Class Action Countermeasures : Class Action Lawyers & Attorneys : McGuireWoods Law Firm : Complex Litigation, Mass Torts

The manuscript for The Class Action Playbook (which I'm co-authoring for Oxford University Press with O'Melveny & Myers partner Brian Anderson) is due on Monday, March 1.  As a result, the blog will be on hiatus this week.  

In the meantime, please visit Paul Karlsgodt's Class Action Blawg or Russell Jackson's Consumer Class Actions and Mass Torts blog for more defense-oriented class-action coverage.  

And check back here on Tuesday, March 2, when normal twice-a-week posting will resume.  

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 As a followup to Wednesday's post, McGuireWoods has now made the audio of the webinar on FLSA actions available for anyone who wants to listen.  Just click on the link!

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Class actions rarely go to trial, so it’s rare to learn anything from published decisions about how a class action gets tried. However, in Pierce v. County of Orange, the Ninth Circuit had to grapple with several evidentiary issues unique to class action. In Pierce, several prisoners in Orange County’s prison system filed a class action that challenged a number of prison practices, including an alleged deprivation of opportunities for exercise, limitation of prisoners’ access to common areas, and restrictions on their ability to practice religion. The cases were consolidated, certified for class treatment under Rules 23(b)(2) and (b)(3), and eventually tried in a six-day bench trial. (Was that too little time to try plaintiffs’ claims? The appellate court said no.)

The appellate court ruled on a few evidentiary issues that affect defendants.

• It affirmed the exclusion of survey evidence that the plaintiffs had collected. (However, in doing so, it ruled that since two other experts relied on the survey, the exclusion of the evidence was harmless.)
• It allowed the defendant to rely on the statements of absent class members to challenge the named plaintiffs’ testimony.
• It also upheld the decertification of the Rule 23(b)(3) damages class, leaving only the injunctive relief class.

The most interesting of these rulings from a strategic standpoint is the admission of the statements of absent class members. The defendants tried to enter the evidence as adverse party interest statements, an exception to the hearsay doctrine under Rule 801(d)(2). The plaintiffs argued that doing so was not allowable because the absent class members were not representatives of the class – so they could not be parties. The Ninth Circuit ultimately ruled that

For an absent member of a Rule 23(b)(2) class to be treated as a party-and, hence, as a party representative of the class as a whole-for Rule 801 purposes there must be some mechanism to ensure that he or she will represent the interests of the class.

…

On July 1, 2004, plaintiffs disclosed the identities of forty-five inmates they expected to have testify regarding prison conditions. At least eighteen of the twenty-four statements that the County sought to introduce under Rule 801(d)(2) were taken from detainees on that list. We are satisfied that, on the facts of this case, reliance on statements by detainees who had been disclosed by plaintiffs' counsel as potential witnesses adequately protected the class from the risk of having the class's interests undermined by unrepresentative class members.

So what’s the lesson for defendants? First, statements of absent class members at trial are likely hearsay, and need to be treated as such. But, if the defendant can get them admitted, absent-class-member statements can be powerful evidence against supposed classwide problems.

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While this blog usually discusses strategies involved in litigating class actions, sometimes the best defense is not to get sued at all. With that in mind, here's a link to today's informative presentation on preventing FLSA collective actions by McGuireWoods attorneys Kimberly Cacheris and Benjamin Holland.

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Are courts making class certification too easy for defendants to oppose? San Francisco law professor Joshua P. Davis (this one, not this one) and Berger & Montague shareholder Eric Cramer argue just that in an forthcoming article in the Rutgers Law Journal, “Of Vulnerable Monopolists?: Questionable Innovation in the Standard for Class Certification in Antitrust Cases.”

The article critiques those appellate decisions – most notably In re Hydrogen Peroxide Antitrust Litigation – that have ruled that a court “must make whatever factual and legal inquiries are necessary and must consider all relevant evidence and arguments presented by the parties” in deciding certification. Davis and Cramer make four arguments against the use of limited merits inquiries: (1) certification standards need to be looser, not more stringent; (2) heightening the certification standard may violate the Seventh Amendment; (3) forcing an early inquiry into classwide evidence forces an inquiry into (at least in antitrust cases) issues irrelevant at trial; and (4) making the certification standards tighter constitutes a “back-door change” to Rule 23.

