Opinion
3:23-cv-1164-AR
04-02-2024
RICHARD KREFTING, Plaintiff, v. RICHARD SMITH, Intervenor Plaintiff, v. KAYE-SMITH ENTERPRISES, INC., and BOEING EMPLOYEE CREDIT UNION Defendants.
FINDINGS AND RECOMMENDATION
JEFF ARMISTEAD United States Magistrate Judge
Plaintiff Richard Krefting brings this putative class action against defendants Kaye-Smith Enterprises and Boeing Employees' Credit Union (BECU), alleging claims on behalf of individuals whose information was exposed during a data breach of Kaye-Smith's systems. (Compl., ECF No. 1.) Krefting now seeks to dismiss his claims and join the proposed class settlement in the earlier filed Smith et al. v. Kaye-Smith Enterprises, 3:22-cv-01499-AR. For the reasons discussed below, Krefting's claims should be dismissed.
BACKGROUND
A. Data Breach
BECU is a credit union based in Tukwila, Washington. (Compl. ¶ 15.) BECU provides banking services to its customers. (Id. ¶ 16.) Kaye-Smith is a marketing execution and supply chain company based in Portland, Oregon. (Id. ¶ 13.) At the time of the breach, Kaye-Smith served as BECU's printing vendor. To facilitate Kaye-Smith's provision of that service, BECU supplied Kaye-Smith with information about its banking customers, including those customers' names, addresses, account numbers, credit scores, and Social Security numbers. (Id. ¶¶ 2, 6.)
In May or June 2022, Kaye-Smith discovered that a cyberattack had infiltrated its systems. It hired third-party computer specialists, who determined that cybercriminals had gained access to the personally identifiable information of hundreds of thousands of individuals, including BECU customers. (Id. ¶ 5.) BECU sent a notice to its impacted customers, including Krefting, that their information was exposed during the cyberattack. (Ex. 1, ECF No. 1 at 39.)
B. Procedural Background
Three putative class actions were filed on behalf of individuals impacted by the Kaye-Smith data breach. The first was Smith v. Kaye-Smith, filed in this court on October 6, 2022. Later, this action (Krefting) and Woodard v. Boeing Employees Credit Union et al. (Case No. 3:23-cv-01165-AR) were filed in Washington. While Krefting and Woodard were pending in Washington, this court appointed counsel in Smith as interim class counsel. Following that appointment, Smith intervened in both Krefting and Woodard, and both cases were transferred here. Plaintiffs Woodard and Krefting moved to consolidate the three cases, set aside the court's prior order appointing interim class counsel in Smith, and appoint new interim class counsel. (ECF No. 73.) Around the same time, plaintiff Smith and defendant Kaye-Smith reached a tentative class settlement. (Smith, ECF No. 73).
Soon after, Woodard and Krefting withdrew the motion to consolidate and sought instead to dismiss all their claims without prejudice, indicating that they had joined the settlement agreement in Smith. (ECF No. 90.) Krefting filed a Notice of Voluntary Dismissal in this case, purporting to dismiss all his claims without prejudice under Federal Rule of Civil Procedure 41(a)(1). Because BECU had filed an answer, however, the court concluded that Krefting was not entitled to voluntary dismissal under Rule 41(a)(1), and construed his notice as a motion for voluntary dismissal under Rule 41(a)(2). (ECF No. 87.) Kaye-Smith did not respond to the motion. BECU opposed Krefting's motion to the extent he sought to dismiss his claims against BECU without prejudice, arguing that those claims should be dismissed with prejudice. (ECF No. 91.) The parties submitted a revised proposed class settlement in Smith, which would settle all claims arising from the Kaye-Smith data breach. (Smith, ECF No. 80.) Krefting then moved to voluntarily dismiss his claims against BECU with prejudice. (ECF No. 92.) BECU does not oppose that motion. (ECF No. 94.)
