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

 Adequacy can be a difficult concept to get one's head around. And, as a result, courts and parties have found a number of different ways to frame the question of whether a named plaintiff is an adequate class representative. They can look at whether the named plaintiff knows enough about the case to oversee her counsel (although some courts are sometimes reluctant to disqualify a plaintiff on these grounds). Courts can also ask whether the plaintiff has enough independence from counsel to oversee them when their interests may diverge from the class's.   And sometimes courts can just look at the personal character of the named plaintiff. 
Another way of framing the issue is to look at whether the named plaintiff is committed to protecting the interests of the class. What do I mean by "committed"? Take the case of Buettgen v. Harless, 263 F.R.D. 378 (N.D. Tex. 2009). Buettgen was a securities case, involving allegations that the defendants had, through various misrepresentations, artificially inflated the stock price of phone directory company Idearc, Inc. A number of different plaintiffs filed class actions against Idearc and its officers, including a group of individual investors calling themselves the "Buettgen Group," another group of individual investors calling themselves the "Lyman Group," and two institutional funds, one Swiss and one American.

Each of these four plaintiffs filed a motion to be considered as lead plaintiff for the consolidated class actions, a position that carries with it control of the litigation, and a larger share of fees for plaintiffs' counsel. The court, in deciding the motions, pointed out that the Private Securities Litigation Reform Act (PSLRA):

"requires a court to presume that the most adequate plaintiff is the person or group of persons that:
(1) filed the complaint or a motion in response to a notice;
(2) has the largest financial interest in the relief sought by the class; and
(3) otherwise satisfies the requirements of Rule 23 of the Federal Rules of Civil Procedure.
Id. § 78u-4(a)(3)(B)(iii)(I).

This presumption can be rebutted only by proof offered by a class member that the presumptively most adequate plaintiff:
(aa) will not fairly and adequately protect the interests of the class; or
(bb) is subject to unique defenses that render such plaintiff incapable of adequately representing the class.
Id. § 78u-4(a)(3)(B)(iii)(II)."

In this case, all four plaintiffs had filed the appropriate motions. The court ranked the plaintiffs by the size of their losses (the Buettgen Group had sustained the largest loss, followed by the Swiss fund, the Lyman Group, and the American fund). But when the court looked at each plaintiff's adequacy, the analysis got more difficult. The Swiss fund was vulnerable to unique defenses, and therefore not adequate. But the Court also expressed reservations about the two investor groups, because neither was cohesive enough to represent the class. (Why would cohesiveness matter? Because if a group is not cohesive, then it is likely that it was put together by plaintiffs' counsel to meet the "largest financial interest" prong of the PSLRA, implying that the counsel controlled the plaintiffs.) As the court observed:

"[T]he Buettgen Group fails to present evidence that the members of the group have ever communicated in a meaningful way. For example, instead of explaining how they are prepared to work together to manage this litigation on behalf of the proposed class, the Buettgen Group submitted essentially boilerplate certifications discussing their stock purchases and alleged losses. ... Additionally, the Buettgen Group's motion is undermined by the group's invitation to the Court to hand-pick one of its constituents to serve as lead plaintiff if the Court deems the Buettgen Group inappropriate. Buettgen Group Such a willingness to abandon the group only suggests how loosely it was put together. ...
Likewise, the Lyman Group suffers from the same grouping issues that apply to the Buettgen Group. The Lyman Group consists of two individuals that provided similar boilerplate certifications as the Buettgen Group. Also, the Lyman Group states, "if the Court is inclined to appoint only one Lead Plaintiff, each of the Movants moves in the alternative for appointment individually as Lead Plaintiff." As stated above, when a group shows willingness to abandon the group the Court is lead to believe the group was only loosely put together. "

(Internal quotations and citations omitted, emphasis added.)

What does this ruling mean for defendants? It provides another way of looking at adequacy of named plaintiffs. If the named plaintiffs are not sufficiently committed to the litigation to talk to each other, then it is unlikely that they can oversee their counsel independently. And that is a good reason to find them to be inadequate class representatives.

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 In the world of class actions, case brought under the Federal Labor Standards Act (FLSA) stand apart from other class actions. Unlike a standard Rule 23 class action, the plaintiff in an FLSA action has the option of filing a class action under Rule 23, a collective action under the FLSA, or both.

What is a collective action? Like a class action, a plaintiff in a collective action trades individual control over her lawsuit for the economies of scale and the bargaining leverage that come with group litigation. But FLSA collective actions follow different procedural rules than Rule 23 class actions, ones generally considered more permissive. FLSA certification usually occurs in two parts. First, in the "notice stage," the trial court decides whether it should notify other “similarly situated” employees who might wish to opt in to the litigation. If the court decides in favor of notice (and with it, conditional certification), it informs the putative class members with a court-ordered notice and gives them an opportunity to opt into (not out of) the class. After any other plaintiffs opt in, discovery commences. After discovery is complete, the defendant can move for decertification. If the court decertifies the proposed opt-in class action, it dismisses the opt-in plaintis without prejudice to reasserting their claims individually.

This more permissive procedure means that employment actions under the FLSA have become a growth industry for plaintiffs' lawyers. And the difference in procedure means that the strategies for opposing certification are different. So how does one oppose an FLSA action? Shook Hardy lawyers William C. Martucci and Jennifer Oldvader have published an article in the Kansas Journal of Law & Public Policy answering just that question. (The cite, for those interested, is 19 Kan. J.L. & Pub. Pol'y 433.) And they have several strong proposals for opposing the increasingly-common practice of filing concurrent Rule 23 class actions and FLSA collective actions:

• Attack the "common scheme or plan" allegation. "One way of gathering such evidence is to collect declarations from other employees, who can provide vital information on compensation and time-clock policies as well as how these policies are put into practice." If the declarations show that the "policy" was implemented in different ways at different times by different people, a court will have a harder time certifying a class.
• Argue that enough discovery has occurred to allow for heightened certification standard. "Generally, the rationale behind the "lenient" conditional certification standard is that a plaintiff has not had time to conduct any discovery at the conditional certification stage. However, where discovery has occurred, a defendant may be able to successfully argue that a heightened standard of review is more appropriate."
• Argue the conflict between collective action and class action. "When faced with the possibility of an opt-in FLSA collective action and an opt-out state law class action, a defendant may be able to successfully argue that a district court should decline to exercise supplemental jurisdiction because the state law class action predominates over the FLSA collective action."

Martucci and Oldvader focus their article on "off the clock" actions where plaintiffs are allegedly not paid for time they worked (as opposed to misclassification actions, where plaintiffs are denied overtime because their job does not qualify for it). But their tactical advice is sound. For attorneys looking to defend these kinds of cases, this is essential reading.

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The final "classic case" for now, Sprague v. General Motors Corp. involved an alleged violation of the Employee Retirement Income Security Act of 1974 (ERISA). The plaintiffs had sued GM claiming that it had not provided them with the fully "paid up" lifetime healthcare benefits it had promised when it convinced them to take early retirement. The trial court certified a class of 50,000 early retirees, and declined to certify a class of 34,000 general retirees. GM appealed the certification of the early retiree class, and the plaintiffs appealed the denial of certification of the general retiree class. The Sixth Circuit reversed the certification, and affirmed the denial of certification--a complete victory for the defendant. In doing so, it made several important holdings about commonality and typicality:

Commonality. As the court pointed out, a common issue had to have some level of specificity. (An issue discussed here before.) Otherwise, every mass lawsuit would meet the commonality requirement, simply because the question "are class members residents of the Milky Way Galaxy?" would be a common issue.

It is not every common question that will suffice, however; at a sufficiently abstract level of generalization, almost any set of claims can be said to display commonality. What we are looking for is a common issue the resolution of which will advance the litigation.

In other words, a common issue must be a common material issue.

