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

 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.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

 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.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

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.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

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.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

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.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

 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.?

• Email This
• Print
• Comments
• Trackbacks
• Share Link

 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.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

 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.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

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.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

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.)

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Last week, the Sixth Circuit affirmed a trial court's decision striking class allegations where a proposed nationwide class would necessarily invoke the laws of fifty different jurisdictions. (Russell Jackson has an excellent writeup of the opinion here.) There is no question the opinion is a useful one for defendants. And, since it's the first appellate opinion on a motion to strike in decades, it may be time for an overview of where the motion to strike class allegations stands today.

In the past year, a large number of motions to strike have been filed. (I count at least 25 reported opinions on early challenges to the certifiability of classes.) How have those motions turned out?
Ten of those opinions denied the motion to strike outright as premature, without further analysis.

• Clerkin v. Mylife.com, Inc., 2011 U.S. Dist. LEXIS 96735 (N.D. Cal. 2011) ("Defendants fail to identify any authority permitting the use of a motion to dismiss for failure to state a claim to contest the suitability of class certification.").
• Eliason v. Gentek Building Prods., Inc., 2011 U.S. Dist. LEXIS 94032, *7 (N.D. Ohio Aug. 23, 2011) ("While raising possibly valid concerns, Defendants' arguments on class certification are premature. Whether the commonality requirement has been demonstrated cannot be determined until discovery has taken place and choice of law provisions applied.").
• Garcia v Lane Bryant, Inc., 2011 U.S. Dist. LEXIS 125484 (E.D. Cal. Oct. 31, 2011). (Grants motion to dismiss, denies MTS because "Although Defendants' motion is unopposed, dismissal of Plaintiffs' class allegations at this stage of the proceeding is premature. Although class allegations may be wholly insufficient[,] compliance with Rule 23 is not to be tested by a motion to dismiss for failure to state a claim.") (internal quotations omitted).
• Ginardi v. Frontier Gas Servs, LLC, 2011 U.S. Dist. LEXIS 89504, *11-12 (E.D. Ark. Aug. 10, 2011) ("Plaintiffs are correct that it is premature to strike the class action allegation.").
• Kas v. Mercedes-Benz USA, LLC, 2011 U.S. Dist. LEXIS 127581 (C.D. Cal. Oct. 31, 2011) ("Nevertheless, we will defer final decision pending a more robust briefing at the class certification stage.").
• Martin v. Ford Motor Co., 765 F. Supp. 2d 673 (E.D. Pa. 2011) ("Since the Motion to Strike filed by Defendant is premature, the merits of this argument will not be addressed at this stage of the case.").
• P.V. v. School Dist. of Philadelphia, 2011 U.S. Dist. LEXIS 125370 (E.D. Pa. Oct. 31, 2011) ("unless the parties have completed discovery and at least one party has moved for class certification, a court very rarely has the information necessary to conduct the 'rigorous analysis' inherent in the class certification decision.").
• Rivellio v. Penn State Fed. Credit Union, 2011 U.S. Dist. LEXIS 99668 (M.D. Pa. Sep. 6, 2011) ("The Court is not convinced that this case is one of the "rare few where the complaint itself demonstrates that the requirements for maintaining a class action cannot be met."").
• Rogers v. Capital One Servs., LLC, 2011 U.S. Dist. LEXIS 17064 (D. Conn. Feb. 19, 2011) ("a defendant may move to strike class allegations prior to class certification proceedings "if the inquiry would not mirror the class certification inquiry and if resolution of the motion is clear."").
• Vlachos v. Tobyhanna Army Depot Fed. Credit Union, 2011 U.S. Dist. LEXIS 69725 (M.D. Pa. Jun. 29, 2011) ("The Court will not address the merits of the argument because the motion to strike is premature at this stage, as the plaintiff has not yet moved for class certification.").

Three denied motions to strike on their merits, usually because the plaintiff had made sufficient allegations to support a class action.

