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

The merits based (or "fail-safe") class (e.g., "everyone who was a victim of defendant's fraud") has long been considered one of the best examples of a poorly-defined class: because the class is defined in terms of the merits, the class size fluctuates based on the verdict. A verdict for the plaintiff creates a sizable class; a verdict for the defendant means there was never a class at all (if there was no fraud, no one could have been a victim). As a result, many courts have refused to certify fail-safe classes.

Last year, in a remarkable move, the Fifth Circuit declared that it saw no problem with fail-safe classes. The holding, in In re Rodriguez, relies more on an unusual reading of Fifth Circuit precedent than on any logical reason why fail-safe classes are not a problem:

Because our precedent rejects the fail-safe class prohibition, we conclude that the bankruptcy court did not abuse its discretion when it defined the class in the present case.

(Emphasis added.)  Faced with a new split in appellate circuit authority, Fordham law student Erin L. Geller did exactly what any good law student should: she drafted a student note on the issue. The Note, The Fail-Safe Class as an Independent Bar to Class Certification, 81 FORDHAM L. REV. 2769 (2013), provides a useful taxonomy of various ascertainability problems (dividing classes into fail-safe, administratively difficult, and overbroad).

But the most useful portion of the Note is Geller's big insight: fail-safe classes look like one of the evils that the modern Rule 23 was supposed to prevent: one-way intervention.

The res judicata argument can be taken one step further. Fail-safe classes must be barred from class certification because allowing fail-safe classes to be certified reinstates the one-way intervention that the 1966 amendment to Rule 23 was designed to abrogate. Under the 1966 amendment, the court's judgment - whether or not favorable to the class - must include all individuals that the court finds to be class members. Fail-safe classes thus violate the amendment by allowing class members to benefit from a favorable judgment but to be defined out of the class in the case of an adverse judgment. Fail-safe classes can be analogized to the spurious class actions the amendment eliminated by removing the tripartite characterizations of class actions. Much like the spurious class action in which class members could intervene to receive the benefit of a favorable judgment but were not bound by an adverse judgment, fail-safe class members are only bound by a favorable judgment.

(Emphases added; internal footnotes omitted.) Ms. Geller's Note provides a powerful argument--even in the Fifth Circuit--for finding fail-safe classes invalid. It's well worth a read.

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 Brenda Kennedy was hospitalized in 2009 for four days. She had an insurance policy from United American that paid benefits for each day that she spent in the hospital, and she assigned those benefits to the hospital. When she received her hospital bill, she discovered that it had only covered three days, not four. So she bought a class action on behalf of everyone who received benefits from the policy.

United American moved to dismiss the case because Ms. Kennedy had not received benefits herself; she had assigned them to the hospital. The court agreed with the argument, but stayed dismissal to give Ms. Kennedy a chance to either find a new class representative or to get the hospital to ratify her lawsuit. (She did the latter.)

Then she moved to certify a nationwide class. United American opposed certification on a number of grounds, all of which revolved around the fact that Ms. Kennedy had not been the real party in interest in the case. According to United American, that meant that the class she had defined was overbroad (it contained individual with standing and without), individualized issues would predominate over any common issues (particularly the question of who was a real party in interest, and who had assigned their interest elsewhere).

In Kennedy v. United Am. Ins. Co., 2013 U.S. Dist. LEXIS 48197 (E.D. Ark. Apr. 3, 2013), the court denied certification. Its primary reason was that:

Kennedy cannot bypass or ignore the important task of identifying putative class members that qualify as real parties in interest.

In particular, it held that determining who was a real party in interest (and therefore who would belong in the class) would require individualized inquiries, affecting both ascertainability and predominance. As it reasoned:

Under the circumstances, it is difficult to envision a method for identifying proper class members without conducting extensive, individualized inquiries. In determining whether Kennedy qualified as the real party in interest in this case it was necessary to resolve multiple questions--including which state's law governed the issue, whether the language of the assignment contract between Kennedy and NEA evidenced an intention to effect a transfer, and whether the contract language and circumstances evidenced only a partial transfer and an intent that Kennedy retain the right to sue. As demonstrated by the protracted proceedings regarding Kennedy's status, assignments of GSP2 benefits present a myriad of issues that require consideration of individual proof.

(Emphasis added.) But the court went further, pointing out that Ms. Kennedy's situation rendered her an inadequate class representative as well.

"Even if Kennedy were a benefit payee, the Court finds that she does not qualify as an adequate representative, which is perhaps the most important of all prerequisites to certification of a class action. See Bishop v. Committee on Professional Ethics and Conduct, 686 F.2d 1278, 1288 (8th Cir. 1982). Kennedy's entire claim rests on the supposition that the GPS2 Policy requires that United count the day of discharge as a day of confinement during a hospital stay. United notes that Kennedy's proposed interpretation conflicts with the standardized billing practices of hospital class members that she seeks to represent. United also points out that the putative class includes current GSP2 policyholders who have a financial incentive to consider how this litigation will affect the cost of a GSP2 Policy. Kennedy, who is not a policyholder and remains indebted for the hospital charges that underlie her claim for benefits, has no similar interest."

(Emphasis added.)  In other words, Ms. Kennedy's class action not only conflicted with how most policyholders would understand their benefits, it also threatened to make current policyholders' policies more expensive, undermining their interests.

Kennedy the case began with a motion to dismiss that was arguably unsuccessful. (The court agreed with the defendant's arguments, but gave the plaintiff an opportunity to fix the complaint.) The defeat of class certification built directly off of the motion to dismiss. There are two lessons that defendants can draw from this case. First, stay consistent; consistent arguments across several motions can be very persuasive to a judge. Second, don't be afraid to educate the court. Sometimes it takes a loss in an early skirmish to set up the victory where it is needed.

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Despite the warnings, Wal-Mart Stores, Inc. v. Dukes did not herald the end of the class action, or even class action scholarship. Indeed, new debates have risen in its wake. One of the most interesting is what to do about classes where large numbers of class members might not have suffered any injury. Courts do certify these cases, for settlement purposes if nothing else. But should they?

One plaintiff attorney-scholar group (Joshua Davis, Eric Cramer, and Caitlin May) says "yes." In their paper The Puzzle of Class Actions with Uninjured Members, they argue that based on their analysis,

courts are free to continue to certify classes--even to award damages to classes--that contain members who suffered no legally cognizable harm.

How do they justify this?  The authors make three arguments:

First, there is no valid standing objection to compensating uninjured class members. As the authors argue, several courts, including the Seventh Circuit in Kohen v. Pacific Investment Management LLC and the Second Circuit in Denney v. Deutsche Bank AG, have held that the Article III case or controversy requirement does not require each class member to independently prove her standing.

Second, there is no valid due process objection. According to the authors, the due process concerns (the class member's right to "autonomy" or "full compensation," the defendant's right to ) are "abstract," as opposed to the presumably concrete (or, as they put it, "practical") needs of the class member to some recovery.

Third, Shady Grove undermines any objections that class actions confer substantive rights in violation of the Rules Enabling Act. According to the authors, certifying a class that includes uninjured members and then awarding damages does not confer a new substantive right on the uninjured class members, it just changes the way in which the claims are processed.

Even if a class is certified with potentially uninjured members, a court will address the same claims and defenses. It will simply litigate common issues in a common--and therefore more expeditious--manner.

Unfortunately, none of these arguments really holds up to scrutiny.

Part of the problem here is that the plaintiffs cherry pick their cases, and ignore inconvenient details. For example, while the authors discuss Kohen, an opinion by Judge Posner that held that the defendants had not provided enough evidence to show that a proposed class definition was overbroad (thus pulling in uninjured class members), they completely ignore Judge Easterbrook's opinion in In re Bridgestone/Firestone, which specifically detailed the problem with certifying a class that included "millions of uninjured buyers." (Emphasis in original.) Similarly, the authors discuss Denny v. Deutsche Bank AG, an opinion by the Second Circuit that upheld a settlement with class members who received bad tax advice, without ever mentioning that the opinion reviewed a "conditional certification 'for settlement purposes only.'" (The court considered that posture very significant: it allowed it to consider solely "suffered injuries-in-fact, irrespective of whether their injuries are sufficient to sustain any cause of action.")

The biggest problem with the authors' analysis is that it does not mention Comcast Corp. v. Behrend (which was decided five days before they posted their paper). And it appears Behrend blows a big hole in their argument. The Supreme Court there expressed grave concerns about certifying a class in which some percentage of members might have been injured, just not by the wrong the plaintiffs challenged. As it put it:

In light of the [plaintiff's] model's inability to bridge the differences between supra-competitive prices in general and supra-competitive prices attributable to the deterrence of overbuilding, Rule 23(b)(3) cannot authorize treating subscribers within the Philadelphia cluster as members of a single class.

Granted, the Court did not discuss standing, due process, or Shady Grove. It relied on the a far more

unremarkable premise. If respondents prevail on their claims, they would be entitled only to damages resulting from reduced overbuilder competition, since that is the only theory of antitrust impact accepted for class-action treatment by the District Court.

(Emphasis added.) In other words, the damages the plaintiffs seek have to be related to their theory of the case. A class containing large numbers of uninjured members may or may not violate standing or due process. But it is definitely overbroad. And courts--long hesitant to compensate the uninjured--have long refused to certify overbroad classes simply on ascertainability grounds.

So what can defense lawyers pull from this paper? Two things. First, the paper provides a look into what some plaintiffs' attorneys see as one of their larger vulnerabilities: to make money they need large classes, but large classes are usually overbroad. How will they justify those classes? Second, and more prosaically, it always pays to read the underlying cases, and to be up on the state of the law.

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Paul Karlsgodt (of the longstanding and outstanding Class Action Blawg) has published an article with the University of Denver Law Review's Online Edition: Statutory Penalties and Class Actions: Social Justice or Legalized Extortion? Statutory Penalties is an excellent introduction to the problem of defending class actions based on statutory violations, and Karlsgodt's focus on privacy litigation is a welcome one.

Among the most useful parts of his article, Karlsgodt provides a handy summary of the "annihilation argument" and how it's currently received by the courts.

One argument raised in early class actions involving potentially annihilating statutory damages liability was that the potential of putting a defendant out of business defeated the superiority element required for class certification. Courts found that class actions were not the superior means of resolving claims because the potential liability in a class action would put the defendant out of business and because statutory penalties themselves facilitated individual lawsuits. More recently, as illustrated by the Ninth Circuit Court of Appeals’ decision in Bateman v. American Multi-Cinema, Inc., courts have rejected the idea that the potential for annihilating liability is a basis for finding a lack of superiority.

(Emphasis added.)  Since he's writing for a university law review, Karlsgodt jumps quickly from diagnosing the problem to legislative solutions. And that's understandable: after all, the legislature caused the problem in the first place. But, despite what the leap to legislative recommendations implies, there are some tactics class action defense lawyers can use (short of the due process challenges he discusses) to fight statutory damage cases:

• Focus on fairness. Judges are human: they often look at what's really at stake in a case, and many of them don't really like "gotcha" class actions. As a result, they are often willing to read causation or other requirements into statutory class actions that might otherwise result in billions of dollars of nominal damages.
• Focus on the class definition. Overeager plaintiffs may botch the class definition, reaching for more than the statute will grant them. (This has proven particularly true in TCPA cases.) But, in addition, some statutory class actions (like those under EFTA) may not lend themselves to widespread class definitions.
• Make an offer of judgment. Depending on How the Supreme Court decides Symczyk, it may be that Depending on the jurisdiction, a Rule 68 offer of judgment can stave off some of these cases by offering relief to the few plaintiffs who might actually care about the "gotcha" violation.

Go. Read. It's an interesting article about an important current issue.

[Disclosure: Paul and I correspond occasionally, and he has been very kind to the Class Action Playbook over the years. Also, I quite liked his book World Class Actions.]

[Correction: in the 72 hours between writing this post and its going live, the Supreme Court decided Symczyk.  More on that on Tuesday. Thanks to Ted Frank for pointing out the error.]

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 It's a busy week for me, so here's just a brief rundown of two opinions vacated and remanded from the US Supreme Court:

RBS Citizens NA v. Ross (7th Cir. 2012). (More here.)  The Seventh Circuit affirmed certification of a wage-and-hour case, despite what it conceded was a less-than-optimal order certifying the class. RBS appealed to the Supreme Court to ascertain how the certification fit in with the Dukes commonality standard. The Supreme Court vacated and remanded the case in light of its opinion in Comcast Corp. v. Behrend.

Whirlpool Inc. v. Glazer (6th Cir. 2012). The Sixth Circuit affirmed certification, holding that the district court did not have to investigate proximate cause of moldiness, and that “unharmed” class members might have a viable common overpayment theory. Whirlpool appealed to the Supreme Court seeking clarification on the role of the merits inquiry in certification. Like with Ross, the Supreme Court vacated and remanded in light of Behrend.

Now it's usually difficult to pin down the Court's exact position in cases like these, since it might think Behrend has a direct bearing on these cases, or it might just be clearing its docket. But at this point it is certainly safe to say that Behrend's reinforcement of the predominance standard is going to have an effect on the certification debate in 2013.

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Fordham law professor Howard M. Erichson has a new paper up at SSRN on "The Problem of Settlement Class Actions."  Based on dicta in the Supreme Court's opinion in Amchem Products, Inc. v. Windsor, courts have taken to certifying classes for settlement purposes only without worrying about "manageability," that is, whether the case could actually be tried as a class action.

As a result, settlement class actions have long posed strategic dilemmas for plaintiffs and defendants alike. Among them:

• How much can the defendant concede without compromising its ability to defend the case if the settlement falls through? (Not as much as you think.)
• Can a settlement-only class be too cheap? (Yes.)
• How wide can the parties cast their net in releasing claims? (Not too wide.)

Professor Erichson shares many of these concerns, which is why he advocates abolishing the settlement-only class, and only allowing settlements to proceed if the class has been certified for litigation. As evidence of the need for this shift, he cites two recent--and highly controversial--settlements: In re AIG and Sullivan v. DB Investments. As he puts it

AIG and DeBeers show what happens when courts follow the Supreme Court’s dicta [in Amchem] to its logical conclusion, rather than following the concerns that animated the Court’s decision. Armed with the Supreme Court’s modest permission to treat settlement classes slightly differently than litigation classes, these courts approved settlement class actions notwithstanding issues that go to the heart of class certification – in one case, the fraud-on-the-market doctrine, and in the other, significant variations in state law.

(Emphasis added.) Erichson draws the wrong lesson, though. He thinks questionable settlements like these occur because the plaintiffs lack leverage in negotiations:

By permitting settlement class actions without plenary class certification, the Court invited defendants to use the settlement class tool to resolve widespread liability through negotiation with deleveraged would-be class counsel. Moreover, by modifying the approach endorsed by the Court of Appeals, the Supreme Court opened up the possibility of class resolutions negotiated without even the leverage of future litigation class certification.

(Emphases added.)  That conclusion seems to ignore the facts of each case. In each of these cases, a class that could not have gotten certified for trial was certified for settlement. Think hard about that for a moment. In In re AIG, the plaintiffs brought a class that could not be certified because of individualized reliance issues. It settled for $72 million. In Sullivan, the plaintiffs settled a case on behalf of a class that included many unharmed class members for $295 million. Is the problem in either case that the plaintiffs lacked leverage?

GIven his misdiagnosis of the problem, Professor Erichson's solution misses the mark. Abolishing the settlement class action will not lead to better settlements. It may, in fact, lead to worse ones. The plaintiffs' leverage in settlement negotiations comes not so much from their promise of peace as from their threat of war. Litigating class actions has grown enormously expensive, and defendants will often settle claims that are less than meritorious because the settlement is cheaper than the costs of litigation. DB Investments did not pay $295 million for the preclusion of other cases--it did so because it was facing a default judgment. And AIG likely settled its case--in which it had a very strong argument against certification--because the costs of reaching that victory were simply too high.

The problem with these settlements was not that the plaintiffs lacked the leverage to cut a good deal; indeed, the indirect purchasers in Sullivan and the investors in In re AIG did just fine. The problem is that absent class members--who are not present for the negotiation--are too often sacrificed for these deals.

There is a solution to this particular problem, but it is one that plaintiffs, judges, and academics tend not to advocate. To protect absent class members, courts just need to vigorously enforce the adequacy requirement, and intervene in poor settlements sooner. Some courts are willing to do this. But for too many, this would interfere with many plaintiffs' current business model.  That's a shame. Defendants will manage just fine, but absent class members may not.

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Yesterday, the Supreme Court issued its opinion in Comcast Corp. v. Behrend, the antitrust case which commentators (including me) had expected would finally resolve the question of whether a trial court must apply the Daubert evidentiary standard to expert testimony in a certification debate.  It turns out we were wrong. Due to a procedural defect below (Comcast had not objected to the admissibility of the expert's testimony in the trial court), the Court ultimately did not decide the Daubert issue. But it did issue an opinion that, while limited, provides some help to defendants at certification.

Behrend in a nutshell: The plaintiffs filed a class action accusing Comcast of monopolizing the market for cable services in Philadelphia, driving up prices. (This was a violation of Section 2 of the Sherman Act.) During the certification debate, they offered expert testimony that showed the effects of four different practices on cable prices, although the report did not disaggregate those effects. The trial court certified a class based on only one of the four challenged practices, referred to as "overbuilding," in which the company provided more infrastructure than demand supported, driving prices down and keeping out competitors. When Comcast objected that plaintiffs had not provided classwide evidence that overbuilding had led to the price increases they challenged, the lower court held that the expert report was sufficient to serve as classwide proof, and delving any further would be an impermissible merits inquiry. The Third Circuit affirmed.

The majority, in a brief 5-4 opinion, began from the premise it articulated most recently in Dukes, that class actions require a rigorous inquiry that may overlap with the merits. While Dukes discussed the commonality standard of Rule 23(a),

[t]he same analytical principles govern Rule 23(b). If anything, Rule 23(b)(3)’s predominance criterion is even more demanding than Rule 23(a).

(Emphasis added.)  It then held that a plaintiff's theory must remain consistent enough that the class certified will reflect the actual case tried, including the theory of damages:

at the class-certification stage (as at trial), any model supporting a plaintiff’s damages case must be consistent with its liability case, particularly with respect to the alleged anticompetitive effect of the violation.

(Internal quotation omitted.) This, held the Court, was where the lower courts had gone wrong. They had certified a class based on an expert opinion that did not actually match the theory of the case the class would be allowed to pursue. Moreover, the lower court had punted on the question of whether the expert's method made sense at all:

The Court of Appeals simply concluded that respondents “provided a method to measure and quantify damages on a classwide basis,” finding it unnecessary to decide “whether the methodology [was] a just and reasonable inference or speculative.” Under that logic, at the class-certification stage any method of measurement is acceptable so long as it can be applied classwide, no matter how arbitrary the measurements may be. Such a proposition would reduce Rule 23(b)(3)’s predominance requirement to a nullity. 

(Emphasis added, internal citation omitted.)

This is not the last we've heard of the Daubert debate. As the dissent points out, before it learned that the admissibility question had been waived, the Court had reformulated the question on appeal specifically to address the admissibility of expert testimony. I would guess that the Court will remain vigilant for an opportunity to further clarify what expert testimony can support certification. Meanwhile, defendants can use the Court's discussion here to good advantage when challenging classes where individualized issues predominate.

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Chesapeake Energy Corporation produces natural gas. As gas royalty class actions have become more popular in the last decade, it has also been a defendant in a number of cases alleging that it underpaid mineral royalties to various landowners. One of these cases recently resulted in a denial of class certification that is worth some attention.

In Williams v. Chesapeake Lousiana, Inc., No. 10-1906, 2013 U.S. Dist. LEXIS 34778 (W.D. La. Mar. 11, 2013), which alleged that Chesapeake had violated the Louisiana Mineral Code by underpaying class members for gas royalties, the plaintiff moved for class certification at the same time as Chesapeake moved to deny certification. (A valid, if underused tactic.) In its motion to deny certification, Chesapeake argued that, because the Louisiana Mineral Code requires that any mineral lessor seeking relief must provide notice before suing, individual issues would predominate over any common issues. (This argument is not unique to royalty class actions; many statutes--including consumer fraud states and warranty statutes--have similar notice requirements.)

So the question became: given the Supreme Court's ruling in Shady Grove that federal law governs Rule 23, and state law cannot supplant it, how did this individualized notice requirement affect the class certification inquiry? The court decided that the notice requirement was a substantive--rather than a procedural--requirement, and so was not superseded by Rule 23. As it reasoned,

The notice requirement is what gives shape to the substantive rights and remedies of the parties in royalty litigation; it is the means by which the Louisiana legislature has chosen to define the rights and obligations of each party in this particular area of law. In this situation, the Court is convinced that procedure and substance are so interwoven that a rational separation because well-nigh impossible.

(Internal quotation omitted.)  Since each class member would have to provide her own notice of litigation, the court denied certification.

The takeaway from this case: while it won't work every time, defense attorneys should watch out for when a notice provision will create an individualized issue for a proposed class.

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Rule 23(b)(1) is the forgotten stepchild in Rule 23 jurisprudence. Rule 23(b)(3) gets attention because it's where the money is. Rule 23(b)(2) is essential to civil rights groups seeking injunctions, and drew attention from plaintiffs' lawyers seeking an end-run around what they viewed as Rule 23(b)(3)'s more stringent requirements. But case law on Rule 23(b)(1)(A) (which allows class actions to prohibit inconsistent adjudications) and (b)(1)(2) has been notably sparse.

Which is why many lawyers might not have caught one of the strange developments in the wake of the Supreme Court's ruling in Dukes. As Dean Robert Klonoff--author of, among other things, Class Actions & Other Multiparty Litigation in a Nutshell--points out in his new article Class Actions for Monetary Relief Under Rule 23(b)(1)(A) and (b)(1)(B): Does Due Process Require Notice and Opt-Out Rights?:

In Phillips Petroleum Co. v. Shutts, the Supreme Court stated that in a class action “wholly or predominantly for money judgments[,]” a court must afford class members notice and an opportunity to opt out. In both Ortiz v. Fibreboard Corp., and Wal-Mart Stores, Inc. v. Dukes, the Court reaffirmed the Shutts language. While the language in those cases can be characterized as dictum, these decisions raise difficult issues about whether (b)(1) actions require notice and opt-out rights as a matter of due process when significant monetary relief is sought.

(Emphasis added.)  As Dean Klonoff rightly points out, Rule 23(b)(1)(A) is compatible with monetary damages (although some courts have ruled that it is not appropriate under those circumstances), and Rule 23(b)(1)(B) "limited fund" class actions specifically contemplate monetary damages.  But Rule 23(b)(1) classes require only "reasonable notice," and do not allow opt outs.  So how do these fit in with the Supreme Court's jurisprudence?

Dean Klonoff's article traces Rule 23(b)(1) classes from its adoption in 1966 through the Supreme Court's decision in Ortiz and the implications of its ruling in Dukes. His conclusion:

Reasonable notice sufficiently protects the class members’ due process rights, and allowing opt outs would defeat the very purpose of a (b)(1) class and impede the rights of the defendant and unnamed class members.

This is the kind of question that class action academics should be asking. Most practitioners are more concerned with winning the immediate case for their clients than in checking whether the doctrine regulating the most obscure kinds of class actions stays consistent over time. While I can't say for certain whether I agree with Dean Klonoff's conclusions (primarily because I haven't done the research), I'm certainly glad he's addressing the topic.

[Disclaimers: Dean Klonoff wrote a nice blurb for the Class Action Playbook [http://www.amazon.com/dp/0199933782]; he also alerted me to the existence of his article.]

Tags: "Robert Klonoff" "Rule 23(b)(1)" notice Dukes

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The Supreme Court has handed down its first class-action related opinion of the 2012-13 Term, Amgen Inc. v. Connecticut Retirement Plans & Trust Funds. And while that opinion represents a loss for the defendants in the specific case, it's not as big a problem for securities defendants in general.

Amgen involved an alleged securities fraud committed by Amgen Inc., a biotechnology company. As the Ninth Circuit's opinion lays out the alleged misstatements:

First, Amgen supposedly downplayed the FDA's safety concerns about its products in advance of an FDA meeting with a group of oncologists. Second, Amgen allegedly concealed details about a clinical trial that was canceled over concerns that Amgen's product exacerbated tumor growth in a small number of patients. Third, Amgen purportedly exaggerated the onlabel (that is, for FDA-approved uses) safety of its products. And fourth, Amgen allegedly misrepresented its marketing practices, claiming that it promoted its products solely for onlabel uses when it in fact promoted significant off-label usage, in violation of federal drug branding statutes.

Amgen moved to dismiss the case, but lost that motion. The plaintiffs then moved for certification, relying on the fraud-on-the-market theory to demonstrate classwide reliance. Amgen opposed, arguing in part that the plaintiffs had not shown that the alleged misstatements were material (a requirement the Supreme Court appeared to impose in Basic, Inc. v. Levinson). The problem was, materiality was both a "prerequisite" for fraud-on-the-market and an essential element of a 10b-5 claim. So the question the litigants (and the Court at argument) struggled with was: when do you have to prove materiality? At class certification, or on the merits?

Justice Ginsburg's opinion is remarkably clear, from the beginning:

Contrary to Amgen’s argument, the key question in this case is not whether materiality is an essential predicate of the fraud-on-the-market theory; indisputably it is. Instead, the pivotal inquiry is whether proof of materiality is needed to ensure that the questions of law or fact common to the class will “predominate over any questions affecting only individual members” as the litigation progresses. Fed. Rule Civ. Proc. 23(b)(3). For two reasons, the answer to this question is clearly “no.”

(Emphases added.)  The first reason the Court cited was that materiality must meet an objective "reasonable investor" standard, which will not vary from class member to class member. The second reason, however, is the one that shows why the Amgen opinion should not cause securities defendants too much heartburn:

there is no risk whatever that a failure of proof on the common question of materiality will result in individual questions predominating. Because materiality is an essential element of a Rule 10b–5 claim, see Matrixx Initiatives, 563 U. S., at ___ (slip op., at 9), Connecticut Retirement’s failure to present sufficient evidence of materiality to defeat a summary-judgment motion or to prevail at trial would not cause individual reliance questions to overwhelm the questions common to the class.

(Emphasis added.) In other words, because of the "reasonable investor" standard for materiality, there was never a hope of showing variations there to begin with. The defendant's hope was always in just showing that materiality did not exist. And, if the defendant can do that, it can win the case outright.
In other words, what the Supreme Court did here was to remove one option for the defendant to challenge materiality. Before Amgen, the defendant could challenge materiality at four points during the litigation:

• during a motion to dismiss (decided on a 12(b)(6) standard, but with some assistance from the PSLRA, which requires plaintiffs to plead specific facts supporting loss causation);
• during a motion for summary judgment (decided on a "no contested material facts" standard);
• during class certification (decided on a standard that ranged between "burden of persuasion" and "preponderance of the evidence" depending on the jurisdiction); or
• during trial (decided on a "preponderance of the evidence" standard).

Now, the class certification challenge is gone, but the others remain. There are sound strategic reasons to want a challenge at the certification stage, but nothing prevents the defendant from filing a summary judgment motion before certification if it believes it can win the materiality issue cleanly.
So while, at first blush it appears the Court has taken away a certification argument for the defense, what it has really done is to remind the defendant that when it has a strong merits argument to make, it should do so.

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 Since the Supreme Court issued its opinion in Smith v. Bayer Corp., comity has become a more important doctrine to the class action world. Bayer, as you may recall, said that the denial of certification does not have a preclusive effect, but suggested that, instead, courts might use the doctrine of comity to reach the same result when plaintiffs' counsel file repetitive class actions in the hope of winning certification in just one.

In the Seventh Circuit, Judge Posner quickly dashed that hope, pointing out that comity is also not a preclusive doctrine, which meant that courts were still free to exercise their discretion to hear copycat class actions.

Now, in Baker v. Home Depot USA, 2013 U.S. Dist. LEXIS 9377 (N.D. Ill. Jan. 24, 2013), a trial court in the Northern District of Illinois has resurrected a little hope that arguing comity may actually work.

Baker involved Home Depot's use of wood treated with Chromium Copper Arsenate (CCA), a substance alleged to contain two known carcinogens. The use of CCA treated wood was discontinued in late 2002--except that the plaintiff alleged Home Depot continued to sell it until the end of 2003.

And, it turns out, various plaintiffs had been filing class actions since 2003 alleging the exact same facts against Home Depot. So Home Depot's counsel filed a motion to dismiss, a motion to strike class allegations (which argued in part that comity required striking the allegations in this case), and a motion for sanctions. The court partially granted the motion to dismiss, denied the motion for sanctions, and granted the motion to strike class allegations. Its reasoning on the motion to strike:

In Smentek, the Seventh Circuit indicated that the denial of class certification in a materially similar case does not have a preclusive effect. However, the Seventh Circuit also indicated with respect to proposed class action litigation that, based upon the principle of comity, courts are required "to pay respectful attention to the decision of another judge in a materially identical case."

Home Depot has shown that the cases it has cited in its motion to strike are materially identical to the instant action. In those cases, the courts found that the named plaintiffs could not satisfy the commonality, typicality, and adequacy requirements of Rule 23(a), that individual issues of fact and law would predominate, and that a class action would not be manageable, nor the superior method for resolving the claims brought. … It is clear that many of the same problems identified by the courts in those cases with respect to class certification are similarly present in this case."

(Emphasis added.)  The takeaway for this case is pretty clear: be persistent. If a class action cannot work, most courts will respect prior opinions that have denied certification. And, of course, take class allegation seriously; you never know when plaintiffs will spend a decade chasing a class theory with obvious flaws.

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Property-rights class actions are difficult to bring, because property tends to be unique, and class actions do not work well with unique claims. But that doesn't stop plaintiffs from trying to certify classes asserting property based claims.

This week's case--Onyx Props. LLC v. Bd. Cty. Comm'ners of Elbert Cty., 2013 U.S. Dist. LEXIS 7151 (D. Colo. Jan. 17, 2013).--arises out of one such effort. The specific details are convoluted, but basically amount to the following: two developments in Elbert County, Colorado were, for various reasons, rezoned from an "A-Agriculture" designation to an "A-1" designation. This was apparently important to at least one set of property owners who ran a composting business--acceptable under one designation but not the other. When Elbert County told them to cease composting, they challenged its ruling in state court, and won; the court found that the rezoning was fatally flawed because it was based on the wrong map.

Not content with their victory in state court, the plaintiffs filed a §1983 class action, alleging that the defendant had violated their constitutional rights (and other property owners') by enacting and then enforcing invalid zoning regulations against them.  

The trial court in the District of Colorado denied their request for class certification on a number of grounds, but the most significant was that 

the property rights at issue differ appreciably between the proposed class members and, as such, the analysis as to whether the alleged illegal activities of the [Elbert County] BOCC violated the property owners' substantive due process rights requires individualized inquiry.

As a result, the plaintiffs could not establish commonality.  But the court went further, pointing out that the unique nature of the plaintiffs' property rights also precluded certification of either a damages class under Rule 23(b)(3) or an injunctive-relief class under 23(b)(2).  

Among other problems, any damages class would have trouble showing superiority, since in a property-based case

each class member has an interest in controlling his or her claim given the individualized nature of that claim.

Similarly, the plaintiffs' request for injunctive relief was not appropriate for class treatment because 

the BOCC's reliance on the regulations/map at issue to consider past determinations would require an individualized assessment of the applicability and the appropriate relief, as opposed to future injunctive relief to Elbert County citizens and members of the public

In short, the more the plaintiffs relied on their due process rights to their real property, the harder it was to fit their lawsuit into any classwide relief.  

For defense lawyers, the takeaway here is simple: the unique nature of property rights means that property-based class actions are almost always a bad idea.  The key is showing the court the specific ways in which real property differs in a given area.

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In years past, when I was a budding class-action nerd at O'Melveny & Myers, I used to look forward to the ABA's annual convention on class actions. While I couldn't go myself (not cost-justified for baby lawyers), John Beisner would always come back and circulate Professor John Coffee's Five-Year Reviews of class action law. I learned a lot about Rule 23 that way--not just the doctrine, but the way that the lawyers were actually using the Rule. Those five-year reviews were an essential guidebook for me as I made my way in an area of law that often seemed like a foreign country.

Fast-forward a few years, and, for various reasons, I haven't felt the same urgency about keeping up with Professor Coffee's reviews. And that was why I was delighted to read fellow blogger Paul Karlsgodt's post linking to the latest one.  I immediately downloaded the new survey (The New Class Action Landscape: Trends & Developments in Class Certification & Related Topics), transferred it to my trust iPad, and sat back to get a guided tour through a country I visit quite often, but from a skilled tour guide.

This year, Professor Coffee was joined by Professor Alexandra Lahav. Unfortunately, the result was far less than ideal. In fact, reading this survey was like joining a tour where the guides spent a great deal of time vaguely lost and telling me what used to be in various locations, while occasionally missing the really great sights they were standing in front of.

Specifically, there were several disturbing issues with this survey of the "New" Class Action Landscape:

• Lots of things in it are hardly "new". Professors Coffee and Lahav spend significant time, for example, in their adequacy discussion focusing on Berger v. Compaq Computer Corp. (82-84), and Judge Posner's opinion in Culver v. City of Milwaukee (97-98).  Neither of these are poor opinions, but both are more more than ten years old: there are law firm partners who have practiced their entire career with these precedents. And Judge Posner alone has produced a host of significant cases about the adequacy requirement since then that the survey simply doesn't mention. Placed next to these old chestnuts, some of the survey's omissions are mystifying: why cite the ten-year-old Culver as a "recent" example of the Seventh Circuit's opinion of incentive payments (97), but ignore the actually recent Espenscheid?
• It gets basic pieces of Rule 23 wrong. For example, the survey contends that an important part of the Rule 23(a)(4) inquiry involves the question of adequacy of counsel. (79) True enough, up until 2003, when Rule 23(g) was introduced as a specific replacement for Rule 23(a)(4)'s inquiry into class counsel. For the first few years after the 2003 amendments, it was understandable that people might confuse this inquiry; Rule 23(g) has now existed for a decade.  There is simply no excuse for getting this wrong.
• It ignores many significant recent cases and trends in class-action litigation. There's no mention of the Supreme Court's decision about loss causation in Halliburton. (A particularly strange omission since the review argues that the 2011-12 Term was heavily pro-defense (176).) There is no mention of Klier v. Elf Atochem (and no discussion of the growing controversy over cy pres relief.) There is no mention of the Ninth Circuit's influential Bluetooth opinion. There is no discussion of Rule 23(c)(1)(B), and its renewed focus on trial plans. Pilgrim v. Universal Healthcard rates a mention in a string cite on predominance (112) ; there is no discussion of how it is the first appellate court opinion to smile on the motion to strike. In other words, while at times our tour guides are focusing on ten-year-old trends that are really just background now, at other times they completely miss those cases that most practitioners have been focusing on. I'm on record as believing that understanding terrain is vitally important; in this case, the errors and omissions have sorely diminished my trust in my guides.

Contrary to what some might think at this point, I really don't like saying that the academics in my area of law are out of touch. I don't want them to be. I want class-action scholars to be much smarter than me, much better-informed, and much faster to spot trends in case law that they can see from their armchairs that I might miss in the trenches. And there are some interesting and informative discussions in here, in particular on burdens of proof (30-33), numerosity (65-68), and typicality (71-75). (Even here, however, the discussion is less a discussion of recent trends, and more just an overview.)

What makes this so frustrating is that Professors Coffee and Lahav are both accomplished class action scholars, who usually do outstanding work. Like I said before, I used to look forward to Professor Coffee's five-year reviews with great anticipation, because I knew I would learn something new. I didn't have to worry about filtering out wrong information, or wading through well-established precedent. Both of these scholars are capable of better than this, and that's exactly what I wish they had made available.

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 2012 was a tough year for the legal academy. A number of damning critiques were written of how law schools are not sustainable in their current form. And that difficult year is reflected in the academic output on class actions. For the second year running, there just wasn't that much that merited the title "interesting" in class-action scholarship. I'm honestly stymied as to why that is. I can think of plenty of interesting questions about class actions that the academy appears singularly unconcerned with, preferring instead the same old rehashes of the same few topics.

But enough of my complaining. Here are the ten articles I found most thought-provoking this year.