Reliance.  The court also held that, because GM made different statements to different retirees, their ERISA claims were not suitable for class treatment.

GM's statements to the early retirees were not uniform. Among other things, the statements varied (1) based on the person making the representation, (2) based on the particular special early retirement pro- gram that applied, (3) from facility to facility, and (4) from time to time. Given the wide variety of representations made, there must have been variations in the early retirees' subjective understandings of the representations and in their reliance on them. Some retirees might have interpreted GM's statements to mean that their benefits were vested. Others might have understood that their benefits were subject to change. Some early retirees might have relied on GM's statements about health care benefits, while for others the statements might have made no difference at all in the decision to retire early.

Like the Fifth Circuit in Castano, the court here came up with a succinct description of the largest problem with classes that require a finding of reliance.

Typicality.  The most quoted part of the Sprague opinion involved typicality. The court held that plaintiffs had not met the typicality requirement because proving their claims would not prove the claims of the other class members. As the court put it:

In pursuing their own claims, the named plaintiffs could not advance the interests of the entire early retiree class. Each claim, after all, depended on each individual's particular interactions with GM-and these, as we have said, varied from person to person. A named plaintiff who proved his own claim would not necessarily have proved anybody else's claim. The premise of the typicality requirement is simply stated: as goes the claim of the named plaintiff, so go the claims of the class. That premise is not valid here.

(Internal citations omitted.)

The primary lesson defendants can derive from Sprague is a simple one: when possible, frame issues to show the court how resolving them will not advance the litigation for the whole class. After all, the point of allowing a class action to proceed is that proving the plaintiff's case will prove the class's case as well. If that underlying premise is false, then a class action is not appropriate.

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Castano v. American Tobacco Co. (5th Cir. 1996)  involved a class of smokers, their estates, and their survivors arrayed against what was becoming a classic corporate villain: the tobacco companies.

Like in In re Rhone-Poulenc Rorer, the atmospherics favored the plaintiffs. Tobacco companies had already lost credibility in the court of public opinion. And the plaintiffs wisely took advantage of various embarrassing documents by asserting nine fraud-, warranty-, and tort-based causes of action, all based on the tobacco companies' allegedly inflicting the "injury of nicotine addiction" on a generation of smokers. Faced with a class that probably included friends and family on one side, and what appeared to be mustache-twirling villains on the other, the district court certified the class.

Of course, as lawyers might take for granted today, a nationwide personal-injury class asserting a number of fraud-based claims might be largely sympathetic, but it would not result in a workable trial. Since (like in Rhone-Poulenc Rorer) there was no Rule 23(f) that allowed for interlocutory appeals, the defendants sought appellate review under 28 U.S.C. § 1292(b).

In reversing the certification, the Fifth Circuit provided a number of observations that still carry great weight today:

Variations in state law matter. According to the Fifth Circuit,

The district court erred in its analysis in two distinct ways. First, it failed to consider how variations in state law affect predominance and superiority. Second, its predominance inquiry did not include consideration of how a trial on the merits would be conducted.

The Fifth Circuit provided a claim-by-claim analysis of material differences. It also held that differences in available affirmative defenses were material.

Fraud claims are extremely difficult to certify.  The Fifth Circuit also observed:

The court's treatment of the fraud claim also demonstrates the error inherent in its approach. According to both the advisory committee's notes to Rule 23(b)(3) and this court's decision in Simon v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 482 F.2d 880 (5th Cir.1973), a fraud class action cannot be certified when individual reliance will be an issue. The district court avoided the reach of this court's decision in Simon by an erroneous reading of Eisen; the court refused to consider whether reliance would be an issue in individual trials.

(Footnote omitted.)  Defense lawyers continue to rely on that reasoning today when plaintiffs propose massive classes based on individual frauds.  

Large-value claims make for poor class actions.  The Fifth Circuit also noted that, as had been apparent for some time, there was real money in tobacco cases.

[I]ndividual damage claims are high, and punitive damages are available in most states.The expense of litigation does not necessarily turn this case into a negative value sut, in part because the prevailing party may recover attorneys' fees under many consumer protection statutes.

As a result, it would be very difficult to prove that the proposed class action was superior to an individual case for a plaintiff who had suffered actual harm.

So what's the takeaway for Castano? Many defense lawyers consider this one of their "go-to" cases for predominance and superiority analysis. And for a lucid explanation of why a rigorous analysis is necessary before certifying a class, few cases are better.

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Noted plaintiffs’ lawyer Elizabeth Cabreser has an article in a recent issue of the Denver University Law Review, Apportioning Due Process: Preserving the Right to Affordable Justice. The article is notable for several reasons, but mostly because Cabreser uses it to tell a story that supports the rhetoric plaintiffs' lawyers invoke when moving to certify a class. To wit:

• Due process is expensive.
• Primarily because corporate defendants use procedure as an attrition weapon. (Also, hourly billing encourages defendants to work a "thousand plodding hours" instead of "one brilliant one.")
• The Class Action Fairness Act (CAFA) just makes the problem worse. The passage of CAFA has sent class actions to a bottlenecked federal judiciary, further delaying relief to people who desperately need it.

It's a well-written article that strives to accomplish two goals at once. First, Cabreser tells a story about due process, and one likely to have intuitive appeal to judges.

At the same time, she's building a case for the superiority of class actions over other ways of resolving disputes. If litigation is so expensive, and the claims are so small, then the only solution must be a class action. Right?

Maybe not. In her discussion of how to make justice more affordable for individuals, Cabreser ignores a number of other methods individuals have of challenging large corporations over smaller claims. Those include:

• Small claims court.
• Arbitration. Corporations often have arbitration clauses in their contracts with individuals. And, often, those clauses state that the corporation will cover the costs of the arbitration. Sometimes, they even provide a premium for the consumer if the corporation fights the arbitration and loses. It's small wonder that class-action plaintiffs' firms don't like arbitration, because it often precludes large-fee class actions.  But the fact that arbitration won't pay a Lieff Cabreser's fees hardly makes it an unattractive option for most consumers.
• Statues that authorize attorneys' fees.

What can we take away from this? First, this is an excellent example of plaintiffs’ rhetoric supporting class actions. Second, when plaintiffs start talking about how a class action is the only possible alternative, it’s time for defendants to get suspicious. Class actions may sometimes be the best solution to a widespread problem, but they are rarely the only one.

(One final note: careful readers will observe that the entries this week are a little briefer than usual. That’s because I’m on vacation. Expect more “classic cases” and quick summaries of interesting articles throughout August.)

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 I'm going to try a new semi-regular feature, which is to provide summaries of some of the seminal cases on which class-action defendants frequently rely. Instead of focusing on the tactics that led to these rulings, I'll be highlighting the most commonly-used passages, as well as some that may be wrongly overlooked.

We'll start this out with In re Rhone-Poulenc Rorer (7th Cir. 1995). In re Rhone-Poulenc Rorer involved a particularly difficult set of facts: a proposed class of HIV-positive hemophiliacs sued a group of drug companies that manufactured blood solids. Because the companies did not know enough about how HIV was spread, they had not screened properly for the disease, and had inadvertently infected the members of the class. (The hemophiliacs needed blood solids to provide the clotting factor that their blood lacked.) The plaintiffs sought certification of a class asserting two theories, a conventional negligence theory (the drug companies should have had better screening procedures for HIV), and a more inventive "serendipity" negligence theory (had the drug companies done a better job of screening against Hepatitis B, they would also have caught the HIV-infected blood).

The trial court certified the proposed class. Since Rule 23(f) (allowing for interlocutory appeals of class certification orders) did not yet exist, the defendants sought a writ of mandamus from the Seventh Circuit. A panel of the Seventh Circuit led by then-Chief Judge Richard Posner granted mandamus and reversed the certification order. In doing so, it made the following observations that have proven useful to defendants:

Certified classes create intense pressure to settle.