Now before the court are Krefting's motions to voluntarily dismiss his claims against BECU with prejudice and to dismiss all other claims without prejudice. (ECF Nos. 92, 87.) Krefting cannot dismiss putative class claims with prejudice. “Neither a proposed class action nor a rejected class action may bind nonparties.” Smith v. Bayer Corp., 564 U.S. 299, 315 (2011). Only a class action approved under Federal Rule of Civil Procedure 23 has that effect. Id.The court therefore construes Krefting's motion to dismiss his claims against BECU with prejudice to encompass only his individual claims against BECU, and understands Krefting to ask that the putative class claims against BECU be dismissed without prejudice. See, e.g., Allredv. Chicago Title Co., No. 19CV2129-LAB (AHG), 2020 WL 5847550, at *1 (S.D. Cal. Oct. 1, 2020) (“Although the motion seeks dismissal of all claims with prejudice, the Court construes this as a request to dismiss Plaintiffs' own claims with prejudice, and putative class claims without prejudice.”).
DISCUSSION
A. Whether Federal Rule of Civil Procedure 23(e) Applies
Rule 23(e) governs voluntary dismissals of “claims, issues, or defenses” of a “certified class” or a “class proposed to be certified for purposes of settlement.” FED. R. CIV. P. 23(e). Before 2003, Rule 23(e) required court approval for voluntary dismissal of “[a] class action.” Fed.R.Civ.P. 23(e) (2002). That version of the Rule was ambiguous as to whether court approval was necessary when a plaintiff sought to voluntarily dismiss a putative class action, where no class had been, or was proposed to be, certified. In Diaz v. Trust Territory of Pac.Islands, 876 F.2d 1401, 1408 (9th Cir. 1989), the Ninth Circuit held that former Rule 23(e) applied to precertification class actions. Under Diaz and former Rule 23, courts in this circuit were required to consider three factors when assessing voluntary dismissals of putative class claims, to determine whether notice to absent class members was necessary.
Those factors are:
(1) class members' possible reliance on the filing of the action if they are likely to know of it either because of publicity or other circumstances, (2) lack of adequate time for class members to file other actions, because of a rapidly approaching statute of limitations, [and] (3) any settlement or concession of class interests made by the class representative or counsel in order to further their own interests.Diaz, 876 F.2d at 1408.
In May 2002, the Rules Committee proposed changes to “resolve[] the ambiguity in former Rule 23(e)'s reference to dismissal or compromise of ‘a class action,'” noting that “[t]hat language could be - and at times was - read to require court approval of settlements with putative class representatives that resolved only individual claims.” David F. Levi, Report of the Civil Rules Advisory Committee, in H.R. Doc. No. 108-56 at 42, 61 (2003). The amendments, which became effective in 2003, “require[] approval only if the claims, issues, or defenses of a certified class are resolved by a settlement, voluntary dismissal, or compromise.” Id. at 61.
Accordingly, “voluntary dismissals that occur before class certification are outside the scope of subdivision (e).” 7B WRIGHT & MILLER, FEDERAL PRACTICE & PROCEDURE § 1797 (3d ed. 2021); see also MANUAL FOR COMPLEX LITIGATION FOURTH, § 21.61 n.948 (2004) (“Rule 23(e) does not require court approval when the parties voluntarily dismiss class allegations before certification.”). Where, as here, no class is certified and no class is proposed to be certified as part of the dismissal of a putative class representative's claims, Rule 23(e) does not apply. See, e.g., Lee v. CVS Pharmacy, Inc., Case No. 3:20-cv-01923-BEN-DEB, 2021 WL 308283, at *2-3 (S.D. Cal. Jan. 28, 2021) (“Because no class has been certified in this case, Rule 23 does not mandate either Court approval of the instant settlement or notice to putative class members.” (brackets omitted)); Licea v. Adidas Am., Inc., Case No. 5:22-cv-02077-FWS-SP, 2023 WL 3431924, at *2 (C.D. Cal Mar. 22, 2023) (concluding that “the plain language of Rule 23” indicates that Rule 23(e) does not apply to precertification dismissals).
