The Class Action Playbook

The Class Action Playbook

The Class Action Playbook Brian Anderson Andrew Trask

1

1 Oxford University Press, Inc., publishes works that further Oxford University’s objective of excellence in research, scholarship, and education. Oxford New York Auckland Cape Town Dar es Salaam Hong Kong Karachi Kuala Lumpur Mexico City Nairobi New Delhi Shanghai Taipei Toronto

Madrid

Melbourne

With offices in Argentina Austria Brazil Chile Czech Republic France Greece Guatemala Hungary Italy Japan Poland Portugal Singapore South Korea Switzerland Thailand Turkey Ukraine Vietnam

Copyright © 2010 by Oxford University Press, Inc. Published by Oxford University Press, Inc. 198 Madison Avenue, New York, New York 10016 Oxford is a registered trademark of Oxford University Press Oxford University Press is a registered trademark of Oxford University Press, Inc. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior permission of Oxford University Press, Inc. _____________________________________________ Library of Congress Cataloging-in-Publication Data Anderson, Brian C. The class action playbook/Brian Anderson, Andrew Trask. p. cm. Includes bibliographical references and index. ISBN 978-0-19-539025-4 alk. paper 1. Class actions (Civil procedure)—United States. I. Trask, Andrew. II. Title. KF8896.A95 2010 347.73'53—dc22 2010014448 _____________________________________________ 1 2 3 4 5 6 7 8 9 Printed in the United States of America on acid-free paper Note to Readers This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is based upon sources believed to be accurate and reliable and is intended to be current as of the time it was written. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional services. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. Also, to confirm that the information has not been affected or changed by recent developments, traditional legal research techniques should be used, including checking primary sources where appropriate. (Based on the Declaration of Principles jointly adopted by a Committee of the American Bar Association and a Committee of Publishers and Associations.)

Contents

ACKNOWLEDGMENTS

xi

THE STRATEGIC APPROACH TO CLASS-ACTION LITIGATION

xiii

CHAPTER 1 What Class Actions are and Why they Exist

1

§ 1.1 The Tradition of Single-Plaintiff Lawsuits § 1.1.1 The Limitations of Single-Plaintiff Lawsuits § 1.2 Methods of Aggregating Parties § 1.2.1 Joinder (Rule 20) § 1.2.2 Intervention (Rule 24) § 1.2.3 Consolidation (Rule 42) § 1.2.4 Multi-District Litigation § 1.2.5 Other Forms of Aggregation § 1.3 Class Actions § 1.3.1 Benefits of the Class-Action Device § 1.3.2 Costs of the Class-Action Device CHAPTER 2 Class Certification Requirements § 2.1 Numerosity § 2.1.1 Feasibility of Joinder § 2.1.2 Ascertainability § 2.2 Commonality § 2.3 Typicality § 2.4 Adequacy of Representation § 2.5 Rule 23(b)(1) Classes § 2.5.1 Rule 23(b)(1)(a) “Incompatible Result” Classes § 2.5.2 Rule 23(b)(1)(b) “Limited Fund” Classes § 2.6 Rule 23(b)(2) Injunction Classes § 2.6.1 Hybrid Classes § 2.7 Rule 23(b)(3) Damages Classes § 2.7.1 Predominance of Common Issues § 2.7.2 Superiority § 2.8 Class Counsel

2 3 3 4 6 7 8 9 11 12 15

19 21 21 23 25 27 30 33 33 35 35 38 38 39 45 50

vi Contents CHAPTER 3 Constructing a Class Action Lawsuit § 3.1 Types of Class Actions § 3.1.1 Securities § 3.1.2 Labor/Employment § 3.1.3 Product Liability § 3.1.4 Consumer Fraud § 3.1.5 Antitrust § 3.1.6 Environmental § 3.1.7 Civil Rights § 3.1.8 Statutory Violations § 3.2 Identifying a Potential Class Action § 3.3 Forum Considerations § 3.4 Selecting Appropriate Defendants § 3.5 Identifying Class Representatives § 3.6 Drafting the Complaint § 3.6.1 Selecting Claims § 3.6.2 Selecting Remedies § 3.6.3 Defining the Proposed Class § 3.6.4 Pleading § 3.7 Working With Other Plaintiff’s Counsel CHAPTER 4 Pre-Certification Steps § 4.1 Plaintiff’s Opening Moves § 4.1.1 Media Coverage § 4.1.2 Generating External Pressure on Defendants § 4.2 Defendant’s Response to Complaint § 4.2.1 Invoking Arbitration § 4.2.2 Removal § 4.2.2.1 Diversity Jurisdiction/Class Action Fairness Act § 4.2.2.2 Federal Question Jurisdiction § 4.2.2.3 Appeals § 4.2.3 Consolidation § 4.2.4 Motion to Dismiss § 4.2.4.1 Standing § 4.2.4.2 Personal Jurisdiction § 4.2.4.3 Pleading Deficiencies § 4.2.4.4 Substantive Legal Problems § 4.2.5 Motion to Strike/Early Challenge to Class Certification § 4.2.6 Answer § 4.2.7 Offer of Judgment § 4.2.8 Motion for Sanctions § 4.3 Amending the Complaint § 4.4 Case Management Orders

