The merits based (or "fail-safe") class (e.g., "everyone who was a victim of defendant’s fraud") has long been considered one of the best examples of a poorly-defined class: because the class is defined in terms of the merits, the class size fluctuates based on the verdict. A verdict for the plaintiff creates a sizable class; a verdict for the defendant means there was never a class at all (if there was no fraud, no one could have been a victim). As a result, many courts have refused to certify fail-safe classes.
Last year, in a remarkable move, the Fifth Circuit declared that it saw no problem with fail-safe classes. The holding, in In re Rodriguez, relies more on an unusual reading of Fifth Circuit precedent than on any logical reason why fail-safe classes are not a problem:
Because our precedent rejects the fail-safe class prohibition, we conclude that the bankruptcy court did not abuse its discretion when it defined the class in the present case.
(Emphasis added.) Faced with a new split in appellate circuit authority, Fordham law student Erin L. Geller did exactly what any good law student should: she drafted a student note on the issue. The Note, The Fail-Safe Class as an Independent Bar to Class Certification, 81 FORDHAM L. REV. 2769 (2013), provides a useful taxonomy of various ascertainability problems (dividing classes into fail-safe, administratively difficult, and overbroad).
But the most useful portion of the Note is Geller’s big insight: fail-safe classes look like one of the evils that the modern Rule 23 was supposed to prevent: one-way intervention.
The res judicata argument can be taken one step further. Fail-safe classes must be barred from class certification because allowing fail-safe classes to be certified reinstates the one-way intervention that the 1966 amendment to Rule 23 was designed to abrogate. Under the 1966 amendment, the court’s judgment – whether or not favorable to the class – must include all individuals that the court finds to be class members. Fail-safe classes thus violate the amendment by allowing class members to benefit from a favorable judgment but to be defined out of the class in the case of an adverse judgment. Fail-safe classes can be analogized to the spurious class actions the amendment eliminated by removing the tripartite characterizations of class actions. Much like the spurious class action in which class members could intervene to receive the benefit of a favorable judgment but were not bound by an adverse judgment, fail-safe class members are only bound by a favorable judgment.
(Emphases added; internal footnotes omitted.) Ms. Geller’s Note provides a powerful argument–even in the Fifth Circuit–for finding fail-safe classes invalid. It’s well worth a read.