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

Since I first wrote about fighting fishing expeditions, Google has sent a number of readers to the blog looking for “fishing expeditions discovery” or “deny class certification discovery abuse.” (It also sent one reader looking for “botulism,” which I’m proud to say is not available here.) Clearly, fighting fishing expeditions in class actions is an important topic to defense lawyers. And the good news is, there’s more than one way to do so. For example, in addition to objecting to the relevance of some of plaintiff’s document requests or interrogatories, one can also object that the plaintiff is not entitled to class-related discovery if she cannot make a prima facie showing that her class will meet the requirements of Rule 23.

In Heerwagen v. Clear Channel Communications, an antitrust class action, the plaintiff alleged that Clear Channel’s charging of high prices for live concerts violated Section 2 of the Sherman Act, which prohibits monopolistic practices or attempts to monopolize a relevant market. After a three-day hearing, the trial court declined to certify a class. The plaintiff appealed, arguing among other things that the trial court had impermissibly limited the discovery she could take to demonstrate that classwide proof of her claims existed.

Starting from the premise that the decision to limit discovery is within the sound discretion of the trial court, the Second Circuit Court of Appeals reasoned that:

Limiting discovery in preparation for the class certification motion in order to reduce expense, the district court allowed plaintiff's deposition and the deposition of experts. Although Judge Sprizzo made comments suggesting improper bases for limiting discovery — including a categorical statement that he generally does not allow plaintiffs discovery on the issue of class certification and an unsupported claim that plaintiff's counsel here sought discovery "as some sort of settlement leverage" — we nonetheless cannot conclude that the decision to limit discovery here amounted to an abuse of the district court's broad discretion.

In addition to the discovery allowed, significant relevant information was apparently available in the public domain, as evidenced by the exhibits submitted in connection with plaintiff's motion for class certification. Moreover, plaintiff failed to make any showing, however preliminarily, that she could satisfy the predominance requirement of Rule 23(b)(3) or that she might be able to do so with additional discovery. See Mantolete v. Bolger, 767 F.2d 1416, 1424 (9th Cir.1985) ("Although in some cases a district court should allow discovery to aid the determination of whether a class action is maintainable, the plaintiff bears the burden of advancing a prima facie showing that the class action requirements of Fed.R.Civ.P. 23 are satisfied or that discovery is likely to produce substantiation of the class allegations.").

In other words, the Second Circuit ruled that, because the plaintiff bears the ultimate burden of proving that a class is certifiable under Rule 23, she also bears the burden of making a prima facie showing that her class is certifiable under Rule 23 in order to justify extensive discovery.

For cases where the defendant faces a class complaint that is facially deficient, but where the plaintiff hopes to use discovery to fish for a viable cause of action or leverage a settlement, objecting because the plaintiff cannot make a prima facie case for discovery can be effective. The plaintiff will no doubt fight this objection as hard as she can; but a fight about the propriety of a defective class action? That’s a fight the defense is ready to have.


 

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One reason that class actions are notable is that the discovery is particularly one-sided.  The plaintiff likely has few documents, and little to say in deposition about her claims. So the defense spends much of its time in discovery – there’s no better way to say it – playing defense: making sure that it has adequate strategies to address the vulnerabilities in any information it produces.

Plaintiffs’ lawyers consider the 30(b)(6) deposition one of their primary offensive tools. As a result, many defense lawyers treat the 30(b)(6) representative like the goalie in a hockey game: if he can prevent the other side from scoring any points, he’s done his job. But, under certain circumstances, the 30(b)(6) representative can play offense as well as defense. Since the defendant possesses most of the information, it has firsthand knowledge as to why a class action may not be the appropriate vehicle for a lawsuit. And the 30(b)(6) corporate representative deposition allows the corporation to select a corporate spokesperson to make the argument against certification.

How important is the 30(b)(6) deposition to the case against class certification? Potentially, it can be a game-changer. For example, in a 2008 opinion, the Southern District of Florida denied certification based on the testimony in several 30(b)(6) depositions. In Pop’s Pancakes, Inc. v. NuCO2, Inc., 251 F.R.D. 677, 686-87 (S.D. Fla. 2008), a class action filed by two restaurants against an equipment lessor claiming that it improperly hid fees in its beverage-equipment contracts, the district court found that the plaintiffs could not demonstrate that there were any common issues of law or fact justifying certification. What was the basis for this decision? The testimony of one of the corporate representatives, who said in his deposition that:

while there are generally four different contracts customers have with the Defendant, two of which are subject to the assessment of property taxes, that every month some customers switch from a contract where no equipment is leased, and thus, no property tax assessed to one where the customer leases the equipment from NUCO, [and] that there were various administrative processing fees charged based upon individual negotiations with the various customers, which can only be determined by reviewing the individual customer's agreement.