53 54 55 57 59 59 60 61 62 63 64 67 73 75 77 78 79 81 82 83

85 87 88 89 91 91 93 94 96 97 98 98 101 101 102 103 104 106 108 109 110 111

Contents § 4.4.1 Timing § 4.4.2 Discovery Procedures § 4.4.3 Motions Practice § 4.4.4 Appointment of Lead Counsel § 4.5 Pre-Certification Discovery § 4.5.1 Initial Disclosures § 4.5.2 Protective Orders § 4.5.3 Plaintiff’s Discovery § 4.5.3.1 Interrogatories § 4.5.3.2 Document Requests § 4.5.3.3 Requests for Admission § 4.5.3.4 Depositions § 4.5.4 Defendant’s Discovery § 4.5.4.1 Interrogatories § 4.5.4.2 Document Requests § 4.5.4.3 Requests for Admission § 4.5.4.4 Depositions § 4.6 Expert Witnesses § 4.7 Pre-Certification Summary Judgment Motion CHAPTER 5 The Class Certification Motion § 5.1 Plaintiff’s Certification Motion § 5.1.1 Themes § 5.1.2 Arguments in Support of Certification § 5.1.2.1 Numerosity § 5.1.2.2 Commonality § 5.1.2.3 Typicality § 5.1.2.4 Adequacy § 5.1.2.5 Availability of Rule 23(b)(1) § 5.1.2.6 Availability of Rule 23(b)(2) § 5.1.2.7 Availability of Rule 23(b)(3) § 5.1.2.7.1 Predominance § 5.1.2.7.2 Superiority § 5.1.2.8 Adequacy of Counsel § 5.1.3 Packaging the Presentation § 5.2 Defendant’s Certification Opposition § 5.2.1 Themes § 5.2.2 Arguments Against Certification § 5.2.2.1 Numerosity § 5.2.2.2 Commonality § 5.2.2.3 Typicality § 5.2.2.4 Adequacy § 5.2.2.5 Predominance § 5.2.2.6 Superiority § 5.2.3 Packaging the Presentation

111 112 113 114 115 116 116 117 118 120 121 121 125 125 125 126 126 128 129

133 136 137 141 141 141 142 142 143 144 145 145 147 148 148 151 151 153 153 154 155 157 158 159 161

vii

viii

Contents § 5.3 Plaintiff’s Certification Reply § 5.4 The Certification Hearing CHAPTER 6 Post-Certification Steps § 6.1 Interlocutory Appeal § 6.1.1 Rule 23(f) Standards for Obtaining Interlocutory Appeal § 6.1.2 Grounds for Appeal § 6.1.3 How Appellate Courts Review Certification Orders § 6.1.4 Stays § 6.1.5 Packaging the Rule 23(f) Petition § 6.1.6 Packaging the Rule 23(f) Petition Response § 6.2 Class Notice § 6.2.1 When/Why Notice Required § 6.2.2 Timing of Notice § 6.2.3 Form of Notice § 6.2.4 Content of Notice § 6.2.5 Cost of Notice CHAPTER 7 Trial Preparation § 7.1 Trial Structure § 7.1.1 Unitary Class Trial § 7.1.2 Bifurcated Trial § 7.2 Pre-Trial Discovery § 7.3 Jury vs. Bench Trial § 7.4 Post-Certification Summary Judgment § 7.5 Decertification Motion § 7.6 In Limine Motions § 7.7 Jury Instructions/Verdict Forms § 7.8 Press Issues § 7.9 The Trial § 7.10 Post-Trial Motions CHAPTER 8 Settling Class Actions § 8.1 Legal Background § 8.1.1 Rule 23(e) § 8.1.2 Class Action Fairness Act (CAFA) § 8.2 Types of Settlements § 8.2.1 Claims-made (“Reverter”) Settlements § 8.2.2 Cy Pres Funds § 8.2.3 Coupons § 8.2.4 Injunctions/Consent Decrees § 8.2.5 Therapeutic Relief § 8.2.6 Named Plaintiff Settlements § 8.3 Class-wide Settlement Steps

163 164

167 168 168 169 175 175 176 177 177 178 179 180 185 189

191 193 193 193 196 196 198 200 200 201 202 202 206

207 209 210 214 216 216 217 219 222 222 224 224

Contents § 8.3.1 Mediation § 8.3.2 Drafting the Settlement Agreement § 8.3.3 Preliminary Approval Order § 8.3.4 Class Settlement Notice § 8.3.5 Opt-Outs/Objections § 8.3.6 Final Approval Hearing § 8.3.7 Settlement Implementation § 8.4 Attorneys’ Fees § 8.4.1 Determining Reasonable Fee § 8.4.1.1 Lodestar § 8.4.1.2 Percentage of Common Fund § 8.4.1.3 Negotiation of Fees § 8.4.2 Court Approval of Fees CHAPTER 9 Class Action Judgments § 9.1 Enforcing Preclusion § 9.1.1 Res Judicata § 9.1.2 Collateral Estoppel § 9.1.3 The All-Writs Act and Anti-Injunction Act § 9.2 Challenging Preclusion § 9.2.1 Due Process § 9.2.2 Adequacy of Representation § 9.3 Limiting Collateral Exposure § 9.3.1 Government Actions § 9.3.2 Opt-Out Suits CHAPTER 10 International Class Action Practice § 10.1 Multi-National Class Actions Litigation Teams § 10.1.1 Types of Multi-National Class Actions § 10.1.1.1 Alien Tort Claims Act § 10.1.1.2 “Foreign-Cubed” Class Actions § 10.1.2 Prudential Challenges § 10.1.2.1 Political Question Doctrine § 10.1.2.2 Act of State Doctrine § 10.1.2.3 Comity § 10.1.3 Procedural Challenges § 10.1.3.1 Jurisdiction § 10.1.3.2 Service of Process § 10.1.3.3 Forum non conveniens § 10.1.4 Certifying a Multi-National Class § 10.1.5 Enforcing Foreign Judgments § 10.2 Aggregated Litigation Devices in Other Countries § 10.2.1 The Canadian Model