• Professor Issacharoff's Assembling Class Actions was interesting mostly because it is an eminent scholar's take on recent developments in class-action law. It's marred by some downright misreadings of the law (such as the holding in Eisen), but it also contains some interesting takes on the fight over the entity theory of class actions.
• Similarly, Dean Robert Klonoff's Decline of Class Actions is worthwhile because (1) the man who writes the Nutshell on class action law probably knows what he's talking about, and (2) he identifies a number of trends (like rulings on numerosity) that most scholars tend to ignore.
• Gilles on Arbitration. Professor Gilles was the first to identify the impact that arbitration clauses would have on class action practice, so it makes sense that her return to the subject would be worth reading. A good, partisan, but intellectually honest examination of how arbitration clauses have fared since Concepcion.
• Moller on Due Process. Professor Moller's investigation of what "due process" really means in class litigation was uncomfortable for defense counsel, but rigorous, intellectually honest, and thought-provoking.
• David Webber's The Plight of the Individual Investor in Securities Class Actions is another good look at the problems that arise from using institutional investors as class action plaintiffs. It's particularly interesting when paired with Professor Burch's piece last year on Optimal Lead Plaintiffs. 
• Eric Goldman's piece on The Irony of the Privacy Class Action looked at a peculiar tension in class litigation--what happens when the substance of a particular class action conflicts with the mechanics of the class device.
• Law students on binding stipulations. Two law student comments provided some interesting insights on how and when a named plaintiff might be able to limit the recovery of a class consistent with their fiduciary duties to absent class members. These comments serve as continuing proof that law students are often willing to pursue the truly interesting issues that professors pass by.
• The Agency Class Action is an interesting application of Rule 23 to another area with some strong similarities--administrative law. And the analysis may have some interesting implications for class action defense.
• Hogs Get Slaughtered. Professor Sherry identifies an interesting strategic problem for plaintiffs' lawyers (and maybe defense lawyers, too). Long-term strategy would dictate that plaintiffs would want to pursue modest goals--enough to give them an edge, but not so much that they kill the golden goose. That's not what actually happens, though. Plaintiffs--and defendants, too--overreach doctrinally, with consequent results.
• The 2012 Carlton Field survey of class action litigation. Technically, this might not be considered an article, but it was still important research on class actions, and provided some interesting conclusions to boot.

The good stuff this year was good, but it still distresses me that I could have left the "most" off this list without sacrificing accuracy. There are a lot of law schools, who charge a lot of tuition, which goes to pay a lot of professors, who justify their salaries in part by pointing to their research. Assuming one class action professor on each faculty for the 201 ABA-approved JD-conferring law schools, I should have been spoiled for choice in making this list.

I don't like being one of the people who says the legal academy doesn't live up to its potential. I like the idea of independent legal research. I still look forward to seeing what new articles come out on class action law (which tells you what kind of nerd I am). So I say this from the perspective of a disappointed consumer: get it together, will you guys?

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 It's been almost a month since I posted, for which you have my apologies. At the beginning of the month, I experienced some technical difficulties linked to my newfound role as a dad (my daughter decided my laptop keyboard looked thirsty), and towards the end, some other responsibilities got in the way. However, I'm back, and should be on schedule.

Which means, first of all, that it's time to review the 10 most significant class-action cases of 2012. Finding "significant" cases was difficult this year, because much of the real action in making class action law was occurring in the Supreme Court's certiorari pool. As a result, 2013 should include several very interesting opinions. And, perhaps in preparation, most appellate and district courts did not issue opinions that changed the contours of the class-action debate much. (One notable exception, as you'll see from the list, is the Seventh Circuit's Judge Posner.)

And so, in alphabetical order:

• Boeynaems v. L.A. Fitness Int'l, LLC (E.D. Pa. Aug. 16, 2012) [] - The Eastern District of Pennsylvania took the extraordinary step of actually imposing discovery costs on plaintiffs for class-action discovery. In doing so, it provided a road map for future defendants to limit costs when plaintiffs go on fishing expeditions to justify spurious class theories.
• Butler v. Sears Roebuck & Co. (7th Cir. 2012).  In a Judge Posner opinion, a Seventh Circuit panel affirms certification of a six-state breach-of-warranty class action. The panel took the case under Rule 23(f) in order to "clarify" the predominance standard, and, in doing so, bases it primarily on efficiency and ties it closely to the superiority standard of Rule 23(b)(3). Whether this formulation of predominance survives is anyone's guess, but there is no question that plaintiffs will be citing it in class certification briefs.
• Compucredit Corp. v. Greenwood (2012). - The Supreme Court held that the Federal Arbitration Act cannot be supplanted by a federal statute that specifically says a class action is available to the plaintiffs. It's a common-sense ruling that puts to rest a possible argument against valid arbitration clauses.
• Dewey v. Volkswagen Aktiengesellschaft (3d Cir 2012) This Third Circuit opinion does an excellent job of showing how an intra-class conflict can arise, and why it is important to continually monitor whether named plaintiffs are meeting their fiduciary duties.
• Johnson v. Meriter Health Servs. Emp. Ret. Plan, (7th Cir. Dec. 4, 2012). In another Judge Posner opinion, the Seventh Circuit affirms certification of an ERISA class that seeks, among other things, monetary damages. And, in doing so, the panel explains how plaintiffs may still seek monetary damages under Rule 23(b)(2) after Dukes. Consider this a companion case to McReynolds.
• McReynolds v. Merrill Lynch, Pierce Fenner & Smith (7th Cir. 2012). While it's not likely that every court will engage in issue certification, there is no question that Judge Posner's opinion shows how it can be done. (More here.)
• MD v Perry (5th Cir 2012). Provides a good explanation of the "cohesiveness" requirement for Rule 23(b)(2), and how that fits in with the commonality requirement of Rule 23(a)(2).
• M.R. v. Bd. of School Comm'ners of Mobile Cty., (S.D. Ala. Oct. 29, 2012) - This school reform case provides a good articulation of the "necessity" requirement for Rule 23(b)(2), which, coupled with the cohesiveness requirement, adds some analytical grounding to Rule 23(b)(2).  
• Pieloor v. Gate City Bank, 2012 U.S. Dist. LEXIS 148702 (D.N.D. Oct. 15, 2012)  - This thoughtful opinion by the District of North Dakota offers a way of testing bad factual theories before going into full-fledged discovery, by bifurcating the case into the test of the weak theory first.  
• Ross v. RBS Citizens, N.A. (7th Cir 2012). This Seventh Circuit opinion provides a good reminder of the requirements of Rule 23(c)(1)(B), which can help defendants to remind the court of the difficulty of certifying a class without asking the necessarily difficult questions about how the case will actually be tried.

Honorable mention - Mazza v. American Honda, 666 F.3d 581 (9th Cir. 2012).  For anyone outside the Ninth Circuit (or really, California), this opinion seemed largely inconsequential--most circuits had already ruled that you couldn't simply apply one state's law to a nationwide class to make it certifiable. But I've spoken to a number of California lawyers--plaintiff and defense--who considered this ruling to be a bombshell.

Tomorrow - the ten most interesting pieces of class action scholarship in 2012.

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A few weeks ago, I received a copy of the Fourth Edition of Class Actions & Other Multi-Party Litigation in a Nutshell in the mail. Since this is one of the "go-to" references for many practitioners, it seems worth discussion whether it's worth the investment to pick up the new edition.

A few disclaimers before I start. I received this copy without paying for it, presumably so I would review it. Dean Robert Klonoff was kind enough to provide a nice blurb for the first edition of the Class Action Playbook.  (That said, it hasn't stopped me from disagreeing with his work at times.)  

So, how is the new Nutshell? Like the previous editions, it's a great introduction to class-action law for law students and young practitioners. In just 470 pages, it manages to provide the basics behind each of the various concepts underlying Rule 23 and mass tort cases. Dean Klonoff clearly knows his stuff on Rule 23, and his updates manage to hit a number of major trends, including the effect of the Supreme Court's Dukes opinion, the move towards motions to strike class allegations, and the more nuanced analysis of the numerosity requirement that has occurred over the last few years. Like its predecessors, the Fourth Edition of the Nutshell appears aimed more at the law student than the practitioner. While there is a chapter on litigating class actions, it does not receive as much attention as discussions of the various legal doctrines underlying class-action litigation. That's a feature, not a bug. It's important to have a primer on the basic law governing class actions, and given how fast-moving that area of law has been, an up-to-date primer is essential.

I have only two very small criticisms of the Nutshell. First, in a few areas, it stretches to preserve the sense of conflict in the law where case law may actually have been largely settled. (The most striking example is in his discussion of claim-splitting, where Dean Klonoff offers only a 1978 district court case, Sullivan v. Chase Inv. Servs., Inc., 79 F.R.D. 246 (N.D. Cal. 1978) to counter the numerous appellate courts that have held that plaintiffs who split claims are not adequate class representatives.) The second small issue is that, because this is the Fourth Edition of the Nutshell, there are a few places where, structurally, the analysis dives into slightly more history than may be strictly necessary to understand some concepts. (For example, in the wake of CAFA, I'm not sure that an extended discussion of Zahn v. Int'l Paper Co. is strictly necessary to understand federal jurisdiction over class actions.) I get the impression these are holdovers from previous drafts that might go if the Nutshell were being written from scratch today instead of receiving a thorough updating. Of course, getting more analysis rather than less is hardly a major problem, and may provide valuable context to the law student.

The bottom line is that, like previous editions, this Nutshell is an excellent, inexpensive introduction to the law of class actions. Recommended.

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On Monday, the Supreme Court heard arguments in two different class actions, united by a common problem.

The first, Comcast Corp. v. Behrend, asked whether a trial court should hold plaintiffs to the Daubert standard for expert testimony at class certification, a question that has divided federal circuits for several years. Due in part to a difficult record below (Comcast had not actually registered a Daubert objection), the Justices argued back and forth about whether there was an issue to decide at all, and, if so, what it was. At one point, Justice Kagan remakes in frustration:

I am still in search of a legal question that anybody disagrees about here.

Taking a slightly different tack, Justice Kennedy questioned whether one can even impose a standard for the admissibility of evidence like Daubert on a trial judge who will simultaneously decide admissibility (which requires looking at evidence to determine its worth) and finding facts (judging the probity of the evidence):

the judge doesn't really have a gate -- what do you call it, a gatekeeper function here. There is no--there's no jury. And if the judge admits the evidence and if it turns out that that doesn't meet the standard of reliability, then he can exclude it.

I don't--I don't see why the judge has to say: All right, now first I'm going to do Daubert, and next I'm going to do whether this is reliable. This is just a magic words approach, it seems to me.

(Emphasis added.)  Meanwhile, Justice Scalia, like many lawyers, struggled with the threshold issue of how to pronounce "Daubert":

I never know how to say it. Is it [DAW-bert] or  [Doe-BEAR]?

While it's usually a fool's game to determine from the arguments which way the Court is leaning, it is remarkable that a number of Justices on both sides (including Kennedy, Scalia, Alito, Sotomayor, and Kagan) questioned whether a Daubert inquiry is necessary to a judge-conducted certification hearing.  In my limited experience, consensus like that at argument can imply consensus in chambers as well.

The second case, Amgen Inc. v. Connecticut Retirement Plans & Trust Funds (previously), asked whether a securities class-action plaintiff must demonstrate that the defendant's misstatements were material at the class certification stage (because the fraud-on-the-market theory many plaintiffs rely on requires a demonstration of materiality) or only at trial (where materiality is an element of the claim).

This question--when materiality is itself material to a securities class action--frustrated the Court so much that Justice Scalia suggested the solution may be to overrule the original fraud-on-the-market case, Basic Inc. v. Levinson:

If you have the same question, then maybe we shouldn't have this fraud-on-the-market theory. Because the whole purpose of it is--is to--to assume that--that the whole class was--was damaged and relied--because you can rely on an efficient market. But you can only rely on an efficient market where there has been a material misrepresentation. So maybe we should overrule Basic because it was certainly based upon a theory that--that simply collapses once you remove the materiality element.

(Emphasis added.)  Despite Justice Scalia's bold proposal, I'd say it is unlikely the Court will use Amgen as grounds to overrule Basic. That said, the argument does not provide a lot of clues as to which way most of the Justices lean. Justice Scalia seemed concerned about postponing the materiality inquiry given its likely effect on settlement; Justices Kagan and Sotomayor appeared more interested in whether materiality really needs to be decided before the merits.

Despite the disparate subject matters, there is a common thread to these two cases. Each asks what facts really need to be decided before a class action may be decided. And that makes them well worth watching this Term. Taken individually, these are technical questions that each arise only in certain kinds of class actions. But taken together, the Court may well make an important statement about the role of factual inquiry for class certification. And as class-action lawyers know, that factual inquiry dictates a number of tactical issues, from the extent of discovery to settlement posture.
 

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A common question new students of Rule 23(b)(2) ask is why it exists at all. After all, if an injunction truly offers indivisible relief, why would one seek to bring it on behalf of a class? Wouldn't the individual pursuing the injunction get relief for the class if she wins just by bringing the lawsuit in the first place?

There is an answer to this question, and it is one that has its roots in the desegregation era.  When blacks seeking desegregation orders sued for injunctions, they did so on behalf of a class to avoid the problem of racist school districts granting admission one at a time to the plaintiffs who sought the orders. At that point, there was a clear need for the class action device to ensure the real relief the plaintiffs sought (desegregation) could be accomplished.

As it turns out, the question of when a class action is necessary to effect injunctive relief has remained, and so a number of courts have imposed a "necessity" requirement (much like the "cohesiveness" requirement) on Rule 23(b)(2).

The most recent example of the "necessity" requirement came last week, in the case
M.R. v. Bd. of School Comm'ners of Mobile Cty., No. 11-0245-WS-C, 2012 U.S. Dist. LEXIS 154500 (S.D. Ala. Oct. 29, 2012).

M.R. involved ten student plaintiffs, who all alleged that they had been "long-term suspended" (suspended for more than two consecutive weeks) from their public schools without notice or a hearing, which they argued was a clear violation of their due process rights. Their lawsuit challenged Mobile County's suspension policy on behalf of all students of the school system. They sought no monetary relief.

The school system (after unsuccessfully challenging the lawsuit on standing grounds), opposed certification on the grounds that it was not necessary:

"The Board's point, quite simply, is that it would be superfluous to certify a class here because, if plaintiffs prevail on the merits, their requested injunctive declaratory and injunctive relief would have precisely the same scope and effect regardless of whether a class is certified or not."

(Emphasis added.)  Rather than dismiss the argument as chutzpah, the court did its research, and noted that

considerable authority demonstrates that, whether it is deemed a formal "requirement" or not, the necessity of the class mechanism to afford complete relief is a proper consideration in the Rule 23(b)(2) analysis. … In the typical case, the district court weighs the benefits (if any) of class certification under Rule 23(b)(2) against the inherent burdens associated with transforming ordinary litigation into a class action. Where the members of the proposed class would benefit from the relief sought by the individual plaintiffs even if no class were certified, those courts often find that the burdens outweigh the benefits and that class certification is properly denied as inappropriate.

While the court observed that the Eleventh Circuit had not yet ruled on this question, it pointed out that

the clear majority rule is that "need" is a proper consideration (even if not technically a "requirement" for class certification), and that class certification may be properly denied where a class is unnecessary to obtain the full measure of relief sought, such that it is not appropriate to bog down the litigation with the expense, delay, complexity and burden of class certification when there is no corresponding benefit to implementation of the resulting judgment.

(Emphases added.)  Since the only "need" the plaintiffs identified was additional discovery about the circumstances of other class members (which, the court noted, would only be necessary if the class was not in fact cohesive), the court refused to certify the class.

So what can we take from this case? First, despite the lack of any tests in the text, Rule 23(b)(2) certification does require the plaintiffs to meet at least three requirements: indivisible relief, cohesiveness, and necessity. Second, this case reiterates an important trend: courts are paying more attention to when the cost and complexity of a class action are actually required in a case. For defendants who find themselves opposing frivolous or ill-thought-out class actions, that's a welcome development.

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 It turns out that Elizabeth Chamblee Burch is not the only law professor currently worried about adequacy in securities class actions. Boston University law professor David H. Webber has an article in the Northwestern University Law Review on The Plight of the Individual Investor in Securities Class Actions.

While Professor Burch was concerned with whether or not institutional investors were adequate representatives on their own, Professor Weber is more concerned with whether they can ever represent individual investors. In particular, he sees three conflicts that may be insurmountable:

1. Derivatives trading. Institutional investors tend to engage in derivatives trading; individual investors less so. Derivatives trading may mean that institutional investors do not suffer the same losses as individual investors, or face the same risks. More importantly, it may subject them to unique defenses, such as a lack of reliance. (Basic, Inc. v. Levinson did not do away with the reliance requirement in securities fraud, it just allowed a court to presume reliance from stock price. If a derivatives trader has not relied on the stock price …)
2. Governance reforms. Webber notes that institutional investors are more likely to seek corporate governance reforms as part of their settlements. And, as he points out, if an investor accepts governance reform as part of a settlement package, it is usually in exchange for less overall money. Institutional investors who are repeat players may very well prefer the governance reform. Individual investors may prefer the cash.
3. Merger class actions. Finally, institutional investors are far more likely to be on both sides of a merger transaction, a situation that may well disqualify them from representing a class challenging the approval of a merger.

Professor Webber's proposed solution is to pair up individual investors with institutional investors. (Which is not too far off from Professor Burch's "plaintiff group" proposal.) But his critique, especially when coupled with Professor Burch's, and with the circularity problem in securities class actions, raises the question of whether securities fraud cases are appropriate for class treatment after all. Meanwhile, however, his specific discussions of the problems with institutional investors can provide defense lawyers with additional ammunition to fight certification in less meritorious cases.

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As marketing guru Seth Godin has put it frequently, we live in an attention economy.  Most of us are busy people, and getting unwanted interruptions can be a huge hassle. That is one reason why class actions against blast-faxers and robo-callers have such appeal; they seem like the ideal way to punish people who won't take the time to individually market to us. But just because these interruptions can be truly annoying does not mean they make good class actions.

Case in point: Hartman v. United Bank Card Inc., 2012 U.S. Dist. LEXIS 144759 (W.D. Wash. Oct. 4, 2012). Ed Hartman owned a drum store and percussion studio known as The Drum Store. He had a business line, and he was dismayed to find several unsolicited voicemails on it from United Bank Card, which was offering low rates and new equipment for accepting credit card payments. So he sued. His lawyers subpoenaed ConnecTel, an automatic dialing service, and got hold of a spreadsheet detailing all of the numbers that UBC had automatically dialed.

They sought certification of a class including:

All Washington residents who received one or more commercial solicitations from UBC directly or through its agents, including but not limited to IPS, through the use of an automatic dialing and announcing device.

UBC opposed the class on both commonality and typicality grounds. Its primary argument was that there was no way of telling from the list of phone numbers who might actually have received a call.

Although the ConnecTel spreadsheet purportedly identifies each call made, ConnecTel's records do not show whether a message was left, or (if a message was left) which message was used. If ConnecTel's platform detected that a live person was answering the call, [*39] then the platform played a message that would simply apologize and terminate the call. Defendants assert that such a message does not meet the statutory definition of "commercial solicitation" and therefore would not violate RCW 80.36.400.

Defendants also assert that, with the advent and rapid spread of technology that renders telephone numbers portable, it is impossible to know based on the ConnecTel spreadsheet alone whether telephone numbers with Washington State prefixes were actually located within Washington State at the time of IPS's calls.

(Emphasis added.)  What did the defendant mean by "technology that renders telephone numbers portable?" As the court explained:

Due to the prevalence of new technology in the telecommunications industry which creates portable telephone numbers, such as call forwarding, VoIP (voice over internet protocol) telephones, Google Voice, Skype, or Magic Jack, IPS cannot know with certainty where the business owners it called were physically located at the time it made the calls.

Plaintiff's counsel responded (as plaintiff's counsel have since the days of yore) by arguing that these were "common defenses for Defendants to prove." The court, however, recognized a large difference between the days of yore and now: namely, the Supreme Court's decision in Dukes.

These defenses are not "common" in that they can be resolved on a class-wide basis "in one stroke." See Dukes, 131 S.Ct. at 2551. Rather, these are defenses that will require individualized hearings with respect to each telephone call. As a result, the court will need to resolve Defendants' liability with respect to each potential class member on an individualized basis.

The court also held that Mr. Hartmann had not demonstrated typicality (it was not clear if the rest of the class had faced actual voicemails), nor had he demonstrated a need for undivided injunctive relief under Rule 23(b)(2), or predominance under Rule 23(b)(3).

The takeaway for defendants in this case? When considering whether an issue is truly common, don't forget about the variations that technological change may impose. We live in a rapidly-changing world, that often means that allegedly "common" courses of conduct are not nearly as common as they first appear.
 

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Colorado citizen Landis Edwards bought the online quest game Elder Scrolls: Oblivion. He played it, a lot. In fact, he played it until it broke. According to Mr. Edwards, the game suffered from an animation defect that occurred after about 200 hours of gameplay.

So Mr. Edwards sued, on behalf of a class of Colorado residents who had also bought the game. Edwards v. Zenimax Media Inc., No. 12-cv-00411-WYD-KLM, 2012 U.S. Dist. LEXIS 137520 (D. Colo. Sep. 25, 2012). What Mr. Edwards didn't mention was that his lawsuit was a copycat of another class action filed by the same counsel. Walewski v. Zenimax Media Inc., 2012 U.S. Dist. LEXIS 33474, 2012 WL 847236 (M.D. Fla. Mar. 13, 2012). The Middle District of Florida had denied certification in that case because the class was overbroad.

Zenimax moved to strike the class allegations. It argued that, like the previous class, this one was overbroad. (A sensible argument, since the definition was largely the same.) But it also argued that, as a matter of comity, the court should strike the class allegations in this copycat case.

The plaintiff argued against applying the principle of comity, but, citing Smith v. Bayer Co. the court agreed its use was appropriate.

First, the General Allegations in both complaints, including the explanation of the Elder Scrolls Franchise, the Defendants' alleged representations regarding gameplay of Elder Scrolls IV: Oblivion, the allegations concerning the animation defect; and the damages suffered by purchasers are all identical.

Second, in both complaints the facts relating to the named Plaintiffs are substantially similar because both named plaintiffs allege that they viewed Defendants' advertisements and representations regarding Oblivion gameplay, that they were unaware of the Defect, and that they would have altered their decision to purchase Oblivion if they had known. Additionally both plaintiffs claim they experienced the Defect while playing Oblivion, which impeded gameplay progression and now both plaintiffs no longer play Oblivion because of the Defect. Third, the complaints contain nearly identical claims. …

The only difference is that the Edwards complaint addresses all persons or entities residing in Colorado, whereas the Walewski complaint addresses all persons or entities residing in the United States.

…

Given that the complaints and the class definitions in particular are substantially similar, I find the opinion in Walewski to be highly persuasive and relevant to the resolution of the Motion to Strike in this matter.

And, like the Middle District of Florida before it, the court found that the class was too broad to certify:

I find that this definition is inadequate because it is overbroad and includes Colorado residents who presumably purchased Oblivion from anyone, anywhere, at any time regardless of whether he or she was ever injured by or even experienced the alleged Defect. Further, it is not limited to those persons or entities who purchased Oblivion from the Defendants and therefore includes people who purchased a copy of the game--new or used--from anyone else. I also note that even if a class of purchaser presently was ascertainable, sales of Oblivion will continue, rendering an alleged class of "all purchasers" further unascertainable because membership in the class would be in constant flux.

So it denied certification.

What can defendants take from this opinion? Aside from being yet another good explanation of overbroad class definitions, the court also explained why the doctrine of comity--as discussed in Smith v. Bayer Corp.--is not necessarily as useless as the Seventh Circuit may believe.

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 Georgia Professor Elizabeth Chamblee Burch has an essay out for the University of Cincinnati's Corporate Law Symposium, in which she argues that institutional investors may have problems serving as adequate class representatives in securities class actions.

As she acknowledges, this is a counter-intuitive position, but that hardly makes it wrong. We have grown used to thinking of institutional investors as "good" class plaintiffs [] ever since the passage of the PSLRA, when Bill Lerach began to recruit them as named plaintiffs in securities class actions. But, as Professor Burch explains,

a divide often exists between institutional and individual investors such that the former, when acting alone, cannot adequately represent the latter. To briefly explain this divide, institutions are more likely than individuals to:
(1) trade in derivatives, which means that the institution may not rigorously pursue the litigation because even though it has a large voting stake in the defendant corporation, it lacks the risk of economic exposure;
(2) continue to own stock in the defendant corporation, which means the institution may exchange corporate-governance reforms for lower monetary settlements, whereas former shareholders would prefer to maximize their compensation;
(3) take litigation risks because less money is at risk vis-a-vis its overall wealth than would an individual who has lost her life savings (the so-called "peanuts effect"); and
(4) think that, because they own heavily diversified portfolios, fraud is just as likely to benefit them as it is to harm them over time and reason that it makes sense to avoid significant time investments and transaction costs in pursuing wrongdoing. 

(Emphases added)  Her solution (which she has advocated before): a lead plaintiff group.

Appointing a lead-plaintiff group solves the problem that Reynolds v. Sims paints starkly in political context: each citizen has a right to participate fully in state government and that right is "unconstitutionally impaired when its weight is in a substantial fashion diluted when compared with votes of citizens living in other parts of the State. . . ." Rule 23 assumes that a representative's self-interest overlaps with the interests of those she represents so that when she pursues her own interests, she benefits the class. Consequently, appointing a diverse, representative group with both individuals and institutions ensures equal access to voice opportunities, adequate representation, and due process in securities classes just as voting rights do in the political context.

As Professor Burch points out, this essay is not particularly new. She has written on these ideas before. But it is a quick, cogent take on one of the larger unaddressed problems in securities class actions. As such, it's well worth a read.

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Northside Chiropractic doctor Michael Dubick made the mistake of--after a cold call from salesmen--buying advertising space in Yellowbook. He negotiated for a certain kind of advertisement, but the published ad looked nothing like what he had asked for, and lacked even basic information about his business (like his name). So he sued, and added class allegations to his complaint. Yellowbook also listed his advertisement under "Massages - Non-Therapeutic," a possible crack about chiropractors at best, and solicitation of a whole different kind of client at worst.

So Dr. Dubick filed a class action against Yellowbook, and moved for certification. (Northside Chiropractic Inc. v. Yellowbook, Inc., 2012 U.S. Dist. LEXIS 122827 (N.D. Ill. Aug. 29, 2012).) Dubick's proposed class was a textbook example of a fail-safe class, including all those who:

(a) after being beguiled and misled by Yellowbook sales personnel with false promises and material misrepresentations;

(b) were fraudulently induced to make purchases of Yellowbook print display advertising, with placement of advertising in one or more Yellowbook directories distributed within the State of Illinois;

(c) signed sales agreements or contracts containing terms substantially similar to those signed by the named Plaintiffs;

(d) made complaints or claims concerning Yellowbook's failure to properly publish and provide the requested advertising services that conformed to advertising requirements that were agreed upon by such persons and Yellowbook; and

(e) were denied full refunds, or appropriate compensation for the damages sustained as a result of Yellowbook's failures and misconduct.

(Emphases added.)  Yellowbook quite rightly argued that the class was not ascertainable, and the court agreed (adding a good discussion of the policy justifications for an ascertainability requirement). But it also went on to explain why even an amended class definition would not save the class:

• The plaintiff did not prove numerosity. Dr. Dubick pointed to evidence that Yellowbook received more than 10,000 complaints. But, as the court pointed out, there were no numbers showing how many complaints related to his specific claims that he had been promised a Early Decision Incentive Award that turned out to be valueless.
• The plaintiff did not prove commonality. Another set of claims Dr. Dubick advanced involved Return-On-Investment calculations that Yellowbook's sales reps used to persuade potential buyers. Dr. Dubick heard these calculations in his sales pitch, but, as the court pointed out, he could not prove that others heard or relied on them.
• The plaintiff did not prove typicality. Since the class definition was overbroad, including anyone "misled or beguiled," it would include all kinds of alleged misrepresentations, not just those that Dr. Dubick had heard.
• The court expressed some misgivings about adequacy of counsel (most notably that they had "plainly misinterpret[ed] Walmart v. Dukes," but held that these "concerns do not rise to the level that would disqualify counsel as inadequate."

What can defense counsel take from this opinion? Lots. But most importantly, it's an excellent reminder of a point I tried to make in the Strafford CLE on ascertainability several weeks ago. If there are flaws in the class definition, they often indicate larger flaws with the class proposal.

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One of the primary problems that vexes class-action scholars is often referred to as the "agency problem" (or, more recently, the "governance problem"). In other words, how do we ensure that the people in charge of a class action (nominally the named plaintiff, really the class counsel) actually serve the interests of the class, instead of themselves?

The latest entrant into this debate is NYU law professor Samuel Issacharoff, with his paper (to be published in the Washington University Law Review) "Assembling Class Actions." 

As Professor Issacharoff understands it, the central problem in class action jurisprudence is:

the nature of the authority to resolve contested legal claims on behalf of others.

For Professor Issacharoff, that question is unavoidable, because modern society is capable of mass harms--that is, harms that affect a large number of people at once, even if the injury to each person is slight. Issacharoff comes from the perspective that "mass harms require mass solutions," and that the class-action is the best way to level the playing field between plaintiffs who only have one day in court, and defendants who seem to spend much of their time there.

The resulting asymmetry in stakes between the single-shot plaintiff and the repeat-play defendant dooms the small player in litigation, already incapacitated by the frequent problem of the low stakes that any individual claimant may have serving to discourage suit. Hence the oft-repeated observation about how in litigation the haves come out ahead. Repeat play demands greater attention to litigation, justifies greater expenditures on prosecution of the claims, and forces the institutional actor to view even a small lawsuit as a broad threat. Thus the centrality of the class action in the limited stakes, negative value litigation context. The decision to aggregate creates symmetry in the litigation’s stakes, and justifies the cost of prosecution at a level commensurate to that of the defence.

(Emphasis added.)  And he sees the adequacy requirement as one of the largest problems facing that resolution. He recognizes that adequacy is the current doctrine used to ensure that absent class members and defendants receive some measure of due process. But, as he comments:

The critical issue about these cases is that they do not put a court in the uncomfortable position of selecting an agent who is somehow “able enough” to speak on behalf of others and bind them to the effect of an adverse judgment.

(Emphasis added.) Professor Issacharoff's article is a law review article of the classic form. That is, he isn't so much interested in solutions as he is in framing the problem, and seeing whether it explains the latest developments in class-action doctrine, specifically the rulings in Dukes, Bayer, Halliburton, and Concepcion. And, arguable misreading of Eisen aside, he makes a number of good points along the way.

There is no immediate practical application for this article, but it's still worth a read. Why? A number of reasons:

1. Issacharoff is one of the deans of class action scholarship; so he's likely to be very influential in the debate.
2. The "mass harms require mass solutions" argument is a relatively strong rhetorical position, arguably stronger than the "class actions deter" argument so often made.
3. This highlights, once again, that adequacy of representation is a serious problem for many plaintiffs, and a profitable area for defendants to investigate.

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Andrew Marshall was an employee of the City of Spokane, Washington. After a minor work-related injury to his eye, he wound up in a billing dispute with the company that ran the emergency room he visited. So he did what many of us have felt the urge to do after diving into a morass of paperwork surrounding a minor medical claim: he filed a class-action lawsuit against the insurance company and the medical company, alleging violations of the Fair Debt Collection Practices Act. He sought to represent a class of employees of the City of Spokane. The case, for those following at home, is Marshall v. Bonded Adjustment Co., 2012 U.S. Dist. LEXIS 103829 (E.D. Wash. Jul. 25, 2012).

The litigation was not perfect. The plaintiff sought medical records of other potential class members (which, since they were covered by HIPAA, he was not entitled to see). And he almost missed his deadline for filing his motion for class certification.

Since, according to the court, what the plaintiff filed was a bare-bones motion, he could have been bounced simply for not meeting his burden under Rule 23. However, the court decided that it was still worthwhile to take a deep dive into the numerosity requirement.

However, while the Plaintiff briefly identifies the above referenced factors for determining impracticability, he does not offer any cogent arguments applying those factors to the instant case. 4 ECF No. 117 at 4. When pressed at oral argument as to whether there was anything other than the mere number of potential class members that would make their joinder impracticable, Plaintiff's counsel identified nothing. Consequently, the Court will conduct its own analysis, based on the five factors identified above, as to whether the joinder of 25 potential plaintiffs would be impracticable.

Really, though, the court only needed to look at two of the factors involved in evaluating numerosity. Which ones?

Judicial Economy. The court here was unimpressed by the savings it might see from a class action.

The Court notes that all 25 proposed class members are employees of the City of Spokane and therefore should be easy to locate and able to participate meaningfully in any litigation if the members were joined. Also, Plaintiff asserts that none of the putative class members, aside from the named Plaintiff, are aware of the putative class action. Thus, it is fair to assume that none of them have filed or threatened to file, individual lawsuits. While mindful of the importance of preserving its resources, the court finds insufficient evidence that judicial economy would, in fact, be furthered by avoiding multiple suits in this case.

Geographic dispersion. Remember how this was a class of Spokane employees? The court did:

Plaintiff seeks a putative class of City of Spokane employees. These individuals live within commuting distance of Spokane, where the Court is based. The lack of geographic dispersion of the putative class members weighs heavily against a finding that joinder is impracticable.

Aside from their ignorance of the lawsuit, the court found that the potential class members were suffering from no hardship that would impede their ability to bring suit. Nor did the court find that the plaintiff's request for declaratory relief (which he did not seek certification of) would meet the "prospective relief" factor.

And finally, the court also found that the class lacked commonality and typicality (because, among other things, he had avoided service of process several times in a related state court action).

So what's the takeaway for this case? Don't forget about the numerosity requirement. In smaller cases that appear based on unique circumstances (in other words, cases when one might first thing of attacking typicality), it may be just as useful to frame the defense in terms of numerosity. It still allows one to highlight the unique circumstances of the named plaintiff, but it may also persuade the court that the problem just isn't large enough to make a federal case of.

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Rule 23(b)(1) covers zero-sum games, situations where finding in favor of one class member would necessarily require finding against another class member later. This can be either because one class member would receive rights that would infringe on another's rights (like in riparian rights cases), or because the damages fund is limited, so that any award to one class member would limit the awards to another. Despite the intuitive application of these two cases, plaintiffs rarely seek certification under this subsection.

Ten Cases to Educate You:

• Ortiz v. Fibreboard Corp., 527 U.S. 815 (1999).
• Babineau v. Fed. Express Corp., 576 F.3d 1183 (11th Cir. 2009).
• In re Dennis Greenman Secs Litig., 829 F.2d 1539 (11th Cir. 1987).
• Larionoff v. U.S., 533 F.2d 1167 (D.C. Cir. 1976).
• Daskalea v. Washington Humane Soc'y, 2011 U.S. Dist. LEXIS 88310 (D.D.C. 2011).
• Hochstadt v. Boston Sci. Corp., 2010 U.S. Dist. LEXIS 41007 (D. Mass. 2010).
• Bouaphakeo v. Tyson Foods, Inc., 564 F. Supp. 2d 870 (N.D. Iowa 2009).
• Cullen v. Whitman Med. Corp., 188 F.R.D. 226 (E.D. Pa. 1999).
• United Brotherhood of Carpenters & Joiners of Am., Local 899 v. Phoenix Assocs. Inc., 152 F.R.D. 518 (S.D. W. Va. 1994).
• Boggs v. Divested Atomic Corp., 141 F.R.D. 58 (S.D. Ohio 1991).

Further Reading:

• Samuel Issacharoff, Governance & Legitimacy in the Law of Class Actions, 1999 Sup. Ct. Rev. 337.

Questions to Ask:

• * Why don't plaintiffs seek certification more often under Rule 23(b)(1)?
• * How limited does a fund have to be to qualify under Rule 23(b)(1)(B)?

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Rule 23(b)(2) is available for class actions that seek injunctive or declaratory relief. It does not allow for opt-outs. Until last year, seeking Rule 23(b)(2) certification had become a strategic alternative for plaintiffs whose claims might not be certified under Rule 23(b)(3). Now, it's less clear that this alternative is available for "traditional" class actions.

Ten Cases to Educate You:

• Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011).
• Winzler v. Toyota Motor Sales U.S.A., Inc., 2012 U.S. App. LEXIS 12297 (10th Cir. Jun. 18, 2012).
• McReynolds v. Merrill Lynch, Pierce, Fenner & Smith, Inc. (7th Cir. Feb. 24, 2012). 
• Jamie S. v. Milwaukee Public Schools, 2012 U.S. App. LEXIS 2089 (7th Cir. Feb. 3, 2012). 
• Kartman v. State Farm Mut. Auto. Ins. Co., 634 F.3d 883 (7th Cir. 2011).
• Gates v. Rohm & Haas Co., 655 F.3d 255 (3d Cir. 2011).
• Garcia-Rubiera v. Calderon, 570 F.3d 443 (1st Cir. 2009).
• Christ v. Beneficial Corp., 547 F.3d 1292 (11th Cir. 2008).
• Thomas v. Albright, 139 F.3d 227 (D.C. Cir. 1998).
• Robinson v. Hornell Brewing Co., 2012 U.S. Dist. LEXIS 51460 (D.N.J. Apr. 11, 2012).

