Bernstein v. Cengage Learning, Inc.

Background

The plaintiffs brought a breach-of-contract action against Cengage Learning, Inc. They alleged that Cengage violated publishing agreements by failing to pay authors royalties properly for works sold through MindTap and used through Cengage Unlimited. The plaintiffs also alleged breach of the implied covenant of good faith and fair dealing under New York and Massachusetts law.

The plaintiffs sought certification of two classes. The proposed MindTap Class covered authors whose agreements were governed by New York or Massachusetts law, whose works were sold on MindTap, and whose works were assigned a Digital Royalty Allocation of 50 percent or 75 percent. The proposed Cengage Unlimited Class covered authors of royalty-bearing works whose agreements were governed by New York or Massachusetts law and whose works were used on Cengage Unlimited. The court adopted the recommended class definitions with certain revisions, although the opinion does not set out the revised language in its conclusion.

Report and Recommendation

Magistrate Judge Cave recommended granting the plaintiffs’ motion for class certification and appointing class representatives and class counsel. She found that the plaintiffs identified common questions, including whether Cengage’s royalty-allocation framework and Cengage Unlimited methodology were arbitrary, systematically undervalued authors’ contributions, or were adopted with an improper motive to retain money that should have gone to authors.

Judge Cave also found that the plaintiffs had proposed a workable classwide method for calculating damages. The proposed method would compare what authors should have received under a corrected royalty allocation with what they actually received. She concluded that the proposed classes met the requirements for predominance, superiority, adequate representation, and ascertainability.

Cengage’s Objections

Cengage objected to the entire report but specifically challenged the findings on commonality, predominance, superiority, and adequacy. Cengage argued that differences among the publishing agreements, individual negotiations, course of dealing, product-manager discretion, and possible overpayments required individual inquiries. It also argued that the plaintiffs’ damages model had to be shown accurate at the certification stage and that individual lawsuits showed a class action was not the superior method.

Cengage further argued that the proposed class representatives lacked sufficient knowledge of and involvement in the litigation. The court declined to consider one argument about possible offsetting overpayments because Cengage had not presented it to Magistrate Judge Cave first.

Court’s Analysis

The court reviewed the portions of the report to which Cengage made specific objections from the beginning, and reviewed the remaining portions for clear error. It agreed with Judge Cave that the plaintiffs satisfied Rule 23 of the Federal Rules of Civil Procedure.

For commonality, the court held that the plaintiffs presented common questions capable of resolution through common evidence. The central issue was not whether Cengage correctly assigned each author’s stated allocation, but whether Cengage undervalued the authors’ works and used an arbitrary royalty-allocation framework. The court also agreed that whether Cengage acted with an improper motive could be examined through common evidence, including Cengage employees’ statements and testimony and expert opinions.

For predominance, the court concluded that common issues outweighed individual ones. Although the contracts differed, the court found that they contained the same or substantially similar promise to pay royalties based on net receipts. Differences in royalty rates and provisions allowing deductions did not prevent certification because the plaintiffs challenged how Cengage calculated the royalty base for MindTap and Cengage Unlimited sales.

The court rejected Cengage’s argument that differences in course of dealing defeated certification. It found that authors shared the expectation that Cengage would not act arbitrarily, irrationally, or malevolently when determining the amount of net receipts used to calculate royalties. The court also rejected the argument that possible uninjured or overpaid class members barred certification. It found that at least one named plaintiff had suffered the required injury and that individual differences in damages did not by themselves defeat certification.

The court further held that the plaintiffs’ damages methodology was sufficient at the class-certification stage. The question at that stage was whether the plaintiffs had proposed a workable model, not whether the model was accurate or credible. The court stated that a jury could later accept or reject the expert’s calculations.

For superiority, the court found that a class action was superior to other available methods for fairly and efficiently resolving the dispute. The existence of a small number of individual lawsuits did not change that conclusion. For adequacy, the court found that the proposed representatives understood the basic facts and claims, understood how a class action works, and were active participants in the litigation. The court also found that the proposed classes were ascertainable because objective criteria and Cengage’s records could be used to identify class members.

Disposition

Judge Carter adopted Magistrate Judge Cave’s report and recommendation in full. The court granted the plaintiffs’ motion for class certification and appointment of class representatives and class counsel, with the revisions to the two proposed class definitions recommended in the report.