226 227 230 232 233 236 237 237 238 238 239 240 240

241 243 244 244 246 247 247 248 249 250 250

253 255 255 256 257 257 258 259 260 261 261 261 262 264 264 265 267

ix

x

Contents § 10.2.2 § 10.2.3 § 10.2.4 § 10.2.5 § 10.2.6

INDEX

The Australian Model The Opt-In Model The Ombudsman/Consumer Association Model Mass Joinder Proceedings/Quasi-Class Actions The “Test Case” Model

270 271 273 274 275

277

Acknowledgments

We could not have written this book by ourselves. We had a great deal of help. Samantha Cassetta and Matt Gallaway, our editors at Oxford University Press, provided feedback and encouragement. Deborah Reese and Sydney Carr, our assistants, and Michelle Lipinski, our editorial assistant, worked incredibly hard to make sure we had all of the resources we needed to complete the manuscript. Our colleagues at McGuireWoods LLP and O’Melveny & Myers LLP gave us the time time and space we needed to write. Kevin Daniel, Allison Hart, Peggy McCormick, Addis Abebe, Jayne Sabolinksi, and Justin Parady provided valuable research assistance and cite-checking help. Ted Frank and Garrett Wotkyns reviewed portions of the manuscript and provided invaluable suggestions. Maria Pucci and Manojkumar Lakshmanan (along with his team at Glyph International) made everything look professional. And our families—Merry, Eric, Laura, and Mark Anderson, and Kathleen Lawton-Trask—put up with us and offered every kind of support one can imagine. We are very grateful. All errors, of course, remain ours.

The Strategic Approach to Class-Action Litigation

This book is not a treatise. It is not a casebook. And it is not an argument for or against class actions. It is a practitioner’s and a law student’s guide to how class actions work and the strategic decisions plaintiffs’ and defendants’ counsel each must make as they represent their clients in this kind of highstakes litigation. Comprehensive literature already exists debating whether class actions are good for the American legal system.1 There are numerous treatises cataloguing in minute detail the law governing class actions.2 But there are no books discussing the strategies involved in prosecuting or defending a class action. As we discuss throughout this book, class actions are different than other civil litigation. Any lawsuit requires a lawyer to think strategically along one dimension: Will the tactics he adopts help his client win the case on the merits?3 In class action litigation, because of the centrality of the debate over whether to certify a class, there is another dimension: Will these tactics help the lawyer obtain (or defeat) class certification? These two dimensions may conflict. Strategies that may help a litigant win a motion on the merits can undermine its arguments when debating certification, and vice versa.4 What is strategy? The term means different things to different people. Some legal scholars define strategy as the accumulated choices made by a litigator5—a possibly accurate description, but not very enlightening. Carl von

1. 2. 3.

4.

5.

For a sampling of this literature, See §§ 1.3.1–2. See, e.g.,Charles Alan Wright et al., Federal Practice and Procedure (3d ed. 2005); Alba Conte & Herbert B. Newberg, Newberg on Class Actions (4th ed. 2002). We recognize that this is a simplified view. Just as Carl von Clausewitz once famously proclaimed that “war is nothing but the continuation of policy by other means,” litigation is the continuation of business (or policy) by other means. See Carl von Clausewitz, On War 69 (Michael Howard and Peter Paret, eds. & trans.) (Princeton University Press 1984). That characteristic gives most litigation at least two dimensions of strategy. For more on the “business” dimension of litigation strategy, see §§ 4.1.1, 8.2–3. Strategists in other arenas, like military conflict, have also noted this phenomenon. See Cf. Edwin N. Luttwak, Strategy: The Logic of War and Peace xii (Rev. & expanded ed. 2001) (discussing how different dimensions of strategy may work against one another). See Lynn M. LoPucki & Walter O. Weyrauch, A Theory of Legal Strategy, 49 Duke L. J. 1405, 1412 (2000).