Suppose that 5,000 of the potential class members are not yet barred by the statute of limitations. And suppose the named plaintiffs in Wadleigh win the class portion of this case to the extent of establishing the defendants' liability under either of the two negligence theories. It is true that this would only be prima facie liability, that the defendants would have various defenses. But they could not be confident that the defenses would prevail. They might, therefore, easily be facing $25 billion in potential liability (conceivably more), and with it bankruptcy. They may not wish to roll these dice. That is putting it mildly. They will be under intense pressure to settle.

The law of negligence varies from state to state.

The law of negligence, including subsidiary concepts such as duty of care, foreseeability, and proximate cause, may as the plaintiffs have argued forcefully to us differ among the states only in nuance, though we think not, for a reason discussed later. But nuance can be important, and its significance is suggested by a comparison of differing state pattern instructions on negligence and differing judicial formulations of the meaning of negligence and the subordinate concepts.

Or, as Posner put it, quoting Oliver Wendell Holmes,

"The common law is not a brooding omnipresence in the sky, but the articulate voice of some sovereign or quasi sovereign that can be identified." The voices of the quasi-sovereigns that are the states of the United States sing negligence with a different pitch.

(Internal citations omitted.)

Courts must be careful when bifurcating a class action.

Bifurcation and even finer divisions of lawsuits into separate trials are authorized in federal district courts. And a decision to employ the procedure is reviewed deferentially. However, as we have been at pains to stress recently, the district judge must carve at the joint.

(Internal citations omitted.)  How does one tell an improper bifurcation?

The first jury will not determine liability. It will determine merely whether one or more of the defendants was negligent under one of the two theories. The first jury may go on to decide the additional issues with regard to the named plaintiffs. But it will not decide them with regard to the other class members. Unless the defendants settle, a second (and third, and fourth, and hundredth, and conceivably thousandth) jury will have to decide, in individual follow-on litigation by class members not named as plaintiffs in the Wadleigh case, such issues as comparative negligence -- did any class members knowingly continue to use unsafe blood solids after they learned or should have learned of the risk of contamination with HIV? -- and proximate causation. Both issues overlap the issue of the defendants' negligence.

So what are the primary takeaways from In re Rhone-Poulenc Rorer? Defendants should make sure they put the plaintiff to their burden. Rushed state law analyses and underdeveloped trial plans are not enough.

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Commonality is rarely the subject of much discussion in class certification. The plaintiff often treats it as a perfunctory hurdle, subsumed into the more difficult questions of predominance (under Rule 23(b)(3)) or cohesiveness (under Rule 23(b)(2)).  But, much like numerosity, commonality is a requirement that may reward careful scrutiny when a defendant opposes class certification.

In Gaston v. Exelon Corp., 247 F.R.D. 75 (E.D. Pa. 2007), a group of African-American employees sued their employer for engaging in various policies (including its promotion and compensation decisions) that they claimed violated Title VII. They sought to represent a class of employees

who have been or may be subjected to Exelon's challenged policies and practices that deny Black exempt employees equal opportunity …

Exelon filed a motion to strike class allegations, which the court granted in part, ruling that no 23(b)(2) class was possible. When the plaintiffs later moved to certify a Rule 23(b)(3) class, the court actually found a number of problems with plaintiffs' class proposal. The class definition was not ascertainable. The named plaintiffs were subject to unique defenses, making them inadequate and atypical representatives. But the fundamental problem the court found was that the proposed common issues were not common.

In fact, the court took a Goldilocks-like approach to commonality (that is, if Goldilocks hadn't liked the baby bear's stuff either). It found that the proposed common issues were either too broad, too narrow or just plain irrelevant. What do I mean by too broad? As the court put it:

[P]laintiffs' first proposed question is “whether PECO's performance evaluation policy or practices negatively impact Class members.” Id. Were a question of this sort suitable to demonstrate commonality, that requirement would become a puff of smoke. Plaintiffs could simply propose the ques- tion “has employer discriminated against class mem- bers” and always meet the commonality requirement. Obviously, something more is necessary.

As for too narrow:

Other supposedly common questions that plaintiffs identify apply only to a small fraction of the proposed class. The question “whether Class members are less likely to be promoted into intermediate- or high-level salary grades than are otherwise-similar White employees,” for example, only applies to class members who were eligible for a promotion into those grades.

And finally, the court found that the remaining common questions had no bearing on the case itself.

Other questions, such as “whether Class members are less likely to be in high-level salary grades,” are simply irrelevant to a Title VII suit. As we discussed above, it is not sufficient for plaintiffs merely to identify a disparity in the representation of black employees in higher salary grades. They must also identify a pattern or practice of employment decisions during the class period that has resulted in this disparity.

What does this analysis mean for defendants? Despite the traditional view that commonality is a low hurdle for the plaintiff to clear, it is still worth challenging when the only common questions have nothing to do with the heart of the case.

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One of the strongest justifications for class actions is that they address large social wrongs that would otherwise go unremedied. But can there be a wrong that is simply too large for a class action to handle it properly? Something truly huge, like apartheid or genocide.

Some plaintiffs' lawyers, like Hausfeld LLP, say no. In fact, the Hausfeld firm has staked its business model on that view.

Unfortunately, in most cases, the answer is probably yes. Some issues, like genocide or other large-scale human-rights violations, may simply be too complex to attack on a classwide basis in an American courtroom.

For example, take the case of Presbyterian Church of Sudan v. Talisman Energy, 226 F.R.D. 456 (S.D.N.Y. 2005). The proposed class definition hints at the scope of the problem into which the plaintiffs sought to insert the Southern District of New York. They asked to represent:

All non-Muslim, African Sudanese inhabitants of blocks 1, 2 or 4 or Unity State … [the “Class Area”] at any time during the period January 1, 1997 to June 15, 2003 [the “Class Period”], who were injured during that period by acts of the Sudanese military or allied militia constituting genocide, extra-judicial killing, enslavement, forced displacement, attacks on civilians constituting war crimes, confiscation and destruction of property, torture or rape.

The plaintiffs alleged that the defendants—Talisman Energy and the state of Sudan—

collaborated in a joint military strategy of ethnic cleansing against the plaintiffs for the purpose of creating a secure buffer zone that facilitated the development and exploitation of oil reserves …

The plaintiffs sought relief under the Alien Tort Claims Act (which allows foreign nationals to bring lawsuits in the US under certain circumstances), and requested certification under both Rule 23(b)(2) and Rule 23(b)(3).

The court held that the 23(b)(2) request, which simply asked for the creation of a "constructive trust," was

an ill-disguised claim for damages. Consequently, the plaintiffs' request is precisely the sort of sham request for injunctive relief that the Second Circuit has stated cannot support a Rule 23(b)(2) certification.

In deciding whether to certify a Rule 23(b)(3) damages class, the court rehearsed a number of different approaches. It noted that the vast majority of ATCA classes had never reached certification, and of the three that had been certified, none were under Rule 23(b)(3). It examined the closest analogous class actions it could find—toxic torts, mass accidents, products-liability cases—and noted that certification of these classes was rare as well. Ultimately, the court held that, while there were “certainly important common issues to be resolved at trial,” causation would likely require an individualized inquiry.

The plaintiffs will have to show with respect to each individual class member that the injuries for which they are claiming damages were actually caused by the Campaign. Given that Talisman intends to show that warfare persisted through much of the Class Period between shifting, protean factions of rival rebel groups based loosely on tribal affiliations, and that such warfare included attacks on villages in the Class Area, proximate causation of each attack will be a hotly contested issue.

