either of these standards is met, courts must balance the public’s interest in keeping the informer’s identity confidential against the defendant’s right to prepare a defense.

There is no fixed rule on when disclosure is required; courts must make the assessment on a case-by-case basis,and have sole discretion to determine whether the evidence justifies disclosure.  The court must consider several factors when balancing the competing interests, such as the crime charged, the possible defenses, significance of the informer’s testimony, and danger to the informant if his identity is revealed.

Does the Privilege Apply in Civil Actions?

The government-informant privilege is routinely asserted in criminal cases, with the typical situation involving a criminally accused seeking to discover the identity of the informer who provided police with the tip that led to the accused’s arrest.  But the question arises whether this privilege may be applied in civil actions and, if so, whether the same standard governs the privilege.

The situation can arise in two situations.  First, a plaintiff may seek disclosure of an informer’s identity during a civil action against the government, such as a civil rights action under 42 U.S.C § 1983.  Similarly, a party involved in a civil action against another private party may seek third-party discovery from a law-enforcement agency.  Second, the question arises whether private entities may assert the government-informant privilege to preclude disclosure of a whistleblower, or one who reported misconduct up the corporate chain of command in addition to a regulatory enforcement agency.

In the latter situation, most courts hold that the privilege does not apply where the whistleblower’s identity is sought from the private entity, but in the former situation, most courts hold that the privilege applies where the informer’s identity is sought from a governmental agency.  And a case involving one of the greatest fights–and knockout punches–of Rocky Marciano’s career illustrates the point.

Rocky Marciano & the Greatest Punch of All-Time

With a record of 49-0, Rocky Marciano is the only boxer to retire as heavyweight champion with an undefeated record and is recognized as one of the greatest boxers of all time.  Marciano won his title on September 23, 1952 when he defeated reigning champion Jersey Joe Walcott by a Round 13 knockout.  Marciano later described the knockout punch as “the best punch I ever landed,” and boxing historians generally agree that Marciano’s punch was one of the greatest punches in all of boxing history. 

As originally posted on November 27 on Presnell on Privileges
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Terry Baynes of Thomson Reuters has an interesting article on efforts by a few plaintiffs’ attorneys to “crowd source” consumer arbitration claims.  The effort arises out of the Supreme Court’s decision in AT&T Mobility v. Concepcion, 131 S.Ct. 1740 (2011), upholding class action waivers in mandatory arbitration clauses.  The article discusses how two plaintiffs’ attorneys have created a website to generate consumer interest in filing multiple arbitration claims against a company with the stated goal of overwhelming the company “with hundreds or thousands of claims.”   The article quotes one of the founding lawyers as saying, “If it happens enough, companies will want class actions again.”  Andrew Pincus, who represented AT&T Mobility before the Supreme Court, is quoted as calling the site “marketing front for plaintiffs’ law firms.”  Mr. Pincus discussed Concepcion at DRI’s 2011 Class Action Seminar in Washington, DC.  DRI will hold the next edition of the Class Action Seminar on July 25 and 26, 2013.  That program is expected to include discussions of the Supreme Court’s current term’s class action and collective action cases.  More details on that will follow soon.

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Bank of America’s new plan to seek reductions in its legal fees from certain outside law firms have some experts questioning the ethics of this unusual practice.  The bank is seeking a credit on its annual legal fees based on the amount of customer business it sends to the law firms.  According to the report, Bank of American has threatened to stop using law firms that refuse to sign onto the one year deal. 

The Bank of America agreement is believed to state that the credit sought is calculated based on the total amount of legal fees passed on to third-party customers.  Bank of America generally does not comment on specific arrangements with its legal providers; however, a source familiar with the agreement said that, the credit being sought is relationship based rather than percentage based. 

Cornelius Hurley, Director of the Boston University, Center for Finance, Policy, and Law opines that if the agreement is based on the amount of fees paid by customers, such an arrangement would be unethical and a “form of pay to play for the law firms.”  University of California’s Hastings Law School professor, Geoffrey Hazard explains that the agreement seems to violate the American Bar Association’s rules of Professional Conduct in a least two ways: (1) the bank is getting a reduction in legal fees; (2) and there is a referral in return for money.  

Not everyone sees this as an ethical issue.  Thomas Spahn, a commercial litigation partner at McGuireWoods in Virginia, said his law firm accepted the agreement and does not an issue.  He does not share the concern that this arrangement violates the rule that “a lawyer cannot give anything of value” to someone who sends him business.  Spahn’s reasoning is that “most law firms will give benefits to a company that sends them a lot of work such as free legal seminars or cocktail parties.”  He justified this position by stating that the agreement is sound as long as the credit is not tied to a particular fee. 