xiv The Strategic Approach to Class-Action Litigation

Clausewitz, perhaps the premier military strategist in Western history, referred to strategy as “the use of engagements for the object of a war.”6 That definition is more useful when applied to litigation, although it is worth removing from a purely military context, and making a few of Clausewitz’s assumptions explicit. For our purposes, strategy is: (1) a plan for action toward a goal; (2) that comprises a series of actions over time; and (3) that assumes other parties will oppose (or otherwise interfere with) the plan. This definition combines the hallmarks of both the classic and modern definitions of strategy. Clausewitz and similar strategists draw a distinction between strategy and tactics. Tactics are short-term plans for handling an immediate conflict. Strategy is the longer-term coordination of tactics. But the most important component of our definition of strategy is the one that Clausewitz only assumed. Strategy does not operate in a vacuum: It assumes the existence of other parties who will, at worst, actively oppose the strategy, and, at best, merely get in the way. Our definition of strategy includes this dynamic quality: Unlike a mere plan, a strategy aims to anticipate and respond to the actions of the other side.7 The purpose of this book is to discuss the points at which class-action litigators—whether representing plaintiffs or defendants—must make strategic decisions. We identify those decision points, and then discuss the tactical choices available to each side. To the extent possible, we also try to evaluate the strength of various tactics available in each circumstance. Each side in class-action litigation is subject to certain constraints that affect its initial moves, as well as its responses to the other side. Some of these constraints the parties cannot change during the course of the litigation. Following the analogy of military strategy, one might think of these constraints as the “terrain” on which the litigation is fought.8 In class-action litigation, that terrain comprises several features:

6. 7.

8.

Clausewitz, On War 128. This is the insight that drives most modern students of strategy. Douglas Baird, et al., Game Theory and the Law 1 (1994) (“Strategic behavior arises when two or more individuals interact and each individual’s decision turns on what that individual expects the others to do.”); Avinash K. Dixit & Barry J. Nalebuff, The Art of Strategy: A Game Theorist’s Guide to Success in Business and Life xvi (2008). See Clausewitz, On War 348–51 (“geography and the character of the ground bear a close and ever-present relation to warfare”); Ralph D. Sawyer, The Seven Military Classics of Ancient China 175–83 (translation of discussion of adapting tactics to terrain from Sun Tzu’s Art of War). This analogy is hardly far-fetched. In his discussion of strategy during oral argument, Justice Scalia advised advocates to both “[o]ccupy the most defensible terrain”

The Strategic Approach to Class-Action Litigation xv

Facts. As John Adams famously argued, “Facts are stubborn things.”9 While either side may do its best to massage inconvenient facts or cast them in a favorable light, if the facts do not support a cause of action, or if they support it all too well, then the party without the facts on its side likely will not prevail. Law. There is room in litigation to “advance” the law, but it is unrealistic to assume that any party in a specific case will win by asserting an unprecedented legal argument. Instead, we assume that most legal change is incremental, and so parties are constrained by the law as it stands when motions (or cases) are decided. Courts. At every stage, each party must convince the court of, if not the ultimate merit, at least the immediate merit of its position. Most judges are conscientious, hardworking, and scrupulous about reigning in their conscious biases. However, judges are not immune from structural pressures. Federal courts have long been overworked10 and may remand cases to state court or seek early resolution (either by dismissal or settlement) when possible. In state court, elected judges, more than appointed judges with lifetime tenure, will feel some debt to those who helped them win election.11 Ethics. Regrettably, not every lawyer in class-action practice acts ethically. Parties engaged in high-stakes litigation may stoop to paying clients to serve as class representatives12 or withhold necessary documents in discovery.13 But, for the purposes of this book, we assume that less-than-ethical lawyers on each side are outliers. Why? First, we like to think the best of people. More importantly, ethical rules are a real constraint on behavior. If a lawyer breaks those rules and gets caught (which in the long run seems likely), he faces severe consequences that include disbarment, criminal conviction, and imprisonment. The threat of these outcomes is enough to constrain most sensible parties. Each side also is constrained by several other factors, although these factors can change over the course of the litigation. These are the resources available to the lawyers, and they can be depleted or replenished depending on circumstances.

9.

10. 11. 12.

13.

and “[y]ield indefensible terrain—ostentatiously.” Antonin Scalia & Bryan A. Garner, Making Your Case: The Art of Persuading Judges 19–21 (2008). David McCullough, John Adams 68 (2008). The full quotation, from Adams’s defense of British soldiers involved in the Boston Massacre, is: “Facts are stubborn things, and whatever may be our wishes, our inclinations, or the dictums of our passions, they cannot alter the state of facts and evidence.” Id. See generally Richard A. Posner, The Federal Courts: Challenge and Reform (1996). For more on how structural pressures affect judges, see § 3.3. See generally Patrick Dillon & Carl M. Cannon, Circle of Greed: The Spectacular Rise and Fall of the Lawyer Who Brought Corporate America To Its Knees (2010) (describing federal indictment of plaintiffs’ lawyers for kickback scheme). See Diaz-Fonsea v. Puerto Rico, 451 F.3d 3, 25–26 (1st Cir. 2006) (affirming Rule 37 sanctions against defendant who did not produce relevant documents in discovery).

xvi The Strategic Approach to Class-Action Litigation

Money. Litigation costs money, lots of it.14 Without a steady flow of money, vendors will not process documents, experts will not develop opinions, and lights will not stay on in offices.15 Time. Time is the ultimate budget constraint. Everyone is allowed 24 hours per day, no more. When time is short, lawyers are prone to make unforced errors.16 Moreover, because of forces like inflation and impatience, money is worth more today than it is tomorrow.17 Each of these forces operates in the same way on the plaintiff and the defendant. Both sides must contend with the facts of the case, the state of the law, and the individual characteristics of the court in which they litigate. And both sides must make the most of the time and the money available to them. However, the environments in which each side makes these strategic decisions differ greatly, and those differences have significant effects on the decisions each side will make. Therefore, it is fruitful to discuss the structural pressures both the plaintiff and the defendant face.