• Alegations of commonality - NBL Flooring, Inc. v. Trumball Ins. Co., 2011 U.S. Dist. LEXIS 110518 (E.D. Pa. Sep. 27, 2011) ("These allegations speak to a blanket course of conduct that may apply to all insureds.").
• Denies because of plausible allegations - Perrin v. Papa John's Int'l, Inc., 2011 U.S. Dist. LEXIS 22957, *18-19 (E.D. Mo. Mar. 8, 2011) (""Plaintiff may or may not succeed in proving his claims with respect to other drivers, but at this stage of the case he has set forth sufficient facts to support a plausible allegation of an under-reimbursement [*19] large enough to support a claim that Defendants did not reasonably approximate the delivery drivers' expenses."")
• Plaintiff had standing - Ralston v. Mortg. Inv. Group, Inc., 2011 U.S. Dist. LEXIS 102945 (N.D. Cal. Sep. 12, 2011) ("The fact that some class members purchased their loans from originators other than MIG does not deprive Ralston of standing to assert claims on their behalf").

Two denied motions to strike as moot, since the courts granted concurrent motions that disposed of the case.

• Eldee-K Rental Props., LLC v. DirecTV, Inc., 2011 U.S. Dist. LEXIS 132981 (N.D. Cal. Nov. 17, 2011). Court granted concurrent motion to dismiss.
• Ass'n of N.J. Chiropractors v Aetna, Inc., 2011 U.S. Dist. LEXIS 67718 (D.N.J. Jun. 20, 2011). Denies as Court granted concurrent motion to compel arbitration.

And finally, the remainder of the courts have granted motions to strike. And they have done so for various reasons. Among them, they have ruled that

The class was not ascertainable.

• Bradley v. Mason, 2011 U.S. Dist. LEXIS 64877 (N.D. Ohio Jun. 20, 2011) ("First, the existence of the class must be pleaded and the limits of the class must be defined with some specificity.").
• Bauer v. Dean Morris, L.L.P., 2011 U.S. Dist. LEXIS 100399 (E.D. La. Sep. 7, 2011) - struck class allegations where merits-based class definition
• Schilling v. Kenton County, 2011 U.S. Dist. LEXIS 8050 (E.D. Ky. Jan. 27, 2011) ("Plaintiffs' proposed class definition is fatally flawed because the Court cannot determine its individual members without reviewing the evidence relative to each KCDC inmates' incarceration, which would amount to a merits-based inquiry of each individual's claim.").

Variations in state law precluded certifiable class.

• Pilgrim v. Universal Health Card, LLC, 2011 U.S. App. LEXIS 22715, *4 (6th Cir. 2011) ("the district court held, because each class member's claim would be governed by the law of the State in which he made the challenged purchase, and the differences between the consumer-protection laws of the many affected States would cast a long shadow over any common issues of fact plaintiffs might establish. That judgment is sound and far from an abuse of discretion …"). 
• Plaisance v. Bayer Corp., 275 F.R.D. 270 (S.D. Ill. 2011) [] ("In the instant case, defendants have identified numerous facial deficiencies in the class allegations; no amount of time or discovery can cure these deficiencies.").

From the pleadings, the class lacked commonality

• *Schilling v. Kenton County, 2011 U.S. Dist. LEXIS 8050 (E.D. Ky. Jan. 27, 2011) ("to resolve the legal issue presented the Court must delve into the specific facts of each inmate's incarceration and the medical needs relative to that inmate.")

From the pleadings, the class lacked typicality

• Schilling v. Kenton County, 2011 U.S. Dist. LEXIS 8050 (E.D. Ky. Jan. 27, 2011) ("The Sixth Circuit has held that where the plaintiffs' claims depends on each individual's unique interactions with the defendant, the typicality requirement is lacking. That is certainly the case here.") (internal citation omitted).
• Wright v. Family Dollar, Inc., 2010 U.S. Dist. LEXIS 126643 (N.D. Ill. Nov. 30, 2010) ("These defenses, unique as to plaintiff and any other manager in the putative class, prevent plaintiff from establishing typicality and therefore from showing that she will be able to maintain a class action.").