Further Reading:

• Neil K. Gehlawat, Monetary Damages & the (b)(2) Class Action: A Closer Look at Wal-Mart v. Dukes, 90 Tex. L. Rev. 1535 (2012).
• David Marcus, Flawed But Noble: Desegregation Litigation & Its Implications for the Modern Class Action, 63 Fla. L. Rev. 657 (2011).
• Andrew Bradt, "Much to Gain & Nothing to Lose": Implications of the History of the Declaratory Judgment for the (b)(2) Class Action, 58 Ark. L. Rev. 767 (2006).

Questions to Consider:

• What forms of relief are appropriate for 23(b)(2)?
• Is hybrid certification still possible post-Dukes?
• After Dukes clarified the commonality standard, are implicit requirements (like cohesiveness) to Rule 23(b)(2) still necessary?

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 Ten Cases to Educate You

• In re Aqua Dots Prods. Liab. Litig., 654 F.3d 748 (7th Cir. 2011). 
• Pipefitters Local 636 Ins. Fund v. Blue Cross Blue Shield of Mich., 654 F.3d 618 (6th Cir. 2011).
• Madison v. Chalmette Refining, L.L.C., 637 F.3d 551 (5th Cir. 2011).
• In re Bridgestone/Firestone, Inc. Tires Prods. Liab. Litig., 288 F.3d 1012 (7th Cir. 2002). 
• Gregory v. Finova Capital Corp., 442 F.3d 188 (4th Cir. 2006). 
• Newton v. Merrill Lynch, Pierce, Fenner & Smith, Inc. 259 F.3d 154 (3d Cir. 2001).
• Kamm v. California City Development Co., 509 F.2d 205 (9th Cir. 1975). []
• Katz v. Carte Blanche Corp., 496 F.2d 747 (3d Cir. 1974). []
• Bevrotte v. Caesars Ent. Corp, 2011 U.S. Dist. LEXIS 114463 (E.D. La. Oct. 4, 2011). []
• Pablo v. Servicemaster Global Holdings, Inc., 2011 U.S. Dist. LEXIS 87918 (N.D. Cal. Aug. 9, 2011).

Further Reading:

• Edward F. Sherman, "Abandoned Claims" in Class Actions: Implications for Preclusion and Adequacy of Counsel, 79 Geo. Wash. L. Rev. 483, 503 (2011). 
• Andrea Joy Parker, Dare to Compare: Determining What "Other Available Methods" Can Be Considered Under Federal Rule 23(b)(3)'s Superiority Requirement, 44 Ga. L. Rev. 581 (2010).
• D. Bruce Hofferman, To Certify or Not: A Model Proposal for Evaluating the "Superiority" of a Class Action in the Presence of Government Enforcement, 18 Geo. J. Legal Ethics 1383 (2005).

Questions to Consider:

• Judge Easterbrook authored both In re Aqua Dots and In re Bridgestone/Firestone, Inc.: is it possible to reconcile the two opinions?
• What forms of adjudication are superior to class actions? Are there consistent principles for finding them so?
• How do the four factors under Rule 23(b)(3) play into the typical superiority analysis?
• Several judges and scholars have begun making arguments that imply that there may be a larger overlap between superiority and adequacy than previously thought. What can defense counsel make of these analyses?

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The adequacy requirement tends to be much-analyzed, but--at least from a defense perspective--wildly under-enforced. As Dean Robert Klonoff recently wrote, one reason for this may be that it is so difficult for class counsel to actually identify plaintiffs that can serve as adequate class representatives. But, as a result, there are numerous cases that challenge class actions where the named plaintiffs serve as little more than stand-ins for their counsel, rather than exercising any independent judgment. Adequacy is a particularly important doctrine because it has due process implications, and because it comes up in class settlements and in later fights over the preclusive effects of previous class actions. So don't expect the debate to stop any time soon.

Ten Cases to Educate You

• Surowitz v. Hilton Hotels Corp., 383 US 363 (1966).
• Hansberry v. Lee 311 U.S. 32 (1940).
• Dewey v. Volkswagen Aktiengesellschaft (3d Cir. May 31, 2012).
• In re Aqua Dots Prods. Liab. Litig., 654 F.3d 748, 752 (7th Cir. 2011). 
• CE Design v. King Architectural Metals, 637 F.3d 721 (7th Cir. 2011). 
• In re Literary Works in Electronic Databases Copyright Litigation, 654 F.3d 242 (2d Cir. 2011).
• Culver v. City of Milwaukee, 277 F.3d 908, 913 (7th Cir. 2002). 
• Broussard v. Meineke Discount Muffler Shops, Inc., 155 F.3d 331 (4th Cir. 1998).
• Kirkpatrick v. JC Bradford & Co., 827 F. 2d 718 (11th Cir. 1987). 
• * Buettgen v. Harless, 263 F.R.D. 378 (N.D. Tex. 2009).

Further Reading:

• Linda S. Mullinex, Taking Adequacy Seriously: The Inadequate Assessment of Adequacy in Litigation and Settlement Classes, 57 Vand. L. Rev. 1687 (2004).
• Jay Tidmarsh, Rethinking Adequacy of Representation,87 Tex. L. Rev. 1137, 1151 (2009).
• John Coffee, Class Wars: The Dilemma of the Mass Tort Class Action.

Questions to Consider:

• What conflicts will courts hold are signs of inadequate representation?
• What degree of independence should a plaintiff be able to display? Is there any way to test that without invading the attorney-client privilege?
• If courts are unwilling to enforce the adequacy requirement stringently, what other methods exist for ensuring that class actions are adequately governed?

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 Commonality (Rule 23(a)(2)) and predominance (one half of Rule 23(b)(3)) are often considered the heart of the class action certification inquiry. Rightly so, for they both strike at the real question a judge must ask: do the class members have enough in common to justify binding them all together in a single case? Through the 1990s and 2000s, predominance was considered the more important inquiry. In the 2010s, it appears that commonality is gaining ground.

Ten Cases to Bring You Up to Speed:

• Wal-Mart Stores, Inc. v. Dukes, 131 S.Ct. 2541 (2011).  
• Amchem Prods., Inc. v. Windsor, 521 U.S. 591 (1997).   
• Jamie S. v. Milwaukee Public Schools (7th Cir. 2012).
• Gates v. Rohm & Haas Co., 655 F.3d 255 (3d Cir. 2011).
• Sullivan v. DB Investments, Inc., 667 F.3d 273 (3d Cir. 2011).
• Pilgrim v. Universal Health Card, LLC, 660 F.3d 943 (6th Cir. 2011).
• Gintis v. Bouchard Transp. Co., Inc., 596 F.3d 64 (1st Cir. 2010).
• Avritt v. Reliastar Ins. Co., 615 1023 (8th Cir. 2010).
• In re Bridgestone/Firestone, Inc. Tires Prods. Liab. Litig., 288 F.3d 1012 (7th Cir. 2002). 
• Castano v. Am. Tobacco Co., 84 F.3d 734 (5th Cir. 1996).

Further Reading:

• * Richard Nagareda, Common Answers for Class Certification, 63 Vand. L. Rev. En Banc 149 (2010).
• * Ryan Patrick Phair, Resolving the "Choice-of-Law Problem" in Rule 23(b)(3) Nationwide Class Actions, 67 U. Chi. L. Rev. 835 (2000).
• * Alexandra Lahav, The Case For Trial By Formula (forthcoming, Texas L. Rev.)

Questions:

• * Why require a common answer? Why not just a common question?
• * Is there any way to certify a multi-state class action for trial?
• * What role does predominance play in a post-Dukes world?
• * How do you reconcile Gates v. Rohm & Haas Co. with Sullivan v. DB Investments, Inc.?

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It's summertime, when kids attend camp. We tell ourselves this is play, but a lot of camps focus intensively on building up certain skills. This summer, Class Action Countermeasures will be doing the same thing, presenting a number of posts that introduce you to the very basics of class-action practice. (For those who read my post a few weeks ago about cutting down the costs of legal education, consider this a first stab at the case syllabus I was talking about.)  Like in most summer camps, you'll have to do a fair amount of the work yourself.  I am not going to weave your lanyards for you.  But I will provide you with the raw materials.  

I have a selfish personal reason for trying out Class Action Summer Camp as well. My daughter is due to be born on July 6. I have a creeping suspicion that this might disrupt my schedule a little. So, to ensure regularity of posting, it made sense to have a few posts in the can. Enjoy!

Numerosity and Ascertainability.

In very simple terms, numerosity asks if the problem is large enough to justify a class action. Ascertainability asks whether there is an identifiable group to which the court can grant relief. Of course, the issues are more complicated than these single-sentence summaries.

Ten Cases to Bring You Up to Speed:

• Vega v. T-Mobile USA, Inc., 564 F.3d 1256 (11th Cir. 2009).
• Trevizio v. Adams, 455 F.3d 1155 (10th Cir. 2006)
• Oshana v. Coca-Cola Co., 472 F.3d 506 (7th Cir. 2006).
• Golden v. City of Columbus, 404 F.3d 950 (6th Cir. 2005).
• Adushanas v. Negley, 626 F.2d 600 (7th Cir. 1980).
  
• Khalif L. v. City of Union City, 2012 U.S. Dist. LEXIS 64567 (N.D. Cal. 2012) .
• B.N. v. Murphy, 2011 U.S. Dist. LEXIS 110370, *23 (N.D. Ind. Sep. 27, 2011).
• Kemblesville HHMO Center LLC v. Landhope Realty Co., 2011, U.S. Dist. LEXIS 83324 (E.D. Pa. Jul. 28, 2011).
• Xavier v. Philip Morris USA, 2011 U.S. Dist. LEXIS 42335 (N.D. Cal. Apr. 18, 2011).
• Huntley v. Law Office of Richard Clark, 262 F.R.D. 203, 204 (E.D.N.Y. 2009).
  

Further Reading:

• Richard Epstein, Class Actions: Aggregation, Amplification, and Disortion, 2003 U. Chi. Legal F. 475.
• Alexandra Lahav, The Optimal Size of Class Actions.
• Richard Nagareda, Embedded Aggregation in Civil Litigation.

Questions About Numerosity & Ascertainability:

• Do the twin issues of "fail-safe" and "overbroad" class definitions represent a balancing act or a trap for plaintiffs?
• How much evidence does a plaintiff need to present that her class is sufficiently numerous?
• What does "impracticable" mean?

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 Last week, there were two appellate opinions, one from the Seventh Circuit and one from the Tenth, that are worth some attention. They're worth discussing together as well, because while only one is really helpful for defendants, both discuss different conceptions of how to argue comity in class actions.

The first is Smentek v. Dart (7th Cir. 2012). Smentek was a class action filed on behalf of Illinois prisoners who had been denied dental care in violation of the due process clause. It was the third of its kind. How did that happen? In the first two class actions, various trial judges of the Northern District of Illinois had denied certification. Not so the third, who granted it. As Judge Posner noted in the Seventh Circuit's opinion:

We don't understand why all three cases were not assigned to the same judge. Besides the usual advantages of consolidation, it would have avoided the problem that has precipitated the appeal in this case, because a single judge would not be of different minds about three identical lawsuits.

Given the Supreme Court's opinion last year in Smith v. Bayer Corp., the defendant could not ask for an injunction preventing any further class actions from being filed, nor could it argue that a new class action was barred by collateral estoppel. But it could, as the Court had directed, ask the new court to, in the interest of judicial comity, deny certification. Foolproof strategy, right?

As it turns out, not in the Seventh Circuit. The trial court did not take comity into account. Nor, according to Judge Posner, should it have.

The version of comity announced in dictum in Smith v. Bayer Corp. is novel. It does not involve the mutual respect of sovereigns or quasi-sovereigns and it does not appear to be limited to cases in which parallel suits are pending in different courts (or before different judges) of the same sovereign. … The Supreme Court's opinion cites no authority for the extension of the doctrine of comity to mere disagreement between federal judges, and despite the reference to expecting "federal courts to apply principles of comity to each other's class certification decisions" (emphasis added), the Court seems really to have been thinking about cases involving federal-state comity, of which Smith v. Bayer Corp. was one.

(Emphasis added.)  The primary problem Judge Posner saw was that, to provide the doctrine with any preclusive effect would simply render it collateral estoppel by another name, an avenue that the Supreme Court had already closed off.

True, the effect of the doctrine of comity, when it is successfully invoked, is preclusive. But unlike res judicata, it is a doctrine that does not require but merely permits preclusion, except (as we're about to see) when it governs choice of forum. The mandatory comity for which the defendants in our case contend is just another name for collateral estoppel.

Judge Posner, no fan of repetitive class actions (remember, he authored several opinions disapproving of it in Thorogood v. Sears, Roebuck & Co.), conceded that this left open a distinct issue of judge-shopping, one that his colleague Judge Easterbrook had identified long ago in In re Bridgestone/Firestone. In Posner's words:

Not that there isn't a serious problem of judge shopping in the disordered realm of class action litigation, a problem well illustrated by this case and its two predecessors taken all together. Without a rule of preclusion, class action lawyers can do what the lawyer here (and the lawyer in Thorogood) did: keep bringing identical class actions with new class representatives until they draw a judge who is willing to certify the class.

So, at this point, it appears that the Supreme Court's admonition to respect previous denials of certification is of persuasive value only, which means that it is helpful only so long as the court is not inclined to certify a class in the first place, which is to say not helpful at all. At least Judge Posner's opinion spells out the problem in stark terms, of which one might hope other courts will take notice.  

The second case is Winzler v. Toyota Motor Sales U.S.A., Inc. (10th Cir. 2012). In this case, the plaintiff sued for an injunction requiring essentially requiring a recall of Toyota Corollas that allegedly stalled without warning. After she filed the complaint, Toyota moved to dismiss because the plaintiff had not suffered a stalling incident herself, and therefore had not incurred any injury. ("No-injury" class actions are common in products liability.) The trial court granted the motion.  Toyota also noted that a NHTSA investigation was underway. By the time the plaintiff filed her appeal, Toyota had announced a recall, and it had argued to the Tenth Circuit that the recall mooted the plaintiff's claims.  (This particular formulation of mootness is referred to as "prudential mootness.")

The Tenth Circuit found merit in Toyota's position. Like Judge Easterbrook did in Aqua Dots, the Tenth Circuit expressed concern about the fact that suing on top of a recall would add transaction costs that would benefit only the plaintiffs' lawyers.

Our intervention would, as well, surely add new transaction costs for Toyota and perhaps reduce the incentive manufacturers have to initiate recalls (as Toyota did here), all while offering not even a sliver of additional relief for Ms. Winzler and members of the class she seeks to represent. Perhaps the lawyers would benefit if this would-be class action labored on through certification, summary judgment, and beyond. But it's hard to see how anyone else could.

But the Tenth Circuit was not just concerned that suing when an administrative recall was available would add transaction costs. It also worried that initiating a redundant action through the courts would undermine the comity between branches of government:

To hold otherwise -- to allow a case to proceed simply because there happen to be differences between the remedial process a coordinate branch has selected and those we might choose - would not only require us to ignore the reality that there's often no one single right way to go about providing equitable relief to an injured party. It would also require us to ignore the reality that there are nearly always (if not always) some differences between Executive, Legislative and Judicial remedial procedures given how differently the three branches operate: by regulation, legislation, and decree. To presume deficiency from difference would no doubt go a long way, as well, toward spelling the end of prudential mootness doctrine and the comity it is supposed to afford our coordinate branches.

At that point, it affirmed the lower court's dismissal of the case.

So, what can we draw from these two different treatments of the concept of "comity"? Comity as a standalone concept is not a particularly helpful one: as Judge Posner points out, the doctrine of comity really only applies to separate sovereigns. However, comity also has a looser meaning, one that asks courts to respect other governmental bodies, even if they stem from the same sovereign power. And here, comity is at the very least a useful rhetorical device. It reminds the court that it is not the only available means of relief; and that some litigation is simply a waste of time and money. Of course, since comity is not mandatory, what a court chooses to do with that information remains entirely up to it.

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 As most of you following class action-related news know by now, the Supreme Court has granted certiorari to review another class action decision: the Ninth Circuit's recent opinion in Connecticut Retirement Plans & Trust Funds v. Amgen, Inc.  (Hat tip to Paul Karlsgodt of the reliably great ClassActionBlawg for getting the scoop.) As usual, SCOTUSblog has all of the relevant documents.

The issue in this case, is whether a court must decide whether an allegedly fraudulent statement is material before it applies the fraud-on-the-market presumption from Basic, Inc. v. Levinson. As the certiorari petition puts it:

The courts of appeals are split, however, on the question whether plaintiffs must also prove, for class certification, an additional predicate to the fraud-on-the-market theory— that the alleged misrepresentation was material. The courts of appeals also are split on the related question whether a defendant may, at the class certification stage, present evidence rebutting the applicability of the fraud-on-the-market theory.

But I want to focus, briefly, on a few other things this certiorari petition does, because it's an excellent example of how to get an issue in front of the Court. After all, to get a certiorari petition heard, one has to (1) convince a Supreme Court clerk to pull the petition out of the cert pool (think "slush pile"), and (2) attract the votes of at least four of nine justices who have a lot of other issues to decide. And, much as I would love to think otherwise, most of the justices of the Supreme Court are probably not as fascinated by class action issues as Paul or myself. (This same logic applies to 23(f) petitions, which are themselves an attempt to convince a busy federal appellate court to review an issue it doesn't have to.) So what does this cert petition do right?

It establishes stakes for the Court. By linking the resolution of securities class actions to the settlement rate, the petition provides a concrete bad outcome if the issue is not heard--settlement of meritless claims. But it also contrasts the Ninth Circuit's handling of the issue to a recent Supreme Court opinion:

None of the reasons given by the Ninth Circuit for treating the materiality predicate differently from the efficient-market and public-statement predicates has merit. To the contrary, the Ninth Circuit’s reasoning contravenes this Court’s precedents, including Basic and Erica P. John Fund.

It explains why the circuit split matters. There's a nice reference to the percentages of securities class actions filed in various circuits, which shows that the vast majority are now filed in circuits with different interpretations of this rule.

This circuit split is entrenched and mature. Moreover, with the Ninth Circuit having entered the fray, the split now involves courts of appeals for circuits that account for a substantial majority of securities fraud litigation. In 2010 and 2011, 74% and 73% (respectively) of all securities fraud class actions were filed in the Second, Third, Fifth, Seventh, and Ninth Circuits.

The statistics are a nice touch. They hammer home just how chaotic it would be to have an inconsistent rule in a large sector of class action litigation.

It explains why certiorari is appropriate now. As the brief points out

Now that the Second, Third, Fifth, Seventh, and Ninth Circuits have resolved the questions presented for their respective circuits, the likelihood that the is- sues will be presented again in a discretionary Rule 23(f) appeal is necessarily low. Courts of appeals gen- erally grant permission for a Rule 23(f) appeal only when the district court’s class certification order presents an important question of class-action law that is unsettled within the circuit …

Remember that percentage of securities filings? That plays in here as well. Since the vast majority of securities filings are in courts that have already decided the issue, the petitioners argued that there would likely not be another chance for the Supreme Court to hear this issue.

What's the takeaway? It's a simple one, but extremely important and often forgotten: know your audience. Want to get the Supreme Court's attention? Show them why the opinion endangers one of their recent holdings, and why it won't get reviewed unless they take it now.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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 I hope everyone had a good Memorial Day weekend. This week, we take a brief look at a number of opinions that were decided last week, none of which are revolutionary, but all of which are useful to defendants at some stage of the class action. Think of it like a Memorial Day barbecue, a little something for each course.

Discovery. Both plaintiffs and defendants like to serve contention interrogatories, and both also like to give vague answers. It's part of the chess game that is pretrial discovery, and it can be frustrating to both observers and participants. In Fulghum v. Embarq Corp., 2012 U.S. Dist. LEXIS 72643 (D. Kan. May 24, 2012), the court decided it had had enough of the squabbling over identifying which documents could identify the class:

The interrogatory asked Plaintiffs--not Defendants--to identify the group of retirees who fell within the applicable plan documents. Plaintiffs, therefore, would have that information. Furthermore, if the process is as simple and mechanical as Plaintiffs contend, the Court questions why Plaintiff did not perform the analysis. Plaintiffs do not offer any reasons why Judge O'Hara's ruling is clearly erroneous, but instead assert that their answer was appropriate. Plaintiffs have spent more time arguing over the appropriateness of their interrogatory response than necessary to respond to the request.

(Emphasis added.)  Moral: while a little fencing is OK, you must answer your interrogatories with substance at some point.

Offer of judgment. A plaintiff files a FCRA class action. The defendant files an offer of judgment for $25,000, a comfortable amount more than the maximum statutory damages plus an attorneys' fee. Does that moot the class action? According to Sanchez v. Verified Person, Inc., 2012 U.S. Dist. LEXIS 70128 (W.D. Tenn. May 21, 2012), yes it does.

[I]f a named plaintiff's claim is mooted by an offer of judgment made before certification of the class or the filing of a class certification motion, dismissal of the action is required.

(Internal quotation marks omitted, emphasis added.)  The court found the rule unnecessarily harsh, but still applied it to dismiss the action. (The opinion includes an discussion of how the timing of an offer of judgment may affect its validity; the discussion is interesting because it gets so convoluted. This level of complication may be the beginning of a tip towards the Seventh Circuit's rule in Damasco v. Clearwire Corp.)

Certification. Consider this the entree in our little picnic of class-action rulings. Johnson v. Harley Davidson Motor Company Group, LLC, 2012 U.S. Dist. LEXIS 72048 (E.D. Cal. May 23, 2012) concerned an alleged defect that caused surfaces on certain motorcycles to heat to a temperature that might burn skin. The court found three problems with certifying a class: (1) There was no uniform design to the motorcycles, (2) There were

literally zero complaints about the allegedly excessive heat. Literally zero complaints suggest this is a public-policy-driven lawsuit instead of a client-driven lawsuit.

(Emphasis added, internal citation omitted.) The third problem was that (3) regulation by the National Highway Traffic Safety Administration was a superior remedy to a class action.

Notice. Everyone knows that Rule 23(b)(3) requires the "best notice practicable," and that that usually means individually-mailed notice. But what if the defendant sends the notice by bulk mail to nursing homes for distribution to residents there? Not good enough, says the Northern District of Oklahoma:

The mailing of Notice Packets in bulk to these 49 care facilities does not comport with due process because there is no evidence that the potential Class Members ever actually received their packets.

Childs v. United Life Ins. Co., 2012 U.S. Dist. LEXIS 70113 (N.D. Okla. May 21, 2012) (emphasis added).  The court took special care to explain its concerns, which primarily had to do with the structure of the proposed settlement. Because the plaintiffs were guaranteed a particular fee, their incentives were "decoupled" from maximizing the number of class members to respond; and because the defendants had a reversion clause, their incentive was to minimize the number of respondents.

Moral: the simpler the settlement, the better the odds of it getting through. If you can't make a simple settlement, it may be that it's not really a case worth settling.

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 Earlier today, I had the distinct pleasure of presenting at the CLE International Class Action conference in Los Angeles with an old friend of mine, plaintiff's lawyer Garrett Wotkyns of Schneider Wallace.   The topic was The Gauntlet: Early Challenges to Class Certification, which regular readers will know is a topic near and dear to my heart.  (Cue joke about defense lawyers' hearts.)

The slides, which contain only a few in-jokes and as many obscure Clint Eastwood references as we could cram in, are available for download here.  

Many thanks to the nice folks at CLE International for inviting me to talk.  I had a lot of fun.

UPDATE - Broken link is fixed.  My apologies for any inconvenience.

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Today's case is interesting in no small part because it shows just how far class-action arguments have come in the last 18 months. In the latter half of 2010, most defendants faced with a class action would look primarily at adequacy (are the named plaintiffs good representatives?), typicality (do the named plaintiffs have the same injury and proof as the class?), and predominance (are there more individual issues than common issues?). Now, however, given recent trends in case law--particularly the increased focus on a "rigorous analysis"--more defendants are looking at numerosity [] (can the plaintiffs show that there are enough class members?) and commonality (will the class action yield common answers?) as well.

Take, for example, the recent case of Khalif L. v. City of Union City, 2012 U.S. Dist. LEXIS 64567 (N.D. Cal. 2012). In this case, the named plaintiff sued the Union City Police Department, alleging that it had unlawfully discriminated against its African-American population by denying young blacks who had been victimized by Latino gangs any police assistance.

Under the best of circumstances, this would be a difficult case to prove on a classwide basis. (How, for example, does one really prove non-responsiveness on a common basis? Unless the police systematically never responded to calls from African-Americans, there would always be individualized issues.) When the plaintiffs moved for class certification, the defendants opposed them on both numerosity and commonality grounds, and did so successfully.

For numerosity, the plaintiffs had alleged that, based on 2000 census data, coupled with several affidavits alleging non-responsiveness by the police department, the court could conclude that there were enough African-American high school students in the area to constitute a class.

Defendant, however, asserts that plaintiffs' reliance on the 2000 census data is unduly speculative, and furthermore, that plaintiffs' supporting declarations are insufficient to satisfy numerosity requirements, since the testimony therein exposes a paucity of contact between certain putative class members and the UCPD (and thus, lack of membership in the class).

Defendant's objections are well taken. Plaintiffs have failed to connect the census information they primarily rely upon -- and that establishes the presence of 301 Black or African-American students enrolled in grades 9 through 12 in Union City in 2000 -- to their own class definition or claims.

(Emphasis added.)  Similarly, to establish commonality, the plaintiffs asserted that the common issue was whether the Union City Police Department had violated the civil rights of the class members. The defendants responded with an argument that is becoming more common after Dukes: anyone can pose a "common" question, but will it yield common answers?

What plaintiffs here must posit are not questions that within them presuppose a finite legal conclusion that will apply to all class members (e.g., whether the UCPD acts to violate plaintiffs equal protection rights), but instead questions of law or fact that will generate a common answer among members of the class that will aid in determining questions of liability (e.g, allegations that all plaintiffs were subjected to the same particularized UCPD response, or conduct by the same UCPD officer, as a result of similar underlying incidents/reports). This plaintiffs fail to do.

The takeaway from this case is pretty simple. In the wake of cases like Dukes, courts are beginning to recognize that certifying a class means certifying it for a classwide trial. Under those circumstances, even issues like numerosity and commonality are not foregone conclusions for the plaintiff. This is the new normal in class action defense.

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Robert Klonoff, Dean of the Lewis & Clark Law School, has produced a new article, The Decline of Class Actions (forthcoming from the Washington University Law Review), that provides a much-appreciated overview of recent developments in class action law from a plaintiff's perspective. (Disclosure: Dean Klonoff provided a very nice blurb for the Class Action Playbook.) Regular readers of this blog know that I am actually a big fan of plaintiffs' perspectives: I think understanding them is crucial to a conscientious and seals defense of class action litigation. And while there is much to like in Dean Klonoff's analysis, there is also a fair amount that is lost to the same old pro-plaintiff analysis that many courts have begun to reject.

Unlike a number of his scholarly colleagues, Dean Klonoff doesn't say that the class action is dead, just that courts have made it a lot harder to get a class certified, and that he considers that a problem. He traces that problem to a number of the "new" requirements that courts have imposed on class-action plaintiffs in the last decade. What are those new requirements? Well, they'll look familiar to readers of Rule 23.

Rigorous analysis. Dean Klonoff worries that courts now require too much evidence from plaintiffs at the certification stage. Some of his concerns have some actual foundation (a number of practitioners, both plaintiff and defense, have noted that the increased focus on rigorous analysis has shifted costs toward the beginning of the case for both sides, a result necessarily in tension with the efficiency arguments for class certification). But others betray an ignorance of how lawyers actually litigate cases. For example, he expresses concern that:

While courts have imposed strict new evidentiary burdens on plaintiffs, they have increasingly permitted defendants to seek denial of class certification without submitting to discovery. For instance, in Pilgrim v. Universal Health Card, LLC, the Sixth Circuit upheld the district court’s dismissal of class allegations in a nationwide class action, reasoning that “we cannot see how discovery or for that matter more time would have helped [plaintiffs].” Other courts have taken this approach as well. Case law requiring plaintiffs to put forward exacting evidentiary proof in support of class certification is difficult to square with case law permitting defendants to move to strike class allegations without allowing plaintiffs even minimal discovery.

In fact, it is easy to square these two requirements. The plaintiff bears the burden of providing the court with an adequate basis for certifying a class. LIke with any burden, that means that ties go to the other party (in this case, the defendant). If the plaintiff has pled a class action that can't be certified because of an insurmountable legal defect, there is no reason to engage in discovery that cannot cure that defect. This is the exact same reason that we require a plaintiff both to prove her case by a preponderance of the evidence, but also allow the defendant to file a motion to dismiss.

More importantly, Dean Klonoff does not address the actual new requirement imposed by Rule 23(c)(1)(B), which requires a detailed order from courts certifying a class. Without actual evidence from plaintiffs, courts will find it hard to meet this new requirement.

Interestingly, Dean Klonoff does think that courts should resolve Daubert questions before certification, because they are about the admissibility of evidence, rather than proof of the merits.

Ascertainability. Dean Klonoff also worries about courts' increased focus on the viability of class definitions.

Indeed, the trend of more exacting scrutiny of class definitions has been recognized by one of the nation’s leading class action defense attorneys, John Beisner. In a recent article, Beisner noted that “more and more decisions are turning on the requirement of an ascertainable class definition.” He thus urged class action defense counsel to look for ways to challenge the class definition.

(Internal footnotes omitted.) According to Klonoff, a "more measured" approach would be to allow the plaintiffs to amend their class definition whenever it is challenged. And, in many cases, that is exactly what a court will do. But sometimes amending a class definition is simply futile: if there is no common issue uniting the class, then any definition will be either overbroad or impermissibly merits-based.

Numerosity. Dean Klonoff has identified an important trend here. Prompted by a need for a more rigorous analysis, courts have expanded their analysis of numerosity. In particular, they have begun to question the assumptions plaintiffs make, and to look at the effect that geographic dispersion may have.

Although the case law is conflicting, plaintiffs are nonetheless at risk of losing on class certification if their numerosity argument is based on inference or on appeal to common sense. The strict approach adopted by some courts represents yet another troublesome trend. Indeed, the large number of successful challenges to numerosity—which was once the least demanding requirement of Rule 23(a)—is one of the most dramatic recent developments.

(Emphasis added.)  Both plaintiffs and defense can benefit from a greater understanding of this development.

Commonality. Not surprisingly, given his overall thesis, Dean Klonoff believes that the Supreme Court erred in its holding in Dukes. As he puts it:

The majority decision in Dukes cannot be squared with the text, structure, or history of Rule 23(a)(2). Nothing in the text of Rule 23(a)(2), or in the Advisory Committee Notes thereto, requires that the common question be central to the outcome. Instead of looking at the traditional methods of interpreting Rule 23(a)(2), the majority relied heavily on a law review article by Professor Nagareda.

Dean Klonoff also questions whether Nagareda was really writing about commonality, even though Nagareda makes makes it clear that he is referring to common questions in Rule 23 a number of times (both Rule 23(a)(2) and 23(b)(3) use the same term; it makes sense they would mean the same thing). This begs the question: Why would you want to certify a class where the common question was not central to the outcome of the case?  This, unfortunately, is not a question he answers. (Dean Klonoff does raise another interesting question, which is whether the use of the term "common question" in Rule 23 is the same as in Rules 20 and 42.)

Adequacy. After pointing out that he actually supports a more stringent adequacy requirement in general, Dean Klonoff argues that adequacy should not encompass claim-splitting.

There is, however, a disturbing trend in “adequacy” jurisprudence. That case law focuses not on the ability of class representatives and counsel to vigorously represent the class, but on counsel’s selection of the causes of action to assert. The argument is that, by not bringing all potentially viable claims, the representatives and counsel have (1) impermissibly “split” claims, thereby prohibiting class members (pursuant to res judicata) from later bringing those omitted claims, or (2) subjected class members to the risk that collateral estoppel could essentially nullify their remaining (unfiled) claims.

(Internal footnote omitted.)  Dean Klonoff's solution is simply to have courts state that collateral estoppel shall not apply to claims that could have been raised, but were not for strategic reasons. This is a disturbing suggestion on several levels, not least of which is that it undermines the balance that justifies class aggregation, that of the right to individual trials on the one hand, and the need for global resolution--for plaintiff or defendant--on the other.

Other Issues. Dean Klonoff also worries that plaintiffs cannot use Rule 23(b)(2) strategically to certify money damages classes that would not qualify under Rule 23(b)(3), and that courts have clamped down on fraud and multi-state class actions (the former because reliance is very difficult to prove on a classwide basis, the latter because plaintiffs have not offered any viable methods of certifying a nationwide class). He believes that these constitute "per se" rules against certification.

Klonoff doesn't have much practical advice for lawyers, instead he advocates forum-shopping to find more receptive circuits. (He recommends the Second, Third, and Ninth.) Instead, he largely critiques the holdings, and asks courts to hold differently going forward.

So the good news is that Dean Klonoff has published an actual work of doctrinal scholarship that can help lawyers, something we desperately need more of. The bad news is, it's clearly plaintiff-biased; but that's not really bad news. Dean Klonoff is a smart man who knows class-action law well; reading his analysis of the latest class certification cases will help any conscientious defense lawyer hone his arguments. The real bad news (call it the "ugly") is that these are apparently the best pro-certifictaion arguments. Rather than basing them on the case law as it stands, Klonoff instead questions the legitimacy of recent holdings:

They suggest a suspicion about class actions generally, premised on the assumption that the class action is a blunt instrument to coerce settlement and secure large attorneys’ fee awards.

In fact, as several class-action plaintiffs made clear at the DePaul Law Review Symposium, these are not the only arguments available to plaintiffs. Plaintiffs who actually meet the requirements of Rule 23--by avoiding individualized issues, providing evidence that each of the requirements are met, and engaging in comprehensive legal analysis where appropriate in multistate class actions--are on exceptionally strong footing at certification. When one's arguments all start out by assuming a premise like "courts should not be suspicious," then the battle is won or lost before any argument gets made. Either the judge is suspicious or she isn't, either she agrees that the text of Rule 23 is secondary to deterrence and efficiency, or she does not. At that point, all the arguments of this kind that exist are unlikely to change her mind from where she started.

(Hat tip to Professor Lahav at the Mass Tort Litigation Blog for finding the article.)

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There's an old joke about a physicist asked to help increase milk production at a dairy farm. He begins by assuming a spherical cow.

There's another old joke about a group of academics stranded on a desert island with a can of food. As they try to figure out how to get the food out of the can and into their mouths, the economist argues they should assume a can opener.

Why open a blog post with two lame jokes? It's not to demonstrate that academics shouldn't do comedy; some physicists and economists make good comedians. It's to point out that many academics, in their attempts to come up with accessible explanations of the world around them, wind up assuming away too much.

And that's the problem plaguing Professor Sergio Campos's latest paper on developing proof of classwide injury in class action litigation.  Instead of grappling with the realities of the law as it stands, and therefore offering practical advice on what constitutes classwide proof, Professor Campos tries to assume into existence a world that doesn't exist.

Professor Campos's argument is that the requirement that a class-action plaintiff demonstrate a common injury that can be proven with classwide evidence stems from three "fallacies" about class actions.

The first fallacy is that class actions are "all at once" procedures which require a court to resolve all issues in one fell swoop. ...

The second fallacy is that the class action is an "extraordinary remedy" that, like a preliminary injunction, requires the plaintiffs to show a likelihood of success on the merits before a court can certify a class. ...

The third fallacy is that, in the absence of proof of classwide injury, individual trials as to each plaintiff's injury are required to accurately determine individual injury and prevent uninjured plaintiffs from recovering.

How is it that, in Campos's view, so many courts could have bought into these fallacies? Well, first of all, he's assuming fallacies where none exist. Almost no courts require that a class action resolve all issues in a single swoop. What they do--in the wake of Dukes--is define a common issue as:

of such a nature that it is capable of classwide resolution—which means that determination of its truth or falsity will resolve an issue that is central to the validity of each one of the claims in one stroke.

(Emphasis added.) Similarly, no court requires that plaintiffs show a likelihood of success on the merits before certifying a class. (In fact, despite the emphasis on rigorous inquiry, that part of the ruling in Eisen is still valid.) And--despite the Third Circuit's ruling in Sullivan v. DB Investments--the Supreme Court's ruling in Amchem Products v. Windsor (as well as numerous rulings rejecting overbroad classes) made clear that that if some class members were injured and others were not, a class action is not appropriate.

And how did Professor Campos get these fallacies so wrong? That comes from the fact that he is trying to explain why courts--in contravention to his own theory--treat the class action like a representation device rather than a trust device.  According to Professor Campos:

However, the class action is neither a "joinder" device nor a "representational" device. As I have argued elsewhere, the class action is a "trust" device, which becomes apparent once one examines why class actions are preferable in small claims litigation like the antitrust, securities fraud, civil RICO, and employment discrimination cases I have discussed so far."