The Parties There is a deep ideological divide between plaintiffs’ and defense lawyers. Given the high stakes and high visibility of aggregated litigation, it is not surprising that class actions are controversial.18 Advocates see class-action litigation as a way for large numbers of victimized “Davids” to collectively obtain justice from a misbehaving “Goliath” when individualized lawsuits are economically impractical.19 Opponents see class-action litigation as a means by which profit-motivated lawyers exploit the in terrorum nature of

14. See Butler v. Home Depot, 1997 WL 605754 at *1 (N.D. Cal. Aug. 29, 1997) (class counsel advanced more than $1,000,000 in expenses for litigation). Litigation can have other costs as well. Money is just most easily measured. 15. See Luttwak, Strategy 41 (“In the realm of strategy, therefore, economic principles collide with the demands of war-effectiveness.”); see also Jonathan Harr, A Civil Action 346–51 (1996) (discussing effects of running out of funds in mid-litigation). 16. Clausewitz, On War 207. 17. See Dixit & Nalebuff, The Art of Strategy 354–55; Dillon & Cannon, Circle of Greed 84-85 (describing how slowed pace placed financial pressure on plaintiffs’ lawyers). 18. This is a common phenomenon. Back in 1806, the famed military strategist Carl von Clausewitz observed that “[e]ven where there is . . . no animosity to start with, the fighting itself will shake up hostile feelings.” Clausewitz, On War 138. 19. See Katz v. Carte Blanche Corp., 496 F.2d 747, 772 (3d. Cir. 1974) (“the social desirability of consumer class actions was to insure that a David plaintiff has a Goliath capability against the Goliath propensities of his adversary . . .”) (Aldisert, J. dissenting); see also Dillon & Cannon, Circle of Greed 15 (plaintiffs’ lawyers “viewed themselves as avenging angles for the little people case on the slag heap of free enterprise”).

The Parties xvii

an aggregated case to extort windfall settlements from unpopular companies or industries.20 The primary reason for these different caricatures of class actions is that plaintiffs and defendants live in worlds that are structured differently. (There are arguably different personality types separating most plaintiffs’ lawyers from most defendants’ lawyers, which result in each side approaching the risks of litigation in different ways. But it is difficult to say whether the structures attract the personality types, or are the product of them.) In this book, we refrain from judging the motives of either side. Rather than argue about whether class actions prompt greedy plaintiff’s lawyers to extort nuisance settlements from blameless defendants, or empower socially conscious plaintiff’s lawyers to take on unethical corporations, we assume that some lawsuits are closer to the former caricature, and some to the latter. From a strategic standpoint, it matters less which side is in the right than which side is making the right moves. We will talk about goals and incentives, but those discussions are general and descriptive. Generally, plaintiffs’ counsel wants to win the largest possible recovery for his clients at the minimum possible expense, while defense counsel wants to put the litigation behind his client with a minimum of expense and effort. Plaintiffs. Class-action plaintiffs (or, more accurately, their lawyers) are entrepreneurs.21 They must finance their entire lawsuit up front, with no guarantee of return, a high risk of loss, and the small possibility of a substantial return-on-investment.22 A plaintiffs’ lawyer does not have to be completely

20. See, e.g., Myrian Gilles, Opting Out of Liability: The Forthcoming, Near-Total Demise of the Modern Class Action, 104 Mich. L. Rev. 373, 373–74 (2005) (characterizing “moralist corner” of class-action critics as offering “the somewhat less nuanced objection that plaintiffs’ lawyers are, well, immoral” and “focus[ing] on the low state of ethical practice in class actions and the sell-out lawyers who, for millions in fees, are willing to sign away the rights of tens of thousands of faceless and lawyerless class members”) (internal quotations omitted). 21. The existence of entrepreneurial class-action lawyers is well documented by scholars on both sides of the plaintiff-defendant divide. See John C. Coffee Jr., The Regulation of Entrepreneurial Litigation: Balancing Fairness and Efficiency in the Large Class Action, 54 U. Chi. L. Rev. 877, 882–83 (1987); Myrian Gilles & Gary B. Friedman, Exploding the Class Action Agency Costs Myth: The Social Utility of Entrepreneurial Lawyers, 155 U. Pa. L. Rev. 103, 135 (2006) (“the overwhelming majority of consumer class actions are lawyer-initiated and lawyer-driven; the claims are developed by lawyers who then present the litigation opportunity to individuals or entities with standing to sue”). 22. Jane Schapiro, Inside a Class Action: The Holocaust & the Swiss Banks (2003) 40, 108–09 (describing plaintiffs’ funding issues) Cf. In re Cendant Corp. Sec. Litig., 404 F.3d 173, 194 (3d Cir. 2005) (noting that, in securities cases, “one or more attorneys or firms will often perform substantial work on behalf of the class during the period prior to appointment of a lead plaintiff. Throughout this time, counsel will have no guarantee that their client will be appointed lead plaintiff, or that the lead plaintiff ultimately appointed will select them as lead counsel.”).

