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Class Action Countermeasures Discussions of the Strategic Considerations Involved In Class Action Defense

Selling Out Absent Class Members – Dewey v. Volkswagen Aktiengesellschaft

Posted in Certification, Settlement

 Nobody likes a leaky roof, but few people make a federal case out of it. Several plaintiffs’ lawyers did, however, when they sued Volkswagen alleging that the sunroofs on certain vehicles would clog with debris, allowing water to leak in and ruin the interior of the car. The resulting case, Dewey v. Volkswagen Aktiengesellschaft, provides another look at the adequacy doctrine.

In Dewey, two different class actions were consolidated in the District of New Jersey, where they were referred to a magistrate judge. After two years of discovery, the parties entered into a settlement agreement. The basic terms covered three kinds of relief:

  1. "Educational preventative maintenance information," available to everyone, which would show them how to prevent leakage.
  2. Replacement of sunroof valve for select consumers.
  3. An $8 million reimbursement fund, which could be collected by one subclass on a prorated basis, and a second subclass (the "residual" subclass) if there was still money left over.

There were objections, including one filed by the Center for Class Action Fairness.  [Disclosure: I have represented the CCAF pro bono before.] One line of argument from the objectors questioned whether a magistrate judge could actually preside over a classwide settlement, since the absent class members had not consented to the transfer.

The other challenged the adequacy of the named plaintiffs, because they had segmented the class into various groups (including the "residual" subclass).

The District of New Jersey decided that neither of these objections was reason not to certify the settlement class. The objectors appealed the certification.

The Third Circuit quickly affirmed the assignment to the magistrate judge. But it was more concerned with the kind of conflict would disqualify a named plaintiff from representing a class.  It identified the standard:

A conflict is fundamental where it touches the specific issues in controversy. A conflict concerning the allocation of remedies amongst class members with competing interests can be fundamental and can thus render a representative plaintiff inadequate. A conflict that is unduly speculative, however, is generally not fundamental.

(Internal quotations & citations omitted.) In this case, the objectors had identified two conflicts.

First, the objectors argued that, like in Amchem Products v. Windsor, there was a conflict between plaintiffs seeking to recover for past damage and present damage. The Third Circuit found this conflict to be "unduly speculative." But it cottoned to the other conflict that the objectors had identified.

The West Objectors argue that there is an intra-class conflict between plaintiffs in the reimbursement group and plaintiffs in the residual group. Because all representative plaintiffs are in the reimbursement group, the West Objectors argue, they cannot adequately represent class members in the residual group. We agree.

The reimbursement group has priority access to the $8 million fund. Only after their claims are satisfied can the administrator satisfy goodwill claims from the residual group. In order to sort the plaintiffs into these two groups, representative plaintiffs sorted the various car model runs by their claims rates. On this spectrum of claims rates, representative plaintiffs drew a line delineating the boundaries between the two groups. Those model runs with claims rates above the line were placed in the reimbursement group. Those model runs with a claims rate below the line were placed in the residual group. It was this line-drawing exercise that exacerbated the adequacy problem here.

(Emphasis added.) In other words, once the case became about the named plaintiffs deciding between "haves" and "have nots," and placing themselves exclusively with the haves, they had demonstrated that there was an insoluble intra-class conflict.

What can defense lawyers learn from this? Adequacy is about protecting the rights of the absent class members. That means that when challenging a proposed class–or when designing a classwide settlement that will survive scrutiny–the defense must think carefully about how best to protect the interests of the absent class members?

Isn’t that supposed to be the plaintiffs’ job? Sure. But there are a lot of opinions out there (like this one) that show that they don’t reliably do so.