From the pleadings, the class lacked adequacy.

• Wright v. Family Dollar, Inc., 2010 U.S. Dist. LEXIS 126643 (N.D. Ill. Nov. 30, 2010) ("it is clear from the complaint that the putative class is permeated by conflicts of interest").

From the pleadings, the class lacked predominance.

• Bauer v. Dean Morris, L.L.P., 2011 U.S. Dist. LEXIS 100399 (E.D. La. Sep. 7, 2011) - (struck class allegations where individual issues concerning liability, affirmative defenses, and damages apparent from pleadings).
• Bevrotte v. Caesars Ent. Corp, 2011 U.S. Dist. LEXIS 114463 (E.D. La. Oct. 4, 2011) (individual issues of causation and damages would predominate; class not superior to individual litigation).

So, what can defense counsel take from this? First, the trend on motions to strike is becoming more favorable. More courts are willing to entertain these motions on their merits. (You may notice the majority of the denials come from only a few jurisdictions.) And the first appellate court to decide this issue has (correctly, I would argue) found that if the issue is a purely legal one or can be decided from the pleadings, then there is no reason to rule on it sooner rather than later.

Second, those courts that are granting motions to strike are granting them on various grounds. This is also good news, as it provides defendants with precedent for further motions to strike.

And finally, at least if one credits the opinions in Pilgirm and Plaisance, most plaintiffs don't seem to have any strong counter-arguments to a well-argued motion to strike. The best they can argue is that the motion is premature, and discovery is necessary for a rigorous analysis. And, in certain cases, that will be true. But in many more--like when plaintiffs propose nationwide classes that require applying the laws of fifty different states--there will be no discovery that will change the analysis a court must engage in.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Readers of this blog know that I've been an early (and ardent) advocate of challenging poorly-conceived class actions as early as possible. And, during the last three to four years, the motion to strike class allegations has (with good reason) become a popular tactic among defense counsel. And, several months ago, we got one of the best examples of how well a good motion to strike can succeed, in Plaisance v. Bayer Corp., 2011 U.S. Dist. LEXIS 47795 (S.D. Ill. 2011).

In Plaisance, the plaintiff sued Bayer Corp., alleging that various people who had used the birth control Yaz or Yasmin had suffered from various "adverse cardiovascular events" (heart or blood problems). In the complaint, the plaintiff asserted claims for fraud, breach of warranty, and negligence, and sought certification of a nationwide "personal injury" class--a difficult proposal at the best of times, since personal injuries tend to vary widely from person to person, not to mention the fact that teasing out the cause of various personal injuries can also require a series of very detailed individualized inquiries.

Rather than wait until after lengthy (and expensive) discovery and motions practice to raise these points, Bayer moved to strike the class allegations. The plaintiff argued that Bayer's motion was premature, but she also responded substantively to its arguments.

The court, in a particularly thoughtful opinion, held that the motion to strike in this case was not premature:

In the instant case, defendants have identified numerous facial deficiencies in the class allegations; no amount of time or discovery can cure these deficiencies. Plaintiff's argument with regard to the filing of additional class actions in other states is unavailing for the same reason. After reviewing the parties' briefs and the allegations in the first amended complaint, it is obvious from the pleadings that no class action can be maintained. Accordingly, the Court properly proceeds with its ruling on defendants' motion to strike or dismiss plaintiff's class allegations. See Rule 23(c)(1)(A) (providing that the court, "[a]t an early practicable time ..., must determine by order whether to certify the action as a class action"); Rule 23(d)(1)(D) ("In conducting an action under this rule, the court may issue orders that ... require that the pleadings be amended to eliminate allegations about representation of absent persons and that the action proceed accordingly.").

