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

Amber Pieloor filed a class action against her bank, the Gate City Bank of North Dakota. She accused the bank of re-sequencing a number of her financial transactions. Re-sequencing occurs when a bank records transactions in an order other than that in which they were received. Accusing banks of re-sequencing has become common; and it appears that some banks, in fact, have re-sequenced debits--charging the largest ones first before moving on to smaller debits--in order to maximize the number of overdraw fees they can charge.

There were two problems with Ms. Pieloor's complaint. First, she was not arguing that her bank had resequenced just withdrawals or debits, but that it had resequenced everything.

Second, Gate City Bank had not engaged in any resequencing. It simply wasn't its policy. Moreover, the allegations in Ms. Pieloor's complaint were confusing and ambiguous. In a situation like that, what is a defendant to do?

Gate City chose to answer the complaint, rather than move to dismiss. And then it moved the real fight to the Rule 26 Scheduling Order. Where possible, parties are supposed to file an agreed order, but the plaintiff's theory of the case was so different from the defendant's here that it made sense to have the court decide on how discovery would proceed instead.

And so the District of North Dakota was faced with two separate arguments. Ms. Pieloor's attorneys argued that her class allegations, combined with the other class actions out there, represented a lot of smoke. And where there's smoke, there must be fire. So it made sense to just move on with classwide discovery.

Gate City, on the other hand, argued that it simply didn't resequence. And any quick check of the facts would reveal that. So that's what it advocated: limited discovery into Ms. Pieloor's claims, followed by a summary judgment motion. If she could prove what she was saying happened to her, then class discovery could begin. If not, why spend the money?

The court, in a remarkably thoughtful and nuanced decision (which you can find at Pieloor v. Gate City Bank, 2012 U.S. Dist. LEXIS 148702 (D.N.D. Oct. 15, 2012), or here), largely agreed with the defendant. It ordered:

(1) a preliminary inquiry into whether class proponent(s) can make a sufficient showing that Gate City engaged in re-sequencing of transactions for any of the named plaintiffs in the manner and for the types of transactions alleged in the complaint; and (2) initial discovery that is limited to these issues.

The court set forth a number of reasons justifying its ruling, but two stand out. First, wide-ranging discovery would be needlessly costly.

[T]he savings from the avoided costs of immediate, full-blown class and merits discovery would likely be substantial.

(Emphasis added.)  And second,

if upon preliminary inquiry it is determined that Gate City engaged in some re-sequencing, a significant part of the hard work will have been done with respect to class certification, since it is likely the same types of transactions will have been handled in the same manner for other customers given the nature of the subject matter.

(Emphasis added.  ) The court did not simply adopt the defendant's arguments, however. It also allowed Ms. Pieloor time to identify other potential class representatives, and allowed discovery into their allegations as well, ensuring that discovery would not be limited to a single, flukish claim.

So, what can defendants use in this opinion? Quite a bit. Most class action defense lawyers have run up against the problem of the plaintiff who is just plain wrong. It's frustrating, because the traditional understanding of class-action litigation postpones merits inquiries until after certification, meaning that a deluded theory of the case may survive through months of costly discovery before it gets tested. The Pieloor case offers an alternative strategy: answer the complaint, and bifurcate discovery in order to test the bad theory first.

It's a risky strategy, but the Pieloor opinion shows it can work, with the right preparation and the right judge. The right preparation is crucial: Gate City provided a detailed answer with an account of its actual sequencing policies, rather than waiting to dole that information out in discovery.

But if the strategy is higher risk, it's also higher reward. Instead of facing crushingly expensive e-discovery in the coming months, Gate City is testing whether the plaintiff has a claim at all. And that's the best possible outcome for all parties concerned, because it serves the "just, speedy, and inexpensive determination" of the case.

Hat tip to colleague Brad Kutrow for pointing me toward the opinion.

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There's a fascinating strategic story buried deep within Snigdha Prakash's book on the early Vioxx litigation, All the Justice Money Can Buy: Corporate Greed on Trial. It's revealed in two passages, one toward the beginning of the book, one toward the end.