Campos's take on the class action as trust is an interesting one, and it would go some way to explaining a few quirks of class action doctrine, like why Rule 23 is so ready to hand control of a case over to the class attorney rather than the representative plaintiff. (There are alternative explanations, such as that some courts have misinterpreted the adequacy requirement.) But to deny that the class action is a representative device ignores--among other things--the text of Rule 23(a):

(a) Prerequisites. One or more members of a class may sue or be sued as representative parties on behalf of all members only if:
(1) the class is so numerous that joinder of all members is impracticable;
(2) there are questions of law or fact common to the class;
(3) the claims or defenses of the representative parties are typical of the claims or defenses of the class; and
(4) the representative parties will fairly and adequately protect the interests of the class.

(Emphases added.)  And this is Professor Campos's problem. He's bought into the "trust" and "deterrence" arguments so far that he doesn't just ignore the remainder of class action doctrine, he's convinced courts must be wrong when they employ it. Deterrence and trusts are Professor Campos's spherical cow and can opener. They explain class actions to him, but they only do so by ignoring the text of the rule and the weight of precedent.

So, why should a defense lawyer bother reading this article? Because, like it or not, these arguments do come up. Professor Campos is not stupid; and it's worth it to see where smart people go wrong in these arguments.

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 In Rowe v. Bankers Life & Cas. Co., 2012 U.S. Dist. LEXIS 43198 (N.D. Cal. Mar. 29, 2012), Estella Rowe, a senior citizen, bought an equity-indexed deferred annuity. After she did so, she learned that this particular kind of annuity (like most annuities) is not a very good investment.  So she sued her insurance company, alleging that it

conspired with its independent sales agents and others to induce elderly consumers to buy equity-indexed deferred annuities, which, according to Rowe, are unsuitable investment vehicles for anyone over sixty-five years old.

Rowe asserted a cause of action for civil RICO. (Specifically, she alleged that Bankers Life & Casualty Trust had sent misrepresentations through the mail, violating the mail fraud sections of RICO.) Then she moved to certify a proposed nationwide class.

The court began by noting that, because she sought damages, the plaintiff could not get her class certified under Rule 23(b)(2).

Nor, it concluded, could it certify a class under Rule 23(b)(3). As it held:

The problem with Rowe's argument is that she has not identified any uniform misrepresentations or omissions made to each potential member of the nationwide class. First, Rowe asserts "on information and belief" that Bankers mailed the disclosure form to each potential member of the nationwide class. But that is not enough to affirmatively demonstrate, by a preponderance of the evidence, that every potential member of the nationwide class received this document. … As outlined above, when ruling on a motion for class certification, the Court must make whatever factual and legal inquiries are necessary under Rule 23. Rowe's bald assertion that each potential member of the nationwide class received the same disclosure form that she and her husband received is not enough to convince the Court that Bankers' allegedly fraudulent conduct was systematically directed to each potential member of the class.

Similarly, the plaintiff could not prove that there had been any common misrepresentations in either the sales literature or the oral misrepresentations she claimed she heard. As a result, the court refused to certify the proposed class.

The takeaway for defense lawyers: civil RICO--which often relies on fraud-like allegations--still requires proof of causation. And causation in fraud-like cases is basically reliance, which is usually an impediment to certification.

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 In the wake of Wal-Mart Stores, Inc. v. Dukes, plaintiffs and trial courts are still trying to determine exactly how to apply the clarified commonality standard of Rule 23(a)(2), and the standard for injunctive relief under Rule 23(b)(2). The good news for defendants, as demonstrated in the new case M.D. v. Perry, 2012 U.S. App. LEXIS 6061 (5th Cir. Mar. 23, 2012), the appellate courts are largely following the Supreme Court's lead in Dukes. (My apologies: Google Scholar doesn't have the opinion yet, and the Fifth Circuit website appears to be having difficulties.)

The plaintiffs challenged the state's long-term foster care program, known as the Permanent Managing Conservatorship ("PMC"). They alleged that Texas's mismanagement of the PMC had created a variety of problems for the 12,000 children under its care. They sought injunctive relief under Rule 23(b)(2).

The lower court acknowledged that different children would have been treated differently by the system, but certified the class anyway. It identified the "common question" uniting the class as the legality of the foster-child regime as administered in Texas. It reasoned that the Fifth Circuit had held that the commonality standard was not a demanding one, and that the plaintiffs' proposed common questions could apply to all class members, even if they yielded different answers for different class members.

The Fifth Circuit disagreed. First, it pointed out that that Dukes has changed its standard for commonality.

Thus, the commonality test is no longer met when the proposed class merely establishes that "there is 'at least one issue whose resolution will affect all or a significant number of the putative class members.'" Forbush, 994 F.2d at 1106 (emphasis added) (citation omitted). Rather, Rule 23(a)(2) requires that all of the class member's claims depend on a common issue of law or fact whose resolution "will resolve an issue that is central to the validity of each one of the [class member's] claims in one stroke."

(Emphasis in original.) And then it pointed out that, in this case, the alleged "common issues" had been pitched at too general a level to yield any common answers that would actually advance the litigation.

Accordingly, given the "amorphousness" of the proposed class's proffered common issues of fact and law, the district court should be particularly precise when explaining how the resolution of those claims "will resolve an issue that is central to the validity of each of the [individual class member's claims] in one stroke." Wal-Mart, 131 S. Ct. at 2551. The district court's present certification order failed to do so; thus, we conclude that it failed to perform the "rigorous analysis" that is required in order to find that the proposed class satisfied Rule 23(a)(2)'s commonality requirement.

(Emphasis added.)  But the Fifth Circuit did not stop there. After pointing out that a request for injunctive relief must be "specific," it also held that, because the plaintiffs had asked--indirectly--for individualized injunctive relief, that it was clear that the class lacked the cohesiveness to justify certification under Rule 23(b)(2).

"A proposed class cannot avoid Rule 23(b)(2)'s prohibition on claims for individualized relief by petitioning the district court to order the defendant to craft individualized "injunctive-type" relief for certain class members. See Jamie S., 668 F.3d at 499 (holding that proposed injunctive relief did not satisfy Rule 23(b)(2) when the district court's order "would merely initiate a process through which highly individualized determinations of liability and remedy are made; this kind of relief would be class-wide in name only, and it would certainly not be final"). Accordingly, we find that the requested individual relief implicitly establishes that at least some of the proposed class's underlying claims allege individual injuries that are not uniform across the class; thus, as currently pleaded, the proposed class lacks cohesiveness to proceed as a 23(b)(2) class.

(Emphasis added.)  The Fifth Circuit remanded the case for further consideration. (It reasoned that the plaintiffs might be able to allege a more limited class that could justify certification.)

The applications of this opinion to defense work are clear. First, like the Seventh Circuit in Jamie S., the Fifth Circuit has affirmed that a plaintiff may not simply plead around Rule 23(a)(2) by keeping her claims amorphous. And second, the Fifth Circuit has also affirmed the "cohesiveness" standard implicit in Rule 23(b)(2), and shown its importance in a world with a more rigorously-enforced commonality standard.

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To get lawsuits into court and past preliminary motions, plaintiffs often have to argue some pretty stupid things. They have to argue that they did not know coffee is hot or that they trusted Google Maps directions over their own eyes. Sometimes, to get a class action that far, plaintiffs' lawyers have to argue that entire populations that dumb, such as when they argue that people did not know that Nutella is fattening. What's a defense lawyer to do in situations like this?

The Third Circuit has offered some help. The lawsuit, McNair v. Synapse Group, Inc. (3d Cir. 2012), involved the high-stakes, high-pressure business of magazine subscriptions. Each of the named plaintiffs had bought a magazine subscription through Synapse, one of those offers that involved crazily low rates and--unless cancelled--automatic renewal. As most behavioral economists would tell you, making a default "automatic renewal" would be very profitable, because most people won't bother to cancel a magazine subscription. But the plaintiffs alleged that Synapse stacked the deck even further in its favor, by disguising its automatic renewal notices as just so much junk mail. (According to internal documents, Synapse had determined that fewer people cancelled after an unmarked notice than after one marked "Automatic Renewal.")

The plaintiffs had originally brought their case as a class action for damages, but the trial court determined that, since the lawsuit was based on allegations of fraud, individualized issues (like reliance) would predominate over common ones.

So the plaintiffs amended their complaint to seek injunctive relief instead. Synapse opposed, arguing that, since the plaintiffs would not suffer any future injury, they could not seek injunctive relief. (The plaintiffs' response was twofold: (1) it was not always clear which subscription deals were Synapse deals, and (2) given a good enough initial deal, they could not guarantee they would not subscribe again.) The trial court allowed the amendment, reasoning that it was possible one of the plaintiffs might wind up subscribing with Synapse again. Two years later, it declined to certify this new class as well, this time because those same individualized issues meant the proposed class was not cohesive enough to justify certification under Rule 23(b)(2).

The plaintiffs appealed under Rule 23(f). The central question the Third Circuit faced was whether plaintiffs in this situation (fooled once, might get fooled again) had standing to seek injunctive relief. In this case, it concluded they did not. It began by describing the "future injury" requirement for injunctive relief

When, as in this case, prospective relief is sought, the plaintiff must show that he is "likely to suffer future injury" from the defendant's conduct. Lyons, 461 U.S. at 105. In the class action context, that requirement must be satisfied by at least one named plaintiff.

And it then turned to what the plaintiffs had actually alleged about their harms.

Appellants have effectively acknowledged that they, unlike the class members they seek to represent, are not Synapse customers and are thus not currently subject to Synapse's allegedly deceptive techniques for obtaining subscription renewals. Unless they decide to subscribe again, then, there is no reasonable likelihood that they will be injured by those techniques in the future. They do not allege that they intend to subscribe again.

[Internal citations omitted.] Having set up the reasoning, the Third Circuit offered a very blunt assessment of the plaintiffs' argument that, despite having been allegedly deceived once, they would not be able to avoid the same problem in the future.

Perhaps [plaintiffs] may accept a Synapse offer in the future, but, speaking generally, the law accords people the dignity of assuming that they act rationally, in light of the information they possess. … If Appellants' suggestion is that they may not be able to help themselves when confronted with a really good subscription offer, they have still not provided a basis for standing. Pleading a lack of self-restraint may elicit sympathy but it will not typically invoke the jurisdiction of a federal court.

(Emphasis added.)  

The McNair opinion has some clear uses for defense counsel. The most obvious is its clear explication of the future injury rule, and its implicit affirmance of the cohesiveness requirement of Rule 23(b)(2). But it may serve even more use as an object lesson: from both a rhetorical and a practical standpoint, it still makes sense to argue to a court that your opponents are not stupid, and it's rarely a good idea to argue to a court that your clients are.

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A few weeks ago, I had the distinct pleasure of participating in the DePaul Law Review's 22d Annual Symposium: Class Action Rollback? Wal-Mart v. Dukes and the Future of Class Action Litigation. The Law Review staff assembled an impressive array of speakers, all thoughtful, all interesting, only one of whom spoke too fast.  As is my wont, I took a lot of notes, and here's a quick summary of them.

Oddball Cases. The opening presentation, by Professor Suja Thomas, focused on the Supreme Court's alleged predilection for deciding "oddball" cases, which Professor Thomas thinks make for less-than-ideal outcomes. What is an oddball case? It's one with (1) odd facts that creates (2) a significant change in the law, where the change is (3) motivated by the odd facts rather than the legal principles, and has (4) a significant effect on less-oddball cases in the same area of law. According to Professor Thomas, Dukes is an oddball case (mainly because of the expansiveness of the class), while something like Citizens United is not. Professor Thomas believes that, in oddball cases, the Court should leave any real rule making to Congress, and decide the case on as narrow grounds as possible.

Defending Dukes. Mark Perry (one of the defense counsel in Dukes) provided a one-hour deep dive into the strategy behind the Dukes defense, and the law governing class action defense in general. I don't say this often, but this was the presentation I wish I could have given. Mark's presentation was both comprehensive and comprehensible. He covered everything from the basics of Rule 23 to how to use the often-overlooked Taylor v. Sturgell in a class certification opposition. The biggest takeaway though, was that--by reiterating the need for a rigorous certification inquiry--Dukes has shifted the cost of class-action litigation forward, a development that will have clear implications for strategy on both sides.

The "New Rules" of Civil Procedure panel. We'll leave out one of the panelists here, and focus on what the others had to say. Professor WIlliam Hubbard wondered if, as a matter of economics, the class action can get too large to certify. Professor Wendy Netter Epstein argued that the Dukes ruling may unravel a number of verdicts and settlements reached under Rule 23(b)(2) in the last few years. And Professor Marcia McCormick looked at the kind of social science evidence that might be allowable post-Dukes. The biggest takeaway from the panel for defense counsel was Professor Epstein's warning about the finality of pre-Dukes judgments: this kind of unraveling has happened before, and it can happen again.

The Power and Promise of Procedure. This was the keynote speech, given by Professor Suzette Malveaux. Professor Malveaux focused on the class action's ability to afford access to justice. Admitting that she was "surprised" by the Court's unanimous ruling on the Rule 23(b)(2) issue, she worried that requiring plaintiffs to bring damages actions under Rule 23(b)(3) would reduce the ability of discrimination plaintiffs to bring lawsuits. She also predicted that plaintiffs' counsel would focus on smaller class actions with a tighter nexus to discriminatory conduct, more state court filings, and (like Mark Perry) more pre-certification discovery. Professor Malveaux offers a strong case for a plaintiff-oriented rhetorical theme: class action exist to balance the scales for small plaintiffs. While she and I continue to (congenially) disagree on the scope of Rule 23, her keynote provided an excellent reminder that defendants must take this rhetoric seriously.

Employer/Employee Panel. This panel largely focused on Dukes's effect on labor law. As a result, it tended to take a narrow view of Rule 23. (In fact, two of the panelists really didn't discuss Rule 23 at all.) Nonetheless, it provided a number of interesting ideas. Professor Leslie Wexler argued that, in the wake of the Dukes litigation, Wal-Mart has engaged in a "genderwashing" campaign--providing possibly insincere reforms aimed at scrubbing its public image on these issues (not, she pointed out, that this was necessarily a bad thing). Professor Steven Greenberger probed the possible effects of relying too much on a decentralized, subjective human resources policy. And Bigelow Fellow Naomi Schoenbaum probed further into the potentially discriminatory effects of Wal-Mart's relocation policy, a small but often-overlooked part of the larger Dukes case. The biggest takeaway for defense counsel grows out of Professor Wexler's "genderwashing" discussion, since "genderwashing" sounds an awful lot like the kind of prophylactic "firewall" defenses recommended in Verdict for the Defense.

Dukes in Litigation Panel. And, finally, there was the practitioner's panel. There was one defense counsel, who relied on the cheap gimmick of a top ten list.  But Anthony Fata offered an excellent, wide-ranging presentation that argued that Dukes was not nearly as anti-plaintiff as one might think, particularly if one embraced the "rigorous analysis" standard. And George S. Robot told the behind-the-scenes story of the fresh-off-the-press McReynolds v. Merrill Lynch. The biggest defense takeaway from this panel--which came from both plaintiff panelists--was the reminder not to be complacent: smart plaintiff's counsel are already making the Dukes opinion work for them.

One final note as I look over my notes: with the exception of the practitioners' panel, where everyone said "Dukes," you could usually predict the scholar's attitude towards the Supreme Court's opinion by whether they called it "Dukes" or "Wal-Mart." I have no explanation for this phenomenon, but it struck me as an interesting bit of applied rhetoric.

[Many thanks to Chris Burrichter and the rest of the Law Review staff, who put together an amazing set of panels, and made sure everything ran smoothly.]

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After Dukes, many commentators bemoaned that the class action was dead. At the very least, many argued (as did some last week at DePaul Law School's Symposium on Class Action Rollback) that the Title VII class action is likely on its last legs.

If so, no one told the plaintiffs' counsel prosecuting McReynolds v. Merrill Lynch, Pierce Fenner & Smith (7th Cir. 2012), where the Seventh Circuit just reversed denial of a class seeking injunctive relief and certification of a class for the purpose of determining whether disparate-impact discrimination had occurred against African-American brokers.

The case bears some superficial similarities to Dukes. The plaintiffs alleged racial discrimination, and sought injunctive relief. But, unlike the Dukes plaintiffs, they alleged only disparate-impact discrimination (which does not require proof of intent, and does not allow recovery of damages), and did not seek back-pay as relief, at least at this stage. (Earlier iterations of the class proposal did.)

The lower court denied plaintiffs' class certification proposal several times. However, in denying certification of plaintiffs' most recent class proposal, the district court had said that the question of whether it could, at the very least, certify a class solely to determine whether there was sufficient commonality to justify an injunction against disparate impact was "crying out" for appellate review.

The Seventh Circuit obliged. Much of the opinion is given over to procedural wrangling over whether a plaintiff may appeal the denial of an amended motion for class certification after the court had already denied the original motion. The more interesting result, however, comes after Judge Posner resolves that issue in favor of the plaintiff.

Obviously a single proceeding, while it might result in an injunction, could not resolve class members’ claims. Each class member would have to prove that his compensation had been adversely affected by the corporate policies, and by how much. So should the claim of disparate impact prevail in the class-wide proceeding, hundreds of separate trials may be necessary to determine which class members were actually adversely affected by one or both of the practices and if so what loss he sustained—and remember that the class has 700 members. But at least it wouldn’t be necessary in each of those trials to determine whether the challenged practices were unlawful. Rule 23(c)(4) provides that “when appropriate, an action may be brought or maintained as a class action with respect to particular issues.” The practices challenged in this case present a pair of issues that can most efficiently be determined on a class-wide basis, consistent with the rule just quoted.

(Emphasis added.) Judge Posner also noted that the usual concern about bet-the-company litigation was not present in this case.

Merrill Lynch is in no danger of being destroyed by a binding class-wide determination that it has committed disparate impact discrimination against 700 brokers, although an erroneous injunction against its teaming and account distribution policies could disadvantage it in competition with brokerage firms that employ similar policies—though we have no information on whether others do.

And he concluded that overall, the benefits of issue certification in this case likely exceeded the costs.

We have trouble seeing the downside of the limited class action treatment that we think would be appropriate in this case, and we conclude that the district judge erred in deciding to the contrary (with evident misgivings, however).

So does this herald an era of widespread issue certification? Probably not. As Judge Posner notes throughout his opinion, there are a number of special circumstances in this case. Among them are the fact that the class is willing to seek injunctive relief, and to postpone any ruling on damages or back pay. For this set of plaintiffs, who have been litigating for years, this makes sense. But a plaintiff's lawyer looking to file a new lawsuit might not be willing to put in a substantial upfront investment without a promise of monetary recovery if he wins. Moreover, the Merrill Lynch plaintiffs challenged two specific policies--teaming (allowing brokers to form teams, which apparently resulted in some de facto segregation) and account distribution (whose subjective criteria appeared to result in discriminatory distribution of accounts)--that were not counterbalanced by an explicit nondiscrimination policy like the one in Dukes.  Assuming that companies are taking the Supreme Court's hint that an explicit antidiscrimination policy can make it harder to make a common issue out of a "subjective" policy, this may have presented a rare opportunity.

Nonetheless, Judge Posner's opinion provides a rare example of how a plaintiff might actually structure a request for issue certification. And for that reason alone, it is well worth the defense attorney's attention.

(Hat tip to George S. Robot, who brought the--literally--fresh-from-the-press opinion to the DePaul Symposium, and graciously shared much of the backstory with the participants.)

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Todays' classic case asks the question: how close an attorney-client relationship is too close an attorney-client relationship?

In London v. Wal-Mart Stores, Inc. (11th Cir. 2003), the plaintiff, Roger London, sued Wal-Mart and a group of banks, alleging that they had sold insurance without providing the proper disclosures, violating the Truth in Lending Act (TILA) and Florida state law.  

During discovery, it came out that London's lawyer, Robert Ader, had been his close friend since high school. In fact, for a while, London had served as his counsel's stockbroker as well. So there had been both a business and a personal relationship. Once Ader had discovered that London was paying for this insurance (at which point, he was in the hole only 41 cents), he told him to keep doing so so that he could be a plaintiff in a class action.

The defendants opposed class certification, in part because London was not an adequate class representative. Nonetheless, the trial court certified a class action against them. The defendants appealed.

On appeal, the Eleventh Circuit reversed. It began by noting that

adequacy of representation is primarily based on the forthrightness and vigor with which the representative party can be expected to assert and defend the interests of the class and whether plaintiffs have interests antagonistic to those of the rest of the class. In fact, we went on to note that meeting these requirements might still be insufficient if the named plaintiffs do not possess the personal characteristics and integrity necessary to fulfill the fiduciary role of class representative.

(Internal quotations omitted.) The court also noted that

The requirement for a stringent examination of the adequacy of the class representative is especially great when, as in this case, the attorney's fees will far exceed the class representative's recovery. In such circumstances, courts fear that a class representative who is closely associated with the class attorney will allow settlement on terms less favorable to the interests of absent class members.

(Internal quotations omitted, emphasis added.) In this case, a close personal friendship and a business relationship clearly counted as "closely associated."

After reviewing the record, we conclude that the district court abused its discretion by ignoring London and Ader's significant personal and financial ties. The long-standing personal friendship of London and Ader casts doubt on London's ability to place the interests of the class above that of class counsel. The close relationship between London and Ader creates a present conflict of interest — an incentive for London to place the interests of Ader above those of the class. Furthermore, even though London is no longer Ader's stockbroker, nothing prevents his returning to that role after this litigation is concluded. If London plans to do so, London would have an additional incentive to increase Ader's fees at the expense of the class. Thus, combined with their close friendship, the former financial relationship between London and Ader creates a potential conflict of interest.

(Emphasis added.)  London marked an important moment in the continuing development of the adequacy requirement, because it reaffirmed that one of the primary reasons adequacy is so important is that class actions need representatives who can independently direct their counsel. The Eleventh Circuit--like many class-action scholars--recognized that class counsel (who really control the case) do not necessarily have the best interests of absent class members in mind, particularly when attorneys' fees can run into the millions of dollars while relief for the class members may be only pennies. There are several ways of addressing that asymmetry. One is to reduce attorneys' fees, a reform courts have unfortunately been reluctant to implement. The other--which courts do occasionally enforce--is to make sure that the named plaintiff actually has the independence to stand up for the class when counsel opts for the money instead.

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There's an intuition among defense lawyers that property-based cases are difficult to certify; not impossible, but certainly difficult. This week's case, Burdette v. Vigindustries, Inc., 2012 U.S. Dist. LEXIS 15412 (D. Kan. Feb. 8, 2012), offers several reasons why that is the case.

Burdette is a case about sinkholes. It involves a neighborhood in Hutchinson, Kansas that had been located next to a series of salt solution mines. After a sinkhole developed in the Careyville neighborhood in 2005, the defendant, which owned the nearby salt mine property, created a buffer zone between the neighborhood and its own property. (This appears to have been pretty expensive, involving buying 37 nearby properties at a premium in order to create the zone.)

The plaintiffs--all residents of the Careyville neighborhood who had not been relocated--sued, alleging causes of action for nuisance and negligence under Kansas law. The trial court declined to certify the class. The reasons it gave involve issues that occur frequently in real property-based cases.

Each parcel of property was unique. The first reason the court cited was that individualized issues predominated over common ones. (The defendant, interestingly, apparently argued the Dukes commonality standard, but conceded that there was at least one common issue.) While the plaintiff argued that the court could just focus on the defendant's conduct, the court held that, to prove nuisance, each class member would have to prove the result of the defendant's conduct on their property; more specifically, under Kansas law they would have to show that the defendant had interfered with the owner's use and enjoyment of their property. As the court pointed out:

Determining what constitutes a nuisance is a case-specific inquiry and depends on factors such as: the type of neighborhood, the nature of the thing or wrong complained of, its proximity to those alleging injury or damage, its frequency or continuity, and the nature and extent of the injury, damage or annoyance resulting. Of these factors, only the type of neighborhood would lend itself to common evidence among these class members.

(Internal quotation omitted.) The plaintiffs didn't help their case by arguing for "stigma damages" (diminution in value that results from the perception that the properties were affected by sinkholes), an argument that created even more factual variations for the court to consider.

Based on all of these individualized issues, most of which were tied to the fact that each property in the area was unique, with unique owners, the court also declined to certify plaintiffs' negligence claims. (And, based on these same variations, it found that the plaintiffs were neither typical nor adequate representatives of the proposed class.)

Property-based class actions often lack geographic diversity. The court also found that the plaintiffs had not demonstrated numerosity for one of the subclasses, even though it had 57 members. Why? Because, since they were all geographically close, joinder was eminently practicable in this case.

[S]ubclass A is not necessarily so large as to make joinder impracticable, as it contains just 54 property owners within a confined area, making it easy to locate any remaining individuals for joinder if they wish to sue. Similar to Trevizo, where the Tenth Circuit affirmed a district court finding that 84 members was not sufficiently numerous, this case involves an amount of putative class members that is not "overwhelmingly large" so as to be prohibitive of joinder. There would be no problem identifying the remaining individuals in this subclass for joinder because they all own property in a defined area.

(Internal footnote omitted.)

Cases involving damages to real property often founder on these kinds of issues. Because each parcel is unique, there are often individualized issues involving use, enjoyment, and valuation. And, because many properties involved in "mass" incidents are close to each other, they're also amenable to joinder instead of class proceedings. Burdette provides a concrete reminder of just how these issues will play out in court.

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Six months after the Supreme Court decided Wal-Mart Stores, Inc. v. Dukes, courts are still working out how best to apply the newly-clarified standard of commonality. This week, the Seventh Circuit offered some further guidance.

In Jamie S. v. Milwaukee Public Schools, the plaintiffs--seven disabled public-school students--challenged Milwaukee's implementation of the Individuals with Disabilities Education Act.  The trial court denied certification, but allowed the plaintiffs to amend their complaint. It then certified the amended class proposal, and proceeded to a bench trial, where it found various violations of the IDEA, and ordered a complex, court-monitored remedial scheme. Both sides appealed: MPS appealed the certification, while the plaintiffs appealed the denial of certification of their first proposed class.

The Seventh Circuit vacated the trial court's certification order. It began by discussing how school districts implement the IDEA:

As relevant here, local districts must identify children with disabilities, determine whether these children require special-education services, and develop individualized education programs ("IEPs") tailored to each student's specific needs. Each step in the process is highly individualized because every child is unique.

(Emphasis added.) As one might expect, the rest of the opinion follows inexorably from that account. The Seventh Circuit vacated the order on three grounds. First, it found that the class was not identifiable from the proposed definition. The trial court had certified a class of

Those students eligible for special education services from the Milwaukee Public School System who are, have been or will be either denied or delayed entry or participation in the processes which result in a properly constituted meeting between the IEP team and the parents or guardians of the student.

As the Seventh Circuit found,

A significant segment of the class (of unknown and unknowable size) comprises disabled students who may have been eligible for special education but were not identified and remain unidentified.

(Emphasis in original.)

The Seventh Circuit also found that the class lacked commonality.

The plaintiffs identify the following common issue: "[A]ll potential class members have suffered as a result of MPS' failure to ensure their Child Find rights under IDEA and Wisconsin law." This completely misunderstands Rule 23(a)(2). Whether MPS failed in its obligations under the IDEA and thereby deprived an eligible disabled child of a free appropriate public education is the bottom-line liability question in any individual plaintiff's IDEA claim. To bring individual IDEA claims together to litigate as a class, the plaintiffs must show that they share some question of law or fact that can be answered all at once and that the single answer to that question will resolve a central issue in all
class members' claims.

(Emphasis in original.) This is, of course, remarkably similar to the language in Dukes. But the Seventh Circuit too it slightly further, providing an example to illustrate why plaintiffs' proposed common issue was not common at all:

To illustrate the commonality problem in the certified class, consider two hypothetical students within the class: one has a disability and would be eligible for special education but has never been identified as being disabled nor gone through the IEP process; another was identified as disabled and received a timely IEP meeting, but the child's parents did not attend the IEP meeting and were not notified of their right to do so. Both scenarios involve violations of the IDEA, but what common question can be answered that would assist the court in determining MPS's liability for each? On the plaintiffs' theory, that question is something like this: Did MPS fulfill its IDEA obligations to each child? But while that generic question is surely a part of both children's claims, it must be answered separately for each child based on individualized questions of fact and law, and the answers are unique to each child's particular situation.

(Emphasis added.)

Finally, the court held that since the plaintiffs had not established any common issue, there could be no common injunctive relief that would apply to all class members. As it held:

"While the compensatory-education remedies will often or always be injunctive in nature, there can be no single injunction that provides final relief to the class as a whole. It is no answer to say that the June 9 remedial order affects the entire class; that order merely establishes a system for eventually providing individualized relief. It does not, on its own, provide "final" relief to any class member."

The application for defense counsel should be clear. In an effort to avoid the dictates of Dukes, plaintiffs continue to label both issues and and relief as "common," even if the proposed common issue is so abstract as to be meaningless in a trial or in granting relief. The Seventh Circuit's "single answer" formulation can help explain to courts just when a common issue is truly common, as opposed to when the only real commonality to the class is their counsel's desire for certification.

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Today's case is a perfect illustration of the difference between tactics and strategy, or, more accurately, between litigation strategy and litigation grand strategy. As you may remember, a tactic is a plan to accomplish a specific short-term goal within a larger conflict. (A defendant may have the strategy of defeating certification to minimize litigation risk; one tactic will be to file a motion to strike class allegations.) A strategy (win this case by defeating certification) should also fit into a grand strategy (keep the defendant safe from meritless lawsuits by making sure courts enforce Rule 23 properly) that can include a number of larger moves, including planning for appeals and even lobbying for legislative change.

Last Thursday, the Seventh Circuit decided an appeal in Ross v. RBS Citizens, N.A. that represents a tactical (and even strategic) loss for the specific defendant, but was still a grand strategic win for defendants.

Ross was a wage-and-hour case, asserting claims under the Fair Labor Standards Act and the Illinois Minimum Wage Law.) The plaintiffs alleged that RBS had denied them overtime pay. The lower court certified the class, and RBS appealed.

Interestingly, RBS appealed solely on the grounds that the Court had not followed Rule 23(c)(1)(B), which requires a court to issue

An order that certifies a class action must define the class and the class claims, issues, or defenses, and must appoint class counsel under Rule 23(g).

In this case, RBS argued, the court had not adequately defined the class. (A side issue that came up during the appeal was whether the lower court had properly found commonality, since the Supreme Court arguably changed the standard in its Dukes opinion.)

To "define" a thing or concept is "to state precisely or determinately [its boundaries]; to specify" or "[t]o frame or give a precise description" of a thing. Oxford English Dictionary (2d ed. 1989). According to the Rule, those things to be defined in a certification order include the "class and the class claims, issues, or defenses. . . ." Fed. R. Civ. P. 23(c)(1)(B) (emphasis added). The above elements occur in a conjunctive, undifferentiated list, indicating that the requirement to "define" the "class claims, issues or defenses" is identical to the requirement to define the "class" itself within a given certification order. Id. Furthermore, the use of the definite article "the" before "class claims, issues, or defenses" connotes comprehensiveness and specificity, rather than illustrative or partial treatment, in defining those aspects of class action certification.

(Second emphasis added, quoting Wachtel v. Guardian Life Ins. Co. (3d Cir. 2006).)  Based on that reasoning, the Seventh Circuit held

that the appropriate substantive inquiry for Rule 23(c)(1)(B) is "whether the precise parameters defining the class and a complete list of the claims, issues, or defenses to be treated on a class basis are readily discernible from the text either of the certification order itself or of an incorporated memorandum opinion."

In this case, the Seventh Circuit found that the lower court had in fact met that burden. While it admitted "there might be some room for the district court to have drafted a clearer certification order," it found the order clear enough. (An important side note is that it made this finding in part by relying on the old common-law maxim of expressio unius est exclusion alterius: the lower court's list of issues to be tried on a class basis was complete and exclusive; everything else was an individual issue.) But the opinion offers an important tool for defendants at the same time. Frequently, lower courts certify cases because they have not thought through how the claims will actually be tried, and may therefore elide important individualized defenses to claims. But Rule 23(c)(1)(B) requires them to address each of these issues in turn, a requirement that should cut down on incorrect certifications.

So the end result of the individual case is that the defendants here lost. But, at the same time, the Seventh Circuit, joining the First and the Third, gave defense counsel an important tool to make sure that the lower court is considering all of the issues before it. What's the lesson defense counsel can take away from this? Tactically, it makes sense to remind courts that they must come up with an order that contains a clear statement of how they will treat all of the classwide claims, issues, and defenses. On a larger scale, it always makes sense to keep the court to the text of Rule 23; in the long run, that will continue to cut down on flawed certification orders.

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Just before the Christmas holiday, the Third Circuit (meeting en banc) issued an opinion approving a classwide settlement in an antitrust case. The en banc opinion is unusual. (Any en banc opinion is.) But in this case, the opinion is unusual not just because it represents a break from routine, but because of how it reaches its result.

The case is Sullivan v. DB Investments, the culmination of litigation against South African diamond giant De Beers. The primary allegation in the underlying lawsuit was that De Beers had exploited its market dominance to inflate the price of rough diamonds, which would inflate the price of diamonds down the line. De Beers got sued by both direct purchasers and indirect purchasers (in this case: jewelers, other middlemen, and consumers).

The case was not really litigated. De Beers suffered a default judgment because it refused to recognize the jurisdiction of the US courts. It then negotiated a classwide settlement with the plaintiffs' counsel.

The district court approved the settlement, despite the fact that the settlement implicated the antitrust laws of 50 states. (Many state antitrust laws do not allow indirect purchasers to recover for antitrust claims.) Several objectors appealed, arguing that the settlement could not be fair if it allowed people without a legal claim to recover the same amounts as class members who did have solid legal claims. A split panel of the Third Circuit reversed the trial court. Then an en banc panel vacated that opinion and granted an en banc rehearing.

The result was Sullivan. On the surface, the holding (approving a classwide settlement that includes people without a legal claim) may seem unusual, but the fact that the court was approving a settlement class might explain its willingness to overlook the fact that many of the class members would not have been entitled to recover if they had brought their claims in the courts of their home states.

The en banc panel's justification of that holding was more adventurous however, and it has led to some pronouncements that frankly, are just--well, bizarre is the best way to put it. In particular, Sullivan makes a number of statements that flat-out disagree with the Supreme Court's class-action jurisprudence, most notably its definitive statement on class-action settlements Amchem Products, Inc. v. Windsor. Among those statements:

Variations in state law that are outcome-determinative do not predominate over common issues:

the objectors argue that the existence of substantive variations in the state antitrust laws underlying the Indirect Purchaser damages claims should preclude a court from finding that common issues affecting the class as a whole predominate. They also urge that differences among state consumer protection and unjust enrichment laws would likewise preclude a finding of predominance. Our dissenting colleagues focus on this issue as well, and adopt a specific requirement that every class member has “some colorable legal claim” in order for a district court to certify a class. In our view, this requirement would result in a radical departure from what Rule 23 envisions and what our precedent demands, and it founders for many reasons.

(Emphasis added, internal citations omitted.) The Fifth Circuit disagrees, as does the Second. And so did the Third Circuit in Georgine v. Amchem Products, Inc. (which became Amchem).

Predominance focuses only on defendant's conduct:

Our precedent provides that the focus of the predominance inquiry is on whether the defendant’s conduct was common as to all of the class members, and whether all of the class members were harmed by the defendant’s conduct.

The Supreme Court disagreed in Wal-Mart Stores, Inc. v. Dukes. And to see the extent of that disagreement, here is Justice Ginsburg's characterization of that very issue from her dissent:

The Court gives no credence to the key dispute common to the class: whether Wal-Mart's discretionary pay and promotion policies are discriminatory. "What matters," the Court asserts, "is not the raising of common 'questions,'" but whether there are "[d]issimilarities within the proposed class" that "have the potential to impede the generation of common answers." … The Court's emphasis on differences between class members mimics the Rule 23(b)(3) inquiry into whether common questions "predominate" over individual issues.

(Emphases added, internal citations omitted.)  In short, while Justice Ginsburg disagreed that the commonality requirement should focus on dissimilarities within the class (as opposed to defendant's conduct), she (and her three dissenting colleagues) took it as read that the predominance inquiry did look at dissimilarities.

Courts should not look at whether class claims could survive a motion to dismiss:

An analysis into the legal viability of asserted claims is properly considered through a motion to dismiss under Rule 12(b) or summary judgment pursuant to Rule 56, not as part of a Rule 23 certification process.

and

Class certification and motions to dismiss involve two distinct (and different) standards, and the former does not permit as extensive an inquiry into the merits as the latter does.

(Emphasis added.)  Compare the Supreme Court's holding in Amchem:

The predominance requirement stated in Rule 23(b)(3), we hold, is not met by the factors on which the District Court relied. The benefits asbestos-exposed persons might gain from the establishment of a grand-scale compensation scheme is a matter fit for legislative consideration, but it is not pertinent to the predominance inquiry. That inquiry trains on the legal or factual questions that qualify each class member's case as a genuine controversy, questions that preexist any settlement.

(Emphasis added.)