ATCA class claims raise a host of complex issues, none of which are easy to resolve at any level. They often involve delicate questions of international relations. They can pose a public relations problem for companies that do not handle the issues properly. And they raise valid and difficult questions of conscience for individual employees. But, addressing these issues, even just by deciding liability for historical injuries, is enormously complex. If the American executive branch—which is in charge of foreign policy—has yet to find an effective solution to these tragic problems, it’s hardly surprising that the courts have not, either.

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When drafting its Principles for Aggregated Litigation, the American Law Institute considered a novel idea.  instead of applying the law of each of the fifty states to a multi-state class action based on state law (as the Supreme Court had long held was required by due process), a court could instead apply the "average" state law, determined averaging the probability a defendant would be held liable under each jurisdiction substantive law.

The ALI ultimately rejected the proposal. But Harvard Law professor David Rosenberg, joined by 3L Luke McCloud, thinks that courts should actually adopt the proposal when deciding whether to certify a class.

So what's their pitch?

The rejection of the average law solution is profoundly mistaken. It stems from the prevailing view among courts and commentators that the nature of the governing law and businesses‟ understanding and response to it at the time of the underlying conduct is the same regardless of whether the contemplated activity involves an intrastate or interstate risk. Our principal contribution is a basic, straightforward point: the average of the differing state laws is in reality the actual law that in fact ultimately governs the choice a business will make and expresses the choice the multiple states involved expect and presumably want the business to make regarding whether and how safely it should engage in activities involving interstate risk.

(Footnotes omitted.)

The authors make an intriguing theoretical argument, but it's woefully incomplete. Without diving too deep, a few of the questions it leaves unanswered:

Who decides what the "average law" is? Given the novelty of the proposal, a plaintiff who just argues "Well, we'll use average state law," is going to have to show that the proposal works in practice. And part of that will be showing the court that it is possible to apply average state law in both a fair and efficient way.  Deciding the best "average" will likely require as much work from the court as crafting an "Esperanto" jury instruction.  

Does the authors' model account for changes in law? As any practicing lawyer can tell you, each new case issued in a state court changes the odds of proving liability, sometimes subtly, sometimes less so. It's certainly possible for a mathematical model to account for changes in information, but it's not something the authors account for here.  And accounting for changes will inevitably complicate the model.

What about Shady Grove? This is the doctrinal objection, and it's a huge one. Because Rule 23 gets its legal force from the Rules Enabling Act, it cannot change the substantive rights of the parties. As the Supreme Court reaffirmed this year:

A class action, no less than traditional joinder (of which it is a species), merely enables a federal court to adjudicate claims of multiple parties at once, instead of in separate suits. And like traditional joinder, it leaves the parties’ legal rights and duties intact and the rules of decision unchanged.

Using the law actually applicable to a given claim is at the very least a "rule of decision," if not a full-fledged substantive right.

There are other possible flaws with the authors' proposal (for example, there may well be Seventh Amendment implications). But the fact that Rosenberg and McCloud did not account for the clear dictates of class action law is reason enough that federal courts will likely steer far clear of it.

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A little more than six months ago, when I first began this blog, I posted about a tactic that was growing in popularity: filing a motion to deny certification rather than waiting for the plaintiff to file a motion to certify a class.  Which raises the question, when is a motion to deny certification appropriate? Should it be filed after discovery? Or can it be filed earlier?

It really depends on the nature of the arguments the defendant will advance. If the class complaint contains legal flaws in the class, it may be possible to file a motion to strike the class allegations, essentially a rule 12(b)(6) motion to deny certification.

Take the case of John v. National Security Fire & Casualty Co. John was a class action in which the plaintiffs sued their insurance company for systematically under-paying their claims for damages in Hurricane Rita. (The plaintiffs alleged that the insurance company did not account for inflation in the costs of building materials.) The defendant filed a motion to dismiss and to strike the class allegations. Because it found that the class definition was not ascertainable, the court struck the class allegations.

The plaintiffs filed an interlocutory appeal, but the Fifth Circuit upheld the decision, holding:

Where it is facially apparent from the pleadings that there is no ascertainable class, a district court may dismiss the class allegation on the pleadings.

In other words, it is possible to file an early challenge to a class action, provided—like a Rule 12(b)(6) motion to dismiss—the flaws are apparent on the face of the complaint.

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With this post, I’ll be kicking off a new, semi-regular examination of the rhetoric that gets used frequently in class actions. What does rhetoric have to do with defending class actions? Like much of the rest of the law, everything. The rhetoric a party adopts helps to frame the issues for the remainder of the case.

One rhetorical tool is the allusion. An allusion can help to crystallize a legal point, making it more clearly and more persuasively than merely stating the rule would, by comparing it to a story that’s already deeply embedded in the judge’s mind.

Class-action defense employs a number of specialized allusions, such as comparing an ill-formed class action to Frankenstein’s Monster. But one of the most prevalent allusions in class-action practice is the plaintiff’s invocation of David and Goliath. The plaintiff will most often invoke this allusion in support of her superiority argument. The central premise is that a class action allows a powerless consumer (the David) to oppose a large, well-funded corporate entity (the Goliath). Or, as Judge Aldisert put it when he dissented in Katz v. Carte Blanche Corp.,

While there is biblical if not historical support for the motion that one David did slay a Goliath, the social desirability of consumer class actions was to insure that a David plaintiff has a Goliath capability against the Goliath propensities of his adversary . . .

So, how does one counter the David versus Goliath trope? The most powerful way to do so is to switch the analogy the plaintiff is trying to set up.

• Suggest that David is not powerless in this case. If the plaintiff is capable of bringing a real lawsuit for substantial damages, he may already have a Goliath capability. And, in many states, legislatures have enacted consumer-protection statutes that are specifically designed to level the playing field. 
• Point out that this David is not fighting alone. Part of the power of the David versus Goliath story is the image of a lone boy facing down a giant warrior. In class-action litigation, there is often another Goliath (like a government agency) standing by specifically to keep the corporate giant in check.

In either case, the key to opposing David-versus-Goliath rhetoric is to bring the judge back to the fact that, in class-action litigation, the David is not stuck with only a rock and a sling. There are a number of other tools he can use, and those are usually superior to the class action.

(Image in public domain, obtained from Wikimedia Commons.)

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Judge Jack Weinstein is no stranger to class actions; he has decided a number of them over the years. And while no one can deny his inventiveness, he has at times drawn criticism for his predisposition for finding judicial solutions to widespread social problems. Judge Weinstein's reputation is part of what makes the case of Ramirez v. Dollar Phone Corp so interesting.

The case itself deals with prepaid calling cards -- which are most often used by low-income immigrants (because they can use the cards for international calls at relatively low rates).

Plaintiffs' central allegation was that: "Law enforcement agencies and researchers investigating the industry have discovered widespread discrepancies between the amount of calling time claimed in advertising and marketing materials, and the calling time actually available to card users."

So the plaintiffs sued for violation of various states' consumer fraud acts, and the defendant moved to dismiss.

It appears from the opinion that--at this point--Judge Weinstein took an unusual step. While the defendants only moved for dismissal, Judge Weinstein converted their motion into a limited summary judgment motion, and then sua sponte denied certification of the class. Once he denied certification, he dismissed the case for lack of subject-matter jurisdiction. (This opinion was issued before the Seventh and Eleventh Circuit ruled that a federal court retains jurisdiction over CAFA cases even after it denies class certification.)

Judge Weinstein held that the patchwork of state laws addressing issue meant that, in this case, individual issues would predominate over common issues. Judge Weinstein tried very hard to limit the case to its specific facts, but he still laid out clear circumstances that would be useful to defense lawyers.