Bank of America does offer some notice to its customers that it is receiving a benefit.  Hurley feels the notice is “too vague and not a full-fledged disclosure...” and Hazard comments that “its getting the reduction that matters, not who knows about it.” 

The bank defended the agreement in a statement issued to Corporate Counsel.  “We do not require clients to retain particular law firms and we are committed to transparency in disclosing fee arrangements, as well as, potential benefits to our company.  We are confident that our agreements with external legal services providers are appropriate.”  Eric Cooperstein, a legal ethics practitioner in Minneapolis sees this agreement as raising serious ethical concerns as the rules do not have an exception for client consent.  “Quite simply, a legal client’s business cannot be bought and sold.”  

 

 

 

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With the preseason underway and the regular season right around the corner, football fans are gathering in front of their TVs and crowding stadiums across the country with copious amounts of food and drink watching the big game.  Legal observers will have their own action to watch although this is likely to last several seasons.    

In 2011, several former players suffering a variety of neurological disorders sued the NFL for negligence and fraud relating to whether the NFL knew and withheld that knowledge that concussions and other head injuries incurred during the playing of football could lead to long term brain damage and related side effects (no comment).  Many of these suits received class action status and were removed to the United States District Court for the Eastern District of Pennsylvania. 

On August 13, 2012, the roster of players on this legal gridiron expanded to include the NFL’s insurance companies.  Alterra America Insurance Company, an excess insurance provider, filed suit in New York State Supreme Court in Manhattan seeking a declaratory judgment stating that Alterra
1) does not have a duty to defend the NFL against player lawsuits
2) does not have a duty to indemnify the NFL against player lawsuits

Two days later, the NFL and NFL Properties filed suit against 32 insurance companies (or nearly every major insurer in the country as reported by Reuters)  including Alterra asking the Court to require these insurers to defend and indemnify the NFL from the players’ suits.  Why so many insurers?  Because the NFL sued nearly every insurer that it has ever had regardless if a current business relationship currently exists.  This is mostly a dispute about when duty to defend triggers.  The NFL in its papers argues it’s when the injury occurs. National Football League v. Fireman’s Fund Insurance, BC490342, California Superior Court, Los Angeles County at 12.  This becomes a bit of problem because different insurers insured the NFL at different times going back to 1963. Determining which injury (if only one) caused the long term damage, when that particular injury occurred and which policy was in effect at that particular time is going to be messy to say the least. 

However, the more interesting story here takes place nearly a week later.  On August 21, Travelers’ Insurance followed “suit” and filed its own action against the NFL and the other insurance companies seeking a declaratory judgment with roughly the same arguments as Alterra.  What makes this interesting is the fine distinction that Travelers’ makes in its papers which is how the other insurance companies become involved.  

Travelers' argues that its only obligation is to NFL Properties and not to the NFL itself (both the NFL and NFL Properties have been parties to these suits).   Travelers’ argues that it never insured the NFL (whom we guess Travelers’ believes is going to take the brunt of any payout either in the form of a judgment or settlement) and therefore shouldn’t have to bear any of the NFL’s costs. Traveler’s suit against the other insurance companies is a pre-emptive strike against its peers who “may dispute Travelers’ position with respect to some or all of the foregoing matters, and make seek contribution from Travelers’ with respect to defense costs and/or indemnity paid under the policies they issued to the NFL and/or NFL Properties with respect [to the players’ law suits].” Discovery Property & Casualty Co. v. National Football League, 652933/2012, New York State Supreme Court, New York County (Manhattan) at 19.

It looks like all the players are in their respective formations… and there’s the kickoff.

[1] Ben Berkowitz, “NFL Sues Dozens of Insurers Over Player Injury Claims.“ Reuters.  08/16/12.  Accessed on 08/28/12.  Available at: http://mobile.reuters.com/article/sportsNews/idUSBRE87F0UB20120816?irpc=932.

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On Friday, August 24, a nine member jury entered a verdict in favor of Apple and awarded almost $1.05 billion in damages.  Apple filed suit against one of its largest competitors, Samsung Electronics, in April 2011, and alleged that Samsung’s Galaxy line of smartphones and tablets infringed seven of Apple’s patents covering the iPhone and iPod products.  In turn, Samsung countersued alleging that Apple infringed Samsung’s patents covering various wireless software components of its products.  After more than a year of highly contentious litigation and following a trial that began at the end of July and lasted the better part of August, the jury deliberated for less than three days before delivering the verdict in favor of Apple. 