Choice-of-law inquiries are not appropriate for class certification:

Moreover, district courts undertaking the scrupulous review of state laws could not ensure the validity of each individual claim without first settling upon the precise state law governing each of the putative class members’ claims. This choice-of-law analysis would be particularly difficult in a nationwide class action where an array of factors beyond the residence of the class members must be considered, including, inter alia, the location of the parties and the purchased items, and the place of contracting and performance. See generally Berg Chilling Sys., Inc. v. Hull Corp., 435 F.3d 455, 467 (3d Cir. 2006). The Seventh Circuit rightly noted that “choice-of-law issues in nationwide class actions are rarely so uncomplicated that one can delineate clear winning and losing arguments at an early stage in the litigation”; “the legal uncertainty resulting from the complicated choice-of-law issues” would unduly complicate the process for establishing predominance under Rule 23. Mirfasihi v. Fleet Mortg. Corp., 450 F.3d 745, 750 (7th Cir. 2006). As a result, many courts find it “inappropriate to decide choice of law issues incident to a motion for class certification.”

(Emphasis added)  The Supreme Court clearly disagreed with this premise in Phillips Petroleum v. Shutts (which, oddly, the Third Circuit did not cite). To wit:

the [choice-of-law] calculus is not altered by the fact that it may be more difficult or more burdensome to comply with the constitutional limitations because of the large number of transactions ....

(Emphasis added.)

The fairness of a class settlement does not depend on the viability of different class members' claims:

only by engaging in the type of fact-intensive merits and choice-of-law analyses that we have rejected could a district court attempt to assay the varying strengths and weaknesses of asserted state claims. We can find no support in our case law for differentiating within a class based on the strength or weakness of the theories of recovery. Accordingly, we decline to require such an analysis.

According to the Supreme Court in Amchem, this statement is factually incorrect. The Third Circuit has in fact differentiated based on theories of recovery:

The Court of Appeals next found that "serious intra- class conflicts preclude[d] th[e] class from meeting the adequacy of representation requirement" of Rule 23(a)(4). Ibid. Adverting to, but not resolving charges of attorney conflict of interests, the Third Circuit addressed the question whether the named plaintiffs could adequately advance the interests of all class members. The Court of Appeals acknowledged that the District Court was certainly correct to this extent: "'[T]he members of the class are united in seeking the maximum possible recovery for their asbestos-related claims.' " Ibid. (quoting 157 F.R.D., at 317). "But the settlement does more than simply provide a general recovery fund," the Court of Appeals immediately added; "[r]ather, it makes important judgments on how recovery is to be allocated among different kinds of plaintiffs, decisions that necessarily favor some claimants over
others." 83 F.3d, at 630.

In short, it appears that the en banc opinion did not consider much of the relevant Supreme Court jurisprudence on the issues facing it.  

Many of these strange statements make a lot more sense if they are limited to either (1) specific kinds of antitrust cases, or (2) settlement-only classes. They're still debatable--Amchem, for example, dealt with a settlement-only class--but they at least have an underlying logic that a court might be reluctant to interfere with an agreement between parties. In fact, Judge Scirica's concurrence specifically spells out that this was a settlement-only class, and therefore would not face many of the manageability problems that plaintiffs might face were they to take the case to trial. The majority appeared to agree with this conclusion in at least one part of its opinion. When evaluating the fairness of the settlement, it explicitly stated that

although the size and variety of issues implicated in this nationwide class action do not present an obstacle to certification of a settlement class, there is a significant risk that such a class would create intractable management problems if it were to become a litigation class, and therefore be decertified. Accordingly, we agree with the District Court that the considerable risk of maintaining the class action through trial weighed in favor of settlement.

(Internal quotations omitted.) And, in several places, it stressed the fact that this was an antitrust class action as well, and that antitrust cases are more susceptible to certification under certain circumstances.

Given the confusion sown by the majority opinion, the fact that many statements seem to contradict the Supreme Court's class-action jurisprudence, and the circuit splits this opinion opens, it would seem to be ripe for a certiorari petition. (Of course, it is always difficult to predict whether the Supreme Court will grant certiorari in cases like these.)

Meanwhile, given the en banc panel's sporadic attempts to limit the reach of its holding (however confusing in the context of the opinion itself), there are two strategies defense lawyers can employ when plaintiffs in the Third Circuit inevitably cite this opinion:

1. Point out that the opinion is limited to settlements (and where appropriate, more specifically to antitrust settlements), and
2. Quote the Supreme Court. In a contest between the Third Circuit and the Supreme Court, the Court wins. At least, it usually does.

(Thanks to Glenn Lammi for suggesting the first case of the year.)

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 This was a busy year for class-action jurisprudence. Clearly, most of the Supreme Court cases had some effect on class action practice. But the district and appellate courts also rendered a host of rulings this year that significantly affect class-action practice. Despite what a number of academics and plaintiffs' lawyers have claimed, the class action is not dead.  That said, it's probably true, to quote plaintiff's lawyer Daniel Girard, that while the "death of the class action" is overstated, the "Golden Age of the private attorney-general" is over. There were so many interesting opinions in the past year, with so many implications, that it was hard to identify just ten. Consequently, I've cheated a little. The final two entries actually comprise four cases which, taken as pairs, indicate a couple of new trends to watch out for.

1. Wal-Mart Stores Inc. v. Dukes (S. Ct.) - Whether you think it killed the class action or not, Wal-Mart Stores, Inc. v. Dukes (called "Wal-Mart" by some, "Dukes" by others) was the runaway most important case of the year for class-action practitioners. It clarified an ongoing debate about whether Rule 23(b)(2) could be used for money damages (it can't), it finally provided a standard for Rule 23(a)(2) (a common question must have a common answer), and it finally put to bed a common misreading of Eisen that had justified ignoring inconvenient facts when certifying class actions. Those all make it the most significant decision of the year, even before you get to the press hype.
2. AT&T Mobility v. Concepcion (S. Ct.) - Concepcion is the other case that has been accused of killing the class action (sometimes on its own, sometimes in conjunction with Dukes.) It hasn't managed that feat, but it has sent what one plaintiffs' attorney called "a seismic change" through class-action practice. While we're still feeling the aftershocks it's clear that it is now more difficult to bring "creative" consumer claims that are governed by clear purchase contracts; and certain individualized employment disputes are also finding their way into arbitration rather than class actions. And that's before we get into the Supreme Court's discussion of exactly what due process requires from aggregated litigation.
3. Pilgrim v. Universal Health Card, LLC (6th Cir.) - This case, the first appellate opinion to address the motion to strike class allegations at the pleading stage, has made the tactic truly viable. For years, class-action defendants have faced down multi-state classes that they knew from prior experience could not get certified. And yet, because courts were reluctant to rule on the viability of these class actions before discovery, defendants faced long and expensive discovery just to get to a legal issue that required no additional facts. Pilgrim marks the first time that an appellate court has recognized that determining whether variations in state law predominate over other issues does not require discovery, it just requires an analysis of the laws in question.
4. Klier v. Elf Atochem Inc. (5th Cir.) - Thought that cy pres relief was a no-brainer in your class action settlement? Think again. Joined later in the year by the Ninth Circuit's opinion in Nachsin v. AOL, LLC, Klier finally bridles the runaway use of cy pres relief to dress up less valuable class actions. The fact that it also provided a stark critique of the always-problematic medical-monitoring class action was just a bonus.
5. Smith v. Bayer Corp (S. Ct.) - Significant" does not have to mean "pro-defendant." In Smith, the Supreme Court held (abrogating the Seventh Circuit's Thorogood opinion last year) that a defeat at class certification does not preclude another class member from bringing the same class action somewhere else. It based this decision on the eminently logical reason that, until a case has been certified as a class action, it is just an individual plaintiff's case. (That same logic underlies the Seventh Circuit's recent re-affirmation that one can moot a class action before certification.)
6. Erica John Fund v. Halliburton (S. Ct.) - Similarly, securities defendants were perfectly happy with the Fifth Circuit's requirement that a plaintiff demonstrate loss causation when certifying a securities class under a "fraud on the market" theory, even if that requirement could not be found in the text of Rule 23. The Supreme Court, in a short, well-reasoned, and unanimous opinion, definitively closed off that particular line of argument.
7. In re Bluetooth Headsets Products Liability Litigation (9th Cir.) - The Ninth Circuit's rejection of a problematic class-action settlement (the class got nothing, the attorneys got $850,000) imposed a common-sense "proportionality" requirement on class counsel fees, recognized that segregation of the fee request from the rest of the settlement does not eliminate perverse incentives for class counsel, and required a cross-check for lodestar-based fees.
8. Judge Alsup's Class Settlement Checklist - Judge Alsup has handled a number of class actions in his few years on the bench. And this was the year that he developed a standing order that lays out what he expects from any classwide settlement, before negotiations may even have begun. It's an outstanding idea, and it provides excellent guidance to plaintiffs and defendants about what they can and can't accomplish in a settlement in his court. While I may not agree with all of his analysis, I can't fault his attempt to create certainty in the negotiation process.
9. In re Aqua Dots Products Liability Litigation (7th Cir.) & Pipefitters Local 636 Insurance Fund v. Blue Cross Blue Shield of Michigan (6th Cir.) - The Sixth and Seventh Circuits both faced the question of how to handle class actions that, while they might benefit the plaintiff and the plaintiffs' lawyers, would do no one else any good. Judge Easterbrook of the Seventh Circuit pointed out that while it is logical to say that a class action duplicating a voluntary recall is not a good idea, it doesn't exactly fall under the text of superiority. So instead, he held that a plaintiff who brings a redundant class action is inadequate. The Sixth Circuit, faced with a class action that might benefit the class but would in the process hurt other citizens of Michigan, simply held it not superior to other methods of resolving the controversy (including individual lawsuits).
10. CE Design v. King Architectural Metals (7th Cir.) & Creative Montessori Learning Centers v. Ashford Gear LLC (7th Cir.) - In a pair of opinions this year, Judge Posner seemed single-handedly determined to restore integrity to the class action. In CE Design, he held that a named plaintiff who has credibility problems cannot serve as an adequate class representative. In Creative Montessori, he held that class counsel who have engaged in deceptive methods to prosecute their class action are not adequate class counsel. The message behind these two cases seems clear: everyone in a class action is expected to be on the up-and-up, not just the defendants.

In making this list, I had to leave off a number of significant developments in class action practice. Taco Bell tried a risky but successful PR strategy this year. The Second Circuit held that subclasses might require their own counsel. The federal appellate courts have split--even after Dukes--on how to treat expert testimony. 2011 was an interesting time for class actions. Perhaps uniquely so. It will be interesting to see how each of these developments shakes out in 2012.

[Note - edited after publication to fix a formatting error and an unfinished sentence.]

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 Pickett v. Iowa Beef Processors was a lawsuit between cattle producers and a beef processing company. Cattle producers sold their cows in two ways: on the cash market (also known as the "spot market") and using forward contracts. The cash market was riskier, but also potentially more profitable. The forward contracts were safer, but also made less money for the producers. So some of the producers sued Iowa Beef Processors, alleging that their use of forward contracts was a deceptive business practice. (Specifically, they alleged a violation of the Packers & Stockyards Act, an antitrust statute which regulated the meat industry.)

The trial court (in the Middle District of Alabama) originally denied certification, because the plaintiffs had not met the typicality or adequacy requirements. The plaintiffs narrowed their class and sought reconsideration, offering expert testimony that an econometric model could determine most of the liability and damages issues. This time, the court certified the class. At that point, Iowa Beef Processors appealed.

The Eleventh Circuit began by noting that Rule 23(a)(4)'s adequacy requirement exists in part to guard against conflicts within the class.

Thus, a class cannot be certified when its members have opposing interests or when it consists of members who benefit from the same acts alleged to be harmful to other members of the class.

In this case, because the class action sought to prohibit forward contracts, it set up a conflict between those cattle producers who had used the device and those who had relied exclusively on the spot market.

Thus, the class includes those who claim harm from the very same acts from which other members of the class have benefitted. Moreover, in addition to damages, Plaintiffs seek an injunction that would prohibit IBP from using such purchasing arrangements in the future. Such an injunction would impose a significant restriction on the way these producers do business.

(Emphases added.)  So the Eleventh Circuit reversed the certification, because this conflict among the class would preclude any finding of adequacy.

In addition to being an excellent example of an intra-class conflict, Pickett also provides the first glimpse of a line of logic that shows up later in Pipefitters Local 636 Insurance Fund v Blue Cross Blue Shield of Michigan. It's always worth looking at the effects of a potential class action. Here, the proposed class action would have meant long-term harm to the producers. In Pipefitters, the class action would have harmed the elderly of Michigan. Class actions are cases large enough to effect massive and long-term changes. Sometimes those changes are for the best. Often, they have harmful effects on some members of the class, or on third parties.

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Regular readers know that I usually average two posts a week here, discussing a case on Tuesday, and offering a think piece on Thursday. But a case came down the other day that justifies switching up the schedule. The case is Creative Montessori Learning Centers v. Ashford Gear LLC, and the issue is under what circumstances a court may find class counsel inadequate to represent a class.

Creative Montessori is a Telephone Consumer Protection Act case; the TCPA prohibits the sending of "junk faxes" or "blast faxes" to recipients without their consent. Because it allows for damages of $500 per fax (which can be trebled), it's a juicy target for some plaintiffs' firms.

One of those plaintiffs' firms was Bock & Hatch LLC. (Bock & Hatch was also the firm that brought the CE Design case.) The firm got hold of a list of possible faxes and recipients from a "blast fax" company (a company that sent out the faxes in batches to numbers it had collected). It had promised the company confidentiality when it obtained the list, but its plan was to use the list to file more than 50 class actions. To get clients, it sent letters (addressed from another involved firm, Anderson + Wanca) to various companies that read:

during our investigation, we have determined that you are likely to be a member of the class. You might not remember receiving the junk faxes, but if the lawsuit is successful, you would receive compensation (up to $1,500) for each junk fax sent. We would like to discuss this issue with you. Please call me [telephone number].

Creative Montessori Learning Centers retained the firm, even though it had no evidence that it had actually received the fax at issue in the case.

During the debate over certification, Ashford Gear argued that the lawyers of Bock & Hatch were not adequate class counsel because of the underhanded means by they obtained their list, and because of the misleading statements they used to recruit clients. The trial court ruled that, while the firm's actions displayed a lack of integrity, the proper remedy was discipline by the Illinois bar. It also ruled that the firm's conduct did not affect its ability to represent a class.

The Seventh Circuit, in an opinion by Judge Posner, disagreed.  Judge Posner began by observing that class counsel have a fiduciary duty to absent class members.

Class counsel owe a fiduciary obligation of particular significance to their clients when the class members are consumers, who ordinarily lack both the monetary stake and the sophistication in legal and commercial matters that would motivate and enable them to monitor the efforts of class counsel on their behalf.

Based on that fiduciary duty, he observed that

When class counsel have demonstrated a lack of integrity, a court can have no confidence that they will act as conscientious fiduciaries of the class.

Finally, he addressed the lower court's treatment of a finding of lack of adequacy as a disciplinary issue rather than a criterion for class certification.

To suggest as the district court did that “only the most egregious misconduct” by class counsel should require denial of class certification on grounds of lack of adequate representation was bad enough. To rule that only the most egregious misconduct “could ever arguably justify denial of class status,” as the court went on to hold, would if taken literally condone, and by condoning invite, unethical conduct. Misconduct by class counsel that creates a serious doubt that counsel will represent the class loyally requires denial of class certification.

(Emphasis added.)  In doing so, Judge Posner acknowledged some prior precedent that had gone easier on class counsel, but pointed out that those cases had been decided before the issue of class counsel misconduct had become "acute."

This is a significant opinion. Usually, defendants are reluctant to proffer--and courts are reluctant to entertain--challenges to the adequacy of counsel. This reluctance stems from an assumption that, while usually implicit, the district court had announced explicitly: that somehow denying class certification operated as a punishment for class counsel. But even if--as many judges (including Posner) have observed--class counsel are the real actors in a class action, they are not supposed to be the primary beneficiaries of the litigation. Instead, the real beneficiaries are supposed to be the absent class members. Judge Posner's opinion here called out that assumption and showed that it can get in the way of the real purpose of class actions, which is compensating absent class members who have been harmed.
 

[Note: This post was edited on 14 December to correct some information, based on a communication from Brett Levin of Stephen J. Schlegel, Ltd., one of the defense firms in the case.]

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Like many health-minded individuals, Norma Rothman has shopped at GNC stores.  And, like many others, she has bought items there with her credit card.  And, like many consumers everywhere, she didn't like it when the cashier allegedly asked her for her ZIP code when she made her purchase.  Unlike many consumers, Ms. Rothman tried to turn this momentary dissatisfaction into a class action, alleging that GNC had violated the Song-Beverly Credit Card Act and California's infamous § 17200.  (Song-Beverly class actions have become very popular in California since its Supreme Court ruled that requesting a ZIP code can violate the Act.)

How unlike other consumers was Ms. Rothman?  Very.  When a trial court for the Central District of California denied her motion for class certification, it found that her class was overboard, lacked numerosity and commonality, and that, since she may have been the only person harmed in the manner she alleged, she was neither a typical nor adequate class representative.  (For those of you keeping score, that means she did not demonstrate any of the Rule 23(a)(4) requirements.)

The case was argued by a colleague of mine, Susie Germaise from McGuire's Los Angeles office, joined by Brad Funari and Laura Lange in Pittsburgh, so I'm not going to linger on commentary.  Instead, I will simply offer my congratulations for an outstanding win, and thank them for making the briefing available for others to read.  (Motion for class certification here, opposition here, reply brief here.)

Have a happy (and nutritious) Thanksgiving, everyone.  And come back Friday for another post.

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For fourteen years, from 1970 to 1984, more than 150,000 people bought stock in Petro-Lewis and its limited partnerships. Late in that period, the price of gas declined, and Petro-Lewis had to borrow money to to pay out distributions. In 1984, it announced that it was in severe financial straits, and cut its distributions by half, a move that resulted in a number of lawsuits, including Kirkpatrick v. JC Bradford & Co. 

In that class action, the plaintiffs alleged that JC Bradford had violated the securities laws by misleading investors in Petro-Lewis about its financial condition. At the class certification hearing, JC Bradford argued (1) that individualized issues predominated because the plaintiffs would have to prove reliance, and (2) that the named plaintiffs were not adequate. The trial court denied certification, relying on both of these grounds. The plaintiffs appealed.

The Eleventh Circuit held that denying certification based on predominance was error (mainly because of the same logic that motivated Basic Inc v Levinson).  

And then the court turned to adequacy. It conceded that

As the district court aptly noted, a potential class is entitled to more than "blind reliance upon even competent counsel by uninterested and inexperienced representatives."

(Emphasis added.)  And it observed that

Several district courts thus have properly denied class certification where the class representatives had so little knowledge of and involvement in the class action that they would be unable or unwilling to protect the interests of the class against the possibly competing interests of the attorneys.

(Emphases added.)  But it also argued that that the named plaintiffs did not have to demonstrate "to any particular degree" their vigor in pursuing class claims. Obviously, the court reasoned, a class would "be better served if the named plaintiffs fully participate in the litigation," but realistically class counsel is usually far more motivated to pursue claims than class members are. While it conceded that this created a "potential for abuse," it concluded, that

in securities cases such as these, where the class is represented by competent and zealous counsel, class certification should not be denied simply because of a perceived lack of subjective interest on the part of the named plaintiffs unless their participation is so minimal that they virtually have abdicated to their attorneys the conduct of the case.

Because the adequacy of the named plaintiffs was a mixed question of law and fact, the court did not reverse the trial court's adequacy finding. Instead it just remanded the case so that the trial court could make a finding according to the appropriate standard.

(Incidentally, there is one other feature of Kirkpatrick that is likely to become important. In footnote 6, the court also held that

The presence of arbitration agreements is relevant for another factor in determining the suitability of class treatment on the 10b-5 claims. ... Those purchasers whose 10b-5 claims are subject to arbitration thus could not be considered members of the class. In ruling on the motion for class certification, the district court did not determine whether the potential class members not subject to arbitration would be sufficient to satisfy the numerosity requirement of Rule 23(a)(2). The court should make this determination on remand.

Given the newfound emphasis on arbitration agreements, it is likely that, in a number of cases, classes where many members would be subject to arbitration clauses may lack numerosity.)

Kirkpatrick has a mixed legacy as a case. Defendants quite rightly cite it to demonstrate that one cannot completely abdicate a case to plaintiffs' counsel. And they also cite it to point out that one key feature to adequacy is the ability of the class representative to stand up to her lawyers when their interests diverge. The court did hold that one can largely look to the zeal and vigor of plaintiffs' counsel, instead of the plaintiff, but it specifically limited that holding to securities cases like the one before it.  And, as we know, particularly since the PSLRA was enacted, securities cases involve a much more searching inquiry into the adequacy of plaintiffs' counsel than other class actions.

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My regular Tuesday post will be up tomorrow (Classic Cases - looking at Kirkpatrick v. JC Bradford Co.).  But Russell Jackson has an excellent writeup of a recent Sixth Circuit opinion that affirms a motion to strike class allegations based on state law variations.  

Go.  Read.  

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Today's piece of "classic" scholarship is by Linda Mullenix, Professor of Law at the University of Texas. Published in 2004, Taking Adequacy Seriously: The Inadequate Assessment of Adequacy in Litigation & Settlement Classes, 57 Vand. L. Rev. 1687 (2004), took an in-depth look at the routine under-enforcement of Rule 23(a)(4)'s adequacy requirement.

To put the case simply, courts pay lip service to the concept of adequate representation but fail to robustly engage in any meaningful inquiry to establish the existence of such adequate representation. For judges, the adequacy inquiry usually is the least-rigorously examined requirement for certification, either for litigation or for settlement classes. Instead, courts routinely wave their blessings over class counsel and proposed class representatives and presumptively make findings of adequacy on nonexistent or scant factual showings.

(Emphases added.)  Mullenix attributes much of this under-enforcement to the fact that many courts focus on whether counsel is adequate rather than the class representative herself.

Because most courts historically and reflexively believe that the most important thing is the presence of competent counsel (the Newberg view), there is a general feeling of apathy toward class representative issues. In short, courts seem perfectly willing to ignore even the most clueless class representatives.

And, as Mullenix points out, that reliance on the adequacy of counsel can be a problem, because the same courts often do not probe into the adequacy of counsel, except in a superficial, check-the-resume way.

In reality, most courts routinely, reflexively, and presumptively certify proposed class counsel as adequate without a sufficiently probing inquiry. In the modern literature, one has to look long and hard to find cases in which class counsel have been deemed inadequate to represent the class.

(Mullenix points out that class counsel often do not face rigorous inquiry into adequacy because both courts and defense lawyers hesitate to call the adequacy of lawyers on the other side into question. And in general, this unwillingness to throw mud at opposing counsel is a feature, not a bug, in our civil litigation system.) There are a few exceptions, like Judge Baer's decision that "adequate counsel" in a securities case should come from diverse firms.  But even there, Judge Baer's order focused on a box to check, rather than the conduct of the firms themselves.

Mullenix offers one primary reform: require cross-examination of the class representative at the certification hearing, so that the court can make an adequate record of its own impressions of the adequacy of the named plaintiff.

While there are a few exceptions to this trend of under-enforcement now, for the most part, it appears to have continued. Many courts simply do not look at the adequacy of the class representative (or, failing that, class counsel) quite as closely as they could. And this is unfortunate, because a more rigorous inquiry into adequacy inquiry would have at least three salutary effects:

(1) It would cut down on lawyer-driven cases where there was no real harm. If class counsel can't find a named plaintiff who is sufficiently motivated to educate herself on what happened and actually communicate with her lawyers, that's a very good sign that the case is about a technical issue unattached to any harm rather than an actual injury that requires compensation. (Betty Dukes would likely pass this test, as would Dora Surowitz.)

(2) It would reinforce the finality of class settlements. Currently, it is possible to challenge a class settlement after the fact by challenging the adequacy of representation. This means that class settlements in jurisdictions that do not pay attention to adequacy are--in the long run--worth less than in jurisdictions that do pay attention to adequacy. But since there is systematic under-enforcement, mostly what it means is that class action defendants cannot trust the finality of the deals they do make.

(3) It would cut down on the kinds of settlements that draw objections. If there is an active named plaintiff involved, it is less likely counsel will be able to get away with coupons, illusory "injunctive relief," or exorbitant attorneys' fees. Of course, this may very well be one of the reasons that adequacy is not enforced that vigorously. When you get right down to it, most parties involved in class-action settlements--including courts--do not want to see a settlement derailed just because the lawyers have asked too much.

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 Dora Surowitz, a seamstress and a widow, was a Polish immigrant with very little English. In 1957, she bought about $2,000 of Hilton stock, on the advice of her son-in-law, Mr. Brilliant. (Yes, his real name. Phi Beta Kappa from Columbia, Harvard Law School. But really, with that name, could he have done anything else?) In fact, Hilton bought the stock for her, using her money, and bought some for himself and his family using his own money.

Five years later, Mrs. Surowitz got a notice from Hilton that it was buying back its own stock. Because she wanted to understand the notice, she took it to Mr. Brilliant. Something in the notice disturbed him, and he began investigating. He was joined by Mr. Rockler, who had been his colleague at the Nuremburg war crimes trials. (Did we mention Mr. Brilliant worked at Nuremburg?) Their investigation--which included a meeting with Hilton's lawyers--uncovered a complicated fraud at the corporation. Mr. Brilliant went home, explained the fraud to his mother-in-law, and asked her to sign a letter to Hilton protesting the conduct, which she did.

Later that year, Hilton refused to send out a dividend. Mrs. Surowitz went to her son-in-law for an explanation, and he told her more about the fraud, and asked if she would be willing to sue Hilton. She was. Mr. Rockler served as her lawyer.

Hilton's lawyers--like any good class-action defense team--took Mrs. Surowitz's deposition. At that point, it became clear that she spoke next to no English, understood very little about the fraud itself, and really had just relied on Mr. Brilliant for her understanding of the case. Hilton moved to dismiss, claiming the complaint was a sham because Mrs. Surowitz's verification of the complaint (in compliance with then-Rule 23) was false. Mrs. Surowitz appealed, and the appellate court affirmed. She appealed again, and the Surpreme Court granted certiorari and then reversed the dismissal. As Justice Black's opinion put it:

Rule 23 (b) was not written in order to bar derivative suits. Unquestionably it was originally adopted and has served since in part as a means to discourage "strike suits" by people who might be interested in getting quick dollars by making charges without regard to their truth so as to coerce corporate managers to settle worthless claims in order to get rid of them. On the other hand, however, derivative suits have played a rather important role in protecting shareholders of corporations from the designing schemes and wiles of insiders who are willing to betray their company's interests in order to enrich themselves. And it is not easy to conceive of anyone more in need of protection against such schemes than little investors like Mrs. Surowitz.

So why call this case a classic? Particularly in a blog called Class Acton Countermeasures? Two reasons.

First, Surowitz v. Hilton Hotels Corp. is the original source of the oft-cited proposition that a named plaintiff's ignorance of the case does not make her inadequate. And there is no denying the influence of the line of cases that held so since. After all, many courts have reasoned, if a Polish seamstress with little English and little understanding of a complex fraud can bring a derivative suit, who are we to say that this named plaintiff cannot be an adequate class representative?

But second, and more important, the actual case shows just how far afield courts have taken the original holding. Here are some things to consider about the Supreme Court's holding in Surowitz:

• Surowitz was not a holding about adequacy. Leaving aside the fact that this case predated the 1966 Amendments that made Rule 23 what it is today, Hilton's lawyers did not challenge Mrs. Surowitz's adequacy to represent a class as we understand that today. They challenged her right to bring a lawsuit at all. The Supreme Court was reviewing a motion to dismiss, not a motion for class certification.
• Mrs. Surowitz was not recruited by plaintiffs' counsel. One of the primary concerns in Surowitz was whether the case was a strike suit. And the question there was whether Mrs. Surowitz was just a stand-in for her attorney. The Court found that, on the facts, she wasn't. And those facts were not related to her knowledge of the suit. Instead, they were related to the fact that she had held the stock for years, had approached her son-in-law, who had then found her an attorney. Those facts today would raise eyebrows only because they tend to be so rare. These days, it is well-acknowledged that class-action attorneys recruit plaintiffs. (And that is why, today, ignorance is a greater concern.)
• There was no concern that the attorneys would sell out the shareholders. In fact, Hilton conceded that the attorneys were working in good faith, and that they were not simply holding the company up for a quick settlement. It argued that those facts were irrelevant. But, in the intervening forty-five years, those have become the relevant facts. Today, we ask whether a named plaintiff is adequate to represent a class because we know that there will be times in the litigation (such as settlement) when the attorneys will face overwhelming temptation to act in their own interests rather than those of the class.  And we want the named plaintiff to be able to stand up to the attorney when that happens. On the record in Surowitz, there was little concern that Mrs. Surowitz would not do so. If she relied on anyone, it was her son-in-law, who was not her attorney. And she had discovered the problem and taken the first steps to investigate it. Do we have the same confidence in a named plaintiff who has been recruited by an attorney and knows only what her attorney has told her?

So yes, Surowitz is a classic case, but it's a misunderstood classic. While plaintiffs and courts often cite it as holding that an ignorant plaintiff can be an adequate class representative, what it really held was that an ignorant plaintiff, relying on lawyers who had demonstrably acted in good faith, was entitled to bring a complaint under Rule 23. In the intervening forty-five years, however, the facts about class-action litigation have changed. And it is worth pointing out those changes to courts when plaintiffs' counsel argue that their hand-picked, pliable named plaintiffs are adequate class representatives.

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I've written before about the inventiveness of plaintiffs counsel when it comes to tobacco and class actions. And Xavier v. Philip Morris USA, 2011 U.S. Dist. LEXIS 42335 (N.D. Cal. Apr. 18, 2011), represents a new chapter in the ongoing tobacco wars.

Xavier was a class acton brought by smokers who were not suffering from any adverse health effects--yet. The named plaintiffs sought to certify a class of

asymptomatic Marlboro smokers and recent quitters who are more than fifty years old and have at least a twenty-pack-year smoking history.

What does twenty-pack-year mean? It represents the number of packs per day multiplied by the number of years the habit persisted, so a twenty-pack-year history could be a pack a day for 20 years, 2 packs a day for 10 years, or some other combination that added up to roughly 146,000 cigarettes. The plaintiffs sought medical monitoring.

Judge Alsup (of Class Settlement Checklist fame) immediately tied the ascertainability problem to the issue of preclusion.

If a class definition includes a requirement that cannot be proven directly, and that depends instead upon each putative class member's feelings and beliefs, then there is no reliable way to ascertain class membership. Without an objective, reliable way to ascertain class membership, the class quickly would become unmanageable, and the preclusive effect of final judgment would be easy to evade.

(Emphasis added.)  In this case, the class was not ascertainable, because determining class membership would require delving into class members' memories of their own conduct:

Thus, while the arithmetic total of an individual's Marlboro-smoking history is an "objective" question, it remains a question, and its answer depends on each individual's subjective estimate of his or her long-term smoking habit. Unlike in many cases, there are no defendant records on point to identify class members. There is no reliable way in which smokers themselves could document their long-term smoking histories.

(Emphasis in original.) Nor would the problems with class members' memories be the only issue in determining class membership. As Judge Alsup explained:

The memory problem is compounded by incentives individuals would have to associate with a successful class or dissociate from an unsuccessful one. Plaintiffs argue that individuals "have little reason to lie given the lack of pecuniary gain" but this order finds to the contrary. For example, long-term smokers of other cigarette brands and long-term smokers who have smoked fewer than 146,000 cigarettes may desire medical monitoring and be tempted to free-ride on relief granted in this action.

Since the class was not ascertainable using objective measures, Judge Alsup denied certification. His opinion is a useful one. In addition to explaining the importance of ascertainability to absent class members, he also expands the analysis a little by pointing out that an "objective" definition needs to rest on reliable data. If class membership relies solely on memory, and there is incentive to fudge, then the membership criteria is not really objective.

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 Phillips Petroleum v. Shutts involved a lawsuit by a class of gas royalty owners (folks who own the rights to income from gas produced on land) against an oil company. The royalty owners brought their class action in Kansas state court, alleging that Phillips Petroleum had not paid them on time, and so they were owed interest on their royalty payments.

The Kansas state court certified a class of 33,000 royalty owners. The debate over certification bore some similarity to modern debates, but also some startling differences. Phillips basically made two arguments against certifying a class. First, it argued that a Kansas court could not exercise jurisdiction over out-of-state class members. Second, it argued that a Kansas court could not apply Kansas law to those members' claims, and applying the laws of fifty states would be unmanageable.

The Court, in an opinion by Justice Rehnquist, held rejected Phillips's first argument. After an extensive discussion of personal jurisdiction (invoking every 1L's favorite Civ Pro opinion, International Shoe Co. v. Washington, the Court concluded that

the protection afforded the plaintiff class members by the Kansas statute [governing class actions] satisfies the Due Process Clause. The interests of the absent plaintiffs are sufficiently protected by the forum State when those plaintiffs are provided with a request for exclusion that can be returned within a reasonable time to the court.

In other words, under the right circumstances, a state court could certify a nationwide class. (Before CAFA, this holding had a huge effect on litigation, resulting in a flood of state-court nationwide class actions.)

But while the Court rejected Phillips's first challenge to certification, it gave more credence to the second. The plaintiffs made a number of arguments to try to keep all of the claims under Kansas law, among them that, essentially, Phillips had created a "common fund" in Kansas when it had delayed payments, and that the royalty owners all expected Kansas law to apply to their claims. The Court rejected each of these justifications, and held that:

Given Kansas' lack of "interest" in claims unrelated to that State, and the substantive conflict with jurisdictions such as Texas, we conclude that application of Kansas law to every claim in this case is sufficiently arbitrary and unfair as to exceed constitutional limits.

As a result, when courts today look at certifying nationwide classes based on state-law claims, they first engage in a choice-of-law inquiry to determine which laws should apply to each class members' claims. But even leaving aside this legacy of class-action choice-of-law rules (which, in itself would qualify Shutts as a "classic case"), there are a few other parts of the opinion that are still useful for modern class-action defense lawyers.

First, the Shutts Court's reasoning about the "expectation" of which law to apply is one that still has relevance, in particular, every time a plaintiff argues for imposing a single state's law to certify a nationwide class, particularly when arguing for applying the law of the defendant's home state.

Second, the Court helped to explain why it is that defendants often seem to be the only ones that care about the interests of absent class members; it's because of the way Rule 23 is structured:

The court and named plaintiffs protect [the absent class member's] interests. Indeed, the class-action defendant itself has a great interest in ensuring that the absent plaintiff's claims are properly before the forum. In this case, for example, the defendant sought to avoid class certification by alleging that the absent plaintiffs would not be adequately represented and were not amenable to jurisdiction.

(Emphasis added.) That's some handy language for the next time the plaintiff responds to a valid argument with rhetoric involving foxes and chicken coops.

In the end, Shutts is one of the more thoughtful opinions on how class actions can (and should be) tried. While it's often used solely as a quick citation supporting the need for a choice-of-law inquiry, Justice Rehnquist's opinion offers quite a bit more to the attentive defense attorney.

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The last few weeks have been exceptionally busy for appellate decisions involving class actions. In addition to Judge Easterbrook's In re Aqua Dots opinion, the Sixth Circuit's Pipefitters opinion, the Second Circuit's Literary Works opinion, and the Ninth Circuit's reversal of the Bluetooth settlement, the Third Circuit has offered up a pair of opinions involving predominance and common evidence. In one, Behrend v. Comcast Corp., a panel appeared to limit the reach of In re Hydrogen Peroxide on expert evidence, affirming certification of an antitrust case again the cable provider in part because it held that a Daubert inquiry is not necessary at class certification. In the other, Gates v. Rohm & Haas Co., a different panel affirmed the denial of certification of an environmental class action. In doing so, it appeared to follow Hydrogen Peroxide in requiring a "rigorous analysis" of expert proof, even if the parties themselves had stipulated no Daubert hearing would be necessary.

In general, Gates is an extremely useful opinion for defendants. Leaving aside its implicit analysis of the Daubert issue (which is likely to be hotly contested for some time to come), the Third Circuit made a number of other statements explaining just how difficult it can be to demonstrate either cohesiveness (for a Rule 23(b)(2) class) or predominance (for a Rule 23(b)(3) class).

I blogged about this case last year when the trial court denied certification. So, since it remains applicable, I'll repeat the factual summary from there.

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.

The district court refused to certify a class, finding that the Rule 23(b)(2) class lacked "cohesiveness" and the 23(b)(3) class lacked predominance. The plaintiffs appealed.  The Third Circuit affirmed. Among its holdings:

The "cohesiveness" requirement for Rule 23(b)(2) is more stringent than the predominance requirement for Rule 23(b)(3).

As all class members will be bound by a single judgment, members of a proposed Rule 23(b)(2) injunctive or declaratory class must have strong commonality of interests.