While variations in state laws are ordinarily a predominance problem, Judge Weinstein treated the complications with the proposed class as a superiority problem. Since there is no uniformity among state regulations of calling cards, he reasoned federal government regulation would be superior. What is significant is that, in this particular case, the federal government was not actively regulating the issue in the same way as in some other cases involving findings of no superiority.   Judge Weinstein, recognized this issue, but decided that it was not enough to overcome the problems with the proposed class:

In general it is inappropriate to deny those wronged civilly a fallback court-supervised remedy when the administrative law segment of our justice system has neglected to provide an available superior form of protection. There are, however, instances where the litigation remedy is relatively so inferior as to warrant denying it altogether in the hope that administrative justice will prevail. This is such an instance.

So what can defendants take from this? Sometimes, a "private attorney general" is not enough to overcome a problem facing a vulnerable section of society.  Sometimes, a problem requires government intervention. And sometimes--when the need is clear enough--that argument can convince even the unlikeliest of judges that a class action is not appropriate

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Cardozo Law School professor Myriam Gilles has a new article in the latest issue of the DePaul Law Review, "Class Dismissed: Contemporary Judicial Hostility to Small-Claims Consumer Class Actions."

Provocative title aside, Gilles's article is ostensibly about the ascertainability requirement. That said, it seems remarkably unconcerned with cases that actually discuss ascertainability. (For example, it tries to tie acertainability doctrinally to either predominance or the notice requirement, ignoring those cases where courts have developed ascertainability from numerosity. The article also doesn't concern itself with merits-based classes, even though these classes wind up vexing a number of courts at certification.)

What "Class Dismissed" does do effectively is look at the different rhetorical anchors for class actions. She labels pro-certification thinking as "liberal" and concerning itself with "public law," while anti-certification arguments are more "conservative" and stem from a conception of "private law."

So, shorn of the ideological labels, "Class Dismissed" identifies a pair of rhetorical strategies that plaintiffs and defendants use in the certification debate. Plaintiffs will often stress the "public law" function of a class--how it will deter misconduct and get relief to those who need it. Defendants will stress the fact that a class action is not an attorney-general's parens patriae case; it's a private lawsuit on a large scale, and that means that the court may not take shortcuts just because the plaintiffs' attorneys call themselves "private attorneys general." They will also point out that the Rules Enabling Act requires that a class action not enlarge any substantive rights.

What does this mean for defendants? That it's important to keep what she calls "private law" rhetoric front and center in briefing a class action, most importantly because that rhetoric tends to line up best with the legal doctrine surrounding class actions. There is no question that many people--including judges and juries--can find arguments about deterring or punishing alleged corporate misconduct to be persuasive. If they didn't, there would be few punitive damages awards. But courts are also wary of overstepping their role as arbiters of actual disputes. As a result, they treat class actions as carefully-circumscribed exceptions from the usual rule of one-on-one litigation, and a defendant can rarely go wrong reminding them of the need to do so.

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On October 3, 2007, Joyce Huntley—who, like many Americans at one time or another—owed some creditors some money--picked up her phone to learn that if she did not immediately wire money for the debt via Western Union to The Law Office of Richard Clark, her wages would be garnished. The call was placed by Shirley Bratton, a then-employee of the Law Office of Richard Clark, and the threat violated the terms of the Fair Debt Collection Practices Act ("FDCPA").

Huntley filed a lawsuit, and added allegations that it would be appropriate for class treatment. Bratton had worked for The Law Office of Richard Clark, a law firm specializing in debt-collection, for six months, and her only job was to call debtors requesting payment. So it only stood to reason that she would have similarly harassed hundreds or even thousands of other customers, right?

Maybe not. The class Huntley sought to certify was everyone "who [was] threatened with unlawful wage garnishment by debt collector Shirley [Bratton] during a telephone call." See Huntley v. Law Office of Richard Clark, 262 F.R.D. 203, 204 (E.D.N.Y. 2009). When Huntley moved to certify the class, The Law Office challenged it on numerosity grounds. Huntley may have had a bad experience with Bratton, but she had offered no evidence that Bratton had threatened anyone else. Since the plaintiff bears the burden of proof, the court found that she had not demonstrated numerosity in this case.

What can defendants learn from this case? First, don't ignore numerosity. A defendant will often concede numerosity out of the gate, because it usually seems easy to prove. In this case, it wasn't. Second, look for the simplest way to frame a problem with a proposed class. A defendant could challenge Huntley's proposed class on several grounds. The class definition she proposed (everyone "threatened ... by debt collector Shirley Bratton") was merits-based. And, if one amended the class definition, it was very possible that Huntley was not typical of the proposed class.  It's possible the defendant challenged these grounds as well (the opinion doesn't say); but the simplest way for the court to grasp the problem was through numerosity. Courts have long recognized that class-action requirements tend to blend together, so it pays to argue more than one if you can.

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In the summer of 2007, Julie Grimes went to the movies. And, presumably to avoid the line at the box-office register, she used the self-service kiosk. But when she looked at her receipt, she noticed that the machine had printed more than the last five digits of her credit card. For most patrons, this would be unremarkable. For some careful patrons, it might be grounds for shredding the receipt instead of just throwing it away. For Ms. Grimes, it was a violation of the Fair and Accurate Credit Transaction Act (FACTA), and a class action lawsuit, Grimes v. Rave Motion Pictures, 2010 U.S. Dist. LEXIS 12894 (N.D. Ala. Jan. 12, 2010).

FACTA (as amended, after Congress recognized it had become a source of no-injury class actions) prohibits a company from “willfully” printing a credit card receipt with too many digits or an expiration date.

Ms. Grimes sought to certify a class consisting of:

All persons to whom the Defendants provided an electronically printed purchase receipt at the point of sale or transaction, in a transaction occurring after December 4, 2006, which receipt displayed more than the last five digits of the person's credit and/or debit card number; said class seeks only statutorily defined damages as set out in 15 U.S.C. § 1681; said class excludes anyone who has incurred actual damages as defined in said statute; said class excludes anyone who has filed a similar individual action against the Defendants, judicial officers of the United States and State of Alabama and counsel for the parties in this action.

The trial court decided that this proposed class was not ascertainable. Ascertainability is a threshold inquiry for a class action: it asks whether, by looking at the class definition, an individual could tell whether she was a class member. One of the largest concerns in ascertainability inquiries is what courts have termed “merits-based” classes, where the class is defined by reference to the ultimate merits of the case. (For example: “Everyone who lost money because of Acme Corp’s fraudulent sale of Road Runner traps.” If the trial determines there was no fraud, there is no class.)

Most courts that have declined to certify merits-based classes have relied on technical explanations of the Rule 23 requirements. But the Grimes court came up with a simple, powerful explanation of why merits-based classes are a bad idea:

Courts do not delve into the merits of individual claims at the class certification stage. To do so would allow the prospective class representative "to obtain a determination on the merits of the claims advanced on behalf of the class without any assurance that a class action may be maintained." Eisen v. Carlisle & Jacquelin, 417 U.S. 156, 177-78, 94 S. Ct. 2140, 40 L. Ed. 2d 732 (1974). Thus, class certification is not appropriate if the court is called on to engage in individualized determinations of disputed fact in order to ascertain a person's membership in the class.

The use for defendants should be pretty clear: when challenging a merits-based class, tie the definition problem into the standard for certification.

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While I was on my self-imposed editing hiatus (shameless plug: The Class Action Playbook  comes out in September), the Ninth Circuit handed down its en banc opinion in Dukes v. Wal-Mart. The court worked overtime to tie its opinion to the specific facts and arguments in front of it, which may prevent some generalizing about the opinion. (Not that that has ever stopped legal pundits.)  

First, some background: Dukes is a Title VII sex-discrimination case. The plaintiffs alleged that, as women, they received less money for comparable work, and that they were passed over for promotions within the company. Their complaint sought injunctive relief, “back pay” (technically monetary relief, although some courts have held that, as restitution, it does not fall under Rule 23(b)(3)) and punitive damages. The trial court certified a class under Rule 23(b)(2). Wal-Mart appealed, challenging the trial court’s finding of commonality and its reliance on plaintiffs’ statistical expert. A 3-judge panel upheld the certification. Wal-Mart asked for en banc reconsideration, leading to this opinion.