Davis and Becker’s arguments are all interesting, if flawed. But (3) is the argument a defendant is most likely to see in class-certification briefing. Davis and Becker argue that delving into contested facts at class certification:

“could effectively force plaintiffs to prove something relevant to “the merits” at class certification that they would not need to prove on “the merits” at any other stage in the case, including at trial. The inquiry into common impact is at times framed as addressing whether plaintiffs can show with class-wide evidence that all or virtually all class members suffered at least some harm. In reality, however, as long as harm is reasonably widespread across the class, it is highly unlikely that the issue of the proportion of the class that suffered harm — for example, whether 60%, 75%, or 99% of the class members paid overcharges — would even come up at a class trial.”

(Emphasis in original, footnote omitted.) According to Davis and Becker, plaintiff’s counsel won’t bring up non-injured class members because they’re irrelevant, and the defense will have no reason to because the plaintiff has conceded they weren’t harmed. So why address these class members at certification?

The largest flaw with this argument is that it assumes that a class trial is identical to an individual trial. But it’s not. Unlike an individual trial, a class trial isn’t necessarily finished when the jury renders a verdict. A class action exists to provide relief to the members of the class. If the class contains both injured and uninjured members, then the trial must include a claims process to separate the injured from the uninjured. And that process is one that class members (who need it for relief), the defendant (for whom it will decide the total liability) and the court (which cares about the administration of justice) all do care about. So even in antitrust cases, the predominance inquiry is central to how the court conducts the entire trial. If a plaintiff advances Davis and Becker’s argument, a defendant can profitably point out that the claims process is only irrelevant if the plaintiff does not care whether injured class members receive relief.

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There is no avoiding the fact that class actions are complicated. They involve large numbers of claimants, an extra set of procedural rules, and often invoke complex federal statutes like CERCLA. As a result, all parties find briefing class certification to be challenging.

So it’s a good thing we have LaBaouve v. Olin Corp., 231 F.R.D. 632 (S.D. Ala. 2005). According to the 53-page, 112-footnote opinion, LaBaouve was a monster of a case, involving allegations of mercury contamination in an Alabama town, reams of scientific evidence, and complex questions of standing and causation. Even the best advocates would have a hard time distilling this case down to its essence. So, as he sifted through the voluminous briefing to decide class certification, Judge William Steele offered some very sound advice about what not to do when briefing a complex case.

• Leave no argument behind.

“Particularly in a case of this magnitude, a litigant's interest is best served not by raising every conceivable argument (no matter how implausible or unpersuasive), but by judiciously identifying and pressing the stronger arguments while leaving the weaker ones behind.”

The defense had no shortage of arguments, including strong challenges to both predominance (causation was particularly individualized) and ascertainability (the class definitions were fuzzy at best), which is why the court was surprised it challenged the plaintiffs on easy-to-meet numerosity:

“Defendants' insistence on contesting Rule 23(a)(1)'s applicability … is one of the more obvious examples of needless detours imposed upon this Court by both sides' ‘slash-and-burn,’ ‘object-to-everything’ strategy.”

• Use lots and lots (and lots) of exhibits.

The parties may have thought that the more evidence they each presented, the better; the court disagreed. Noting that the hearing exhibits, placed on top of each other, would dwarf then-Houston Rockets center Yao Ming, it observed that

“the parties may not, by the simple expedient of dumping an undifferentiated mass of evidentiary material into the record, shift to the Court the burden of identifying evidence supporting their respective positions.”

• Cite the cases that support you, no matter what.

General Telephone Co. of the Southwest v. Falcon, a 1982 Supreme Court opinion that established the “rigorous analysis” standard for class certification, is one of the definitive precedents in class-action practice. So the court was perfectly reasonable when it held that

“To the extent that plaintiffs rely on pre-Falcon authorities in support of a more liberal or lenient standard than the ‘rigorous analysis’ required by the Supreme Court, the Court declines to adopt them here.”