The Third Circuit also noted that

Commentators have noted that certification requirements under Rule 23(b)(2) are more stringent than under (b)(3).

The plaintiffs could not rely on proof of a composite, "average" class member to establish factual predominance.

Plaintiffs cannot substitute evidence of exposure of actual class members with evidence of hypothetical, composite persons in order to gain class certification. … Averages or community-wide estimations would not be probative of any individual's claim because any one class member may have an exposure level well above or below the average.

Nor could plaintiffs use regulatory standards as shortcuts for common proof.

Although the positions of regulatory policymakers are relevant, their risk assessments are not necessarily conclusive in determining what risk exposure presents to specified individuals. … Thus, plaintiffs could not carry their burden of proof for a class of specific persons simply by citing regulatory standards for the population as a whole.

In short, the Third Circuit came out definitively against using some of the various shortcuts plaintiffs have employed to convince courts to certify a class despite the lack of actual common proof. As both a taxonomy of these shortcuts, and an explanation of why they don't work, this is a good opinion for class-action defense lawyers to keep in their toolkit.

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 Superiority (which requires a court to find "a class action is superior to other available methods for fairly and efficiently adjudicating the controversy") is an often-overlooked area of Rule 23, perhaps because these days, it comes with a nice long, non-exhaustive list of factors to consider, including:

(A) the class members' interests in individually controlling the prosecution or defense of separate actions;
(B) the extent and nature of any litigation concerning the controversy already begun by or against class members;
(C) the desirability or undesirability of concentrating the litigation of the claims in the particular forum; and
(D) the likely difficulties in managing a class action.

After all, what litigant (or court) doesn't love slogging through a nice long list?

But, nice long list aside, superiority is an extremely valuable tool in a class-action defense lawyer's kit. Why? Because, when you get down to it, superiority encodes an important policy choice into Rule 23: when a plaintiff is suing for money damages, a class action should not be the court's first choice for resolving the dispute. The court should look to see whether other ways of solving the problem (individual cases, government action) work first.  And it should also look to see whether the class action will do more harm than good.

One recent case, Pipefitters Local 636 Insurance Fund v Blue Cross Blue Shield of Michigan (6th Cir. 2011), illustrates just how useful the superiority requirement can be when wielded properly.

The plaintiffs in Pipefitters sued Blue Cross because, for three years, it had imposed a fee (called the "other-than group" subsidy, or OTG subsidy) on group health customers. The fee helped subsidize the care of out-of-group insureds, such as retired people living on fixed incomes. One of the key merits questions was whether Blue Cross had been acting as an ERISA fiduciary at the time it imposed the fee. Despite the fact that determining whether Blue Cross's fiduciary status required looking at its individual Administrative Service Contracts with each client, the trial court certified a class under Rule 23(b)(3).

Blue Cross appealed. And, in an unusual twist, it was joined by the Michigan Commissioner of the Office of Financial and Insurance Regulation, which filed an amicus brief explaining that certifying a class against Blue Cross could result in "significant, negative financial ramifications to Michigan's senior citizens" because a victory might result in the inability to subsidize older non-group insureds.

The Sixth Circuit reversed the certification on two grounds. Procedurally, it pointed out that the trial court had not based its opinion on sufficient facts. Substantively, it held that a class action was not superior in this case. Specifically, it offered three reasons why the proposed class action would not be superior. First, the proposed class was simply unmanageable.

[T]he district court here would be required to conduct individualized inquiries into the ASC terms and funding arrangements of each ASC customer. That means looking at the contract terms and funding arrangements of 550 to 875 class members. Given the necessary number of individual inquiries, a class action cannot be a superior form of adjudication.

Second, the potential damage awards were large enough to justify individual litigation.

[T]he potential damage awards do not support a finding of superiority. The Fund alone claimed damages in excess of $280,000, and the record indicates that the possible awards of other class members exceed this amount. These are not the types of awards that would preclude individual class members from seeking relief through litigation.

But most important (and most interesting),

The Commissioner contends that, as a result, if the case were to proceed as a class action, BCBSM would potentially be forced to stop collecting more than $100 million dollars annually, which could result in higher premium rates for insured customers or in a reduction in Medigap coverage and a dramatic increase in premium rates for Michigan's senior citizens. The serious financial repercussions to Michigan's elderly population further support a conclusion that a class action is not a superior method of resolving the Fund's allegation.

The Sixth Circuit justified this view by citing an old Third Circuit case, Katz v. Carte Blanche Corp., 496 F.2d 747, 760 (3d Cir. 1974), that had held that a court could consider whether the class action was good for the "public at large." There is a certain logic to this argument. After all, if class action plaintiffs' lawyers want to hold themselves out as quasi-public servants who supplement publicly-accountable attorneys-general, then it would make sense to look at the effect their actions have on the public at large.

So what can defense lawyers learn from this case? Never assume that a class action is the best way of resolving a dispute. Class-action critics have often complained that plaintiffs' lawyers file big cases without considering the bigger picture of how they will affect policy. Pipefitters indicates that courts may actually listen to those arguments.

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I don't often rush to post news of a new opinion, but when I open my inbox to find multiple emails telling me something new and big has happened, that's a different story. And yesterday, I had a number of people telling me about a new opinion out of the Seventh Circuit: In re Aqua Dots Products Liability Litigation.

Russell Jackson wrote about this case last year, when the district court issued its opinion. The case concerned a child's toy called Aqua Dots, which was basically colored beads that, when you added water, would fuse together into whatever design you had arranged. The problem was, Aqua Dots looked a lot like candy. So much so that some kids swallowed them, and were put into brief comas. As soon as Aqua Dots found out, they recalled the product. But, sure as Thanksgiving is followed by Christmas shopping, the recall was followed by a class action.

The District Court had a hard time understanding how a class action would be superior to the recall, so it declined to certify the proposed class on superiority grounds. The plaintiffs appealed. The Seventh Circuit affirmed the result in an opinion by Judge Easterbrook. As he put it:

It is hard to quarrel with the district court’s objective. The lower the transactions costs of dealing with a defective product, the better. The transactions costs of a class action include not only lawyers’ fees but also giving notice under Rule 23(c)(2)(B). Notice may well cost more, per kit, than the kits’ retail price—and could be ineffectual at any price, since most purchases were anonymous. The court can’t send each buyer a letter. Notice would be by publication, yet the recall was widely publicized. Why bear these costs a second time? The Consumer Products Safety Commission has not expressed dissatisfaction with the recall campaign or its results, and the record does not contain any evidence of injury to children after the recall was announced. Spin Master believes that most of the 400,000 kits not returned in the recall were used before the recall began and that few, if any, defective kits remain in consumers’ hands. Consumers whose children used their kits are not members of the proposed class, so a public notice of a class action could be expensive yet pointless.

(Emphasis added.) Despite Judge Easterbrook's initial sympathy, he took issue with the fact that the trial court had departed from the text of Rule 23. (While the judge had held that the class action was not superior, he had not identified what kind of adjudication it would be superior to. Judge Easterbrook held that the voluntary recall of Aqua Dots was a resolution, but not an adjudication.) And, as Judge Easterbrook pointed out, the Supreme Court has made it clear that the text of Rule 23 controls over any individual policy preferences:

A district court is no more entitled to depart from Rule 23 than it would be to depart from one of the Supreme Court’s decisions after deeming the Court’s doctrine counterproductive. Rule 23 establishes a national policy for the Judicial Branch; individual district judges are not free to prefer their own policies. The Court made this point twice in its most recent Term. See Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011); Erica P. John Fund, Inc. v. Halliburton Co., 131 S. Ct. 2179 (2011).

(Emphasis added.)  Here's where the opinion gets really interesting. Because while Judge Easterbrook held that the trial court could not depart from the text of Rule 23, he found another textual source for the court's holding.

Instead of departing from the text of Rule 23(b)(3), the district court should have relied on the text of Rule 23(a)(4), which says that a court may certify a class action only if “the representative parties will fairly and adequately protect the interests of the class.” Plaintiffs want relief that duplicates a remedy that most buyers already have received, and that remains available to all members of the putative class. A representative who proposes that high transaction costs (notice and attorneys’ fees) be incurred at the class members’ expense to obtain a refund that already is on offer is not adequately protecting the class members’ interests.

(Emphases added.)  In other words, when a plaintiff files a class action that basically duplicates a voluntary action that the defendant has already taken, she may not have come up with an inferior method, but she is an inadequate representative of the class, in part because she appears to be prizing her attorneys' best interests over those of the class.

I'd usually close up by asking how a defendant can use an opinion like this, but in this case I don't think I really need to add anything.

(Hat tip to Ted Frank and David Appelbaum.)

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 Culver v. City of Milwaukee dealt with allegations of race discrimination--specifically, a white man who claimed he had been denied a job application at the Milwaukee police department because it was not accepting white males the year he applied. The trial court certified his proposed class (which consisted both of white men who had allegedly been denied applications and white men who might have been passed over because of changes in exam scoring to favor minorities). A year later, Culver got a different job, with which he was content, thus mooting his claim. Five years after that, a different trial judge decertified the class because Culver was not an adequate class representative. Culver appealed.

Judge Posner began his opinion by noting that

The class action is an awkward device, requiring careful judicial supervision, because the fate of the class members is to a considerable extent in the hands of a single plaintiff (or handful of plaintiffs, when, as is not the case here, there is more than one class representative) whom the other members of the class may not know and who may not be able or willing to be an adequate fiduciary of their interests. Often the class representative has a merely nominal stake (Culver has no stake), and the real plaintiff in interest is then the lawyer for the class, who may have interests that diverge from those of the class members. The lawyer for the class is not hired by the members of the class and his fee will be determined by the court rather than by contract with paying clients. The cases have remarked the danger that the lawyer will sell out the class in exchange for the defendant's tacit agreement not to challenge the lawyer's fee request.

He then stated that Rule 23

tries to minimize the potential abuses of the class action device in two principal ways, first by insisting that the class be reasonably homogeneous, and second by insisting that the class representative be shown to be an adequate representative of the class.

In this case, the largest problem was that the two classes Culver sought to certify were mutually exclusive. White men who had received no job application at all would offer very different proof than those who had sat for an entrance exam, and then had their test scores changed after the fact. Oddly, Culver's counsel, rather than finding a representative of the second proposed class, insisted that both classes be represented by the same person. (This might have been, as Posner noted, because "no member of the class has any interest beyond that of a curious onlooker in pursuing this litigation.")

At this point, Posner became extremely candid:

For purposes of determining whether the class representative is an adequate representative of the members of the class, the performance of the class lawyer is inseparable from that of the class rep- resentative. This is so because even when the class representative has some stake (unlike Culver), it is usually very small in relation to the stakes of the class as a whole, magnifying the role of the class lawyer and making him (or in this case her) realistically a principal. Indeed the principal. When we said earlier in this opinion that “Culver has done nothing to move the case forward except to file a flurry of frivolous motions” and remarked “the lack of energy with which he [Culver] has performed his function of class representative” and that the courts and Congress had refused as yet to rule that “the requirement that a class action, like any other suit, have a plaintiff is to be dropped and the class lawyer recognized as the true plaintiff,” realists reading this opinion no doubt sniggered. All Culver's moves in this suit were almost certainly the lawyer's. Realistically, functionally, practically, she is the class representative, not he.

(Italicized emphasis in original.)  The Culver opinion has proven long-lived precisely because of this candor. In addition to providing a typically lucid explanation of why the adequacy requirement is so important (a fact that is often overlooked in the rush to certify classes or approve settlements), Judge Posner also explained, in simple terms, how class actions really operate. He unmasks the fiction that the named plaintiff is in any way in charge of a class-action lawsuit as just that--a fiction. A number of scholars, judges, and legal reformers have continually wondered what can be done to solve the so-called "agency problem" in class actions. In many ways, the Culver opinion reinforces that there is a simple, easily-enacted solution: enforce the adequacy requirement. If the named plaintiff is truly an adequate representative of the class, then we should not have to worry about whether or not he can stand up to his lawyer when her interests diverge from the class's.

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 Defendant class actions are rare beasts. Rule 23 clearly authorizes them, but plaintiffs rarely file them, and defense counsel rarely encounter them. (I've only seen one or two in the wild myself.)

An article by law professor Francis X. Shen that appeared in the Denver University Law Review, The Overlooked Utility of the Defendant Class Action, notes that only about 177 class actions have ever been reported. Professor Shen argues that this comparative rarity doesn't reflect a difficulty in using the device so much as it does a misunderstanding of its usefulness.

What is a defendant class action, anyway? Simply put, it's a class action where, instead of joining a number of plaintiffs with a single representative, the plaintiff joins a number of defendant with a single representative. A defendant class action has to meet the same Rule 23 requirements as a plaintiff class action. And therein lies the problem. A defendant class action requires an adequate class representative. And most defendants have no interest in serving as a representative for a class of similarly-situated defendants. A proposed representative that doesn't want the job is not adequate; a proposed representative that does want the job is arguably even less so.  Moreover, in a Rule 23(b)(3) class action, most defendants would likely exercise their right to opt out.

As a result, most defendant classes are brought under Rule 23(b)(1). (Professor Shen's empirical analysis confirms this, the largest group of defendant class actions were constitutional challenges, which could be brought under the "inconsistent rulings" provision of Rule 23(b)(1). These constitutional challenges also benefit from the fact that the defendants--usually government personnel--have a strong incentive to clarify certain rules about how they should act; they're not personally on the hook for damages.) And, because of the due process concerns involved with imposing injunctions against people who can't defend themselves, courts are very reluctant to certify defendant classes under Rule 23(b)(2).

Despite these crushing disadvantages, Professor Shen believes that the defendant class action would be useful in cases where coordinating defendants is difficult. As he puts it:

The crux of my argument is that it is more likely for this mid-size group to overcome collective action problems when they are on the defendant side. The reason for this logic is straightforward; on the defendant side, parties do not have to initiate the proceedings.

This analysis sounds odd enough--do defendants really suffer from collective action problems in cases like these? But when Professor Shen provides examples of what he means, it's clear that he's not really envisioning a Rule 23 class action as it exists under United States law. Professor Shen offers two hypothetical cases:

1. RIAA lawsuits against downloaders, and
2. securities class actions against corporations and corporate personnel.

The first hypothetical demonstrates the problem with trying to bring a Rule 23(b)(3) defendant class. What young music downloader wouldn't opt out of an RIAA class action given the chance?

As for the second hypothetical, Professor Shen believes it would enhance deterrence in cases of corporate misconduct:

To the extent that it was not just a few "bad apples," but instead is in part driven systematically by certain kinds of corporate cultures, we want a legal device that can possibly change those cultures. A defendant class action might do that. In operation, if future members of a firm knew that they could be held liable (as a defendant class member) for any harm caused by the firm, it seems more likely that they would stand up to their bosses when asked to do illegal tasks.

Of course, nothing currently prevents lawyers currently from naming many individual defendants in securities cases involving "certain kinds of corporate cultures." And other firm personnel already know they will suffer for any harm caused by the firm: they will lose their jobs, and have to explain their tenure at the previous firm when looking for more employment. By contrast, if they're sued for damages in a defendant class, what will prevent them from opting out of any additional liability?

Professor Shen views this as a "system design" problem. In other words, he argues for changing the rules of the defendant class action to allow for drafting defendants into a defendant class, possibly applying a presumption of liability against them to give them an incentive to litigate, and possibly assessing a "litigation tax" to make sure they contribute to the costs of defense. He does concede that

It remains to be seen, for instance, how the proposed tools of system design will hold up in practice.

Amen to that.

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Class definitions can be extremely difficult for plaintiffs. In addition to holding that merits-based class definitions cannot support certification, courts have begun to hold that some definitions are simply too broad. Overbroad definitions usually are symptomatic of other problems with the proposed class.

Want an example? Take the case of Kemblesville HHMO Center LLC v. Landhope Realty Co., 2011, U.S. Dist. LEXIS 83324 (E.D. Pa. Jul. 28, 2011). Kemblesville concerns the dispersion of methyl tertiary-butyl ether (MTBE), a gasoline additive that helps reduce harmful automobile emissions, but which can contaminate groundwater under the wrong circumstances.

In Kemblesville, the plaintiffs sued based on a theory that the presence of MTBE in a few sites surrounding a gas station diminished the value of property out to a 2,500-foot (roughly, half-mile) radius. (They referred to this as the "stigma class," because the reduced property values would come from the stigma of being located near the contamination.) The plaintiffs asked the court to certify a class of all property owners within that radius.

The court began by noting the burden plaintiff carries in arguing for certification, and the fact that "[t]he requirements set out in Rule 23 are not mere pleading rules."  It also articulated why overly broad class definitions are not a good idea.

"The class must be sufficiently identifiable without being overly broad. Overbroad class descriptions violate the definiteness requirement because they include individuals who are without standing to maintain the action on their own behalf."

(Emphasis added, internal citations and quotation omitted.) The plaintiffs tried to avoid any overbreadth by claiming that the relationship between the alleged contamination and the geographic boundary of their class was a "merits issue." (This was an extremely odd choice. A number of courts have held that a class definition is fatally flawed if it requires a determination on the merits to decide who is in the class. While technically, the only merits question here was whether the plaintiffs' "objective" definition was reasonable, invoking the specter of a merits inquiry still seems self-defeating.) Nevertheless, the court disagreed.:

Plaintiffs' proposed class includes properties simply because they exist, irrespective of any actual connection to Defendants' activities. The Court does not at this stage require Plaintiffs to adduce definitive evidence about the specific amount and effect of MTBE dispersion. However, to enable this Court to conclude that there is a reasonable relationship between the relevant MTBE release and the proposed class area, Plaintiffs need to adduce some evidence of dispersion that indicates MTBE may have traveled, or will ever travel, near a radius of 2,500 feet.

Finally, the court also found a numerosity problem that stemmed from the overbreadth of the class.

However, because this class definition is too overbroad, I cannot accept Plaintiffs' numerosity argument. Plaintiffs have failed to provide evidence that MTBE contamination is present throughout the class area.
…
According to Plaintiffs, many properties are in contaminated or soon-to-be contaminated areas. However, that estimate is purely speculative, and conclusory allegations do not satisfy Rule 23(a)(1)'s numerosity requirement.

(Emphasis added.)  So what can defense lawyers take from this ruling? Don't be afraid to challenge an overly broad class definition. Even if it looks "objective," if a class sweeps too many potential members in, determining who is actually entitled to relief will require individualized inquiries. That is not merely a problem with predominance or commonality; it can also be a problem with the definition itself.

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One of the key issues that many (including me) assumed would be resolve in Wal-Mart v. Dukes was the question of what kind of Daubert inquiry would be necessary at the class certification stage.

The 1993 case Daubert v Merrell Dow Pharmaceuticals, Inc., involved a challenge to the longstanding "general acceptance" test for scientific evidence articulated by the D.C. Circuit Court of Appeals in Frye v. United States. The litigation in Daubert concerned infants suffering from birth defects that allegedly resulting from their mothers' use of the anti nausea drug Bendectin. After extensive pretrial discovery, Merrell Dow moved for summary judgment because no evidence existed demonstrating Bendectin to be a human teratogen (that is, a substance that causes birth defects). Merrell Dow attached an affidavit by a toxicology expert stating that the scientific literature on Bendectin showed no teratogenic effects. The plaintiffs countered Merrell Dow's expert testimony with expert testimony of their own. Despite the conflicting testimony, the trial court granted summary judgment for Merrell Dow because the methods the plaintiffs' expert employed were not sufficiently established to receive general acceptance; the Ninth Circuit affirmed on appeal.

The Supreme Court held that the enactment of the "more liberal" Federal Rules of Evidence superseded the Frye "general acceptance test," and remanded the case. However, the Daubert Court offered the District Court further guidance. It ventured several "observations" to consider in determining the admissibility of scientific evidence that later courts have adopted as required, namely:

1. whether the methodology can be proven wrong (its falsifiability);
2. whether the method has undergone publication and peer review;
3. the method's known or potential rate of error; and even
4. whether the method enjoys general acceptance.

(Courts are also supposed to determine how well the evidence "fits" the subject matter, but they often enforce this prong less rigorously.)

Heading into the Supreme Court's opinion, there was a clear circuit split as to whether to engage in a full Daubert inquiry during class certification. The Fourth and Ninth Circuits (in Brown v. Nucor Corp. and Dukes) had held that a Daubert inquiry was premature at class certification. The Second, Third, and Seventh Circuits had held that a court should check the qualifications of any experts, including anything up to a full Daubert inquiry.

The Supreme Court declined to address the issue directly. But the majority opinion did strongly hint at how the issue should be resolved:

The District Court concluded that Daubert did not apply to expert testimony at the certification stage of class-action proceedings. We doubt that is so.

(Internal citation omitted.)

Now, the Eighth Circuit has become the first appellate court to weigh in post-Dukes. And it has decided that the Supreme Court's hint was only a hint.

In re Zurn-Plex Plumbing Products Liability Litigation involved allegedly defective plumbing systems. (The brass fittings used to join pipes were allegedly ""doomed to leak within warranty" because of a phenomenon known as stress corrosion cracking.) The plaintiffs sued for breach of warranty, negligence, and violation of consumer fraud statutes. During the course of the pretrial litigation, the defendants moved to strike the testimony of two plaintiffs' experts. The trial court denied the motions, and then, based in part on those experts' testimony, it certified a Minnesota-only class for the negligence and breach-of-warranty claims.

The defendants appealed, but to no avail. The Eighth Circuit treated the Court's hint as dicta, and decided there was no reason to conduct at full Daubert inquiry at the certification stage. Instead, it held that the trial court's "focused inquiry" was sufficient:

The district court charted a middle course between the positions urged by the parties. After reviewing the evidence that had been produced, the court concluded that a full and conclusive Daubert inquiry would not be necessary or productive at this stage of the litigation, particularly since the expert opinions could change during continued discovery. The court instead conducted a focused Daubert inquiry to assess whether the opinions of Dr. Staehle and Dr. Blischke, based on their areas of expertise and the reliability of their analyses of the available evidence, should be considered in deciding the issues relating to class certification.

What does this mean for defense counsel? It means that the applicability of Daubert to certification proceedings is still a live issue. And that means that we are likely to see more expert evidence of questionable validity used to support certification motions. After all, in a class action, settlement--not trial--is plaintiffs' preferred endgame. And certified classes create "hydraulic pressure" to settle even questionable claims. So long as courts decline to test plaintiffs' expert testimony before certifying a class (particularly where it relates to the common issues in the class), plaintiffs will continue to use questionable testimony to buttress questionable claims.

(Hat tip to Jessie Kamens of BNA for drawing this case to my attention.)

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 There is no question that Wal-Mart Stores, Inc. v. Dukes will be the most-cited case in class-action practice for years to come. But before Dukes, Amchem Products, Inc. v. Windsor was the Supreme Court's definitive announcement of its interpretation of Rule 23 standards.

What's interesting about the case is that it involved a class-action settlement. The Windsor (before, Georgine) case was never supposed to be litigated. Instead, it was a settlement class. The proposed settlement class was a response to the asbestos litigation crisis (courts in the 1990s had been swamped by personal injury claims related to asbestosis), and was supposed to "achieve global settlement of current and future asbestos-related claims."

So, after a series of asbestos cases were consolidated, attorneys for both sides began negotiating a global settlement. As the Court described the proposed settlement document:

[I]t proposed to settle, and to preclude nearly all class members from litigating against CCR companies, all claims not filed before January 15, 1993, involving compensation for present and future asbestos-related personal injury or death.An exhaustive document exceeding 100 pages, the stipulation presents in detail an administrative mechanism and a schedule of payments to compensate class members who meet defined asbestos-exposure and medical requirements.

As one might expect, the proposed settlement drew a lot of objections from multiple sources. The objectors challenged the lack of an inflation adjustment (which meant that older claimants would be compensated less), the low compensation levels to many class members, and the inclusion of claims for medical monitoring. They also objected "strenuously" to the adequacy of the class representatives (not surprising, given the vastness of the class and the willingness to throw in just about every claim possible).

Despite the objections, the trial court approved the settlement. The Third Circuit reversed, based solely on the issue of certification. The settling parties appealed to the Supreme Court, which granted certiorari.

Given the number of issues at stake (the parties had sought certification under several provisions of Rule 23), the Court began with a number of definitive statements of class certification requirements. Among them, for Rule 23(b)(1)(A):

Rule 23(b)(1)(A) "takes in cases where the party is obliged by law to treat the members of the class alike (a utility acting toward customers; a government imposing a tax), or where the party must treat all alike as a matter of practical necessity (a riparian owner using water as against downriver owners).

And, for Rule 23(b)(3):

In the 1966 class-action amendments, Rule 23(b)(3), the category at issue here, was "the most adventuresome" innovation. Rule 23(b)(3) added to the complex-litigation arsenal class actions for damages designed to secure judgments binding all class members save those who affirmatively elected to be excluded.

(Internal citations omitted.) The Court noted that plaintiffs (and sometimes defendants) had become more inventive in their uses of the class action device over the years.

"In the decades since the 1966 revision of Rule 23, class-action practice has become ever more "adventuresome" as a means of coping with claims too numerous to secure their "just, speedy, and inexpensive determination" one by one. See Fed. Rule Civ. Proc. 1. The development reflects concerns about the efficient use of court resources and the conservation of funds to compensate claimants who do not line up early in a litigation queue."

The Court also held that settlement status was relevant to certification, but the fact that a case was settling did not mean that a court could ignore all of the Rule 23 requirements. Instead:

Confronted with a request for settlement-only class certification, a district court need not inquire whether the case, if tried, would present intractable management problems, see Fed. Rule Civ. Proc. 23(b)(3)(D), for the proposal is that there be no trial. But other specifications of the Rule--those designed to protect absentees by blocking unwarranted or overbroad class definitions--demand undiluted, even heightened, attention in the settlement context. Such attention is of vital importance, for a court asked to certify a settlement class will lack the opportunity, present when a case is litigated, to adjust the class, informed by the proceedings as they unfold.

The Court then held that, in this case, the parties had been too adventuresome. On their own, the personal-injury asbestos claims required inquiries into causation for each injury that would predominate over any common issues. And, given the kitchen-sink nature of the claims the parties had included, the individual issues had only compounded. The court also found that the parties could not demonstrate adequacy. As it put it:

The adequacy inquiry under Rule 23(a)(4) serves to uncover conflicts of interest between named parties and the class they seek to represent.

In this case, ether was a clear, irreconcilable conflict between injured and exposure-only plaintiffs:

In significant respects, the interests of those within the single class are not aligned. Most saliently, for the currently injured, the critical goal is generous immediate payments. That goal tugs against the interest of exposure-only plaintiffs in ensuring an ample, inflation-protected fund for the future.

And, finally, the Court offered a suggestion that has yet to get any real traction:

The argument is sensibly made that a nationwide administrative claims processing regime would provide the most secure, fair, and efficient means of compensating victims of asbestos exposure. Congress, however, has not adopted such a solution. And Rule 23, which must be interpreted with fidelity to the Rules Enabling Act and applied with the interests of absent class members in close view, cannot carry the large load CCR, class counsel, and the District Court heaped upon it.

The proposal for an administrative solution to mass-tort claims like asbestos is an interesting one that deserves more discussion. And, in this Thursday's post, we'll look at one academic's efforts to address just that issue.

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 Sometimes, a case will come along that illustrates clearly a number of the different strategic choices that lawyers have to make when defending class actions. In Lightfoot v. District of Columbia, 2011 U.S. Dist. LEXIS 1983 (D.D.C. Jan. 10, 2011), a group of former District employees sued the District of Columbia, "challenging the policies and procedures that the District applied to terminate, suspend, and modify disability compensation benefits." (It appears they were largely represented by students at George Washington University, as well as lawyers from a prominent DC firm working pro bono.) Over the course of a decade of litigation (involving a number of dispositive motions, a certification hearing, and at least one trip to the DC Circuit Court of Appeals), the District of Columbia was able to whittle the case down to a single issue: whether the District had terminated disability benefits without proper notice.

Seven years before the current opinion, the trial court had certified a class of former District employees. It then ordered the parties to compile a list of the class members. The composition of the list (which at times included as many as 5,000 and as few as 500 members) became a large source of disagreement over the intervening five years, sparking discovery fights and at least one change in the class definition to exclude members who would be precluded from recovering by a recently-passed statute.

In 2007, the defendants moved to decertify the class. While the court denied the motion, it did order the parties to come up with a final class list, a process it admitted later "was a tortured one and consumed substantial time and resources of the parties and this Court." Once the list was completed, the plaintiffs filed a motion for summary judgment, which finally provided a clear picture of how they intended to prove their case. At that point, the defendants moved again to decertify the class, arguing that it was not bound together by common issues.

This time, the court agreed with the defendants. While it conceded that commonality was supposed to be a simple inquiry, it said that, in this case the inquiry had been complicated by plaintiffs' "amorphous" common issues. As the court put it:

Plaintiffs ... seek to conflate a wide variety of practices and impute them to the class as a whole by collecting them under a single, unilluminating umbrella of "systemic" failures. That is, lurking behind the rather vague and conclusory statement that Defendants had a "policy and practice of failing to provide members of the Plaintiff class Due Process" lies a wide variety of more discrete and particularized practices that could conceivably serve as the foundation for municipal liability.

...

This is because Plaintiffs have [the commonality inquiry] backwards. The question is not whether a constellation of disparate but equally suspect practices may be distilled from the varying experiences of the class; rather, Plaintiffs must first identify the "policy or custom" they contend violates the dictates of procedural due process and then establish that the "policy or custom" is common to the class.

(Emphasis added, internal citations omitted) There's certainly room to ask whether the district court could have reached some of these conclusions earlier. (And, at least for purposes of commonality, the Supreme Court's Dukes opinion might guide it going forward.) But the more important lesson here is that, if a defendant believes a class was wrongly certified, it makes sense to continue to challenge the certification ruling. Facts become clearer, laws and understandings of facts change.

So what can defendants learn from this case? There are actually three:

First, time is often on the side of the defense. The longer a class action takes, the longer a court has to acclimate itself to the various issues that make the case unworkable; also the more likely that external events (like the passage of a statute) will interfere with plaintiffs' original plan. But playing for time can come with heavy costs. It can involve complying with costly discovery, and engaging in extensive (and expensive) motions practice. Most defendants, particularly in the past few years, would prefer to resolve cases quickly than to wait around for something to happen that might help their case.

Second, motions practice is extremely helpful for class-action defendants. While plaintiffs will often argue that continued motions are designed to stall and harass, Lightfoot shows the real reason they're valuable to defendants: they continually expose the manageability problems in a class proposal that plaintiffs would prefer to gloss over until they've achieved a classwide settlement.

Finally, especially in the wake of Dukes, it is always worth challenging commonality. In the past, few class actions had progressed far enough for courts to see why commonality was an important requirement. But in the past few years, cases like this, Brown v. RJ Reynolds Co., and Dukes have painted vivid examples of the problems that occur when courts do not pay attention to commonality early in.

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 In the 1990s, a group of attorneys sued a number of securities broker-dealers nationwide. They alleged that the broker-dealers had executed a number of securities orders at the "National Best Bid and Offer" (NBBO) price--which would provide a customer with the lowest available ask or the highest available bid for a security--an industry-wide practice at the time. Broker-dealers operate under a "duty of best execution," which requires them to "use reasonable efforts to maximize the economic benefit to the client in each transaction." The plaintiffs accused the broker-dealers of violating that duty by executing orders at the NBBO price instead of the examining other feasible alternatives. Since broker-dealers had used NBBO on literally hundreds of millions of transactions, the proposed class action meant big money.

The broker-dealers had lost a motion to dismiss. However, when the plaintiffs moved for certification, the trial court denied it. The plaintiffs appealed pursuant to the newly-enacted Rule 23(f). The Third Circuit affirmed the trial court. The Third Circuit's opinion contains three notable discussions.

First, because Rule 23(f) had only just come into being, it discussed the standards for bringing an interlocutory appeal under the Rule.

If granting the appeal ... would permit us to address (1) the possible case-ending effect of an imprudent class certification decision (the decision is likely dispositive of the litigation); (2) an erroneous ruling; or (3) facilitate development of the law on class certification, then granting the motion would be appropriate. But these instances should not circumscribe our discretion; there may also be other valid reasons for the exercise of interlocutory review. Again, we emphasize that the courts of appeals have been afforded the authority to grant or deny these petitions “on the basis of any consideration that the court of appeals finds persuasive.

(Emphases added, internal quotation omitted.) These standards are largely similar to most other circuits'.

Second, the court addressed plaintiffs' argument that the district court had improperly engaged in a merits evaluation when it found that plaintiffs could not prove economic loss using classwide proof. In doing so, it articulated a standard that is now accepted by the majority of circuits:

As the Court concluded in Livesay, class certification may require courts to answer questions that are often enmeshed in the factual and legal issues comprising the plaintiff's cause of action. ... In reviewing a motion for class certification, a preliminary inquiry into the merits is sometimes necessary to determine whether the alleged claims can be properly resolved as a class action. This is such an instance. We must probe beyond the surface of plaintiffs' allegations in performing our review to assess whether plaintiffs' securities claims satisfy Fed.R.Civ.P. 23's requirements.

(Emphasis added, internal citations, quotations, and footnote omitted.)

The court also found that plaintiffs could not prove economic loss on a classwide basis. The plaintiffs had attempted to invoke Basic Inc. v. Levinson to argue that the court should presume classwide injury much as it presumes classwide reliance in securities cases. The court, however, disagreed:

"Because claims may take on several forms, proving economic loss on a common basis is a fact-specific inquiry. We find no support in the case law for presuming economic injury for purposes ofin Rule 10b-5 claims absent indication that each plaintiff has suffered an economic loss.
In assessing the question of economic loss, it is important to bear in mind how the facts here differ from those in a typical action. Unlike a "fraud-on-the-market" claim, this case does not involve a misrepresentation or omission that decreased the value of a security. Furthermore, unlike excessive over-pricing policy claims, this case does not involve a practice that necessarily harmed investors across the class.In this case, defendants allegedly executed trades solely at the NBBO price. Depending on the facts of each trade, the NBBO listed price may or may not have provided a class member with the best price. Therefore, economic loss to the plaintiffs cannot be presumed by the purchase or sale of a security at the NBBO price, and we will not presume it across the class.

(Emphasis added, internal citations omitted)

In sum, Newton provided guidance on three issues on which defendants still rely heavily: when an interlocutory appeal is appropriate, how much a court may look at the merits in evaluating class certification, and the extent to which a court may examine variations in "damages" to determine whether individual issues predominate. Any one of those might qualify it as a "classic case." The combination of all three ensures that this opinion will be cited for years to come.

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Today, the Supreme Court issued its much-anticipated opinion in Wal-Mart v. Dukes.

For those who like to skip ahead to the end to figure out whether their side won, the Court ruled in favor of Wal-Mart. That said, the real winner was the late Professor Richard Nagareda, whose articles on commonality clearly influenced Justice Scalia's majority opinion.

In ruling for Wal-Mart, the Court issued two holdings: it held (5-4) that the plaintiffs had not met their burden on proving commonality, and (unanimously) that the plaintiffs could not certify a class for money damages under Rule 23(b)(2).

Now, what does the decision itself mean? Obviously, lawyers will be poring over the opinion in the coming months to tell us just that. But here are some highlights from the opinion.

Commonality means not common questions, but common answers.

Their claims must depend upon a common contention—for example, the assertion of discriminatory bias on the part of the same supervisor. That common contention, moreover, must be of such a nature that it is capable of classwide resolution—which means that determination of its truth or falsity will resolve an issue that is central to the validity of each one of the claims in one stroke.

The "rigorous inquiry" required for class certification is a factual inquiry.

Rule 23 does not set forth a mere pleading standard. A party seeking class certification must affirmatively demonstrate his compliance with the Rule—that is, he must be prepared to prove that there are in fact sufficiently numerous parties, common questions of law or fact, etc.

Plaintiffs must bring individualized monetary claims under Rule 23(b)(3).

[W]e think it clear that individ- ualized monetary claims belong in Rule 23(b)(3). The procedural protections attending the (b)(3) class— predominance, superiority, mandatory notice, and the right to opt out—are missing from (b)(2) not because the Rule considers them unnecessary, but because it considers them unnecessary to a (b)(2) class.

Statistical proof will not cure all problems with a proposed class.

The Court of Appeals believed that it was possible to replace such proceedings with Trial by Formula. A sample set of the class members would be selected, as to whom liability for sex discrimination and the backpay owing as a result would be determined in depositions supervised by a master. The percentage of claims determined to be valid would then be applied to the entire remaining class, and the number of (presumptively) valid claims thus derived would be multiplied by the average backpay award in the sample set to arrive at the entire class recovery—without further individualized proceedings. We disapprove that novel project. Because the Rules Enabling Act forbids interpreting Rule 23 to abridge, enlarge or modify any substantive right, a class cannot be certified on the premise that Wal-Mart will not be entitled to litigate its statutory defenses to individual claims.

(Internal citations omitted.)