(Emphases added.)  The court found two different facial problems with plaintiffs' proposed class action. First, the plaintiff's proposed class would require applying the disparate legal rules of fifty different jurisdictions.

In the instant case, under applicable choice of law rules, the merits of the putative class members' claims would be governed by the substantive law of each class member's home state. Accordingly, the laws of all fifty states plus the District of Columbia would be applicable to the putative nationwide class members' claims. Amongst the states, there are differences in the law of product liability as well as in the applicable theories of recovery and their subsidiary concepts. These differences, even if slight, are not insignificant. Indeed, "such differences have led [the Seventh Circuit] to hold that other warranty, fraud, or products-liability suits may not proceed as nationwide classes").

(Internal citations omitted.) As a result, the court held that the plaintiff could not maintain a nationwide class action based on her claims, because there was no way to reconcile the conflicting state laws. (The plaintiff did try to sidestep the problem by subclassing, but faced the additional obstacle that she did not have 49 other class representatives waiting in the wings.) This particular ruling makes a great deal of sense. There is no reason a court has to go beyond the pleadings to determine which states' laws will apply to plaintiffs' claims, or whether variations in state laws would preclude a nationwide class. There's no question a state-law variations analysis takes work, but there's no reason why that work had to wait until after discovery.

The court also that the complaint indicated a number of individualized factual inquiries would be necessary:

In the instant case, almost every element of the asserted claims will require highly individualized factual inquiries unique not only to each class member but also to each class member's prescribing physician. For example, as defendants' brief highlights, establishing causation will require (1) an examination of each class member's medical history, including pre-existing conditions and use of other medications; (2) an evaluation of potential alternate causes for the alleged injury; and (3) an assessment of individualized issues pertaining to each class member's prescriber, including how the doctor balances the risks and benefits of the medicine for that particular patient, the particular doctor's prescribing practices, the doctor's knowledge about the subject drug, and the doctor's sources of information with regard to the subject drug.

As the court pointed out, this didn't even begin to address the individualized reliance issues that come up in many fraud claims. But, given the elements of the plaintiff's causes of action, there was no way around these particular individualized inquiries.

Given these various problems with plaintiff's proposed class, the court granted Bayer's motion to strike. What can defense counsel learn from this? Challenge bad class complaints early. Bayer had some great natural advantages; among other things, there is a long paper trail establishing how difficult it is to bring classwide personal injury claims. But so long as the defects that a motion to strike challenges are purely legal (such as the variations in different states' laws), there is no reason why a defendant should have to wait until after a lengthy, expensive, and possibly unnecessary discovery period to challenge them.  

• Email This
• Print
• Comments
• Trackbacks
• Share Link

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.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

 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.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

 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.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

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.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Enron.  The Toyota sudden acceleration MDL.  The Microsoft antitrust class actions.  There are no shortage of class actions that have arisen from government investigations of various kinds.  But while seeing a class action complaint arrive on top of a government subpoena can be stressful, it's not necessarily the end of the world.  In fact, the defenses of each can harmonize in surprising ways.

On Tuesday, my colleague John Adams and I presented a CLE session on how to defend class actions that arise from government investigations of various kinds.  In it, we explained:

• best practices for handling government investigations, and how they contribute to an effective class action defense;
• why class action plaintiffs' attorneys find government investigations so attractive; and 
• strategies for coordinating discovery; and
• the best class certification opposition arguments.  

You can download the slides from the presentation here.  

• Email This
• Print
• Comments
• Trackbacks
• Share Link

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.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

 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.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

 Two weeks ago, when discussing Professor Miller's article on differences in contract law, I remarked that there has been no appellate opinion that looked at the individualized factual issues that arise in breach of contract cases where the plaintiff has alleged a violation of the implied duty of good faith and fair dealing. Turns out I was wrong.