xviii

The Strategic Approach to Class-Action Litigation

self-funding; alternative methods of financing do exist.23 But make no mistake: money is critical to prosecuting a class action against a well-financed corporate or government defendant.24 As a result, to maintain a stream of revenue that will finance future cases, most plaintiffs’ lawyers treat their cases like investment products.25 They invest substantial resources into promising cases, and they perform due diligence before pursuing a given theory.26 Plaintiffs’ lawyers tend to be riskneutral to risk-seeking. While their worst-case outcome involves spending large amounts of time and money for no return, the best case involves a large return for comparatively little investment. Plaintiffs’ counsel have two sets of adversaries to watch: the defendants, and other plaintiffs’ lawyers. The more obvious adversary—the defendant— will test the merits of the case at every stage—hoping either to defeat it completely, or to induce plaintiffs’ counsel to agree to a de minimis settlement. Less obvious, but of more interest, is the fact that a plaintiff’s lawyer’s other adversaries are other plaintiffs’ counsel. This competition plays out on a number of fronts: Plaintiffs’ counsel will compete to identify, frame, and file the best cases first; to secure appointment as lead counsel in consolidated proceedings;27 and to obtain the greatest share of any fee award. If excluded from a given class action, competing counsel may object to other lawyers’ proposed class-wide settlements to justify sharing in the fee recovery generated by the settlement.28 This intense competition among plaintiffs’

23. For a more detailed discussion of third-party litigation financing, see Marial Rodak, It’s About Time: A Systems Thinking Analysis of the Litigation Finance Industry and Its Effect on Settlement, 155 U. Pa. L. Rev. 503, 518–19 (2006) (summarizing proponents’ arguments); John Beisner, et al., Selling Lawsuits, Buying Trouble: Third Party Litigation Funding in the United States, U.S. Chamber Institute for Legal Reform (Oct. 2009) (summarizing opponents’ arguments). 24. William Greider, Is This America’s Top Corporate Crime Fighter?, NATION, Aug. 5, 2002, at 11, 14 (“I saw in those days that, if the plaintiffs’ lawyers had two things—money and brains— they could do it. But money was the most important thing . . .”) (quoting William Lerach). 25. See Blair v. Equifax Check Serv., 181 F.3d 832, 834 (7th Cir. 1999) (“Many class suits are prosecuted by law firms with portfolios of litigation, and these attorneys act as champions for the class even if the representative plaintiff would find it uneconomical to carry on with the case. These law firms may carry on in the hope of prevailing for a single plaintiff and then winning class certification (and the reward of larger fees) on appeal, extending the victory to the whole class.”) (internal citation omitted). 26. See Note, Risk-Preference Asymmetries in Class Action Litigation, 119 Harv. L. Rev. 587, 594 (2006) (because class-action lawyers advance litigation costs to plaintiffs, they operate in a “mixed decision frame” similar to a traditional investor). 27. See In re Cendant Corp. Sec. Litig., 404 F.3d 173, 181 (3d Cir. 2005) (noting “copycat complaints” that were “entrepreneurial efforts taken by firms attempting to secure lead counsel status”). 28. Cf. id. at 184 (“Of the forty-five excluded firms and attorneys, fourteen objected and requested attorneys’ fees.” The district court rejected all of those fee petitions.).

The Parties xix

counsel29 is nothing new. Sixty-five years ago, Franklin Wood reported to the New York Chamber of Commerce that lawyers for plaintiffs in shareholder derivative suits frequently jockeyed for position as “general” counsel in charge of the litigation, which would allow them to collect more fees.30 That trend has continued to the present day.31 (In fact, it may have been intensified by the passage of the Class Action Fairness Act in 2005.)32 A decision in the U.S. Court of Appeals for the Third Circuit, In re Cendant Corporation Securities Litigation,33 provides a recent example of how intense the competition among plaintiffs’ firms can become. The Cendant litigation arose out of a classic stock drop: In 1998, the value of Cendant corporation’s stock fell 47% after it announced that it would have to restate its 1997 financial statements because of what it called “accounting irregularities,” and what the plaintiffs called fraud.34 Between April and August 1998, various plaintiffs’ firms filed at least 64 lawsuits connected to the restatement.35 The U.S. District Court appointed three public pension funds as Lead Plaintiffs, and those funds retained two law firms to serve as Lead Counsel.36 The Lead Plaintiffs and Lead Counsel ultimately settled the litigation for $3.2 billion in damages and $55 million in attorneys’ fees.37 While 58 law firms had participated in the litigation in some form, the Lead Counsel split their fees with only 12 other firms.38 Fourteen of the 45 excluded firms

