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

Today's case, Espenscheid v. DirectSat USA, LLC (7th Cir. 2012) is a little tricky, procedurally. Three plaintiffs filed an FLSA class action (and collective action) against DirectSat USA, LLC. The Northern District of Illinois originally certified a class, but then decertified it, at which point the plaintiffs each settled on an individual basis.

Now, here's the tricky part. Having settled the case, they appealed the decertification.

But wait, you ask. How could they do that? They settled their claims!

The plaintiffs' response: the settlement agreement reserved their right to appeal. Of course, they would still face a standing problem. Since their claims had been settled, they no longer had a stake in the case. So how did they justify their standing?

By pointing to a provision in the settlement agreement that said that they would seek incentive awards if the class were certified.

As Judge Posner describes the incentive awards in his opinion:

It is true that class actions are almost always the brainchild of lawyers who specialize in bringing such actions. But they still have to find someone who is a member of the prospective class to agree to be named as plaintiff, because a suit cannot be brought without a plaintiff. And a class action plaintiff assumes a risk; should the suit fail, he may find himself liable for the defendant's costs or even, if the suit is held to have been frivolous, for the defendant's attorneys' fees. The incentive reward is designed to compensate him for bearing these risk, as well as for as any time he spent sitting for depositions and otherwise participating in the litigation as any plaintiff must do. The plaintiff's duties are not onerous and the risk of incurring liability is small; a defendant is unlikely to seek a judgment against an individual of modest means (and how often are wealthy people the named plaintiffs in class action suits?). The incentive award therefore usually is modest--the median award is only $4,000 per class representative.

(Emphases added, internal citations omitted.) So, would that chance to receive a payment of a few thousand dollars be enough to justify the appeal? According to Judge Posner, yes:

It should have been enough. The prospect of such an award is akin to a damages payment agreed in a settlement to be contingent on the outcome of the appeal; and the prospect of such a payment, though probabilistic rather than certain, suffices to confer standing.

Of course, as he also pointed out, having standing to pursue an appeal and being an adequate representative of a class are two entirely different things.

It's true that having settled he will no longer have a stake in any damages that may be awarded to the class. And that will cast doubt on his adequacy to represent the class members, his interest in the case no longer being perfectly aligned with theirs.

In other words, since the named plaintiffs would only be in the case for their incentive awards, they would really only have an incentive to settle, and only on terms that allowed them their awards. This would align their interests with their lawyers' rather than the class's. And this is the reason why incentive awards can prove so problematic: they tend to align the interests of the named plaintiffs with their lawyers.

So what's the takeaway for defense lawyers? Make sure you check into whether the plaintiff is seeking an incentive award. (Many defense lawyers already ask this in deposition.) If they are, it may provide the basis for an argument about adequacy of representation.

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 One of the tough things about defending class actions is the fact that discovery is asymmetrical. Some plaintiffs use the fact that corporate defendants generate huge numbers of documents to inflict significant costs on the defense by serving large numbers of marginal relevance to any class claims.

So, when plaintiffs withhold actually relevant information, that tends to add insult to injury.

That's what happened in Barnes v. Equinox Group, 2012 U.S. Dist. LEXIS 82688 (N.D. Cal. 2012). During the discovery phase of Barnes, the defendant took nine depositions: those of the two named plaintiffs, the plaintiffs' expert, and six declarants that the plaintiffs had identified. (As most federal litigators are aware, each side in a lawsuit is limited to ten depositions by FRCP 30.)

When the plaintiffs filed their motion for class certification, they added 20 declarants that they had not previously disclosed to be witnesses in the case. (Most of the declarants were also represented by class counsel.) The plaintiffs opposed any further depositions, so the defendant moved for leave to take further depositions.

The court began by recognizing that

putative class action matters can be sufficiently complex to warrant more than ten depositions.

The plaintiffs argued that further depositions were unnecessary because the defendant had already taken several depositions, and because it could rely on information in its own possession. The court did not accept those arguments:

As a threshold matter, the court finds that by relying on these declarants, Barnes effectively concedes that their testimony is relevant to its Motion for Class Certification. Thus, the court will address each of the Rule 26(B)(2) factors in turn. First, the court finds that additional depositions are not unreasonably cumulative or duplicative. To be sure, deposing nine more declarants is likely to be somewhat duplicative and cumulative. The court does not, however, consider Equinox's request to be unreasonably so because Barnes decided that such a large number of declarations were sufficiently important to submit in support of his Motion for Class Certification.