B. Whether Notice to Absent Class Members is Warranted
Although Rule 23(e) no longer applies to precertification class actions, Rule 23(d)(1)(B) still permits a district court, when “conducting an action under [Rule 23],” to require notice to class members of “any step in the action,” if notice is necessary “to protect class members and fairly conduct the action.” FED. R. CIV. P. 23(d)(1). That is, district courts retain the authority to determine that notice to absent class members is necessary, despite not being required to conduct the Rule 23(e) analysis in making that determination.
Under their Rule 23(d)(1)(B) authority, some courts continue to “engage in the same analysis that Diaz read Rule 23(e) to mandate-they determine whether to require notice of a pre-certification settlement by investigating whether there is evidence of collusion or prejudice.” Dougan v. Centerplate, Inc., Case No. 22-CV-1496 JLS (SBC), 2023 WL 8604152, at *3 (S.D. Cal. Dec. 12, 2023) (quotation marks omitted). Those courts do so in light of Diaz's instruction that, in all cases, district courts should “determine whether the proposed settlement and dismissal are tainted by collusion or will prejudice absent putative class members” who relied on the action to protect their interests. 876 F.2d at 1407 n.3 (quoting Shelton v. Pargo, Inc., 582 F.2d 1298, 1315 (4th Cir. 1978)).
Here, the concerns highlighted in Diaz do not warrant notice to absent class members. Krefting asks to dismiss his claims so that he can join the proposed class settlement in Smith. To the extent that absent class members relied on Krefting's action to protect their interests, they will not be harmed by dismissal of Krefting's action because the putative class action in Smith seeks to represent the same class interests. See Diaz, 876 F.2d at 1411 (noting that there is no prejudice to absent class members from voluntary dismissal where identical class allegations have been filed in another action, as “[t]here [is] no chance that the class [will] be left out of court”). As to whether any proposed settlement is tainted by collusion, the court will assess the proposed class settlement in Smith under the rigorous requirements imposed by Rule 23(e). Putative class members will receive notice if the proposed settlement earns preliminary approval-or at any other step in that action when notice becomes necessary to protect class interests. FED. R. CIV. P. 23(e)(1)(B); FED. R. CIV. P. 23(d)(1)(B). There is no need to assess that settlement in dismissing this action, where no settlement has been filed. Finally, no class interests are conceded by Krefting's dismissal because no class has been, or is proposed to be, certified in this action. In this context, notice to putative class members of Krefting's voluntary dismissal is unnecessary.
C. Dismissal Under Federal Rule of Civil Procedure 41(a)(2)
Having concluded that the requirements of Rule 23(e) do not apply, and that absent class members will not be prejudiced by Krefting's dismissal of this action, the court considers whether dismissal should be approved under Rule 41(a)(2). A district court has broad discretion to grant a motion for voluntary dismissal under Rule 41(a)(2) “on terms that the court considers proper.” Absent opposition from any party, Krefting should be permitted to dismiss his claims. Krefting's individual claims against BECU should be dismissed with prejudice, and all other claims should be dismissed without prejudice.
CONCLUSION
For the above reasons, Krefting's motion for voluntary dismissal of his individual claims against BECU with prejudice (ECF No. 92) should be GRANTED. His motion for voluntary dismissal of all his claims without prejudice (ECF No. 85) should be GRANTED IN PART and DENIED IN PART AS MOOT. Krefting's individual claims against BECU should be dismissed with prejudice. All other claims should be dismissed without prejudice. All other pending motions should be DENIED AS MOOT.
SCHEDULING ORDER
The Findings and Recommendation will be referred to a district judge. Objections, if any, are due within 14 days. If no objections are filed, the Findings and Recommendation will go under advisement on that date. If objections are filed, a response is due within 14 days. When the response is due or filed, whichever date is earlier, the Findings and Recommendation will go under advisement.