29. Economists sometimes refer to industries like these—where individuals on the bottom tier make little, those at the top make orders of magnitude more, and fierce competition results— as “tournaments.” See Steven D. Levitt & Stephen J. Dubner, Freakonomics: A Rogue Economist Explores the Hidden Side of Everything (2005) 98–106 (explaining tournament industries in context of competition among drug dealers). 30. Franklin Wood, N.Y. Chamber of Commerce, Survey and Report Regarding Stockholders’ Derivative Suits, 112 (1944), cited in Stephen J. Choi and Robert B. Thompson, Securities Litigation and its Lawyers: Changes During the First Decade after the PSLRA, 106 Colum. L. Rev. 1489, 1491 & n.4 (2006). 31. See, e.g., In re Initial Public Offerings Sec. Litig., 471 F.3d 24, 27 (noting that consolidated case began when “thousands of investors filed class actions against 55 underwriters, 310 issuers, and hundreds of individual officers” alleging violations of federal securities laws). 32. See Howard M. Erichson, CAFA’s Impact on Class Action Lawyers, 156 U. Pa. L. Rev. 1593, 1622 (2008) (noting that federal courts are more likely to consolidate disparate class actions and name a single lawyer or committee as “lead counsel”). If there is only one chance to control litigation on a given cause of action, the competition to control that litigation may be fiercer than if the lawyer can simply file a competing lawsuit in another jurisdiction. 33. 404 F.3d 173 (3d Cir. 2005). 34. In re Cendant Corp., 404 F.3d at 182. 35. Id. 36. Id. 37. Id. The $55 million fee was approved after the Third Circuit indicated it would view an award of $262 million as excessive. Id. It noted that $55 million was only 1.7% of the $3.2 billion at stake, and that the lawyers had collectively put more than 35,000 hours into the case. Id. 38. Id.

xx

The Strategic Approach to Class-Action Litigation

objected and requested separate awards of attorneys’ fees; when the District Court rejected those requests, they appealed.39 The appeals took various forms: Two firms asked the court to certify an additional “stub” class for their clients, who had fallen outside the certified class period;40 three firms—which had made separate requests for payment to the District Court that were denied—appealed the denial of their fee petitions on the ground that they had added value to the case by preparing and filing complaints.41 Noting that “simply doing work on behalf of the class does not create a right to compensation; the focus is on whether that work provided a benefit to the class,”42 the Third Circuit panel rolled up its collective sleeves and sifted through the attorneys’ bills. We will refrain from a blow-by-blow recounting of the court’s decisions here, but it is worth noting two observations it made as it denied the appeal, which summarize the strategic pressures the plaintiffs’ counsel face: “each firm’s complaint is the price of admission to a lottery that might result in it being named lead counsel”43 “the lead plaintiff, and indeed the entire class, has an incentive to deny compensation to non-lead counsel.”44

There is no question that these pressures drive a number of plaintiffs’ strategic decisions.45 Defendants. Whereas plaintiffs’ counsel are entrepreneurial and competitive, defense counsel tend to be more client-driven. They generally charge by the hour (although this is changing as corporate clients pressure their lawyers to accept fixed litigation budgets), and are paid as they go by their clients. Defense counsel tend to be somewhat—though progressively less—insulated from the rough-and-tumble world the plaintiffs inhabit. This is not to say that defense firms do not fight to attract clients, or worry about interference from other firms. Indeed, competition among defense firms to represent corporate clients has grown more intense, a progression best illustrated by the development of formalized Request for Proposal processes in which companies

39. 40. 41. 42. 43. 44. 45.

Id. at 184. Id. at 184–85. Id. at 184. Id. at 191 (emphasis in original). Id. at 196. Id. at 198. As the Cendant court pointed out, those strategic pressures have can have both good and bad effects on counsel. Id. at 199 (observing that “lead plaintiffs and lead counsel are likely to be repeat players in the securities class action business. They will therefore want to develop a reputation for fair dealing-especially since lead counsel in one class action are likely to be non-lead counsel in another, and will therefore want to maintain good relations with the rest of the securities plaintiffs’ bar”).

The Parties xxi

pit defense firms against each other for access to their business. However, unlike competition among plaintiffs’ firms, competition for work among defense firms occurs at a level unlikely to affect the strategic choices within the litigation itself. As a result, defense strategies tend toward the conventional, avoiding bold moves. Often, a defendants’ counsel’s strategy will weigh the costs and risks of the immediate move against the marginal benefit of that move.46 Defense counsel also are constrained by their clients’ desire to minimize expenses. When the business cycle is good, oversight of fees tends to be looser; but when times are tighter, clients exert more scrutiny over bills. Finally, defense counsel are constrained by their client’s strategic goals. Those goals will include winning the litigation; but for the defendant, winning isn’t everything. Most corporate defendants also are concerned with maximizing stock price, and maintaining good public relations.47 As a result, the defendant will not always act solely in the interest of winning the immediate litigation. Defense counsel view their defense of class actions, much like their work on individual cases, as services for their client. The service may be on a larger scale—the defendant may have a chance to sell more hours—but a case is still a case. The steps involved in defending a proposed class action are largely similar to those involved in defending a more conventional single-plaintiff action. A lawyer defending an individual product-liability lawsuit (for example) would recognize most of the strategies employed by a lawyer defending a product-liability class action. Defendants tend to be risk-neutral to risk-averse; after all, they only stand to lose from litigation. Even a successful outcome requires the expenditure of attorneys’ fees and other litigationrelated expenses. Throughout this book, many of the strategic choices made on each side will be shaped by these differences between counsel. Plaintiffs’ counsel will seek to minimize their investment and maximize their opportunity for an early, lucrative payout. Defense counsel will seek to implement a litigation defense that the client views as cost-effective and effective on the merits.