(Emphases in original.)  So, what can defense counsel take from this opinion? Make sure you assert your discovery rights. Where the plaintiff tries surprise declarants, the court will likely let you take the depositions you need.  More importantly, if the plaintiff makes a witness relevant by relying on them, that makes the witness relevant to the case.

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 I've written before about the uses to which defense counsel can put a well-taken named plaintiff deposition. And, once again, an opinion has come along that showcases just how important the named plaintiff deposition is as a weapon to defeat class certification.

The case, Burns v. Bayer Corp., 2012 U.S. Dist. LEXIS 33183 (S.D. Ill. Mar. 13, 2012), is part of the Yaz multi-district litigation (which previously yielded an extremely useful motion to strike opinion). Yaz is an oral contraceptive, and the FDA has also approved it for use in treating acne and premenstrual dysphoric disorder. It has not yet approved the use of Yaz for alleviating less severe premenstrual symptoms (e.g., "that time of the month"), although some doctors have prescribed it for that purpose. The majority of the Yaz MDL cases have alleged that Yaz has some nasty side effects.

Unlike those cases, the Burns case--which was brought only under California law--attacked Yaz's advertising. Ms. Burns sought to represent a class of

All consumers residing in the State of California who were exposed to Defendant's Ads and purchased their prescription for YAZ for the first time, during the period of time between August 20, 2007 and January 26, 2009.

(Emphasis in original.) And her allegations--which included a claim under California's False Advertising Law--accused Bayer of selling Yaz at an unfair premium by marketing it as a PMS palliative for women using contraceptives. Given California's pro-plaintiff consumer laws, I'd guess that plaintiffs thought they had a strong case for class certification. The false advertising law, for example, does not require evidence of reliance, which would significantly reduce the number of individualized issues plaintiffs might face in proving their claims.

Despite these natural advantages to the case as plaintiffs' counsel pled it, the court denied certification. And its reasons relied heavily on the deposition of the named plaintiff.

First, the court decided that the class was not ascertainable, even though plaintiffs offered an "objective" method of determining membership by asking each class member whether she had seen one of the advertisements, and whether she had bought Yaz.

[T]here is no objective way to determine who saw the complained of television advertisements. Instead, class membership would depend on the subjective and often unreliable vagaries of human memory. The record in the instant case exemplifies the problems that would arise in assessing actual exposure. The putative class representative, Frances Burns, initially claimed that prior to obtaining a prescription for YAZ in January 2008, she viewed the "Balloons" and "Not Gonna Take It" television advertisements. However, during her deposition, Ms. Burns testified that she couldn't "recall specifically" which television advertisements she viewed or exactly when she viewed them. Further, Ms. Burns' description of the advertisements she viewed prior to January 2008, indicates that she never saw the "Balloons" advertisement.

(Citations omitted, emphasis added.)

Second, the court found that the named plaintiff's deposition testimony indicated that she was not typical of the class as her counsel had defined it.

Plaintiff's UCL and FAL claims do not require a showing of reliance. Rather, plaintiff must show that the fraudulent conduct was "likely to deceive" a reasonable consumer. This standard is subject to common proof if the actionable conduct was both uniform and material. Thus, materiality is a relevant factor in the Court's class certification analysis. In the instant case, plaintiff claims that she suffered from and sought treatment for premenstrual symptoms. The putative class, however, includes women who did not suffer from PMS or premenstrual symptoms, who did not require treatment for PMS or premenstrual symptoms, and/or who took oral contraceptives for the sole purpose of birth control. For these plaintiffs, the subject of the allegedly fraudulent advertisement campaign would not have been material. Plaintiff's claims are not typical of these putative class members.

(Citations omitted, emphases added.)

And finally, the court looked closely at the Ms. Burns's deposition testimony about how she became involved in the case.

The plaintiff and proposed class representative, Frances Burns, is a citizen of California. Ms. Burns is a "good friend" of and works with Aimee Lambert, the wife of Richard Lambert, one of the class attorneys. Ms. Burns became involved in this litigation after having a conversation with Ms. Lambert. During that conversation, Ms. Lambert told Ms. Burns about this litigation and informed her that her husband was having difficulty locating a suitable class representative.