The lesson here is a simple one. The 30(b)(6) deponent is not just a goalie. Prepared properly, with the right facts behind him, he can score points, too. 

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It's no secret that discovery in class actions can be abused to serve goals that have nothing to do with the merits of the case. In some cases, plaintiffs will use the threat of extensive discovery to leverage settlements. In others, plaintiffs may use their proto-class status as excuse for a fishing expedition for new clients or causes of action. It may seem like there’s not much a defendant can do to combat these abuses, but a 30-year-old case – Oppenheimer Fund v. Sanders – offers one possible solution.

In Oppenheimer, the named plaintiffs sued Oppenheimer Fund for failing to disclose that it had invested in a set of overvalued “restricted” securities that had artificially inflated its earnings, and resulted in investment losses for the proposed class. As part of their discovery, the plaintiffs demanded a list of all class members, to be used as a starting point for the notice they would eventually have to send. The trial court originally ruled that Oppenheimer would have to pay 90% of the costs of compiling the class list.

At the same time as plaintiffs moved to certify a class, the Second Circuit reversed the trial court. So the plaintiffs deposed several of Oppenheimer’s employees, and then moved to redefine the class to include only those people who still held shares in the Oppenheimer Fund. Then, they proposed that notice be included in one of Oppenheimer’s regular mailings to its shareholders.

The procedural issues in the case grew even more complex, and eventually reached the Supreme Court. For our purposes, the Court made several statements worth remembering. First, it ruled that any orders compelling a defendant to assist in compiling information for class notice are governed by Rule 23(d), not the federal rules governing discovery. Second, it stated that while discovery under the federal rules is necessarily broad, it

like all matters of procedure, has ultimate and necessary boundaries.

More importantly, once it examined the conduct of discovery in the case, the Court also held that

Respondents’ attempt to obtain the class members’ named and addresses cannot be forced into the concept of “relevancy” described above.

(Emphasis added.) How is that useful for class-action defendants? Oppenheimer objections can be used to block plaintiffs’ attempts to use discovery to accomplish goals unrelated to the merits of the litigation. For example, plaintiffs do not have the right to:

• sidestep the burden of assembling notice; or
• get themselves a list of possible new clients

through discovery. And objections based on Oppenheimer can help protect the defendant from this particular abuse of the discovery process.
 

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Class-action defense guru John Beisner has published a new study on third-party litigation financing: “Selling Lawsuits, Buying Trouble: Third-Party Litigation Funding in the United States” (US Chamber Institute for Legal Reform, October 2009). Since it’s published by the US Chamber of Commerce, this is an advocacy piece, and one aimed more at policymakers than courts. (Beisner reaches one empirical conclusion: that allowing widespread third-party funding in Australia led to an increase in class-action filings there.)

While the policy arguments are certainly not dull, I’m more interested in the strategic implications of the piece for class-action lawyers.

And here’s the real question third-party financing raises: if plaintiff’s counsel (or the plaintiff) receives third-party litigation funding, have they compromised their adequacy as class representatives? Courts have held that a named plaintiff owes a fiduciary duty to the class; and so does the class counsel.  If either the named plaintiff or counsel is beholden to a third party who is underwriting the action, they may have compromised their ability to represent the class in an unbiased fashion.

In addition, class plaintiffs have long portrayed themselves as the underdog, a David taking on a corporate Goliath who needs judicial (rather than divine) intervention to prevail. If the plaintiff is backed by a large hedge fund, the fight is no longer David-versus-Goliath, but a clash of the titans, where neither side naturally requires sympathy.

This suggests a discovery tactic: why not spend an interrogatory asking about the plaintiff’s source of funding in class actions? Granted, the Federal rules make interrogatories a limited resource. And diving into a possible battle over work-product or the attorney-client privilege (colorable, but likely unsuccessful arguments the plaintiffs might assert) may appeal only to more combative defendants. But exposing a potential conflict of interest and nullifying plaintiffs’ traditional David-versus-Goliath rhetoric may be well worth the effort.

[Disclosure: I used to work with Beisner and his co-author Jessica Miller at O’Melveny & Myers LLP, and, on occasion, helped them research previous articles.]

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