• Subtlety is for losers.

Trial lawyer Max Kennerly recently advised lawyers to always write angry briefs, but never file them. Judge Steele would agree:

“Plaintiffs' briefing of the history of events at the Olin facility frequently lapses into vituperative disparagement of defendants. For example, plaintiffs deride Olin's "corporate greed" and "arrogance," lambast its "profits over people corporate philosophy," accuse it of hiring a contractor "who enjoyed Olin's brand of deceit," characterize Olin as an "unrepentant polluter," and lament that "[t]here is no end to Olin's misconduct." Such inflammatory rhetoric may be appropriate in a closing argument to a jury; however, it is distracting and unhelpful in the context of a class certification brief.”

(Citations omitted.)

Briefing class certification is always difficult, and there’s no right way to do it. Ask ten class-action lawyers, you may get ten valid approaches; so long as they don’t include anything on this list.

Know of any other bad briefing habits? Mention them below in the comments.

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Typicality “tends to merge” with adequacy and commonality in class certification briefing. As a result, it can sometimes be hard to get one’s arms around exactly how to attack typicality. The most popular formulation for defendants is “as goes the claim of the named plaintiff, so go the claims of the class.”  But what does that mean?

A case from last year – Wiener v. Dannon Co., 255 F.R.D. 658 (C.D. Cal. 2009), provides a good example of an effective typicality argument.

Dannon sells yogurt, which it markets as healthy. In 2008, the plaintiff sued Dannon, alleging that it had breached its express warranty to its consumers and violated the California consumer-protection laws by marketing three brands – Activia, Activia Light, and DanActive – as scientifically or clinically “proven” to help with digestive health and the immune system. (Like many plaintiffs, Wiener used the breach of express warranty and California’s consumer-protection claims as a means of sidestepping the problem of proving individual reliance in a common-law fraud claim.)

The problem: the plaintiff, Wiener, had bought Activia, but not Activia Light or DanActive yogurts. (A second named plaintiff had bought DanActive, but not the other two brands, but he was dismissed with prejudice earlier in the litigation.)

When the plaintiff moved for certification, Dannon argued that the named plaintiff was not typical or adequate because she had not bought two of the three products at issue in her lawsuit. While the court found that the plaintiff had established numerosity, commonality, and adequacy under Rule 23(a), and predominance and superiority under Rule 23(b)(3), it found that the fact that the plaintiff had not bought two of the three products for which she was suing made her atypical.

In cases involving a variety of products, courts, emphasizing that different products have different functions and different consumers, have held that a named plaintiff that purchased a different product than that purchased by unnamed plaintiffs fails to satisfy the typicality requirement of Rule 23(a)(3).

This was not a complete victory for the defendant. While Dannon won this certification motion, the court gave plaintiff’s counsel leave to substitute in another class representative if possible. Still, in the subsequent year, there has been no other reported decision on this case, which suggests that maybe plaintiff’s counsel could not find a typical class representative.

So what can we learn from this case? The defendant serve discovery (either interrogatories or requests for admission) to make the named plaintiff has bought all of the products at issue. If not, the defendant has a strong argument that the named plaintiff is not typical of the proposed class.

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Last month, when the Florida SBA held its “beauty contest,” a number of plaintiffs’ firms put their internal workings on display in the hopes of securing its business. At the time, I noted that many of these firms offered investment monitoring services to their clients. In return for this free “investment monitoring,” the investor presumably would make the plaintiff’s firm its counsel in any securities-fraud suits it ended up filing.

Described that way, the monitoring agreement sounds like a win-win. The institutional investor gets a watchdog, and the plaintiff’s firm gets a potential lead plaintiff. The Southern District of New York (no stranger to securities class actions) saw it differently.