(Citations omitted, emphasis added.) The court found that this "good" friendship with counsel's wife meant Ms. Burns could not serve as an independent representative of the proposed class.

In the instant case, the disputed relationship does not rise to the level of a familial relationship and Ms. Burns and class counsel are not direct business associates. Nonetheless, the close relationship between Ms. Burns and counsel's wife raises serious concerns as to Ms. Burns's adequacy to represent the instant class. Given that the potential recovery for plaintiffs is minimal compared to the potentially high amount of attorneys' fees that may be awarded, Ms. Burns may be more concerned with helping to maximize the monetary return of her "good friend" and co-worker (counsel's wife) than with her duty to zealously advocate on behalf of the class' interests. This is the type of situation that creates a conflict of interest. Considering this, the Court finds that Ms. Burns is not sufficiently independent of class counsel and does not satisfy the adequacy of representation prong.

(Citations omitted, emphasis added.) 

The court also engaged in a lengthy and thorough analysis of the elements of each California claim to show that individual issues predominated over common ones. However, since it had found that the class was not properly defined, and that the named plaintiff was neither typical nor adequate, these findings were not strictly necessary to its denial. (On the other hand, they do strengthen its opinion, and ensure compliance with Rule 23(c)(1)(B).)

The lesson for defense counsel here is a simple, but very compelling one. Pay close attention to the deposition of the named plaintiff, in particular, what she heard, what she thought, and how she knows class counsel. In this case, the deposition of Ms. Burns was the best evidence Bayer had to defeat certification.

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As you may know, most bloggers have some kind of service that provides a statistical analysis of their site. In addition to telling us how many of you visit, and what you read, and whether you come back, these services also tell us what searches bring (some of) you here. And, over the last year and change, there are certain searches that have recurred enough that I consider them "frequently asked questions." Here are four, with brief answers:

What is the definition of "bet the company" litigation? This is--at least to me--a surprisingly common question. My own working definition is:

litigation where the stakes are so high that a verdict against the company would have serious financial repercussions, including bankruptcy.

Class actions, which transform small-dollar individual claims into multi-million dollar aggregate claims, are often considered to be "bet the company" litigation. Particular kinds of class actions (like those brought under FACTA have been so lopsided in the potential risks, that they have spawned a subspecies of superiority argument sometimes called the "annihilation defense," which argue that when the likely result of a class action would be annihilate the company, it's not superior to other forms of litigation.

What are good standard class action interrogatories? Well, this will depend on the specific case. However, I would say that the best class action interrogatories unearth individualized facts about the class members' claims. So they may include:

• What events gave rise to plaintiff's claim (such as the purchase of a product, the various days that an employee worked overtime).
• When and where those events took place.
• Who witnessed the events.

(For more discussion of class-action interrogatories that work on both sides, see The Class Action Playbook.) I personally have a bias against contention interrogatories. ("List all facts and identify all evidence that support your claim that …") While these can be effective in a trial setting, they are much less so when the largest battle is over class certification. In that case, the opposing party can usually postpone providing a real answer until after class certification has already been briefed. This wouldn't be a problem if interrogatories were unlimited, but under the Federal Rules of Civil Procedure, they're not.

(There are some other specialized interrogatories often worth asking if one suspects some conflict of interest or other chicanery.  They include: "Identify any third party sources of funding." "Identify your confidential witnesses." "Identify any PR consultants your counsel has employed." And "identify the date you retained your counsel.)

How does one depose a class action plaintiff?
Much as one does for interrogatories, one asks for the individualized facts surrounding the plaintiff's claim. Among other questions, one can ask:

• the plaintiff to verify the accuracy of her interrogatory responses; 
• to describe any policies and procedures she claims are classwide; 
• to explain any factual inconsistencies in the discovery she has produced; 
• to identify when they first met plaintiffs' counsel; 
• whether they've ever been convicted of a felony; 
  (For more discussion of class-action deposition questions, see The Class Action Playbook.)

For an excellent list of deposition questions in one ADA class action, see Anotinentti v. Chipotle.  And, for more on deposition questions, you can also see the Class Action Playbook.