Prior to trial, Apple received a significant e-discovery victory when the court sanctioned Samsung for its failure to preserve emails after Samsung should have anticipated the lawsuit by Apple.  The court determined that Samsung had a duty to preserve evidence as of August 23, 2010, and while Samsung issued a litigation hold and provided instructions detailing how to save emails using its email system, Samsung failed to disable the auto-delete function of its email system, which automatically deleted all emails every two weeks in Samsung’s Korean offices.  The court ordered that, as part of the sanctions, the jury would be allowed to draw an adverse inference against Samsung and that the jury would be told to presume that relevant evidence was destroyed and that the lost evidence was favorable to Apple.  

The court also entered pretrial preliminary injunctions against Samsung barring the sale of the Galaxy Nexus phone and the Galaxy Tab 10.1 in the United States. Moreover, the court delivered various ruling for and against both parties on various in limine motions.  One ruling against Samsung appeared to be very significant: Samsung took issue with the court’s ruling that, because Samsung failed to disclose in time contentions that Samsung’s designs were in development before the iPhone, Samsung was precluded from using slides containing images of the Samsung designs.      

In opening statements and during trial, Apple set forth its theory that Samsung had ripped off the unique design features of the iPad and iPhone and infringed certain utility patents.  Apple focused on comparisons between Samsung’s phones from 2006 to its newer smartphones from 2010.  Also, Apple relied on internal documents from Samsung comparing Samsung’s products with the iPhone hardware.  On the other hand, Samsung maintained the position that Apple had no right to claim a monopoly on certain design features that were not revolutionary.  Samsung’s theory to demonstrate non-infringement was to get the jury to focus on the specific legal requirements relating to each of Apple’s patents.  Samsung also went on the offensive by attempting to prove that Apple’s products use certain Samsung features for mobile devices, such as the process for emailing photos and the technology relating to easily finding photos in an album.  Moreover, Samsung attempted to demonstrate that Apple’s patents were invalid due to developments in technology that existed before Apple claimed to have invented such technology.  The parties relied on various liability and damages experts to support their respective positions. 

During closing arguments, counsel for Apple argued that Samsung copied Apple’s designs after realizing that Samsung could no longer compete with Apple.  Samsung, in turn, argued that a verdict in favor of Apple would severely suppress competition and reduce consumer choices.  In the end, with more than 100 pages of legal instructions, the jury was able to complete a 20 page-long verdict form and return a verdict in less than three days.    
       
For the specific articles from which the information in this summary was obtained, please visit http://newsandinsight.thomsonreuters.com/Legal/.  

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As reported by InsideCounsel, the American Bar Association House of Delegates (“ABAHD”) recently approved an amended model rule stating that it is ethical for lawyers to disclose client information when trying to move from one firm to another.

Specifically, the rule states that it is ethical for an attorney in negotiations for a different job, as well as attorneys in merging firms, to disclose the identities of clients and the amount of business they generate because the information can help point out any conflicts of interest that might exist.  However, the model rule states that lawyers still should not reveal clients' financial information.

Although the model rule has been approved by the ABAHD, the rule is simply an advisory rule.  In addition, the rule provides little guidance for attorneys faced with the question of how much client information can be ethically revealed in states whose bar associations do not have rules covering this topic.  Thus, prior to revealing any information, lawyers should carefully consider and weigh this model rule against Model Rules of Professional Conduct 1.6 and 1.9.

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In a step it rarely takes, the CPSC recently initiated separate administrative enforcement proceedings against two manufacturers of desktop magnets alleging that its products contain defects that can pose serious risk of injury. The CPSC sued the makers of Buckyballs and Zen Magnets seeking an order from an Administrative Law Judge directing them to cease all manufacture and distribution of their products (and other relief) after discussions with the companies failed to result in a voluntary recall plan.


The core issue is that these magnets can be dangerous if swallowed because the magnets can bind together and become lodged in the body, posing a risk of harm and perhaps a need for surgical intervention.  The companies currently have warnings stating, among other things, that the products are not for use by children and that they should not be swallowed, but the CPSC alleges that the warnings and labeling do not effectively communicate the hazard associated with ingestion of the product.  The CPSC continues to receive reports of injuries involving use of the product by children.  

Given that most CPSC actions (e.g., recalls, civil penalties) are the result of agreements reached with manufacturers, these matters provide the public a rare opportunity to get a glimpse of a contested lawsuit regarding the justification for a recall.  This case sets up as a classic battle that features competing themes of child protection vs. personal responsibility.  On the one hand, the manufacturers say that the CPSC’s actions raise questions about when the government has the authority to stop companies from selling products that are reasonably safe if used properly.  On the other hand, the CPSC alleges that injuries continue to occur, which suggests that the warnings in place are inadequate – and that perhaps no warning is adequate.  For more information, click on the links below.