In Iron Workers Local No. 25 Pension Fund v. Credit-Based Asset Servicing & Securitization, LLC, plaintiffs represented by two different firms – Bernstein Litowitz and Coughlin Stoia – competed to be named lead plaintiffs for a securities class action. During the course of determining which fund should be lead plaintiff,

the Court was made aware of an arrangement between the Iron Workers Fund and its counsel, Coughlin Stoia Geller Rudman & Robbins LLP ("Coughlin Stoia"), that cast in doubt the adequacy of the Fund to serve as lead plaintiff in any event. … As Dennis Kramer, the Fund's administrator, testified:

Q. [by the Court] ... what you've chosen to enter into, as I understand it, is a contract where the monitoring counsel will also be the counsel who represents you if a lawsuit is brought, is that right?
A. [by Mr. Kramer] Yes, that's true.
Q. And the only way they get paid is if they bring such a lawsuit and recover, is that right?
A. Correct.

Going far beyond any traditional contingency arrangement of which the Court is aware, this practice, on its face, creates a clear incentive for Coughlin Stoia to discover "fraud" in the investments it monitors and to recommend to the Fund's non-lawyer administrator (and, through him, to the trustees) that the Fund, at no cost to itself, bring a class action lawsuit. In other words, the practice fosters the very tendencies toward lawyer-driver litigation that the PSLRA was designed to curtail.

(Internal citation omitted, emphasis added.) The court invited further briefing on adequacy, as well as on the ethical implications of the agreement. While the briefing cited several cases in which courts had commented favorably on the monitoring agreements (and an affidavit condoning the practice by ethics guru Geoffrey Hazard), the court remained unconvinced, and awarded lead plaintiff status to Bernstein Litowitz’s client. (The court noted that Bernstein Litowitz also offered investment monitoring, but did so without the same explicit quid pro quo.)

Investment monitoring agreements are still common. And most plaintiffs’ firms prize their reputations for integrity as critical for winning lead counsel slots, so they’re likely to try to avoid the appearance of conflict. But, that said, the S.D.N.Y.’s unease suggests that defense counsel may find ammunition for opposing class certification if they probe further into the nature of the monitoring agreement in each case.

 

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In a class action, the named plaintiff is supposed to be an adequate representative of the proposed class. While a number of courts have pointed out that the idea that the named plaintiff drives the litigation is largely a legal fiction, it remains a fiction integral to Rule 23. So, given what does it take to disqualify the named plaintiff from serving as an adequate class representative?

One answer is lack of credibility. In Davidson v. Citizens Gas & Coke Utility, 238 F.R.D. 229 (S.D. Ind. 2006), the named plaintiffs alleged that the defendant required all candidates for promotion to take a test known as the Work Competency Assessment, and that the test was biased against African Americans. Plaintiffs’ counsel made a last-minute addition of two plaintiffs to represent a proposed subclass of job applicants (as opposed to just promotion applicants).

When plaintiffs moved for class certification, the defendants challenged their adequacy because, in deposition testimony, each of the two newly-added named plaintiffs admitted to having felony records that included convictions for theft or burglary (both crimes related to honesty). In addition, one of the two new plaintiffs had lied about his felony record on his application. The defendant argued that the named plaintiffs’ lack of credibility made them inadequate class representatives. The court agreed, stating

personal characteristics, such as the credibility and integrity of a putative class representative, have a direct bearing on their ability to adequately represent absent members of the class. Problems of credibility, when sufficiently serious, can prevent a named plaintiff from being certified as a class representative. While we acknowledge that functionally the plaintiffs' attorney is most often the true driving force behind the representation of the class, the named representatives are still required to be more than window dressing or puppets for class counsel. A putative class representative's lack of credibility should not be allowed to significantly detract from the case. A representative must, at the very least, be trustworthy enough to protect the interests of the class by working to pursue a remedy which benefits the class as much as it does counsel.

(Internal quotations, citations, and footnotes omitted, emphasis added.)

Many defense counsel, when taking depositions of the named plaintiffs, treat the questions about personal background as perfunctory. It is worth remembering that the named plaintiff’s character may actually have a bearing on whether he can adequately represent the proposed class.

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