What is a defendant class? A defendant class is just what it sounds like, a class action where a plaintiff sues a number of defendants, represented by a single class representative. As one might imagine, while it is theoretically possible to organize a number of defendants into a class so that one may sue them more effectively, in practice, it is extremely difficult.

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Defendants face a dilemma when dealing with absent class members. On the one hand, they often have valuable information about a case, either as sources for variations that would defeat certification or as trial witnesses. On the other hand, plaintiffs will vigorously oppose any contact with absent class members, even if it is for a proper business purpose (like, say, responding to customer inquiries), as an improper attempt to either influence or harass members of the proposed class. So how should defendants handle taking discovery of absent class members?

Carefully. Today's case, Antoninetti v. Chipotle, Inc., 2011 U.S. Dist. LEXIS 54854 (S.D. Cal. May 23, 2011), was an ADA class action. The plaintiffs alleged that Chipotle denied them the ability to see their food being prepared because they were unable to stand (presumably the counters blocked their lines of sight). To support their class certification motion, the plaintiffs declarations from 41 witnesses, each of whom plaintiffs had identified as witnesses in their supplemental disclosures.

Chipotle sought to take the depositions of 20 of those witnesses. When the plaintiffs refused to allow the depositions, Chipotle sought an order from the court. The plaintiffs' opposition to that motion used all of the arguments traditionally used against discovery of absent class members:

Plaintiff contends this Court should not grant Chipotle leave to depose unnamed class members because: (1) Chipotle has failed to show the necessity of such discovery, (2) Chipotle has failed to show the relevance of such discovery, and (3) Chipotle's proposed deposition questions are designed to confuse, mislead and discourage class participation.

The court's decision to allow the depositions turned on the fact that, by signing declarations and agreeing to be witnesses, these absent class members had "injected themselves into the litigation on two fronts." The court also noted that taking discovery of absent class members who are customers is different than taking discovery of class members who are employees.

The Court notes that under certain circumstances depositions of absent class members could have a chilling effect on their willingness to be part of the class. However, that concern has little impact in this case for several reasons. First, the proposed deponents are not employees of Chipotle; rather, they are customers. Therefore, they are not under the pressure employees would face being deposed by their employer. Chipotle cannot directly or impliedly threaten the putative class members with loss or reduction of employment or some other adverse action affecting the work environment. Indeed, a case can be made that Chipotle is more dependent on the putative class members than they are dependent on Chipotle. In fact, part of Chipotle's motivation is to maintain or restore its corporate image with the demographic represented by the putative class members.

(Emphasis added.) Finally, the court pointed out that Chipotle had agreed to limit each deposition to an hour, and had submitted its proposed questions in advance for court approval. (The court very helpfully included those questions as an appendix to its opinion, providing budding defense lawyers with a list of questions that have passed muster in at least one case.)

The lesson defense lawyers can take from this case is a simple one: if you want to take the depositions of absent class members, be prepared to show why they're relevant to your class certification opposition, and be prepared to accept appropriate limits on the questions you ask.

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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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 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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The confidential witness is the bane of the securities defendant's existence. While there may be some legitimate reasons to keep a witness confidential, the words "Confidential Witness #1" can also hide problems with the plaintiffs' case, like sloppy research or outright misrepresentation.

How do we know this is the case? Well, many defendants have "Confidential" horror stories, but more importantly, these problems are sometimes revealed in the case proper. Case in point:City of Livonia Employees' Retirement System v. Boeing Co.  As the Northern District of Illinois puts it in its opinion, the case reads like an airport thriller.

At the center of this drama is the purported confidential source, who had a series of fateful conversations with plaintiffs' investigators and months later with defense counsel. The confidential source did not meet plaintiffs' counsel until he was recently deposed, months after plaintiffs' counsel used information purportedly provided by the confidential source to survive dismissal of this lawsuit. The confidential source now denies the information attributed to him in plaintiffs' pleadings and in their representations to the court. Plaintiffs assert their confidential source is presently lying, while the confidential source claims it is plaintiffs' investigators who are the liars.