And what does this mean for class-action litigation?

It means we're likely to see more robust challenges to commonality at the certification stage. It also means that we're likely to see fewer class actions pitched as seeking "injunctive relief" when what the plaintiffs (and their lawyers) really want is money damages. Combined with the Court's other class-action decisions this term, it seems clear that the limits of the class action are more sharply defined, which defense attorneys can use to protect their clients from spurious class actions.
 

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 My colleague Samantha Thompson has written a post for McGuireWoods's government-investigations group blog Subject to Inquiry on Erica John Fund v. Halliburton.  It's a good summary, and worth a read.  

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Late last year, the Eleventh Circuit ruled on the preclusive effect of a state-certified class action in federal court.  The Federalist Society very kindly asked me to comment on it for their online journal Engage.  It turned out to be a really interesting project, because what started out as an opinion about preclusion turned out to be more about the nature of commonality.  Here's a quick preview of the argument:

While at first glance Brown addresses the preclusive effect of the Engle class action, the real question the Eleventh Circuit wrestled with was the scope of Rule 23(b)(3)’s predominance inquiry. Neither the Middle District of Florida nor the Eleventh Circuit refused on principle to apply the findings of the Florida jury; instead, they found themselves unable to apply those findings because they lacked enough facts to understand what issues the jury had actually (or necessarily) decided.

You can head on over to the Engage website to read the rest.

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It's June, which means the Supreme Court is issuing a spate of opinions to finish out its 2010-11 term. Yesterday, the Court announced its opinion for Erica John Fund v. Halliburton. It's a short opinion, and a unanimous one. (Chief Justice Roberts wrote the opinion for the 9-0 Court.)

As you may remember, this case concerns an alleged securities fraud. The plaintiffs had alleged that Halliburton understated its asbestos litigation liability and overstated the benefits of a proposed merger. Once the truth came out, the price of Halliburton's stock dropped. When the plaintiffs moved for class certification, Halliburton argued that they could not show that the misrepresentations actually caused the loss. The trial court denied certification, and the Fifth Circuit affirmed.

I noted when the Court granted certiorari that the Fifth Circuit's opinon had drawn fire from academics for requiring an early merits inquiry. The Court did not address that criticism directly. Instead, it focused on defining loss causation.

The question presented in this case is whether securities fraud plaintiffs must also prove loss causation in order to obtain class certification. We hold that they need not.

The Court discusses how its opinion in Basic, Inc. v. Levinson (which allows a court to presume reliance where an efficient securities market exists) establishes the standard for determining causation at the class certification stage.

It is undisputed that securities fraud plaintiffs must prove certain things in order to invoke ’s rebuttable presumption of reliance. It is common ground, for example, that plaintiffs must demonstrate that the alleged misrepresentations were publicly known (else how would the market take them into account?), that the stock traded in an efficient market, and that the relevant transaction took place “between the time the misrepresentations were made and the time the truth was revealed.”

However, according to the Court,

The Court of Appeals’ requirement is not justified by Basic or its logic. To begin, we have never before mentioned loss causation as a precondition for invoking Basic’s rebuttable presumption of reliance. The term “loss causation” does not even appear in our Basic opinion. And for good reason: Loss causation addresses a matter different from whether an investor relied on a misrepresentation, presumptively or otherwise, when buying or selling a stock.

(Emphasis added.) The Court calls the kind of causation represented by reliance "transaction causation." In other words, did the misrepresentation cause the buyer to buy?

Loss causation, by contrast, requires a plaintiff to show that a misrepresentation that affected the integrity of the market price also caused a subsequent economic loss. As we made clear in Dura Pharmaceuticals, the fact that a stock’s “price on the date of purchase was inflated because of [a] misrepresentation” does not necessarily mean that the misstatement is the cause of a later decline in value. We observed that the drop could instead be the result of other intervening causes, such as “changed economic circumstances, changed investor expectations, new industry-specific or firm-specific facts, conditions, or other events.” If one of those factors were responsible for the loss or part of it, a plaintiff would not be able to prove loss causation to that extent. This is true even if the investor purchased the stock at a distorted price, and thereby presumptively relied on the misrepresentation reflected in that price.

In other words:

Loss causation has no logical connection to the facts necessary to establish the efficient market predicate to the fraud-on-the-market theory.

What's the likely effect of this opinion? For most circuits, which did not observe the loss causation requirement, not much. The opinion largely reaffirms the status quo. In the Fifth Circuit, we're likely to see an uptick in class action filings, and certifications of securities class actions.

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 As a class action lawyer (and one who defends class actions, no less), I often face the problem of explaining to friends and family exactly what I do all day. The cases themselves are often interesting, but the way we lawyers go about defending them--by mastering the arcana of one of the Federal Rules of Civil Procedure--can seem hopelessly dry. And that is why, at times, I have comforted myself with the (hollow, I admit) consolation that at least I'm not an ERISA lawyer.

Except, of course, that ERISA can spawn class-action lawsuits as well. Some simply challenge a plan administrator's decisions in administering employees' retirement benefits. But, more and more frequently, plaintiffs' lawyers are filing ERISA "stock-drop" cases, which go after the same alleged frauds challenged in securities class actions, but use ERISA plan beneficiaries as plaintiffs instead of individual or institutional investors.

The combination of Rule 23 and ERISA is enough to send many experienced lawyers into fits of anxiety or ennui, but Vanderbilt law student Lauren Fromme has bravely stepped in to explain the workings of the ERISA stock-drop suit in her comment "Unreliable Securities for Retirement Income Security: Certifying the ERISA Stock-Drop Class."

Let me say first, Fromme has written an outstanding student note, not so much for its final prescription (which I'll admit is intriguing), but for its careful exploration of a burgeoning trend in securities class actions. Fromme begins by identifying the key differences between a securities case and an ERISA stock-drop suit, namely:

First, most 10b-5 lawsuits are governed by the Private Securities Litigation Reform Act of 1995 ("PSLRA"), which provides for an automatic discovery stay and heightened pleading requirements. Mirroring Federal Rule of Civil Procedure 9(b), the PSLRA requires that 10b-5 claimants plead "loss causation" and "state with particularity" facts creating a "cogent and compelling inference" that the defendants acted with intent to deceive. ERISA claims, however, are not covered by PSLRA, and Federal Rule of Civil Procedure 26 is the sole guidance for discovery. Without the additional requirements of PLSRA and Rule 9(b), ERISA plaintiffs need only plead facts creating a "plausible" inference of causal connection under Federal Rule of Civil Procedure Rule 8(a), making it easier to survive a motion to dismiss. Second, Rule 10b-5 plaintiffs must show that the defendants acted with scienter, which is a wrongful state of mind requiring at least a showing of recklessness, while ERISA requires only a showing of negligence. Third, Rule 10b-5 only allows for the recovery of damages as defined by the loss resulting from the defendant's misstatements. Remedies under ERISA, however, may exceed the plaintiffs' damages, including lost profits and other equitable relief restoring the benefit plan for losses. Finally, Rule 10b-5 defendants are defined broadly by their relationship to any fraudulent misstatements, while ERISA defendants must be plan fiduciaries.

(Emphases added, internal footnotes omitted)

As Fromme points out, the largest obstacle to certifying an ERISA stock-drop class is the treatment of the investors' reliance on the alleged misrepresentations. Reliance matters in ERISA suits (which seek restitution to a firm's retirement plan) because most plans are defined-contribution plans, rather than defined benefit plans. As a result, participants choose their own investments, and bear the risk of those investments working out or not. (Courts certify ERISA suits under all three subsections of Rule 23(b), but Fromme argues causation matters even in Rule 23(b)(1) or (b)(2) suits to the extent defendants can demonstrate that a representative plaintiff is atypical of the class because she relied on a misrepresentation no one else did.) ERISA suits are not suits under 10b-5, so it is unclear that the Basic rule that allows plaintiffs to presume reliance is in effect.

Fromme's proposal to fix this apparent contradiction is to require "some reliance":

the plan participants collectively in an ERISA section 502(a)(2) claim can be likened to a single plaintiff asserting a claim under Rule 10b-5. All of the plan participants might not rely on the fiduciary's misstatements, but as long as some participants rely there will be actual causation. This is similar to a single 10b-5 plaintiff, for example, who detrimentally relies in part on the corporate officer's misstatements, in part on her own intuition, and in part on the recommendations of a friend. As long as the plaintiff in this 10b-5 case can demonstrate the detrimental reliance on the material misstatements, her reliance on the other aspects of the security should not matter. Therefore, to establish liability in an ERISA section 502(a)(2) claim, all that the plaintiffs must show is that some of the plan participants relied on the material misstatements. Only some reliance will be enough to cause harm to the plan as a whole.

Fromme's proposal is interesting, although it raises some questions about how it would play out in practice. Does a plan participant who did not rely on a misstatement have standing to offer evidence of others' reliance? Will this create a greater focus on cherry-picking class representatives, which may raise adequacy problems? Nonetheless, this is an outstanding piece of student scholarship, and well worth a read by anyone who defends securities class actions.

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 In July 1969, General Telephone Company of the Southwest hired Mariano Falcon, a Mexican-American, as part of minority recruitment effort. Falcon maintained a good employment record until, "[i]n October 1972 he applied for the job of field inspector; his application was denied even though the promotion was granted several white employees with less seniority." Dissatisfied with being passed over, Falcon filed a charge with the Equal Employment Opportunity Commission, which promptly granted him a right-to-sue letter.

Falcon filed his lawsuit as a class action, alleging discrimination not just in General Telephone's promotion practices (sensible, since he had been passed over for promotion), but also in its hiring practices. After General Telephone responded to his interrogatories, Falcon moved to certify a class of all employees or potential employees. (This was an "across the board" challenge to Falcon's employment practices, a tactic that the Fifth Circuit allowed at the time.)

The trial court certified the class without conducting a hearing. It then conducted a trial of the liability issues, which resulted in a finding of that General Telephone had discriminated against Mexican-Americans in its hiring--but not its promotion--decisions. Both sides appealed the ruling; General Telephone because the hiring claim had been certified, and Falcon because his hadn't been.

The Supreme Court granted certiorari "to decide whether the class action was properly maintained on behalf of both employees who were denied promotion and applicants who were denied employment." In an 8-1 opinion , (Chief Justice Burger concurred in part and dissented in part), it held that the answer was "no."

Justice Stevens began his opinion by noting that

The class-action device was designed as an exception to the usual rule that litigation is conducted by and on behalf of the individual named parties only. Class relief is peculiarly appropriate when the issues involved are common to the class as a whole and when they turn on questions of law applicable in the same manner to each member of the class. For in such cases, the class-action device saves the resources of both the courts and the parties by permitting an issue potentially affecting every [class member] to be litigated in an economical fashion under Rule 23.

(Internal quotations omitted.)

Justice Stevens's opinion primarily addressed the problem that Falcon's claim was not the cause of action certified for class treatment. As a result, he was an atypical class representative.

We have repeatedly held that a class representative must be part of the class and possess the same interest and suffer the same injury as the class members.

(Internal quotations omitted.)  In fact, Justice Stevens held

Conceptually, there is a wide gap between (a) an individual's claim that he has been denied a promotion on discriminatory grounds, and his otherwise unsupported allegation that the company has a policy of discrimination, and (b) the existence of a class of persons who have suffered the same injury as that individual, such that the individual's claim and the class claims will share common questions of law or fact and that the individual's claim will be typical of the class claims.

The Court also found that the trial itself showed class treatment wasn't appropriate.

Instead of raising common questions of law or fact, respondent's evidentiary approaches to the individual and class claims were entirely different. He attempted to sustain his individual claim by proving intentional discrimination. He tried to prove the class claims through statistical evidence of disparate impact. Ironically, the District Court rejected the class claim of promotion discrimination, which conceptually might have borne a closer typicality and commonality relationship with respondent's individual claim, but sustained the class claim of hiring discrimination. As the District Court's bifurcated findings on liability demonstrate, the individual and class claims might as well have been tried separately.

Falcon is particularly important right now given that the Supreme Court is deciding Wal-Mart v. Dukes. The composition of the Court has changed, so this case does not provide a guide to how the current Court will rule on Dukes. But both parties relied on Falcon in their briefing, so it is particularly important to remind ourselves how the Court has ruled in previous employment class actions. Just because the plaintiff has alleged discrimination does not mean that he has alleged a claim that can be established with classwide proof.

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Greg Mortenson turned a passion for mountain-climbing and an interest in helping the women of Central Asia into a multimillion dollar charitable foundation and a bestselling book. The book, Three Cups of Tea, tells the story of how his failed attempt to scale K2 (considered one of the hardest peaks in the world) led to his founding a charity to build schools in Central Asia.

But since the time that Mortenson's book hit the bestseller list, a number of people (including former supporter John Krakauer) have raised serious questions about whether Mortenson was telling the truth in Three Cups of Tea, and whether he has conducted his charity work properly. Last month, the CBS newsmagazine 60 Minutes aired a less-than-flattering segment on the controversy. Soon after that, a pair of Montana state lawmakers filed a class action against Mortenson and his charity, the Central Asia Institute. 

The complaint asserts claims for fraud, deceit, RICO violations, breach of contract, and unjust enrichment. Many of these claims are hard to certify. In particular, fraud-based claims (here, fraud, deceit, and RICO) will require individual proof of reliance for each class member.

What do I mean by "individual proof of reliance"? In this case, all one needs to do is look at the comments to the 60 Minutes article:

"I just started reading Three Cups of Tea a few weeks ago. None of what 60 Minutes is saying seems particularly shocking or surprising to me. For example, it probably does cost that much more to promote a book in the U.S. than it does to build 100 schools in Pakistan. I found the story to be engaging and inspiring, but also suspected all along that some of the facts were distorted to make the story flow better."

"After reading the book I was impressed that someone would have the courage and faith to do what he claims to have accomplished, even if only some of it is true, it was a remarkable acheivement. "

"While I had some caveats while reading Mr. Mortenson's book (3 Cups), I nevertheless am essentially disgusted by the assumptions and arrogance of outside entities (going in well after the fact) that expect all transactions and processes in places like mountainous Pakistan and Afghanistan to have proceeded along idealistic and unreal American "standards" - which don't exist, anyway. Who do they think they're kidding?"

"I'll reserve judgment on Greg Mortensen, at least for now. Success isn't permanent. Failure is not fatal. I'll continue to recommend his books for the lessons learned, and I'll wait to see how Greg Mortensen's legacy plays out."

Assuming each of these commenters bought the book they read, each one is a member of the proposed class. And none of these class members believe they were deceived. There are many reasons to buy a non-fiction book; some may be looking for the most truthful account possible of a story, but some may in fact buy a book knowing it's likely to contain bias or even outright falsehood. Whoever Mortenson's attorney is, she could spend some quality time harvesting comments like these to show that proving liability will require different evidence for each putative class member.

Moreover, the fact that this lawsuit was filed by a pair of Montana lawmakers implies that this lawsuit may be more about scoring political points than about repairing any particular damage. (Legislators have many, varied reasons for filing lawsuits, not all of which will line up with consumers' interests.)

It may be that the plaintiffs' lawyers here are not looking to certify a full class. Given the severity of the negative publicity that has attached to Mortenson, they're likely banking on turning the lawsuit into a quick settlement. Authors and publishing houses rely heavily on publicity for their marketing, which means that they're unlikely to want to risk too much bad publicity.

No matter how this lawsuit turns out, however, it forms the latest example of the literary class action--and we can certainly expect to see more of these in the future.

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I've talked before about the problem of circularity in securities class actions. Briefly put:

[A] securities class action takes money from the firm, and pays it to the shareholders, minus costs and attorneys' fees. The hitch is that the firm is owned by the shareholders, which means that the attorneys have just taken money from the shareholders' property and handed it to them directly, while taking a one-third cut for themselves.

At the time, I pointed out that while the circularity critique may suggest that securities class-acton plaintiffs are inadequate the moment they bring a lawsuit, courts were unlikely to give that argument much credit. Villanova professor Richard Booth, however, has authored a working paper that refines the argument, and shows why securities class actions may actually cause adequacy problems in language most courts will understand. Booth notes that there are two kinds of investors: diversified investors that actively manage their portfolios in some way, and more passive "buy-and-hold" investors. diversified investors are far less likely to buy and hold investments. Instead, they tend to be "actively managed," trading investments based on a number of factors in an attempt to beat the returns the market offers. Most importantly, even a diversified investor with a stable strategy will buy and sell individual stocks as it rebalances its portfolio. As a result, a diversified investor--and many, if not most, investors are diversified--is just as likely to gain from a securities fraud (selling the stock when its value is still inflated) as it is to lose. Under those circumstances, as Booth describes it, securities class actions operate as a redundant insurance policy.

Moreover, because the diversified investor has shielded itself from any large individual loss that comes from a buy-and-hold strategy, they are more likely to prefer derivative lawsuits to class actions. Why? Because in a derivative class action, the vast majority of the money recovered goes back into the corporation, rather than out to the original buyers of the stock. Booth also points out that attorney fees tend to be lower in derivative actions, effectively reducing the "lawyer tax" on any recovery. Or, as Booth himself puts it:

Undiversified investors are likely to favor class actions. Diversified investors are likely to oppose class actions and favor derivative actions. Although undiversified investors would not object to a derivative action in principle, they might object because the derivative recovery would reduce the class recovery. In other words, each group opposes what the other favors. Investors who stand to gain more from a class action will want their representative plaintiff (and lawyer) to maximize their claim by downplaying or indeed ignoring any evidence of derivative claims. The remainder of investors will want a zealous derivative plaintiff (and lawyer) to maximize derivative claims.

(Emphasis added)  Booth's working paper suggests three strategies for the lawyer defending a securities class action:

• Aim discovery at the plaintiff's investment strategy. If the plaintiff in a securities class action actively manages its assets, then it is far less likely to have suffered a significant loss. If it pursued a buy-and-hold strategy for the stock, it may not be an adequate or typical representative of those investors who more actively manage their assets. (Many defense lawyers already ask about investment strategy as a matter of course, but a reminder never hurts.)
• Argue derivative actions are superior to class actions. I've discussed superiority in securities class actions before, but Booth's analysis reinforces the point: a securities class action may not be the best way of recovering investment losses. In fact, a derivative lawsuit--because it generates less in fees and puts the money back into the corporation itself--offers natural advantages over a class action.
• Argue adequacy. One of the strongest strands of adequacy doctrine is the discussion of intra-class conflict. If the defendant can generate evidence that shows that the named plaintiff does not actually represent the investment strategies of a significant percentage of the class--and in fact may be actively undermining others' investment strategies--that is strong evidence that an irreconcilable class conflict exists.

These tactics are hardly radical; in fact, they're based on common sense about how people actually invest. Unfortunately, as the circularity critique highlights, common sense is not always so common in the realm of securities class actions.

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Many defense lawyers get particularly impassioned about adequacy in class actions; and I'm no exception. After all, adequacy ensures (or at least it is supposed to ensure) that a real plaintiff with a real injury--as opposed to lawyer with a LEXIS/NEXIS account and a hunger for fees--is bringing the case. In a recent article for the George Washington Law Review Texas Law Professor Patrick Woolley takes a look at adequacy from a different angle. He argues that when a court examines adequacy in a proposed class action, it should be looking at whether it has personal jurisdiction over the absent class members.

[W]hile considerations of efficiency and efficacy may play a role at the margins, personal jurisdiction is not about the efficiency and efficacy of litigation. Rather, as I discuss below, the law of personal jurisdiction imposes serious external constraints on the law of class actions to safeguard important legal values quite apart from the efficiency and efficacy of class litigation.

(Internal footnotes omitted) Professor Woolley's proposed reform is a stark one:

Absent class members should be deemed to waive their adequacy objections by failing to raise them in the class proceeding only if the class court (1) has authority to require absent class members to appear for the purpose of litigating their adequacy objections and (2) exercises that authority. Critics of collateral attack have often assumed that a class court with jurisdiction to hear the class claims has jurisdiction to bind absent class members on the adequacy of class representation. But as I explain in detail below, the class court has authority to require an absent class member to raise adequacy objections in the class proceeding on pain of waiver only if the class member has minimum contacts with the forum sovereign and has received process-like notice requiring an appearance. In the absence of these standard jurisdictional requisites, a class court has only "limited and conditional" jurisdiction over absent class members. In other words, "the court has power to enter a judgment against an absent class member on the basis of adequate representation, but no power to compel an absent class member to appear in the forum to contest adequate representation or anything else."

(Emphasis added, internal quotations and footnotes omitted.) Professor Woolley argues that a close reading of the Supreme Court's opinion in Phillips Petroleum Co. v. Shutts--the opinion that established that courts may exert jurisdiction over out-of-state class members if it affords them the right to opt out of a class--"makes clear that the Court never suggested that a failure to opt out is sufficient to establish jurisdiction."

This is not an abstract debate; if a class member was not adequately represented, she may bring a new lawsuit based on the same allegations. In effect, Professor Woolley is arguing for making class actions opt-in instead of opt-out. And adequacy plays a very important role in determining the preclusive effect of a class action. (In fact, when you get down to it, this is what many preclusion debates are about: was the opt-out procedure good enough in a given case?)

But while, in general, Professor Woolley's argument makes some intuitive sense, it leaves open too many questions about specifics. For example, what is "process-like notice"? And does Rule 23 really require "persuasive evidence" of consent to each class action? If class actions required consensus, they'd be next to useless for resolving large-scale judicial debates.

As a defense lawyer, I'm obviously sympathetic to the idea that absent class members should have a real role in class-action litigation: allowing for a more active role helps prevent the filing of class actions that exist only for lawyers to extract settlements from defendants. But if a court certifies a class, it specifically considers the adequacy of the class representatives, and it does so in its role as a fiduciary to the class. Beefing up the adequacy requirement at certification makes a great deal of sense. Doing so only on the back end means compromising the finality that that provides defendants with some benefit from the device.

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Lately, there's been a lot of discussion in the class-action world about commonality. Which is why it's so refreshing to see the Fifth Circuit take on a case where the defendants argued predominance under Rule 23(b)(3).

The case--Madison v. Chalmette Refining--is a toxic tort case. As Judge Edith Jones, writing for the Fifth Circuit, describes the facts, the Chalmette Refinery, which processes petroleum, released an amount of petroleum coke dust that migrated over to the nearby Chalmette Battlefield while a number of students and parents were watching a reenactment of the Battle of New Orleans. The parkgoers filed a class action, seeking damages for a variety of personal injury claims.

The trial judge orally granted plaintiffs' motion for class certification, without having heard any evidence. The defendant appealed. During the briefing period, the district court issued its written order offering some supplemental analysis explaining why it believed plaintiffs had met their Rule 23 burden.

The Fifth Circuit disagreed; its primary reason for doing so was that the plaintiffs had offered no specific facts to back up their claim that common issues predominated in the litigation. And, in her opinion reversing the trial court, Judge Jones provided clear guidance--worth quoting at length--about how specific a plaintiff must be when demonstrating predominance:

"Determining whether the plaintiffs can clear the predominance hurdle set by Rule 23(b)(3) requires district courts to consider "how a trial on the merits would be conducted if a class were certified." Sandwich Chef of Texas, Inc. v. Reliance Nat'l Ins. Indem. Co. This, in turn, "entails identifying the substantive issues that will control the outcome, assessing which issues will predominate, and then determining whether the issues are common to the class," a process that ultimately "prevents the class from degenerating into a series of individual trials." O'Sullivan. Determining whether the superiority requirement is met requires a fact-specific analysis and will vary depending on the circumstances of any given case.

...

In stark contrast to the detailed trial plans in Watson and Turner, the district court simply concluded that "[t]he common liability issues can be tried in a single class action trial with any individual issues of damages reserved for individual treatment." The district court failed to consider whether this case could be "streamlined using other case management tools, including narrowing the claims and potential plaintiffs through summary judgment, [or] facilitating the disposition of the remaining plaintiffs' claims through issuance of a [pre-discovery] order."

...

The court failed to identify "the substantive issues that will control the outcome, assess[] which issues will predominate, and then determin[e] whether the issues are common to the class." Bell Atlantic. Absent this analysis, "it was impossible for the court to know whether the common issues would be a 'significant' portion of the individual trials," Castano, much less whether the common issues predominate. The opinion is also silent as to the relevant state law that applies to Plaintiffs' claims and what Plaintiffs must prove to make their case."

(Emphasis added, internal citations reduced to hyperlinks.) Judge Jones's opinion is a strong reminder of a fundamental principle of class-action law: to get a class certified, plaintiffs must be able to explain how the class trial will proceed. Basic as this requirement is, it is the primary weakness of many plaintiffs' class certification motions.

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 In the last few years, statutory non-disclosure have become more common among class-action filings. They allow the plaintiffs to assert fraud-like claims that can arouse public (or judicial) sympathy, without necessarily having to worry about proving individualized reliance the way they would if they had alleged a common-law fraud claim.

A recent case, Noel v. Hudd Distribution Services, Inc., 2011 U.S. Dist. LEXIS 21480 (D.S.C. March 2, 2011), provides one tactical roadmap for defending against these kinds of claims. In Noel, the plaintiffs brought claims against a truck leasing company, claiming that it charged them for insurance premiums and certain cell phone charges without disclosing them first as required by federal law. True to form, the plaintiffs asserted a number of pseudo-fraud claims, couched as "disclosure" violations. In this case, those claims incldued:

1) declaratory judgment action seeking declarations from the court that defendants have violated the Truth-in-Leasing Act in multiple respects; 2) damages for Truth-in-Leasing Act violations (insurance charge-backs); 3) damages for Truth-in-Leasing violations (cell phone charge-backs); 4) injunctive relief; 5) breach of contract (insurance-charge backs); 6) breach of contract (cell phone charge-backs); 7) breach of the covenant of good faith and fair dealing; and 8) misrepresentation.

Faced with these kinda-sorta fraud allegations, the defendants took the plaintiffs' depositions. And they promptly discovered that the two named plaintiffs each would have difficulty proving that they had been even kinda-sorta defrauded by the alleged non-disclosure.

Yates stated that he read portions of the lease agreements but that he did not read the insurance-related appendix. Noel did read his leases and knew that Defendants were authorized to make certain insurance-related deductions from his compensation and how the number was calculated.

In other words, one plaintiff hadn't even read the section where the disclosure should have gone. The other had, and understood what the defendants were doing perfectly well. Neither of these plaintiffs could claim they were misled. One knew better, and the other didn't know enough.

As a result, the defendants opposed certification, arguing that--because they could not demonstrate that they had read or were misled by the allegedly fraudulent statements--the named plaintiffs were not typical of the remainder of the class. The court agreed.

Plaintiffs' testimony offers no basis to infer whether members of the absent class read their leases, understood the terms, or ultimately cared about those terms. Because Plaintiffs themselves cannot establish that they were misled or harmed by MDSI's allegedly deficient disclosures, they cannot claim to be typical of other class members they seek to represent.

So what can defendants learn from this case? First, always do the due diligence on a claim: serve interrogatories aimed at the elements of the claim, and focus in the deposition on how the named plaintiff will prove her claim. And second, don't forget to defend against the real claim in the case. Regardless of how much a plaintiff tries to mask it, if she is alleging a fraud case, she will still have to prove, in some fashion, the elements of fraud.

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It's a situation familiar to many class-action defendants: a plaintiff files a complaint with, say, ten causes of action. But, by the time the case reaches the certification stage, she's voluntarily dismissed nine of them--including the ones that actually address the alleged harm--in favor of an attenuated theory that she thinks stands the best chance of getting certified. (For example, a case that's clearly about fraud somehow morphs into a breach-of-contract case; or a tort case about an alleged safety defect becomes a breach-of-express-warranty case specifically disclaiming any future physical injuries.) No individual plaintiff in her right mind would assert this claim in an individual lawsuit; among other things, doing so would preclude her from later asserting her stronger claim. But this is, of course, not an individual lawsuit, it is a proposed class action.

Usually, defendants sigh and begin researching the caselaw on adequacy, preparing to argue that any plaintiff who would abandon perfectly logical (but not certifiable) claims in favor of a riskier streamlined claim is not doing her absent class members any favors. In fact, she is selling the potentially valid claims of her fiduciaries (the absent class members) in exchange for a chance at certification.

Now, Professor Edward F. Sherman of the Tulane Law School has proposed an alternative argument in his article in the George Washington Law Review, "Abandoned Claims” in Class Actions: Implications for Preclusion and Adequacy of Counsel.

Like many academic articles, this one isn't afraid of taking the long way around to get to its point. So it provides brief discussions of the Supreme Court's ruling in Cooper v. Federal Reserve Bank of Richmond, the Fifth Circuit's recent ruling in McClain v. Lufkin Industries, Inc., and a line of Texas state-law cases on preclusion. But, toward the end of the article, Professor Sherman begins to make some interesting points about preclusion and abandoned claims. Most notably, he recommends:

a court should make a determination as to whether the omitted claims are likely to be of importance to the class and whether the risk of preclusion is high enough to refuse certification. The practice of some plaintiffs' attorneys of shotgunning all possible claims into a complaint should not establish that none of those claims can ever be omitted or else there would be inadequate representation. Multiple causes of action can be repetitious and overlapping, and class counsel should have some leeway in structuring a class action to be the most efficient and effective vehicle to serve the interests of the class. In the cases that find that abandoning claims is inadequate representation, there are hints that courts are particularly concerned with strategic abandonment no matter how important those claims might be to some class members. Paring down a class action so that it can be certified should not in itself be considered inadequate representation. It is often in the interests of the class members to do just that, particularly where there is little likelihood, in the absence of a class action, that class members can and will pursue the claims in individual suits. In (b)(3) class actions, a certifying court is required to find that "a class action is superior to other available methods for the fair and efficient adjudication of the controversy," which includes whether the class members are interested "in individually controlling the prosecution or defense of separate actions." A similar determination that there is little likelihood that class members will want to sue individually on omitted claims might be required should class certification be opposed on the basis of abandoning claims.

(Emphasis added, internal footnotes omitted.) This reasoning suggests that perhaps defendants should try opposing plaintiffs who abandon claims on superiority, as well as adequacy, grounds. After all, if class members can do better by asserting individual lawsuits, then that's what they should be doing, rather than waiting for a class representative without an actual theory to recover on their behalf.
 

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 Last week, while the legal world was abuzz over the Supreme Court argument on Wal-Mart v. Dukes, Judge Posner was quietly putting the finishing touches on Randall v. Rolls Royce, which provides his own take on some of the same issues.

As in Dukes, the plaintiffs sought to represent a class of women who alleged gender discrimination under Title VII. As in Dukes, they alleged that, because they were women, they had received less money for comparable work, and were passed over for promotions within the company. As in Dukes, they sought certification under Rule 23(b)(2), while seeking monetary relief in the form of "back pay." However, unlike the Dukes plaintiffs, the Randall plaintiffs only sought to represent 500 women, so this was hardly "too big to certify." 

The lower court denied certification, holding that the plaintiffs had not demonstrated commonality, typicality, or adequacy (there were conflicts within the class), and that certification of a class seeking monetary relief was not appropriate under Rule 23(b)(2). So the plaintiffs appealed under Rule 23(f).

Judge Posner began his opinion by noting one of the strategic quirks about this Rule 23(f) appeal. Rolls Royce had solid defenses to most of plaintiffs' claims; so it would behoove it not to oppose certification, because in the very likely event a certified class lost, it would never face another gender discrimination claim from the class members for any conduct through 2011. Judge Posner also spent a paragraph on the plaintiffs' conflict of interest (one also present in the Dukes class): since some class members were in management they'd be defendants in other class members' claims.

Having dealt with those issues, Judge Posner turned to Rule 23(b)(2). As he noted:

Class action lawyers like to sue under that provision because it is less demanding, in a variety of ways, than Rule 23(b)(3) suits, which usually are the only available alternative.

So, like in Dukes, the question became whether the plaintiffs could seek certification under Rule 23(b)(2) when they were also seeking back pay. According to Judge Posner, they could not.

To read “injunctive” in the rule to mean “equitable” is to become mired in sticky questions of differentiating between “legal” and “equitable” actions—and such questions abound. See, e.g., Medtronic, Inc. v. Intermedics, Inc. We can avoid the mire by recognizing that Rule 23(b)(2) class actions are limited to cases in which “final injunctive relief or corresponding declaratory relief” is appropriate, rather than extending to all cases in which any kind of equitable relief is sought.

...

As this case illustrates: calculating the amount of back pay to which the members of the class would be entitled if the plaintiffs prevailed would require 500 separate hearings. The monetary tail would be wagging the injunction dog.

...

The proper approach in this case would thus have been for the plaintiffs to seek class certification under Rule 23(b)(3)—which requires full notice so that class members can opt out if they want to bring an independent suit for damages or other monetary relief—but to ask for injunctive as well as monetary relief.

The plaintiffs also argued, in the alternative, that they should be allowed to substitute new class representatives (using intervention under Fed. R. Civ. P. 24) should the court find the originals inadequate. But Judge Posner held that, in this case, that would not be an option.

It would go too far to suggest that unless substitution for the original named plaintiffs is sought as soon as a substantial challenge to certification is made, the district judge is justified in denying it. Such a rule might involve constant interruptions of the proceeding—procedural hiccups—as nervous class action counsel tried to add new class representatives every time the defendants raised an objection to certification. But it was obvious from the outset that these named plaintiffs faced a serious chal- lenge to their status as class representatives. And with the entire class in one location (a single plant in Indiana), class counsel had ample opportunity to sift through potential named plaintiffs before deciding on Randall and Pepmeier. Intervention shouldn’t be allowed just to give class action lawyers multiple bites at the certification apple, when they have chosen, as should have been obvious from the start, patently inappropriate candidates to be the class representatives.

With the exception of the substitution question, this case provides a possible road map for the Supreme Court's decision in Wal-Mart v. Dukes. Wal-Mart raised the same adequacy issues in its brief, and the same Rule 23(b)(2) arguments. Size of the class aside, the facts of the case are remarkably similar to the Dukes class. Whether the Supreme Court will follow that road map, of course, remains to be seen.

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Yesterday was the long-anticipated oral argument in Wal-Mart v. Dukes.  I've attached a copy here.  Overall, the Justices were clearly prepared for the argument, although they--like almost everyone else--had trouble keeping all of the facts straight.  A few highlights:

• Justices Ginsburg, Kagan, and Sotomayor took an early lead in questioning Ted Boutrous (who argued for Wal-Mart).  
• Boutrous was clearly having a good day.  He had command of almost all of the facts, and was able to subtly correct various Justices at different points when they got lost in the weeds.
• Justices Kennedy and Scalia each had problems with the coherence of plaintiffs' underlying theory.  As Justice Kennedy put it: "your complaint faces in two directions. Number one, you said this is a culture where Arkansas knows, the headquarters knows, everything that's going on. Then in the next breath, you say, well, now these supervisors have too much discretion. It seems to me there's an inconsistency there"
• Awarding "back pay" under Rule 23(b)(2) seemed to cause most Justices heartburn.  Justice Ginsburg called it "a very serious problem in this case."  
• Several Justices, including Sotomayor and Scalia, had trouble accepting the legitimacy of the proposed statistical proof.

So where does that leave the case?  The "more question" rule doesn't provide much guidance in this case.  But it does appear that the Justices were wrestling with the questions of how to prove commonality and whether 23(b)(2) certification is appropriate.  If I had to predict, I'd say that Wal-Mart's probably in better shape than the plaintiffs at this point.  Of course, we'll find out in June.

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King Architectural Metals manufactured metal building components, which it needed to sell. It made the mistake of faxing an advertisement to CE Design. It probably seemed like a good idea at the time. CE Design was a small, Chicago-area civil engineering firm, and it had checked a box in the Blue Book of Building and Construction (a directory of building-industry firms) that indicated it was OK to contact it with advertisements. But it also had a sideline in Telephone Consumer Protection Act class actions. It filed at least 150 of them, and its president had testified in at least 20 of those.

In the course of his deposition in the case, the company president (John Pezl) testified that he had not authorized King to contact CE Design; hard to believe given the Blue Book listing. So King opposed class certification on the grounds that CE Design was not typical of class members who had not consented, and that the discrepancy in Pezl's testimony made him an inadequate class member.

The district court certified the class anyway, so King appealed to the Seventh Circuit, which reversed. Judge Posner wrote the opinion. In doing so, he focused in on one requirement that does not get much attention--typicality--and one that does--adequacy. And he explained the importance of enforcing the typicality requirement:

A class is disserved if its representative's claim is not typical of the claims of the class members, for then if his claim fails, though claims of other class members may be valid, the suit will at the least be delayed by the scramble to find a new class representative. Alternatively, a class representative's atypical claim may prevail on grounds unavailable to the other class members, leaving them in the lurch.

He also explained why credibility is important to a named plaintiff's adequacy.

A named plaintiff who has serious credibility problems or who is likely to devote too much attention to rebutting an individual defense may not be an adequate class representative.