The Ninth Circuit’s slip opinion is 137 pages, 95 of which constitute the majority opinion. Given the procedural history of the case, as well as the presence of concurrences and an impassioned dissent, the opinion is not a model of clarity. Nonetheless, the trial court reached a few basic conclusions that will likely occupy class-action lawyers.

• First, it reaffirmed the need for a “rigorous analysis” of Rule 23’s requirements, one that may overlap with the merits of a given case.
• Second, it upheld certification of class claims – including for “back pay” – under Rule 23(b)(2).
• Third, it held that a court may rely on a plaintiff’s statistical evidence to find commonality, even if that evidence is contested by the defendant.
• The Ninth Circuit did not rule on whether the proposed trial plan violated Wal-Mart’s due process rights. But it did speak approvingly of the trial in Hilao v. Estate of Marcos – a class action from the 1990s brought by a class of Filipino torture victims that relied heavily on statistical evidence – as one way to bring a class trial.

What does this opinion mean for class-action strategy?

• Plaintiffs are likely to continue to seek certification under Rule 23(b)(2) when possible, which means that defendants should become well-versed in the “cohesiveness” requirement.
• Specific Daubert-based challenges to questionable statistics are more important than ever.
• And defendants (particularly in the Ninth Circuit) would do well to review opinions on how courts have conducted classwide trials in the past.

While I have no inside knowledge on whether Wal-Mart intends to appeal this decision, the fact that it comes from the Ninth Circuit means there is a stronger-than-usual chance that the Supreme Court will grant certiorari to address the issues.

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Securities class actions have often drawn criticisms from both defense counsel and their ideological allies. One of the more interesting criticisms has been that securities class actions may be nothing more than shell games moving money around in such a way that the only parties to benefit are the lawyers. The theory goes like this: when a plaintiff files a securities class action, she seeks compensation for a drop in the value of her shares. The firm, faced with a bet-the-company lawsuit, settles (with a payout to the plaintiffs’ lawyers). The settlement, on a prorated basis, goes to the plaintiff. And then the value of her stock in the company drops because the company has paid her a settlement and her (and its) attorneys a large fee.
It’s a tidy story, presenting a logic that’s difficult to argue against. But is it true? Law professors Lynn Bai, James Cox, and Randall Thomas set out to test this story. Their study, “Lying and Getting Caught: An Empirical Study of the Effect of Securities Class Action Settlements on Targeted Firms” reached a number of conclusions, two of which are important to this discussion.

• Defendant firms tend to perform worse than their counterparts after they’re sued. Or, as the authors put it, their regression analysis “confirm[s] the deterioration in sample defendants’ operational efficiency in the early years following the commencement of the lawsuit. For the post-settlement periods, defendant firms with high settlement amounts had a higher probability of under-performing their peer groups than companies facing lower settlement amounts.”
• Class-action settlements often come out of a firm’s operating capital. “These numbers are consistent with the theory that insurance provided less than a full coverage of the settlement amounts and the discrepancy was paid out of the defendants’ current assets. The settlement payment exacerbated liquidity constraints on the part of the defendants, making them more vulnerable to liquidity crunches and prone to bankruptcy.”

In this case, the bottom line for defendants is that securities class actions affect the bottom line of defendants. One hardly needs an academic study to prove that. But this is one of the first studies to outline the ways in which a securities class action can directly affect the financial health of a firm. Ironically, the securities class action winds up sapping the very assets that a firm needs to stay healthy, and provide an adequate return on investment for the same shareholders the lawsuit is supposed to protect. From a strictly doctrinal standpoint, this study suggests that a securities class action may not be superior to other methods of resolving any controversy arising out of a stock drop. It’s an argument that defense counsel will surely pursue further.
 

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When faced with a complex factual issue, where it would be difficult to certify under Rule 23(b)(3) (because individual issues of causation or liability clearly predominate over common issues), plaintiffs will sometimes seek injunctive relief under Rule 23(b)(2) instead. From a rhetorical standpoint, seeking injunctive relief under Rule 23(b)(2) makes a powerful argument for certification – an injunction is true group relief; why wouldn’t it be appropriate to certify a class looking for an injunction?

This rhetorical technique has largely worked. A number of plaintiffs’ and defense counsel I’ve spoken with operate under the distinct impression that it is easier to certify a class under Rule 23(b)(2) than it is under Rule 23(b)(3), and that what holds plaintiffs back from seeking more injunctions is the lack of monetary relief on which to base a fee request.

This impression is wrong. To see just how wrong, take the case of Gates v. Rohm & Haas Co., --- F.R.D. ---, 2010 WL 774327 (E.D. Pa. March 5, 2010). Gates is an environmental case, in which the plaintiffs sued Rohm & Haas for polluting the water and air around Ringwood, Illinois with chemicals including vinylidene chloride, a known carcinogen. The plaintiffs sued for violations of CERCLA and state law, and sought damages for medical monitoring and damage to property. The proposed class action – like many environmental class actions – would turn on questions of causation, which can pose a number of thorny individualized issues in toxic torts. So, in addition to seeking damages, the plaintiffs sought an injunction compelling Rohm & Haas to set up a medical monitoring regime.

Rather than arguing that Rule 23(b)(2) did not apply because plaintiffs also sought money damages (a common argument), Rohm & Haas apparently directly challenged whether Rule 23(b)(2) would allow for certification in this case. And the trial court held that it did not:

While 23(b)(2) class actions have no predominance or superiority requirements, it is well established that the class claims must be cohesive. A (b) (2) class may require more cohesiveness than a (b)(3) class because in a (b)(2) action, unnamed members are bound by the action without the opportunity to opt out. The district court has the discretion to deny certification in Rule 23(b)(2) cases in the presence of disparate factual circumstances. The determination of whether a class involves individualized issues is important for two reasons: (1) unnamed members with valid individual claims are bound by the action without the opportunity to withdraw and may be prejudiced by a negative judgment in the class action; and (2) the suit could become unmanageable and little value would be gained in proceeding as a class action if significant individual issues were to arise consistently. At base, the (b)(2) class is distinguished from the (b)(3) class by class cohesiveness. Injuries remedied through (b) (2) actions are really group, as opposed to individual injuries. The members of a(b)(2) class are generally bound together through preexisting or continuing legal relationships or by some significant common treat such as race or gender. Indeed, a court should be more hesitant in accepting a(b)(2) suit which contains significant individual issues than it should under subsection 23(b)(3).

The individual issues that defeat the predominance requirement of Rule 23(b)(3) also defeat the cohesion requirement of Rule 23(b) (2).

(Multiple quotations, citations, and footnotes omitted; emphases added.)

The lesson here is a simple, but powerful one. A plaintiff cannot seek to avoid individualized issues by changing the rule under which she seeks certification. If individualized issues predominate, then the class will not be cohesive enough to certify under Rule 23(b)(2).

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For the defendant, lead-plaintiff motions in class actions can often seem like a small sideshow to the real litigation. (Indeed, in many kinds of class actions, where only a single firm or consortium has brought a lawsuit, the lead-plaintiff motion may only be pro forma.) For plaintiffs however – particularly securities plaintiffs – lead-plaintiff motions lie somewhere between corporate merger and bloodsport. The consequences to winning or losing these motions can have effects for years, and the efforts to win have landed more than one attorney in ethical trouble, and sometimes prison.

But how important is the lead-plaintiff motion really? NYU Professor Stephen Choi offers one look (based on a survey of lead-plaintiff motions between 2003 and 2005) in a working paper entitled Motions for Lead Plaintiff in Securities Class Actions. His conclusion? Getting appointed lead plaintiff is still critically important to plaintiffs’ attorneys, primarily because it allows them to command higher fees.