The case was a traditional securities fraud case. The plaintiffs accused Boeing of lying to is investors about the delivery schedule for the 787 Dreamliner, a much-hyped and heavily-anticipated commercial jet model. In doing so, they relied heavily on information from "confidential witnesses."

The trial court had dismissed plaintiffs' amended complaint without prejudice, holding that there were not enough facts present to support a "strong inference" of scienter. In particular, it noted that

Plaintiffs' generalized reliance on confidential source information was insufficient to establish Boeing's scienter. Allegations by confidential sources are discounted, "usually steeply," because information from anonymous sources is not regarded as compelling or supportive of plausible inferences.

[Emphasis added.]  Nonetheless, the court offered the plaintiffs the chance to replead naming no more than one confidential source for their information about what Boeing knew and when it knew it. Plaintiffs' second amended complaint contained four paragraphs (139-42) that relied on confidential witness testimony. Boeing moved to dismiss this complaint as well, but the court denied its motion, relying heavily on the four new paragraphs.

So Boeing served discovery asking for the identity of the confidential witness. Then they interviewed him and took his deposition. And what they uncovered was--at least to the court--surprising:

[Former confidential witness] Singh has consistently denied that he was the source of the information attributed to him in the second amended complaint. Indeed, he denies he was employed by Boeing. Rather, he attests he worked for an outside contractor at Boeing starting in late August 2009, months after the events at issue in this suit; he denies personal knowledge of the 787-8 testing documents or their circulation to Boeing executives in April and May 2009; he claims he never met plaintiffs' counsel until his deposition on November 17, 2010; nor was he ever shown the allegations attributed to him in the second amended complaint until he met with defense counsel on November 2, 2010.

Deposition transcript in hand, Boeing filed for reconsideration on the grounds that plaintiffs had committed a fraud on the court. The plaintiffs opposed, arguing that their confidential witness was the liar, not their investigators. At this point, the trial court threw up its hands:

It matters not whether, as plaintiffs argue, Singh told their investigators the truth, but he is lying now for ulterior motives. The reality is that the informational basis for paragraphs 139-42 is at best unreliable and at worst fraudulent, whether it is Singh or plaintiffs' investigators who are lying.

Since the key four paragraphs weren't reliable, the court dismissed the second amended complaint, this time with prejudice.

So what can we learn from this case? First, always chase down the "confidential sources" on which the plaintiffs rely. Once the complaint has been filed, there is no reason for sources in a civil lawsuit to be confidential. Second, take the confidential witness's deposition. The confidential witness is a way for plaintiffs' counsel to sidestep the tighter restrictions of the PSLRA without having to do their actual homework. Deposing the witness keeps them accountable.

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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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 Depositions are one of the most important parts of class discovery. (And for many lawyers, they're also the most fun.) Since so few class actions go to trial, a deposition of a named plaintiff is when the defense lawyer finally gets to act like a lawyer on TV, confronting the named plaintiff with evidence, poking holes in poorly-constructed stories or arguments. But how much of the named plaintiff deposition is mere theatrics and how much is useful for actually defeating certification? For an excellent example of well-deployed depositions, let's look at a recent FLSA case: Lugo v. Farmer's Pride, Inc., 2010 U.S. Dist. LEXIS 88139 (E.D. Pa. Aug. 25, 2010).

The substantive allegations in the case involve "doffing and donning" (a nickname for FLSA cases alleging that plaintiffs were not paid for time spent putting on and taking off work clothes. In this case, Farmer's Pride owned a chicken-processing plant in Pennsylvania. In order to work in various departments of the plant, workers had to wear various items of protective clothing, including smocks, hair and beard nets, safety glasses, hearing protection, and protective sleeves. (Failure to do so could result in disciplinary action.)

Farmer's Pride moved to decertify the collective action, arguing that "donning and doffing" practices varied by department within its plant, by individual worker's routines, and by compensation scheme (there were two different compensation schemes, one in place until 2007, one in place afterward). The plaintiffs argued that Farmer's Pride had overstated the differences.

But, because Farmer's Pride had relied heavily on deposition testimony from the named plaintiffs and other plant employees, the plaintiffs had a hard time convincing the court that these differences were inconsequential. How did Farmer's Pride use the depositions?