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In recent years, the Court has provided important opinions for class action lawyers, including Dukes, Concepcion, Bayer Corp., Erica P. John Fund, and Janus Capital Group. The October Term 2012 reflects the Court’s continuing interest in this area and should provide two more important opinions.

Amgen—Class Certification In Securities Fraud Actions.

In Amgen Inc. v. Connecticut Retirement Plans & Trust Funds, No. 11-1085, the Court will resolve a circuit split regarding securities fraud class actions. In such class actions under Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, the plaintiffs may avoid having to establish individual class members’ reliance on allegedly-misleading statements or omissions (an impossible task). They do so through the fraud on the market presumption of reliance approved in Basic, Inc. v. Levinson, 485 U.S. 224 (1988). To benefit from the rebuttable presumption, a plaintiff must show that: (1) the defendant made public misrepresentations, (2) the misrepresentations were material, (3) the security traded in an efficient market, and (4) the plaintiff bought or sold shares after the misrepresentation but before the truth was known. The Court will address whether, as part of class certification proceedings, (1) a plaintiff must show the materiality of the misrepresentation and (2) the defendant must have the opportunity to rebut the application of the fraud on the market theory.

In the underlying dispute, the plaintiff alleges that Amgen misrepresented what the FDA would consider at an upcoming meeting. The plaintiff contends that the FDA intended to explore safety concerns about two Amgen drugs but Amgen misled the public about the meeting agenda. In response, Amgen denied that the alleged misrepresentations could have been material because many public sources disclosed to the market what the FDA was evaluating at the meeting; Amgen argued that the district court had to evaluate materiality as part of class certification so it could determine if the fraud on the market theory applied. The district court and Ninth Circuit, however, concluded that it would be an improper examination of the merits to require the plaintiff to establish materiality as part of class certification. The Seventh Circuit shares that view, but the Second and Fifth Circuits agree with Amgen’s arguments.

Combined with the Comcast case discussed below, this case could result in significant changes to class action jurisprudence across the spectrum. Even by itself, however, the matter could provide substantial tools for securities fraud class action defendants. Presently, defense lawyers in those cases do not have anywhere near the same number of tools to oppose certification as we do in, e.g., consumer fraud matters. If we are able to attack the application of the fraud on the market theory, then the class certification battle acquires greater significance and possible utility. Defeating matter at certification effectively ends the litigation while also avoiding the tremendous expense of post-certification litigation (particularly trial) and the almost unbearable risks of an adverse verdict.

Comcast—Examining The Merits And Expert Testimony At Class Certification.

In Comcast Corp. v. Behrend, No. 11-864, consumers brought antitrust claims against a cable television company. As typically happens in antitrust matters, the parties robustly disputed how to define the relevant market and whether the plaintiff could establish antitrust injury. They presented competing experts with strong qualifications, though each questioned the other’s methodology. In granting certiorari, the Court framed the issue a bit differently than Comcast did in its petition. Comcast focused on whether the Third Circuit improperly retreated from Wal-Mart v. Dukes in terms of permissible merits inquiries at class certification. The question the Court structured, however, is:

Whether a district court may certify a class action without resolving whether the plaintiff class has introduced admissible evidence, including expert testimony, to show that the case is susceptible to awarding damages on a class-wide basis.

In that respect, the Court seems poised to answer directly what it implied in Dukes (131 S. Ct. at 2553-54): does Daubert v. Merrell Dow Pharmaceuticals apply to expert evidence offered at class certification? Notably, that question presented does not require the Court to answer whether one or the other expert correctly analyzed competing data to define the relevant market. Instead, it only explores whether the plaintiff’s economist offered a methodology that truly can evaluate injury and allocating the resulting damages to the class members.

Taken Together

Amgen and Comcast will allow the Court to evaluate what type of proof class action plaintiffs must offer at the class certification stage. While no doubt exists any more that courts may delve into the merits to the extent they overlap with class certification, applying that standard turns out to be an inexact art that varies among trial courts. If a majority of the Court is so inclined, those justices could use these cases to broadly describe evidentiary showings a plaintiff must make well beyond securities fraud and antitrust disputes. The Court certainly seems poised to use the cases to limit plaintiffs’ ability to argue that certain substantive questions about their claims must wait until trial to be answered; instead, it is appropriate to consider whether plaintiffs can muster an adequate evidentiary record before consolidating hundreds or thousands of claims in a class. 

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