In fact, the Eighth Circuit, in Avritt v. Reliastar Insurance Co., recently affirmed a denial of certification in a case where the duty of good faith and fair dealing was a primary issue.

An annuity is a low-risk, low-return investment. Basically, the investor pays into a fund, the fund earns interest, and then the fund pays back out in a series of installments at a later date. In this case, the Avritt plaintiffs alleged that one of Reliastar's annuities credited interest on recent deposits higher than it did on older deposits. They claimed that, because the higher interest rate captured the investors' attention, paying more than one interest rate constituted a bait-and-switch. The plaintiffs asserted claims under the Washington and California consumer-protection acts, but the meat of their claims was their breach-of-contract claim. They tried to convince the trial court that Reliastar's had breached its annuity contract because it had stated that it would only charge rates approved by its board, and there was no indication the board had approved these two separate rates. They also claimed that Reliastar had violated the duty of good faith and fair dealing.

The plaintiffs did not fare well on their breach of contract claims. The trial court (and the appellate court), expressed grave doubts about plaintiffs' proposed interpretation of the contract. But, more damning, the Eighth Circuit held that, even if plaintiffs had alleged a viable interpretation, deciding what the contract actually said would raise too many individualized issues to justify certification.

Assuming that the Avritts' interpretation of the contract is plausible, however, the existence of two or more reasonable interpretations opens the door for extrinsic evidence about what each party intended when it entered the contract. In addition to extrinsic evidence about Northern's intent, Reliastar would be entitled to introduce evidence about how the contract was explained in various sales discussions and whether each purchaser's understanding of the contract was consistent with the theory the Avritts now advance. Thus, Reliastar's liability to the entire class for breach of contract cannot be established with common evidence.

(Emphasis added, internal citations omitted.)

Nor was the Eighth Circuit any kinder to plaintiffs' good-faith-and-fair-dealing claim; it held that that, too, raised a number of individualized factual issues.

The duty of good faith and fair dealing, however, "arises only in connection with terms agreed to by the parties," and therefore does not create "a free-floating duty of good faith unattached to the underlying legal document." Applying these principles, the district court correctly determined that evidence of the representations made to each purchaser and the understanding that they attached to the contract would be essential to establishing liability.

(Emphasis added, internal citations omitted.) And that means that plaintiffs' allegations about good faith and fair dealing were subject to individualized evidence.

The court also denied certification of plaintiffs' deceptive-trade practices claims. But the important parts of this case, from a defense perspective, are the arguments it provides for defending contract class actions. As breach-of-contract class claims become more popular, it's vital that defense counsel recognize what individualized issues are implicated. Avritt identifies a number of individualized issues that the defense should not ignore.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

If I may draw on my (necessarily narrow) experience as a class-action litigator, a rising number of class actions are asserting nationwide contract claims, and specifically claims for the breach of the duty of good faith and fair dealing. I could speculate on the reason for that (new class-action theories come into vogue; there has been no judicial opinion thoroughly examining whether a good-faith claim can be certified on a nationwide basis), but I'm really just mentioning it to explain why, as a defense lawyer, I'm glad to see Geoffrey Miller's  latest article in the Cardozo Law Review: "Bargains Bicoastal: New Light on Contract Theory."

Miller is a consummate empiricist, which makes him a great resource for class-action defense lawyers. Where other professors look at doctrine or theory, Miller usually zeroes in on data. In this article, he starts from one data point--more corporations choose New York law for their choice-of-law clauses in contracts--and asks why that might be so. His findings are particularly interesting to lawyers who defend multi-state class actions:

This Article ... compares New York and California across a range of contract law issues. As would be expected, the laws are similar in broad outline. Each state respects freedom of contract and each recognizes other social and moral objectives that occasionally trump private agreements. Each state’s law grows out of a dialectic process in which competing values are reconciled in different settings. Yet a closer analysis reveals substantial differences in tone and substance. New York and California are close siblings—children of the common law and a shared legal and political tradition. But they are far from identical twins.