• It used them to question the plaintiffs' ability to testify on others' behalf (typicality). "Defendant also questions the ability of Marco or Caba to speak to the practices and experiences of other hourly production workers, identifying statements in prior deposition testimony by Marco that she did not have knowledge of these facts ( and noting Caba's admission at the evidentiary hearing that she was "not paying attention to what other people [were] doing." (Internal citations omitted.)
• It used them to question the named plaintiffs' credibility (adequacy). "Defendant contends that the inconsistencies present in Marco and Caba's testimony are indicative of a more pervasive problem in the testimony that both named and opt-in plaintiffs have offered over the course of this litigation. In support, defendant points to multiple instances where named or opt-in plaintiffs have provided inconsistent testimony or have admitted to inaccuracies in prior testimony or discovery responses." (Internal citations omitted.)
• And it used them to question plaintiffs' counsel's credibility (adequacy of counsel). "Defendant also offers the testimony of Hasaan Hargett, a former plaintiff in this lawsuit and current hourly production worker at defendant's plant, who detailed at the evidentiary hearing how the facts in the interrogatory response submitted on his behalf were inaccurate, despite the fact that he brought these inaccuracies to the attention of plaintiffs' counsel prior to submission. According to defendant, these numerous contradictions betray an attempt by plaintiffs to manufacture a level of similarity that is not in fact present, and undermine any notion that their testimony can be considered representative in this case."" (Internal citations omitted.)

The defendant's strategy worked; the Court found that the inconsistencies among the testimony of various class member meant that the named plaintiffs' testimony could not stand in for the testimony of other class (or collective action) members.  In its words:

[T]hough plaintiffs tout the testimony of these plaintiffs as representative, neither Marco nor Caba provided a reliable basis which would warrant the Court's acceptance of their own personal facts as applying to others; rather, the Court finds that the record as a whole does not support the conclusion that their particular experiences were shared by all plaintiffs, or reflected a common practice or policy of defendant. Lastly, as defendant has effectively demonstrated, the testimony offered by plaintiffs in general is plagued by inconsistencies that diminish its reliability and show the importance of cross-examination of each plaintiff.

(Internal quotations omitted, emphasis added.) What's the lesson we can learn from this case? No matter how redundant it may seem, be thorough in asking about each class member's experience. The more specifically class members testify about their own individual experiences, the more evident it will become that a class may not be appropriate.

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In a class action, the named plaintiff is supposed to be an adequate representative of the proposed class. While a number of courts have pointed out that the idea that the named plaintiff drives the litigation is largely a legal fiction, it remains a fiction integral to Rule 23. So, given what does it take to disqualify the named plaintiff from serving as an adequate class representative?

One answer is lack of credibility. In Davidson v. Citizens Gas & Coke Utility, 238 F.R.D. 229 (S.D. Ind. 2006), the named plaintiffs alleged that the defendant required all candidates for promotion to take a test known as the Work Competency Assessment, and that the test was biased against African Americans. Plaintiffs’ counsel made a last-minute addition of two plaintiffs to represent a proposed subclass of job applicants (as opposed to just promotion applicants).

When plaintiffs moved for class certification, the defendants challenged their adequacy because, in deposition testimony, each of the two newly-added named plaintiffs admitted to having felony records that included convictions for theft or burglary (both crimes related to honesty). In addition, one of the two new plaintiffs had lied about his felony record on his application. The defendant argued that the named plaintiffs’ lack of credibility made them inadequate class representatives. The court agreed, stating

personal characteristics, such as the credibility and integrity of a putative class representative, have a direct bearing on their ability to adequately represent absent members of the class. Problems of credibility, when sufficiently serious, can prevent a named plaintiff from being certified as a class representative. While we acknowledge that functionally the plaintiffs' attorney is most often the true driving force behind the representation of the class, the named representatives are still required to be more than window dressing or puppets for class counsel. A putative class representative's lack of credibility should not be allowed to significantly detract from the case. A representative must, at the very least, be trustworthy enough to protect the interests of the class by working to pursue a remedy which benefits the class as much as it does counsel.

(Internal quotations, citations, and footnotes omitted, emphasis added.)

Many defense counsel, when taking depositions of the named plaintiffs, treat the questions about personal background as perfunctory. It is worth remembering that the named plaintiff’s character may actually have a bearing on whether he can adequately represent the proposed class.

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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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