At the beginning of the book (and the trial it covers), New Jersey Superior Court Judge Carol Higbee [] proposes bifurcating several upcoming Vioxx trials into two phases: a general causation phase, followed by a damages phase. As Prakash reports:

The plaintiffs embraced the proposal. Trying several cases together would give them multiple opportunities to beat Merck in a single trial. And they believed the the trial's bifurcated structure would play to their strengths because Merck's deceptive marketing practices and scientific misconduct would take center stage first. Merck would have to wait until the second half of the trial to call the jury's attention to what had proven to be the strongest part of its case--how each plaintiff's lifestyle and preexisting injuries may have contributed to the alleged injuries.

(Pages 29-30, emphasis in original.) Then, at the end of the trial, after the jury renders a verdict that precludes recovery for at least one of the plaintiffs, the plaintiffs reverse their position.

"Counsel have anything they want to say about the verdict before we move on?" [Judge Higbee] said when she was seated.

"Your Honor, Mark Lanier, on behalf of the Hermans[es]," Lanier said, standing up. "It is my request that you enter a judgment, notwithstanding the verdict on question number 1, to allow the Hermans case to continue into Phase II."

Lanier was asking the judge to set aside the ground rules that the two sides had fought over so bitterly before the trial. Under those rules, the jury was to determine if Merck was liable, in principle, for the injuries of all the plaintiffs in Phase I of the trial, and resolve each plaintiff's specific claim against Merck in separate mini-trials in Phase II. Higbee had proposed the bifurcated structure as a way to try several cases simultaneously. The plaintiffs' lawyers had agreed, believing that the arrangement would increase pressure on Merck to settle, while Merck had strenuously opposed it. Now, Lanier was arguing that the trial structure he earlier supported had prevented the judge from reaching "a valid verdict."

(Page 266, emphasis added.) How did the plaintiffs get from point A, where they were enthusiastic supporters of bifurcation, to point B, where they essentially argued it was grounds for reversal? (And did so unsuccessfully, as it turns out.) Was this a case of hubris? The fog of war? Malpractice?

Unfortunately, Prakash doesn't care about these questions. They don't fit the story she wants to tell, which is

why [Lanier] was beating Merck when others weren't.

(Page 38.) Even more unfortunately--at least for Prakash--the trials in New Jersey that form the focus of her book don't progress how she predicted. Instead of watching a undefeated team take on a large and evil corporate defendant in a much-anticipated rematch, she witnesses a team score at best a partial victory that feels far more like a defeat. (Even the Humestons, plaintiffs who won at Phase I, would go on to lose at Phase II, at which point Judge Higbee would overturn the jury's verdict.)

Rather than embrace the nuances that drive complex litigation (there are rarely unsullied heroes or unambiguous villains, and even more rarely unequivocal victories), Prakash strives mightily to cram the facts in front of her into a straightforward story of good triumphing over evil, at least until the jury refuses to oblige her.

It's clear Prakash's model for All the Justice Money Can Buy is Jonathan Harr's A Civil Action. Like Harr, she embeds herself with the plaintiffs. And like Harr, she aspires to be a fly on the wall. But unlike Harr, she makes no attempt at journalistic depth. She does not try to get into the heads of the defense, the judge, or the jury. And the result is decidedly one-sided. While Harr was able to tell a story of how large-scale litigation warps the lives of everyone it touches, Prakash turns a series of trial transcripts into a high-school soap, where the cool kids try to take the Honors Society down a peg, and kind of succeed, but kind of don't. By the time she reaches the end of the trial, she is recounting a scene that could literally take place in a classroom, where a member of the trial team passes her a note mocking defense counsel and she laughs out loud, attracting the woman's attention.  (Page 244.)

That attitude is endemic to Prakash's book. Her verdict at the end is not that the plaintiffs made a mistake in structuring the trial as they did or presenting the evidence as they did, but that the jury made a mistake in not believing the story as the plaintiffs presented it. There are some interesting nuggets along the way--Mark Lanier is clearly a talented storyteller, and provides some worthwhile analysis on day-by-day trial presentation--but the fact that the plaintiffs appeared to make such a large blunder at either the beginning or the end of the case, and that blunder goes unexamined for the two hundred thirty pages in between, or the twenty pages afterward, mean that they're not quite worth the slog through the shallow cheerleading that takes up the remainder of the book.

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

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

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

Certified classes create intense pressure to settle.

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

The law of negligence varies from state to state.

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

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

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

(Internal citations omitted.)

Courts must be careful when bifurcating a class action.

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

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

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

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

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