Professor Choi also found that plaintiffs’ counsel – particularly experienced attorneys with lots of repeat interactions with co-counsel – will enter into side deals to determine who will be lead plaintiff, and with it, lead plaintiffs’ counsel. As a result, the plaintiffs with the largest losses are not always appointed lead plaintiff, and their attorneys are often able to command higher fees for fewer hours worked.

What use is Professor Choi’s study to the securities class-action defendant? The paper does provide valuable intelligence on how plaintiffs' counsel operate, something that defendants always need more of.  But, more importantly, Professor Choi’s data suggests a possible argument at class certification. His data on fees and hours worked can operate as a rough proxy for client supervision. If there is evidence that plaintiffs’ counsel cut a side deal to determine who would be lead plaintiff (for example, if an investor with larger losses stepped aside to allow another investor represented by a larger firm to be lead plaintiff), that may indicate that the lead plaintiff does not have the independence to adequately oversee its attorneys. In that case, the defendant may argue that the named plaintiff is not an adequate representative of the class.

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Antitrust class actions can be tough cases for defendants. By their nature, cases against alleged monopolists lend themselves well to David-versus-Goliath rhetoric. But, just as difficult, a number of the fundamental questions in antitrust class actions can only be decided after a “battle of the experts” that costs a great deal of money and may alienate judges who – like many lawyers – went to law school because they didn’t like math. So how can defendants rein in meritless antitrust class actions?

Kelly Bozanic, a fellow at Penn State’s Dickinson School of Law, has written a working paper that offers one solution. Her main argument, which is not of much help to practitioners, is that the court should “rigorously consider” antitrust standing at the class-certification stage. Of course, a court already must rigorously consider all Rule 23(a) requirements before certifying a class. And it would seem clear that a plaintiff who lacks antitrust standing would be either an atypical or inadequate class representative. At minimum, she will be subject to the “unique defense” of lack of antitrust standing. (In fact, one would expect to see a number of pre-certification summary judgment motions on the issue of antitrust standing.)

But Bozanic’s argument suggests a more interesting point: a wrongful certification of an antitrust class (or even just certification of an overbroad class) could lead to overenforcement, which would chill otherwise competitive conduct. To the extent that is true (and demonstrable), a defendant may argue that the class action against it is not superior because it would chill legitimately competitive conduct. (There’s a related argument also worth making – where a government agency like the Department of Justice Antitrust Division or Federal Trade Commission has investigated possible antitrust violations, certifying a class on top of that enforcement may also be considered overdeterrence.) Of course, to make that argument clearly to the court, the defendant may need the help of one of those high-priced experts.
 

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University of Pittsburgh Law Professor Rhonda Wasserman has posted a working paper to the Social Science Research Network (SSRN) with the weighty title “Transnational Class Actions and Interjurisdictional Preclusion.”  While it spends a great deal of time reviewing the current state of the literature on preclusion in class actions and class-action regimes in other countries (both useful surveys to have), the paper asks a simple but important question for class-action defendants: If a defendant settles a class action involving more than one country’s citizens, can it enforce the agreement against all of the class members?

This is not an abstract question. Multi-national class actions are becoming more common.  And for many defendants, the one benefit of class-action litigation is that it offers a degree of finality that one cannot find in individual litigation, and only rarely in mass torts.

To answer that question, Wasserman reviews a report of the British Institute of International and Comparative Law, which surveyed the preclusion doctrines of various European countries, including (among others) the United Kingdom (England and Wales), Germany, France, and Romania. As Wasserman reports, the Institute comes to three conclusions:

• Claim preclusion in Europe is “quite a bit narrower than the transactional test that is applied widely in the United States.” In particular, European courts are less likely to give preclusive effect to classwide settlements.
• “[A]bout half of the participating European countries do not accord their judgments issue preclusive effect.”
• “[A] review of the European class action and collective action vehicles reveals a deep reluctance to bind those who neither commence litigation in their own name nor affirmatively choose to opt in.”

What does this mean for class-action defendants? It actually has two implications, both equally important:

First, a defendant looking to settle a multi-national class action should be very sure of the preclusion doctrines in the countries where it may seek to enforce any settlement agreements.

But second, a multi-national class action may not be superior to other forms of litigation, because it may not resolve the dispute for various members of the class.
 

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As a few other blogs have noted, last week Justice Souter emerged from semi-retirement to write an opinion on a Rule 23(f) petition. While a new opinion from a former Supreme Court justice is – by itself – newsworthy, it also provides an important tactical lesson for defendants briefing certification.

In Gintis v. Bouchard Transportation Co., Inc., 2010 WL 617395 (1st Cir. Feb. 23, 2010) (Souter, J.).the plaintiffs brought a proposed class action for property damage caused when a fuel barge struck an offshore reef, spilling 98,000 barrels of oil across 90 miles of Massachusetts coastline. The defendants admitted they were negligent in causing the spill, although they did not concede liability to any individual property owners. The Massachusetts government took charge of the cleanup efforts, supervising a “Unified Command” consisting of the Coast Guard, the commonwealth’s Department of Environmental Protection, the defendants, and an unnamed “Licensed Site Professional.” The Command used a common methodology for cleaning the spill, dividing the coastline into segments and categorizing them by the degree of oil contamination. When the plaintiffs (all of whom owned property on the affected coastline) moved for class certification, the trial court declined, relying heavily on a previous case in the jurisdiction.

The First Circuit Court of Appeals reversed. Technically, its ground for doing so was that the lower court had not engaged in a “rigorous analysis” of the certification motion, but Justuce Souter also suggested “plaintiffs presented substantial evidence of predominating common issues.”

What were those issues?  Some were specific to the case, like the defendant’s admission of negligence, and the plaintiffs’ announced intent to use Command records to prove their claims.  But others appear to stem directly from the defendant’s arguments. Among them were the defendants’ announcement that it would oppose admitting the Command records into evidence:

Bouchard's very opposition to the use of the arguably helpful records seems to promise that most or all cases, if individually litigated, would require repetitious resolution of an objection by Bouchard that is common to each one of them. Bouchard's position, in other words, apparently guarantees a crucial common issue of great importance in the event of individual litigation.

and their announced intention to oppose common expert testimony:

Bouchard's effort to discredit this approach apparently portends a fight over admissibility and weight that would be identical in at least a high proportion of cases if tried individually.

What’s the defendant’s lesson from this? It is not enough to just challenge plaintiff’s common proof. The defendant must make an affirmative showing why individualized issues will predominate over common issues.
 

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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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Martin Redish is back in the news. In the past week, he’s been written up in Forbes and the ABA Journal, as well as a series of associated blog posts by academics like Elizabeth Chamblee Burch. The Forbes profile – which kicked off the coverage – quotes him as saying that the rights held by class action litigants:

are individually held rights … What a lot of class action scholars and proponents have done--quite cleverly, I must say--is engage in a sort of alchemy to transform individual rights into collective rights.

The Forbes profile doesn’t focus on any particular work of Redish’s, although the discussion of cy pres relief recalls his forthcoming article on “Cy Pres Pathologies,” and Chamblee Burch uses it to highlight his latest book: Wholesale Justice: Constitutional Democracy and the Problem of the Class Action Lawsuit. But the Forbes headline (“Are Class Actions Unconstitutional?”), which has generated much of the buzz, presumably refers to Redish’s argument that the Rules Enabling Act (which gives authority to the Federal Rules of Civil Procedure) is unconstitutional because it violates Article III’s “case and controversy” requirement and the nondelegation doctrine. (For those playing along at home, Redish makes this argument at pp. 73-85.)