The differences between New York and California contract law turn out to align with the formalist-contextualist distinction in contract theory. New York judges are formalists. Especially in commercial cases, they have little tolerance for attempts to re-write contracts to make them fairer or more equitable, and they look to the written agreement as the definitive source of interpretation. California judges, on the other hand, more willingly reform or reject contracts in the service of morality or public policy; they place less emphasis on the written agreement of the parties and seek instead to identify the contours of their commercial relationship within a broader context framed by principles of reason, equity, and substantial justice.

(Emphasis added.)  Why does this matter to class action defendants? Because it shows, in concrete fashion, why Judge Posner was right that "nuance can be important," even in contract law.

Class-action plaintiffs who bring contract claims often quote Judge Tjoflat's statement in Klay v. Humana that

A breach is a breach is a breach, whether you are on the sunny shores of California or enjoying a sweet autumn breeze in New Jersey.

Miller, by demonstrating why more corporations choose New York law to govern their contracts, provides a thorough examination of how these two states apply many of the same principles in completely different ways. In the process, he shows that, depending on the place, a breach may not be a breach; it may be a valid rejection of a contract against public policy, or a violation of the duty of good faith, or any number of other things.  And that is a valuable starting point for someone defending a multi-state class acton.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

In re Hydrogen Peroxide was an antitrust class action. Hydrogen peroxide is a chemical that is often used a bleach for pulp and paper. In this case, the plaintiffs, all purchasers of hydrogen peroxide and other chemicals, sued their suppliers, alleging that the defendants had sold them more expensive chemical grades when less expensive ones would have been sufficient.

Following extensive discovery, 3 plaintiffs moved to certify a class of direct purchasers of hydrogen peroxide, sodium perborate, and sodium percarbonate, over an eleven-year class period. In support of class certification, plaintiffs offered the opinion of an economist. Defendants, opposing class certification, offered the opinion of a different economist. Defendants separately moved to exclude the opinion of plaintiffs' economist as unreliable under Daubert v. Merrell Dow Pharmaceuticals, Inc. Concluding plaintiffs' expert's opinion was admissible and supported plaintiffs' motion for class certification, the District Court certified a class of direct purchasers of hydrogen peroxide, sodium perborate, and sodium percarbonate under Fed. R. Civ. P. 23(b)(3).

The defendants appealed, claiming that the district court had erred when it found that common issues predominated over individualized issues. The Third Circuit found that the trial court had committed three errors:

First, it had wrongly held that it could not inquire into the merits of plaintiffs' claims where they affected the certification inquiry.

An overlap between a class certification requirement and the merits of a claim is no reason to decline to resolve relevant disputes when necessary to determine whether a class certification requirement is met. Some uncertainty ensued when the Supreme Court declared in Eisen v. Carlisle & Jacquelin, that there is "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." Only a few years later, in addressing whether a party may bring an interlocutory appeal when a district court denies class certification, the Supreme Court pointed out that "the class determination generally involves considerations that are 'enmeshed in the factual and legal issues comprising the plaintiff's cause of action.'" As we explained in Newton, Eisen is best understood to preclude only a merits inquiry that is not necessary to determine a Rule 23 requirement.

(Internal citations omitted.)

Second, the district court had wrongly presumed that-when in doubt--it should err in favor of certifying an antitrust class action:

the District Court reasoned, "it is well recognized that private enforcement of antitrust laws is a necessary supplement to government action. With that in mind, in an alleged horizontal price-fixing conspiracy case when a court is in doubt as to whether or not to certify a class action, the court should err in favor of allowing the class." These statements invite error.

(Internal citations omitted.)

And finally, the district court had wrongly put off resolving the "battle of the experts" until trial, even though the experts disagreed about whether a class should be certified in the first place.