CE Design's Blue Book listing made it atypical of class members who had not consented to communication by fax. And Pezl's inconsistent testimony compounded the problem, ensuring that any classwide trial would focus on his credibility rather than the claims of the class.

While the opinion is helpful for challenging adequacy and typicality, Judge Posner did end the opinion with a warning note for defendants.

We don't want to be misunderstood, however, as extending an invitation to defendants to try to derail legitimate class actions by conjuring up trivial credibility problems or insubstantial defenses unique to the class representative. Serious challenges to typicality and adequacy must be distinguished from petty issues manufactured by defendants to distract the judge from his or her proper focus under Rules 23(a)(3) and (4) on the interests of the class, as emphasized in Dubin v. Miller, 132 F.R.D. 269, 272 (D. Colo. 1990), where the judge, while decertifying the class, remarked that "few plaintiffs come to court with halos above their heads; fewer still escape with those halos untarnished. For an assault on the class representative's credibility to succeed, the party mounting the assault must demonstrate that there exists admissible evidence so severely undermining plaintiff's credibility that a fact finder might reasonably focus on plaintiff's credibility, to the detriment of the absent class members' claims."

Warning aside, the opinion is still useful for defendants.  It provides clear explanations of the typicality requirement and the "unique defense" aspect of both typicality and adequacy.  This is why the deposition of the named plaintiff is so important: it allows the defendant to determine whether it's worth taking the risk to challenge the named plaintiff's credibility.  

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A group of Florida landowners sued Raytheon Company, accusing it of contaminating their groundwater by improperly disposing of hazardous waste. The plaintiffs put up an expert who testified that he could construct a statistical model that would demonstrate liability and damages on a classwide basis.  Raytheon put up its own experts, who argued that plaintiffs' method of defining the affected area was not consistent with "applicable professional standards," and that their expert's statistical method was unsound as well.  

The district court threw up its hands.  Declaring 

[i]t is not necessary at this stage of the litigation to declare a proverbial winner in the parties' war of the battling experts or dueling statistics and chemical concentrations

it certified the proposed class, and left the Daubert question for trial.

Raytheon appealed.  The Eleventh Circuit--in an opinion not designated for publication--reversed the trial court. Its primary reason to do so was 

Here, in its Rule 23 analysis, we find that the district court erred as a matter of law by not sufficiently evaluating and weighing conflicting expert testimony on class certification. It was error for the district court to decline to declare a proverbial, yet tentative winner. The Plaintiffs are required to prove, at the class certification stage, more than just a prima facie case, i.e., more than just a pretty good case.

Here the district court refused to conduct a Daubert-like critique of the proffered experts's qualifications. This was error. As we have noted, a district court must make the necessary factual and legal inquiries and decide all relevant contested issues prior to certification. The district court has not determined facts, from the often conflicting evidence, sufficient to determine whether class certification is or is not appropriate. The court erred in granting class certification prematurely. Tough questions must be faced and squarely decided. Such tough questions were side-stepped by the district court in this case. That was error.

The Eleventh Circuit remanded the case for further proceedings, and declined to express an opinion about whether certification would ultimately prove appropriate.  

It's interesting that the Eleventh Circuit has chosen not to publish the opinion.  It relied heavily on the Seventh Circuit's opinion in American Honda Inc. v. Allen, and this ruling aligns it with the Second and Third Circuits as well. And this opinion would put the Eleventh Circuit opposite the Ninth's opinion in Dukes v. Wal-Mart.  Since the Supreme Court is hearing that case next week, it's entirely possibly that, rather than picking a winner itself, the Eleventh Circuit decided to hedge its bets.

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If you'll forgive the second piece of self-promotion in a week: the Washington Legal Foundation (which keeps the always-interesting Legal Pulse blog) has just published a Legal Opinion Letter evaluating several of the arguments in favor of overturning the 9th Circuit's Dukes v. Wal-Mart decision, written by yours truly.  

I'll be participating in a briefing for the WLF on this issue in a few weeks (specific details when I get them), and another one a few days later for the American Constitution Society.   

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See, here's the thing. Russell Jackson stole my case. The Seventh Circuit decided an important case on the limits of Rule 23(b)(2)--Kartman v. State Farm Mutual Auto Ins.--and I set it aside to blog about today. But Jackson's great writeup covers everything I wanted to.  

And here's the other thing. There have been a lot of good writeups of class actions lately.  To wit:

• Drug & Device Law reported on Sergeant Benevolent Ass'n Health & Welfare Fund v. Sanofi-Aventis U.S. LLP in the Eastern District of New York.  The court denied certification to a RICO class because proof of reliance would be too individualized.  
• Jackson also wrote up a case in the Eastern District of Pennsylvania, Powers v. Lycoming Engines, that held that applying the law of a manufacturer's residence to a multi-state class action violated due process.  
• Gilbert Brosky of the Employment Class Action Blog reports on a decertification of an FLSA class action of Home Depot assistant managers based on the variations among managers' duties.  
• And Paul Karlsgodt reviews a recent article on whether class-action notices comply with Rule 23.  (Many of them don't.)

I usually don't like just to point you to what other people have written on class actions (that's what my Twitter feed is for).  But every once in a while, it's worth taking one post of mine to point out a bunch of really good posts by others.

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2011 has produced a number of class actions that have caught the attention of the news media. The class action against Taco Bell, for example, made headlines for the innovation involved in the defendant's PR strategy. The class action against former President Carter capitalized on a novel theory and a famous defendant. Now, a plaintiffs' firm has brought a lawsuit against the Dallas Cowboys on behalf of those ticketholders who didn't get the seats they thought they would at the Superbowl. This appears to be a PR-based class action, much like the ones against Taco Bell and Jimmy Carter. What does I mean by that? Much of the value of each of these lawsuits comes from the threat of adverse publicity rather than the risk of certification. And this case is no exception.
To bring this lawsuit, the plaintiffs had to argue that the NFL's apology offer (triple the ticket price) wasn't enough to make them legally whole. And that creates a number of problems for certifying that class. Based on the Amended Complaint [UPLOAD here are a few:

• Plaintiffs who overpaid for their tickets are suing the wrong people. One of the plaintiffs' complaints is that they paid far more than the ticket price for their tickets. That means they bought from scalpers. So a court will likely find the NFL's refund of triple the ticket price to be more than fair. If the class member paid more than that, he needs to talk to his hookup. (This hurts their two breach-of-contract claims, it also hurts their fraud claims.)
• The plaintiffs are seeking the wrong damages for a class action. They claim in the complaint that this includes travel costs to the Superbowl, and "disappointment and frustration." But the law does not usually award these kinds of damages for breach of contract claims. (The technical term for these kinds of damages is "consequential damages.") And, if it did, it would require the kind of individualized proof (how disappointed was each person) that makes a class action very hard to try. If they just want the ticket price, well, the NFL has already offered three times that.
• Courts don't like fraud class actions. Class actions need common proof. Most fraud cases can't provide that. Instead, to prove fraud, you have to prove that you personally relied on a false statement. Proving that reliance is next to impossible on a classwide basis, which is why most courts do not certify fraud claims.
• Rich ticketholders don't make great class-action plaintiffs. Class actions exist to protect the little guy. They're supposed to aggregate a lot of small claims that people could not bring on their own. But here, plaintiffs like Mr. Dolabi may be out as much as $100,000 (the price he paid for his seat license). If he stayed at a hotel, it likely wasn't a Motel 8. These guys aren't the little guys, these are the guys who spend literally tens of thousands of dollars on football tickets. They can afford to bring their own lawsuits, may compromise their ability to demonstrate superiority.

Based on several news items, it seems clear that plaintiffs' counsel is looking for a quick settlement. But a quick settlement tends to favor the lawyers rather than the class. If there is a settlement in this case, it will be interesting to see how much it improves on the original offer that the NFL made.

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 This week, we're going to address one of the longest-standing debates in class-action litigation: How much may a court delve into the merits of a class action when deciding certification?

Plaintiffs often argue "not at all." Defendants often argue "as much as necessary." (Though not always; when defendants file motions to strike class allegations, they argue that the court need not look at the merits at all to decide a class is not appropriate.) Both arguments stem back to a single 1974 Supreme Court opinion: Eisen v. Carlisle & Jacquelin. 

Eisen was a class action filed by odd-lot traders on the NYSE, challenging the monopoly that a pair of brokerages (one of which was Carlisle & Jacqueline) held over odd-lot trades. The Supreme Court opinion concerned the question of whether the plaintiff or defendant was responsible for paying the costs of notice in a class action.

Originally, the Southern District of New York both certified a class and held that the defendant was responsible for the costs of notice. It based its decision not on a Rule 23 analysis, but on its judgment that the plaintiff odd-lot traders would likely prevail in the lawsuit. (In other words, it treated the proposed class action like a proposed injunction.)

The Second Circuit reversed the imposition of costs. And, in affirming that reversal, the Supreme Court held:

that petitioner must bear the cost of notice to the members of his class. The District Court reached the contrary conclusion and imposed 90% of the notice cost on respondents. This decision was predicated on the court's finding, made after a preliminary hearing on the merits of the case, that petitioner was "more than likely" to prevail on his claims. Apparently, that court interpreted Rule 23 to authorize such a hearing as part of the determination whether a suit may be maintained as a class action. We disagree.

We find nothing in either the language or history of Rule 23 that gives a court any authority to conduct a preliminary inquiry into the merits of a suit in order to determine whether it may be maintained as a class action. Indeed, such a procedure contravenes the Rule by allowing a representative plaintiff to secure the benefits of a class action without first satisfying the requirements for it. He is thereby allowed 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. This procedure is directly contrary to the command of subdivision (c) (1) that the court determine whether a suit denominated a class action may be maintained as such "[a]s soon as practicable after the commencement of [the] action . . . ." ...

In determining the propriety of a class action, the question is not whether the plaintiff or plaintiffs have stated a cause of action or will prevail on the merits, but rather whether the requirements of Rule 23 are met. Additionally, we might note that a preliminary determination of the merits may result in substantial prejudice to a defendant, since of necessity it is not accompanied by the traditional rules and procedures applicable to civil trials. The court's tentative findings, made in the absence of established safeguards, may color the subsequent proceedings and place an unfair burden on the defendant.

(Internal quotations omitted, emphasis added.)  So, the proscription against merits inquiries is not against any look at the merits of the case where they overlap with the certification question, it's against deciding class certification based on one's opinion of how the case will turn out. If deciding whether a class is certifiable requires a court to probe behind the pleadings or to decide whether a given expert's testimony is admissible, then a court may--and in some cases must--make those decisions.

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On Tuesday, the Supreme Court heard argument in Smith v. Bayer Corp. The argument featured very active participation by the justices. The argument  featured several very interesting moments:

Plaintiffs' argument focused primarily on whether a collateral estoppel ruling on class certification deprives putative class members of due process.

JUSTICE SOTOMAYOR: [Y]ou're really arguing that due process requires the same treatment, essentially, of notice and an opportunity to be heard that we are giving to a substantive decision that blocks a future member from pursuing his or her claim, correct?
MR. MONAHAN: Yes, very similar, Your Honor. I mean, in this circumstance -- I mean, these rights are provided. These procedural rights, once they are created, are being provided, and they can't be taken away without due process.

Justice Sotomayor exhibited some realism about the stakes of the case.

MR. MONAHAN: Well, this particular procedural right is very closely connected -- I mean, one of the main purposes of a class action is to level the economic playing field and to enable people with small individual claims to aggregate them in order to seek justice. Without those --
JUSTICE SOTOMAYOR: Actually not true. The 16 plaintiff here received the same thing. The issue is how much money the lawyers are going to receive, really, because plaintiff gets their attorney's fees, gets a statutory violation amount, which is going to be the same whether it's in a class action or an individual action, so it's really not the plaintiff who stands to win.

The defendant drew a smart distinction between individualized liability and individualized damages.

JUSTICE KAGAN: If you look at Rezulin, if you compare to it some Eighth Circuit cases, there seems to be a difference in at least tone, shall we say, about the extent to which a finding is required that common issues predominate.
MR. BECK: I think that, actually, Judge Davis took into account the difference in tone, and he 8looked very carefully at Rezulin, and he said that what Rezulin was focusing on was individual questions of damages, which defendants often argue is enough so that individual questions predominate, individual questions of reliance, which we also often argue mean that individual questions predominate. But he said this is different, because this is, in order to prove liability, they've got to establish individual injury, which means, on a person-by-person basis, either that they were harmed by the drug or that the drug didn't work to lower their cholesterol as -- as it was supposed to, and they have to show that whatever the violation of the Consumer Fraud Act was is causally linked there.

Plaintiffs often try to characterize questions of liability as questions of damages, so that they may invoke precedent that says individualized damages questions don'y necessarily preclude certification. Defense counsel provides a textbook response to this common tactic.

Justice Kagan posed an interesting question about whether the Anti-Injunction Act should apply to class certification decisions.

JUSTICE KAGAN: Mr. Beck, the relitigation exception of the Anti-Injunction Act speaks in terms of judgments. Why is the denial of class certification a judgment?

In Baycol, the order denying class certification also granted summary judgment, so this question was not an issue. But this may be a question in other cases. There are arguments on both sides. An order denying certification does not technically end the case, but it may effectively do so.

As several commentators have already noted, it's very difficult to predict how the Court will rule in a given case, although the question rule would predict a decision for Bayer.  The opinion will be out later this term.

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 I hope everyone had a good Martin Luther King Day. Given the holiday, it seemed appropriate to highlight another classic case: Hansberry v. Lee. 

Oddly, given its importance to class actions litigation, Hansberry is not a class action itself. The case arose out of a restrictive covenant barring African-Americans from buying land in certain areas of Chicago. The Hansberries, an African-America family (which included future Raisin in the Sun playwright Lorraine Hansberry) moved into a neighborhood governed by the covenant. The Lees sued, arguing that 95% of the homeowners in the neighborhood had signed the restrictive covenant. The Hansberries challenged the 95% number. When the Lees argued that the fact was res judicata from another suit (Burke v. Kleiman, 277 Ill. App. 519.), the Hansberries replied that they had not been parties to that lawsuit. The Illinois Supreme Court held that the Burke case was a class action, and so the Hansberries should be bound by its ruling. The Hansberries appealed to the US Supreme Court.

The Supreme Court began its opinion by reasoning that

It is a principle of general application in Anglo-American jurisprudence that one is not bound by a judgment in personam in a litigation in which he is not designated as a party or to which he has not been made a party by service of process. A judgment rendered in such circumstances is not entitled to the full faith and credit which the Constitution and statute of the United States, and judicial action enforcing it against the person or property of the absent party is not that due process which the Fifth and Fourteenth Amendments require.

(Internal citations omitted.) The only exception the Court identified was the emerging equitable doctrine allowing for class lawsuits. And, since the Illinois Supreme Court had called Burke a class action, the Court asked just what makes a class action binding on subsequent parties.

It is familiar doctrine of the federal courts that members of a class not present as parties to the litigation may be bound by the judgment where they are in fact adequately represented by parties who are present, or where they actually participate in the conduct of the litigation in which members of the class are present as parties, or where the interest of the members of the class, some of whom are present as parties, is joint, or where for any other reason the relationship between the parties present and those who are absent is such as legally to entitle the former to stand in judgment for the latter.

(Internal citations omitted.) Given those criteria, the Court held that Burke did not constitute a class for litigation purposes.

It is one thing to say that some members of a class may represent other members in a litigation where the sole and common interest of the class in the litigation, is either to assert a common right or to challenge an asserted obligation. It is quite another to hold that all those who are free alternatively either to assert rights or to challenge them are of a single class, so that any group, merely because it is of the class so constituted, may be deemed adequately to represent any others of the class in litigating their interests in either alternative. Such a selection of representatives for purposes of litigation, whose substantial interests are not necessarily or even probably the same as those whom they are deemed to represent, does not afford that protection to absent parties which due process requires.

(Emphasis added, internal citations omitted.) So what can class action defense lawyers take from this case? The purpose of the adequacy requirement is to ensure that the class has been represented well enough that it may be bound by the judgment. Plaintiffs' lawyers--and plaintiffs--often lose sight of that purpose; instead they argue that adequacy is satisfied so long as there are no glaring conflicts. But that's not the case. Adequacy requires a searching inquiry because that is the best way to protect the interests of the class.

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Last Friday, the Supreme Court granted certiorari in Archdiocese of Milwaukee Supporting Fund, Inc. v Halliburton Co. This is the fourth certiorari grant this term for a class action.

So what's the issue in this case? Loss causation. In securities cases, plaintiffs are often allowed to rely on a theory called "fraud on the market," which requires the court to presume that shareholders relied on any false information that was introduced to an efficient securities market. The "fraud on the market" theory is a powerful tool for class action plaintiffs. When applied, it makes certification of a class much easier than otherwise.

Since certification changes the litigation (making it far more likely that a defendant will settle a meritless claim), the Fifth Circuit has held that a plaintiff must prove "loss causation" (that the alleged falsehoods, once revealed, actually caused the stock price to fall) by a preponderance of the evidence before a court may certify a class. (The Fifth Circuit has not gone rogue on this issue: the Supreme Court has issued several opinions on loss causation over the last five years.) On its face, it's a reasonable doctrine. Loss causation forms the basis of many strong securities class actions. (Indeed, former plaintiffs' lawyer Bill Lerach had boiled the theory down to a chart he would pull out in settlement discussions.)

In Archdiocese of Milwaukee Supporting Fund, Inc., the Fifth Circuit was faced with a securities case against energy conglomerate Halliburton. The plaintiffs had alleged that a number of misrepresentations -- including an understatement of asbestos litigation liability and an overstatement of the benefits of a merger -- had artificially inflated the price of Halliburton's stock; once they were revealed, the plaintiff shareholders lost money.

In the district court, Halliburton had opposed certification (and won) by arguing that the plaintiffs had not met their burden of proving loss causation, because Halliburton had disclosed a number of negative news items at the same time as it revealed that it had misrepresented the information the plaintiffs had pointed to. As a result, the plaintiffs could not prove that the misrepresentations had caused the stock to drop.

The plaintiffs appealed, arguing that they should not have to prove fraud at certification, but the Fifth Circuit affirmed the trial court.

Plaintiff argues that the district court misapplied our precedent, how ever, because it incorrectly required Plaintiff to prove actual fraud at the class certification stage. Plaintiff asserts that this requirement runs afoul of our recent decision in Flowserve. We do not agree with the Plaintiff's reading of Flowserve or its characterization of the district court's opinion.

...

Even if it were possible to say that the prior statements were more than erroneous expectations, both the October 4, 1999 announcement and the analyst reports contained multiple pieces of negative news. This required Plaintiff to "demonstrate that there is a reasonable likelihood that the cause of the decline in price is due to the revelation of the truth and not the release of the unrelated negative information." This showing of loss causation is a "rigorous process" and requires both expert testimony and analytical research or an event study that demonstrates a linkage between the culpable disclosure and the stock-price movement." That's what plaintiffs didn't do.

(Internal footnotes omitted.)  

At this stage, before the parties have briefed the issues, predicting what the Court will do is next to impossible. But it's worth noting that the "loss causation" doctrine has drawn fire from a number of academics as requiring a decision on the merits at certification. And the degree to which a court may inquire into the merits of a class action at certification has proven controversial over the last decade. Given the Court's interest in this issue, however it chooses to clarify the standard, it will have a large effect on securities class actions. Stay tuned.

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 When the Supreme Court granted certioriari in Dukes v. Wal-Mart Inc., the Vanderbilt Law Review grabbed a number of law professors who study mass torts and asked them to contribute essays to its En Banc feature. One of these--Richard Nagareda's Common Answers for Class Certification--was one of the most interesting articles published in 2010. Several of the other contributions also posed some interesting questions, among them Alexandra Lahav's The Curse of Bigness: The Optimal Size of Class Actions. 

Lahav doesn't really address the question she asks in the title; she offers no verdict on the optimal size of a class action (unless the answer is "as big as you can make them"). For the most part, she focuses on how courts could use the promise of probabilistic evidence to justify certifying classes for litigation. But the introduction to her essay poses an interesting rhetorical issue: when arguing about class actions, does the size of the lawsuit matter?

There's no question that many press outlets, when covering Dukes, focused on the fact that it was the largest civil-rights lawsuit to be certified.  After all, the size of the lawsuit is something the average reader understands immediately. And there is no question that courts often call attention to the size of class actions, both when granting certification and when denying it.

As Lahav correctly points out, there is no doctrinal limit on how large a class action may grow. (Rule 23(a)(1)--the numerosity requirement--does establish on how small one may shrink.) Instead, most lawyers use size as a proxy for one of the other Rule 23 requirements. Plaintiffs use the size of the class to bolster their arguments that a class action is superior to other forms of resolving a given dispute. For example, as the the Fifth Circuit put it in Jenkins v. Raymark Industries, when a class is large enough, it may be

superior to the alternative of repeating, hundreds of times over, the litigation of the state of the art issues with, as that experienced judge says, ‘days of the same witnesses, exhibits and issues from trial to trial.’

Defendants, on the other hand, often use size as a shorthand for heterogeneity (as they did in Dukes). As Lahav puts it:

The statements about the size of this class action appeal to an intuition that the court’s ability to provide individualized justice is inversely proportional to the size of the class action.

And, to the extent that a larger class is more likely to encompass various different kinds of claimants, that rhetoric can be useful. Defendants also may point out that the larger a class is, the more likely that it may pressure defendants into settling claims that have no merit, just to avoid the possibility of ruinous liability.

So does the size of a class matter? It depends on why the party is invoking it.

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 Since it's the end of the year, it's worth taking a look back at what were the most significant class-action decisions of 2010. What do I mean by significant? A significant case does not have to be well-reasoned, or pro-defense, just one that will have an effect on class-action practice. Some of these are not cases I wrote about, either because I was conflicted out of doing so, or someone else got there first and said what I would have said. Also, the decision itself had to be a significant one, which is why Concepcion v. AT&T (which is important primarily because the Supreme Court has decided to review it) is not on the list this year. It will almost certainly qualify in 2011. This year, the cases are, in no particular order:

1. Morrison v. Australian National Bank (S. Ct.) -- Before the Supreme Court's opinion, it was unclear whether a plaintiff with no connection to the United States could still bring a class action in a US court. Now, this burgeoning and lucrative sideline of cases is likely extinct.
2. Shady Grove Orthopedic Assocs. v. Allstate Ins. Co. (S. Ct.) -- In this case, the Supreme Court decided a comparatively narrow question: do state statutory class-action bans trump Rule 23? Nonetheless, the strong language the Court used in deciding Rule 23 wins out over state statute--in particular its analysis of the Rules Enabling Act--has broader applications.
3. Dukes v. Wal-Mart Inc. (9th Cir.) -- In affirming certification of a large, diverse class of women who claim to have suffered sex discrimination, the Ninth Circuit placed itself at the center of a number of debates about class-action procedure. The popular characterization that the class was "too big to certify," while technically inaccurate, does capture a number of the criticisms of the Ninth Circuit's opinion. And the decision also prompted a strong academic response.  Now that the Supreme Court has granted certiorari, this case will likely also be one of the most significant decisions of 2011.
4. Cappuccitti v DirecTV (11th Cir.)  -- When a panel of the Eleventh Circuit originally held that at least one class-action plaintiff must assert a claim exceeding $75,000 even for removal under the Class Action Fairness Act, both plaintiffs and defendants scratched their heads. The panel quickly corrected itself, but the case is still significant for two reasons: (1) it completely clarified CAFA's reach, and (2) it strengthened the legitimacy of the federal courts in ruling on class-action issues.
5. In re Mercury Interactive Corp. (9th Cir.) -- Objectors play an important role in keeping class settlements honest. As a result, they are often viewed as an obstacle by plaintiffs, defendants, and courts that are trying to clear a complex case off a court's docket. The Ninth Circuit's opinion in this case confirmed that Rule 23(h), which allows for a right of objection, has teeth, and may not be abrogated by scheduling a hearing to preclude knowledgeable objections.
6. In re Gilden Activewear Securities Litigation (S.D.N.Y.) Judge Baer's order requiring that class counsel field a racially and sexually diverse litigation team drew strong criticism from a number of circles, but also took plaintiffs' claims to litigate on behalf of the public to their logical conclusion. While Judge Baer found counsel adequate in this case, he has opened a new debate on what it means to be "adequate class counsel."
7. American Honda Motor Company, Inc. v Allen (7th Cir.) -- Courts have occasionally certified classes based on unreliable expert testimony because they were reluctant to rule on the merits of an expert's opinion before trial. The Seventh Circuit's holding that "when an expert's report or testimony is critical to class certification ... a district court must conclusively rule on any challenge to the expert's qualifications or submissions prior to ruling on a class certification motion" should help to put an end to that practice.
8. UFCW Local 1776 v. Eli Lilly & Co. (2d Cir.) -- One of the largest problems plaintiffs face in bringing class actions is demonstrating that they can resolve complex issues of causation on a classwide basis. Sometimes plaintiffs attempt creative workarounds when they cannot prove causation on a classwide basis, such as arguing fraud on the market, "excess price theory," or "quantity effect theory." The Second Circuit held that plaintiffs cannot take shortcuts in demonstrating causation.
9. Avritt v. Reliastar Life Ins. (8th Cir.) -- In order to avoid the problems reliance can cause for proving fraud claims on a classwide basis, a number of plaintiffs have begun asserting fraud claims as breach-of-contract claims instead, citing the duty of good faith and fair dealing. The Eighth Circuit's opinion here effectively breaks down this new tactic and shows why it does not avoid the individualized issues at the heart of a fraud-related case.
10. Thorogood v Sears Roebuck & Co. (7th Cir.) - A plaintiffs' lawyer I know called this one of the "greatest self-inflicted wounds" in the plaintiffs' bar. The Eighth Circuit had laid out may of the same points in its Baycol opinion, but Judge Posner's opinion here leaves little doubt as to when a defendant may use the All Writs Act to block copycat class actions.

Coming up on Thursday, the 10 Most Interesting Class-Action Articles of 2010.
 

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Florida State law professor Elizabeth Chamblee Burch is the latest to weigh in on the problem of how to make sure class actions are adequately governed.  In an forthcoming article from the Vanderbilt Law Review, she asks what makes an optimal lead plaintiff in a securities class action.

Burch focuses on the the difficulties raised by what she refers to as plaintiffs' law firms "courting process," particularly the use of "pay to play" practices and investment monitoring agreements.  Her discussion of these issues is worth quoting at length:

After the PSLRA, plaintiffs’ law firms sought to maintain their competitive advantage by courting large institutions, developing repeat relationships with them, and encouraging them to serve as lead plaintiff. Law firms’ courting process may involve “pay-to-play” practices where plaintiffs’ law firms contribute to the political campaigns of those selecting counsel for public or labor pension funds and lobbying the officials who control public pension funds. Lobbyists encourage pension funds to serve as lead plaintiff and to then select the lobbyist’s law-firm employer as lead counsel. These practices forge repeat relationships and inhibit competition in ways that lack merit and transparency. And because other eligible institutions like banks, mutual funds, and insurance companies maintain commercial relationships with the defendants or defendants’ customers, public and union pension funds are the institutions that typically take on the lead-plaintiff role.

Law firms’ courting process also involves “portfolio monitoring,” where the law firm keeps abreast of the institution’s holdings and notifies it whenever it suffers a significant enough loss that it could serve as the lead plaintiff in a related class action. Portfolio monitoring is a preexisting contractual relationship between the lead plaintiff and class counsel. Preexisting relationships typically give courts pause, particularly when counsel has no relationship with other class members and no subclassing exists. But most courts find free portfolio monitoring in exchange for retaining the law firm unproblematic; they look for something more, like long-term friendships or familial relationships.Although courts have been slow to recognize it, portfolio monitoring is both widespread and troubling. The few courts who agree reason that the practice “creates a clear incentive for [the law firm] to discover ‘fraud’ in the investments it monitors” and thereby “fosters the very tendencies toward lawyer-driver litigation that the PSLRA was designed to curtail.” Plus, regularly depending on the same law firm makes it unlikely that institutions will bargain for lower attorneys’ fees or monitor trusted counsel. To be fair, some pension funds, such as MissPERS, use plaintiffs’ firms for free investment monitoring, but rely on multiple law firms and guarantee none that it will be selected as lead counsel. On one hand, portfolio monitoring is commendable—it encourages institutional investors to get involved, enforces substantive rights, and may uncover and deter fraud. But on the other, ongoing business relationships between the lead plaintiff and counsel appear improper, may cause counsel to maximize the institutional lead plaintiff’s return to the class’s detriment, and may encourage counsel to litigate in ways that establish favorable precedent for the institution.

(Emphases added.)  Burch has several suggestions for addressing these issues. Her most interesting is to recommend that securities class actions should be headed by plaintiff groups rather than lone plaintiffs, so long as the group reflects the diversity of the class.

Ideally, group members represent the class’s diverse interests such that when each member pursues her own self-interest, the group resembles a microcosm of the whole class.

Burch is not blind to the problems that plaintiffs' groups can pose. Nor is she a lone voice advocating for diversity. That said, she tends to be optimistic about how diverse stakeholders may interact in overseeing a class action. 

Put simply, class counsel should consult and take direction from the lead-plaintiff group on matters that implicate members’ values and litigation objectives or affect the case’s merits in much the same way that an attorney consults with her client in individual litigation. In short, if lead plaintiffs are to adequately represent class members’ interests, monitor the lawyers, and minimize agency costs, then, consistent with the PSLRA’s goal of increasing client control, they should have more decision-making authority.

While it would be helpful to know whether Burch is advocating a doctrinal or legislative reform (in other words, should courts just start enforcing this proposal, or does Congress need to amend the PSLRA?), the policy arguments she raises can prove useful for securities defense lawyers. At the very least, they exemplify a trend of continued concern about the adequacy of securities lead plaintiffs, and provide several examples of why one should not assume that institutional investors are always adequate lead plaintiffs.

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 With the growing trend of federal appellate courts enforcing district courts' "rigorous analysis" of class certification requirements, the danger of a class action getting certified on insufficient facts has diminished. But that hardly means that plaintiffs will always provide enough facts to justify certification. Take the case of Botehlo v. Hawaii, 2010 U.S. Dist. LEXIS 16936 (D. Haw. 2010).

The plaintiffs in Botehlo were prison inmates, both pre-trial detainees and convicts. They protested the conditions of their confinement, which allegedly included sleeping on the prison floor, being denied access to toilets, and lack of personal hygiene materials. After the plaintiffs filed their complaint, both sides stipulated to an administrative process that would involve placing evidence in front of a court-appointed Special Master. When those discussions broke down, the plaintiffs filed a motion to certify a class.

While the plaintiffs submitted one affidavit from their counsel, they submitted no other evidence. And the court noticed.

Finally, apart from Mr. Seitz's affidavit, there is no evidence for this Court to review and determine whether class certification is appropriate, particularly for the time period after August 2005. Although class certification is within the discretion of the court, the district court must still base its decision to certify on evidence.

(Emphasis added.)  The court also listed out other kinds of evidence that the plaintiffs could have submitted.

[E]xamples from other district courts show the type of evidence that parties might submit in furtherance of a motion to certify class. In Von Collin v. County of Ventura, the Central District of California certified a class of inmates who had been restrained by a "pro-straint" chair. 189 F.R.D. 583, 585 (C.D. Cal. 1999). Plaintiffs submitted documentation that the chair was used approximately 377 times over a 18-month period, and provided analysis of why the chair was used, jail incident reports, inmate monitoring logs, and forensic medical records. Id. at 590-95. The analysis showed: (1) the number of inmates processed during an 18-month period; (2) the number of times inmates were subjected to the alleged confinement during that period; (3) the reasons for each use of the alleged confinement; and (4) the length and number of times each inmate was subjected to the alleged confinement. Id. at 595-96. In Cartwright v. Viking Industries, Inc., the plaintiffs sought to certify a class of residents who installed Viking Series 3000 window products. 2009 U.S. Dist. LEXIS 83286, 2009 WL 2982887 (E.D. Cal. Sept. 14, 2009) (slip opinion). The plaintiffs presented evidence of one-million window product sales during the class period coupled with expert testimony providing the number of windows in an average residence. 2009 U.S. Dist. LEXIS 83286, 2009 WL 2982887, at *5. This allowed the court to conclude that windows were installed in approximately 50,000 residential units during the class period and joinder of these parties would be impracticable. Id. And in Amalgamated Transit Union Local 1309, AFL-CIO v. Laidlaw Transit Services, Inc., the plaintiffs sought to certify a class of bus operator employees for alleged meal and rest period violations. 2009 U.S. Dist. LEXIS 7171, 2009 WL 249888 (S.D. Cal. Feb. 2, 2009) (slip opinion). The plaintiffs submitted 12 declarations of class members in support of their motion.

As a result, the district court in this case refused to certify the class. What can defense counsel learn from this? It's still well worth challenging the factual basis of certification. If the plaintiffs have not provided enough facts to support certification of a class, courts are more prepared than ever to deny their request.

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 In a decision that has already garnered massive press coverage and commentary the Supreme Court yesterday granted certiorari in the case that will be known as Wal-Mart v. Dukes. The 9th Circuit's opinion affirmed certification of the largest-ever employment class action. (Too large, in Wal-Mart's opinion.)

The Supreme Court will not review all of the issues involved in the petition for certiorari. It has limited itself to Wal-Mart's Question 1 (roughly: when can plaintiffs seek Rule 23(b)(2) certification for a class seeking money damages), and has ordered briefing on an additional question:

"Whether the class certification ordered under Rule 23(b)(2) was consistent with Rule 23(a)."

So what does all this mean? In the short term, not too much. Argument is in the spring, the opinion is expected sometime mid-summer. Through that time, Ted Olson's team at Gibson Dunn & Crutcher, Brad Seligman's team at The Impact Fund (not to mention many, many, amici) have their work cut out for them. There may also be some increased motion to stay activity in labor class actions. Defense counsel are going to want to stay litigation in case the Court rules that 23(b)(2) class actions cannot support monetary damages like those the plaintiffs seek. Plaintiffs' counsel are likely to fight hard against those stay requests; any classes they can certify (and get through Rule 23(f) review) before the Dukes decision comes out will be difficult to reverse.

Longer-term, it's difficult say at this point. Court-watching is even more like Kremlinology than plaintiff-watching. The fact that the Court has eschewed the various statutory and Constitutional arguments the defendants raised indicates that it may be more interested in narrowing the scope of any decision it issues. (Although the Rule 23(b)(2) issue is controversial enough.) But the fact that the Court has ordered briefing on the separate question of whether the certified class met the Rule 23(a) requirements (numerosity, commonality, typicality, and adequacy) indicates that Wal-Mart's general framing of the class as simply too large to certify may have some traction.

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Two cases in the past few years involved a similar issue, but opposite outcomes. In the first, Murray v. GMAC Corp., the defendant argued that a family that had brought fifty Fair Credit Reporting Act lawsuits were "professional plaintiffs," and therefore inadequate to represent a class.  The Seventh Circuit, in an opinion by Judge Easterbrook, held that that the plaintiffs' "professional" status did not disqualify them from being adequate class plaintiffs. By contrast, in Gordon v. Virtumondo, Inc., the Ninth Circuit held that an individual plaintiff who set up an email account in order to collect emails that violated the Controlling the Assault of Non-Solicited Pornography and Marketing (CAN-SPAM) Act of 2003 was a professional plaintiff who lacked standing to sue even on his own behalf.

What's the difference between these two cases? Law student Brandon Murrill has an explanation, which he lays out in his Note The Business of Suing: Determining When a Professional Plaintiff Should Have Standing to Bring a Private Enforcement Action. As he puts it:

Despite superficial differences, professional plaintiffs like Gordon are members of a species of litigant—a species with a few defining characteristics. First, and most importantly, professional plaintiffs are professional, meaning that they are in the business of bringing lawsuits with the primary aim of winning large sums of money. They and their lawyers may claim to have other goals, such as fighting for the underrepresented “little guy” against powerful interests, but these goals remain secondary considerations to the ultimate goal of collecting damages.

Second, professional plaintiffs often play a role in bringing about the injuries that serve as the foundation for their lawsuits, al- though some play a more active role than others. One example is the professional plaintiff with a disability suing under the ADA who actively scours local businesses for obscure, technical violations to serve as the basis for a cause of action.

Murrill suggests that the best solution to the professional plaintiff problem is legislative: he recommends that states should adopt stricter standing requirements. But his Note also suggests a way for defense counsel to counter professional plaintiffs.  According to Murrill, the key difference between an acceptable and unacceptable plaintiff is the presence of a self-inflicted injury. It's one thing to be litigious, and another to have a business interest in bringing lawsuits. In one case, the plaintiff is experienced (and likely unpleasant). In the other, the plaintiff has a close business relationship with his attorney, one that leads him to expose himself to harm and likely compromises his ability to adequately represent a class. If the defense focuses on the professional's relationship with his attorney and the lengths he will go to further that relationship, it should be able to demonstrate that he lacks the independence to stand up to his business partner on behalf of a class of amateurs.

TAGS - adequacy FCRA