Redish predicts that his proposals will fall on “deaf ears.” He’s likely right – not because those proposals are unsound (or even invalid), but because very few lawyers would argue that the Rules Enabling Act (and with it, the entire structure of the federal rules) is unconstitutional. The typical class-action defendant – which is usually a corporation familiar with the benefits and drawbacks of litigation – is unlikely to want to bring the entire temple down on top of itself, no matter how much it might dislike the effects of Rule 23. And a settlement objector – most often a moonlighting plaintiff’s attorney – is even less likely to want to undermine the entire class-action structure. Nor is Congress likely to un-delegate responsibility for the Rules of Civil Procedure anytime soon.

Does this mean Redish’s work is useless? Hardly. There’s always value in going back and kicking the tires on people’s assumptions; no one wants a constitutional blowout at high speeds. But even more importantly, Redish at his best is gimlet-eyed about the disconnects between the legal fictions that accompany the class action and the realities of how class awards and class settlements get administered. While Redish’s approach to these disconnects is largely theoretical, it provides an excellent starting point for some more grounded legal attacks on meritless class actions.


 

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 Despite the amount of time defense counsel spend handling class actions, one aspect often continues to frustrate analysis – plaintiffs’ counsel. Studying how plaintiffs’ counsel operate in class actions (which is, of course, essential to opposing them in individual litigation) can sometimes feel like Kremlinology, or reading tea leaves. Since plaintiffs’ counsel have a strong interest in presenting their best possible face to the world – and defendants often feel strong distrust of plaintiffs’ PR – defense counsel risk predicting the moves of a caricature, rather than a fully-fleshed opponent.

Fortunately, a number of academics have begun to examine the ways in which plaintiffs’ counsel interact, find clients, and build their cases. One of the more prolific scholars of class-action practice, Stephen Choi, has teamed with longtime co-author A.C. Pritchard and judicial clerk Drew T. Johnson-Skinner to perform an analysis of “pay to play” practices among plaintiffs’ counsel and state pension funds. 

As Choi and company describe it, since the passage of the Private Securities Litigation Reform Act (which heavily favors institutional investors over individual investors as class representatives, on the theory that they are more likely to be independent of class counsel):

Most of the institutional investors that have agreed to serve as lead plaintiffs have been government-sponsored pension funds. Many of these funds are managed directly by politicians, such as state comptrollers, who must campaign to retain their current positions, or may have designs on higher offices. Alternatively, these funds are managed by political appointees, who typically owe their position to the state’s governor. The presence of political influence over these funds naturally raises the question of whether law firms are making political contributions to the politicians who wield that influence in order to enhance their chances of being selected to represent the pension funds. Simply put, are law firms buying lead counsel status with campaign contributions, i.e., do class action lawyers pay to play?

(Emphasis added.) Their conclusion? Yes. Class-action lawyers do. And firms that appear to win their work as a result of “pay to play” practices generally receive higher attorneys’ fees than those that don’t.

So what are the strategic implications of this finding? For defendants, Choi and company’s analysis implies that it's worth serving discovery exploring the various relationships plaintiffs’ counsel may have had, even with larger institutional investors. Commentators (and courts) had previously presumed that institutional investors would be more adequate than smaller clients because they had the incentive to oversee counsel (because they had a larger stake in the litigation), and the investing knowledge required to do it effectively. However, Choi and company's analysis implies that pension funds that accept “pay to play” contributions may lack the financial independence to oversee class counsel. If they lack that independence, they may not be adequate fiduciaries of the interests of the class. And that's a powerful argument against certifying a class.

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In their article “Robbing Peter to Pay Paul: The Conflict of Interest Problem in Sibling Class Action”, 21 Georgetown Journal of Legal Ethics 1195 (2008), Richard Stuhan and Sean Costello have come up with a novel argument against multi-front class actions. Recognizing that plaintiffs' counsel will often file multiple, single-state class actions in different states, the authors argue that doing so presents a conflict of interest. They call this the “Sibling Class Action” problem. Like parents, they claim, plaintiffs’ counsel shouldn’t favor one sibling class over another. As a result, they argue, counsel representing more than one class in different courts must be inadequate counsel to at least one of those classes.

Most plaintiffs would argue that individual plaintiffs are entitled to choose their counsel. But, Stuhan and Costello argue, counsel are only human:

The rub, however, is that the class lawyer will always have a favorite, whether she admits it or not, and one class will be treated better than the others, whether it is obvious or not.

That rub, they argue, translates into a real class conflict:

[s]imply stated, a lawyer who pursues sibling class actions cannot maximize the benefit to one class without reducing the benefit to another of the sibling classes. The class action lawyer in such circumstances is “robbing Peter to pay Paul.”

Even worse, they argue, that conflict is insurmountable

By bringing multiple sibling class actions, the class action lawyer has created a structural conflict that cannot be surmounted or cured. The conflict arising from the sibling rivalry presumptively renders the lawyer inadequate by putting her in a situation where she must trade off the interests of one class against those of another class.

It’s a powerful argument, but it’s not likely to get much use. From a strategic standpoint, then, plaintiffs have a simple workaround, one many have used in coordinated state-only class actions. Basically, class counsel join a "consortium" of counsel. Each law office heads up the class action in their state. The others are on the complaint as "of counsel." At that point, each class has separate "lead counsel," which presumably is allowed its "favorite child," and there is no apparent conflict.

Does that mean that there's no real conflict?

No -- it may still very well be that only one firm is in charge of the consortium, and that firm may favor one lawsuit over another. But a defendant will have a hard time proving that in court.
 

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One of the peculiar frustrations of class-action defense is that one occasionally encounters a case that, while it might survive a motion to dismiss, could never be certified as a class. Other times, the defendant discovers evidence early in a case that supports the same conclusion. In those cases, what can the lawyer do but grit her teeth and start in on (or keep pushing through) the long expensive process of discovery?

Well, she could file a motion to deny certification. In an appellate opinion handed down in July, the Ninth Circuit expressly held that a defendant can start the class certification briefing process instead of the plaintiff.

The case, Vinole v. Countrywide Home Loans, Inc., involved a wage-and-hour class action filed against Countrywide. The plaintiffs sought to represent a class of "External Home Loan Consultants" (semi-independent salespeople paid by commission), alleging they had been wrongfully denied the opportunity to earn overtime.

However, declarations from a number of Consultants showed that the time they spent working -- both in and out of the office -- varied greatly.  Armed with this strong evidence against certification, Countrywide decided to take the offensive. Three months before discovery closed, it filed a motion to deny certification.

The plaintiffs responded with an argument that has strong intuitive appeal. The question wasn't ripe yet; in fact, the motion was procedurally improper because they hadn't moved to certify a class. Turning the certification process on its head, plaintiffs argued, would lead litigants into "troubling new territory." (The plaintiffs weren't reckless. They also presented some evidence they would have used in their certification motion, although the court noted that they made a "strategic choice" to limit that evidence.)

While the plaintiffs' argument may have had strong intuitive appeal it ran up against the text of Rule 23.  The trial court held -- and the Ninth Circuit affirmed -- that:

Nothing in the plain language of Rule 23(c)(1)(A) either vests plaintiffs with the exclusive right to put the class certification issue before the district court or prohibits a defendant from seeking early resolution of the class certification question. The only requirement is that the certification question be resolved '[a]t an early practicable time.' The plain language of Rule 23(c)(1)(A) alone defeats Plaintiffs' argument that there is some sort of 'per se rule' that precludes defense motions to deny certification[.]

The Ninth Circuit also pointed out that while a motion to deny was unusual it was hardly new; cases stretching back to 1972 showed defendants moving either to strike class allegations, or deny certification. Having established the propriety of the motion to deny, the Ninth Circuit went on to affirm the denial of certification, based largely on those declarations.

What's the lesson we can learn from this case? In class actions, like in boxing, sometimes the best defense is a good offense.

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