Expert opinion with respect to class certification, like any matter relevant to a Rule 23 requirement, calls for rigorous analysis. It follows that opinion testimony should not be uncritically accepted as establishing a Rule 23 requirement merely because the court holds the testimony should not be excluded, under Daubert or for any other reason. Under Rule 23 the district court must be "satisfied" or "persuaded" that each requirement is met before certifying a class. Like any evidence, admissible expert opinion may persuade its audience, or it may not. This point is especially important to bear in mind when a party opposing certification offers expert opinion. The district court may be persuaded by the testimony of either (or neither) party's expert with respect to whether a certification requirement is met. Weighing conflicting expert testimony at the certification stage is not only permissible; it may be integral to the rigorous analysis Rule 23 demands.

(Internal citations omitted.)

The Third Circuit was not the only (or even the first) court to find that the "rigorous analysis" required for class certification might require an inquiry into the merits. But it was the one to explain most clearly how various courts had misread Eisen to prohibit any merits inquiry whatsoever. And it also explained in very succinct terms why a court must look into the merits of an expert's testimony if that will bear on whether it is appropriate to certify a class. Because of the clear way in which it describes how each of these factual inquiries is necessary to certification, In re Hydrogen Peroxide has earned the designation of Classic Case.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

 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.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

All too often, courts and class-action litigants take the question of commonality for granted.  But, when framed properly, the question of commonality can provide a court with the tools necessary to engage in a truly rigorous analysis of a proposed class.

In his recent essay "Common Answers for Class Certification," noted professor Richard Nagareda takes the Ninth Circuit's recent Dukes decision and uses it as a platform to discuss what commonality really means in the context of a class action. In doing so, he provides an excellent analysis of how defense counsel can frame the question of commonality for courts deciding certification. As he puts it:

This Essay spotlights the crucial conceptual error in Dukes: its premise that the raising of common “questions” suffices for class certification. Properly understood, class certification does not turn upon the mere raising of common questions by way of expert submissions or any other form of evidence. Class certification instead turns on the capacity of a unitary proceeding to yield common answers.

Nagareda also points out that courts taking the alternative approach--looking only at whether the question is common, not whether they advance the litigation with common answers--are not wilfully misreading Rule 23.

The Dukes court acts on an understandable impulse—one whereby the format for adjudication inevitably would synchronize with the aggregate character of the allegations on the merits, at least when those allegations rise to the level of presenting a triable case.

Ultimately, Nagareda locates the issue in the fact that most courts are more used to determining issues on the merits than deciding class certification.

The fundamental problem with Dukes consists of the court’s confusion between the class certification determination and the most familiar type of pre-trial ruling that regulates the respective roles of the court and the fact finder at trial: summary judgment. On the Ninth Circuit’s account, the two are intertwined, such that the court regards itself as duty-bound not to withhold class certification when the plaintiffs have put forward a triable case as to the existence of a company-wide policy of discrimination on Wal-Mart’s part. Yet it is only if such a policy of nationwide scope exists that Wal-Mart has acted “on grounds that apply generally to the class,” so as to make appropriate relief “respecting the class as a whole” within the meaning of Rule 23(b)(2)—the basis for the Dukes certification.

In other words, a common question is not common unless the answer applies to the entire class no matter how it is decided.

What can defense lawyers take from Nagareda's analysis? It's always worth reminding the court of how a class trial would actually proceed. Walking the court through how it would have to decide questions on the merits can highlight where supposedly common questions aren't actually common at all.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

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

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

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

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

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

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

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

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

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

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

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

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

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

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

• Email This
• Print
• Comments
• Trackbacks
• Share Link

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

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

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

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

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

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

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

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

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

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

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

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

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

• Email This
• Print
• Comments
• Trackbacks
• Share Link

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

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

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

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

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

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

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

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

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

• Email This
• Print
• Comments
• Trackbacks
• Share Link

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

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

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

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

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

and their announced intention to oppose common expert testimony:

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

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

• Email This
• Print
• Comments
• Trackbacks
• Share Link