46. Much has been written about the problems with (and likely demise of) the billable hour. See, e.g., Susan Saab Fortney, The Billable Hours Derby: Empirical Data on the Problems and Pressure Points, 33 Fordham Urban L.J. 171 (2005). However, it is still the most common method of paying for litigation defense. 47. See Chapters 4, 8. See also Luttwak, Strategy 212 (discussing logic of long-term decisions in both presence and absence of conflict).

xxii

The Strategic Approach to Class-Action Litigation

Methods After more than 30 years (combined) of litigating class actions, we have developed some finely honed instincts about what issues are likely to arise in a given lawsuit. We rely on that experience and those instincts as our baseline in writing this book. However, we supplement that personal experience with a thorough review of scholarly literature on class actions, and a comprehensive review of the various reported opinions on class actions. We have done this, not just to confirm our understanding of the law, but to see what the reported cases tell us about which tactics the parties have employed, and how successful those tactics have proven. Because individual strategies continually evolve, there is no way we could predict every strategy that would be useful when litigating class actions. Our approach instead is to identify the points in class-action litigation that force strategic choices, identify those choices, and discuss the most common tactics each side employs. Such a body of knowledge should allow most lawyers to avoid re-inventing the wheel, and provide further basis for research on the most effective tactics available. While this work is ambitious, we do not aim to make it a treatise on class actions. (Several thorough treatises and casebooks already exist, and there is no need for another.) As a result, we have cited only enough law to give the reader an idea of its current state, what we would consider a “most representative” collection. We cite mostly court-of-appeals cases, and have tried to keep any editorializing out of the descriptions. We also have stayed away from unpublished cases. However, we have used cases for a second, equally important purpose: to illustrate each side’s tactics. To that end, we have used whatever example seems to best illustrate the strategy or tactic we are describing. We still try to avoid unpublished cases, but sometimes judges feel freer to describe the tactical maneuverings in their courtroom when the opinion will not be published in a recognized report. We also have used empirical data when possible. And, at times, we have relied on anecdotal evidence about a particular tactic when we could document it in some other way. We have also included exemplar briefings from a case one of the authors (Anderson) litigated through an eve-of-trial settlement. The case, Chamberlan v. Ford Motor Company, involved allegations of a defect in the intake manifold (a device that routes air and antifreeze through the engine) installed in certain vehicles.48 It was extensively litigated at a high level of skill by counsel for both sides. We have referred to these exemplar briefs to illustrate

48. For more on the case, see generally Chamberlan v. Ford Motor Co., 314 F. Supp. 2d 953 (N.D. Cal. 2004) (denying defendant’s motion to dismiss); Chamberlan v. Ford Motor Co., 402 F. 3d 952 (9th Cir. 2005) (denying defendant’s Rule 23(f) petition for interlocutory appeal of class

Methods xxiii

various places where the demands of a class action demand different tactical moves than individual litigation. A note about language. Plaintiffs are most often individuals of either sex. Class-action defendants are almost always corporations or institutions. For clarity’s sake, we refer to a generic plaintiff or plaintiffs’ counsel as “she,” and a generic defendant as “it.” Everyone else in the litigation (judges, witnesses, pundits) are, by process of elimination, referred to as “he.” Finally, in a spirit of full disclosure, we acknowledge that we both specialize in defending class actions, and that neither of us has ever prosecuted one. (Most class-action practitioners fall exclusively into either the plaintiffs or defendants’ camp, although some have done a token amount of work on “the other side” to develop perspective or the ability to advertise that they know both sides of the divide.) This raises a fair question: “How can a pair of defense lawyers write a book that fairly and accurately describes both the plaintiffs’ and defendants’ strategies?” Our best answer is that we hope the proof is in the reading. In writing this book, we have aimed to provide an unbiased analysis of the strategic choices facing both sides in class actions. To that end, we have tried not to speculate about plaintiffs or their motives. Our discussions of the plaintiff’s side of class-action litigation rely heavily on personal interviews with plaintiff’s lawyers, or statements or writing by plaintiff’s lawyers. We also have tried to be explicit about our assumptions and our biases. In the end, we have either succeeded in providing an unbiased analysis or we have not. If we have, that should be reason enough to trust our analysis. If we have not, our biases still may make for useful reading. Defendants should get a good sense of strategy from their fellow-traveler authors, and plaintiffs should get an extensive view of how the other side thinks.

certification); Chamberlan v. Ford Motor Co., 369 F. Supp. 2d 1138 (N.D. Cal. 2005) (granting in part and denying in part defendant’s motion for summary judgment).

CHAP TER

1 What Class Actions are and Why they Exist

§ 1.1 The Tradition of Single-Plaintiff Lawsuits § 1.1.1 The Limitations of Single-Plaintiff Lawsuits § 1.2 Methods of Aggregating Parties

2 3 3

§ 1.2.1 Joinder (Rule 20)

4

§ 1.2.2 Intervention (Rule 24)

6

§ 1.2.3 Consolidation (Rule 42)

7

§ 1.2.4 Multi-District Litigation

8

§ 1.2.5 Other Forms of Aggregation

9

§ 1.3 Class Actions

11

§ 1.3.1 Benefits of the Class-Action Device

12

§ 1.3.2 Costs of the Class-Action Device

15

2

Chapter 1 What Class Actions are and Why they Exist

The Rule 23 class action is a recent invention. Any number of legal treatises and law review articles will provide the same basic historical overview of how the class action evolved into its current state.1 According to these accounts, class actions started with various group litigation devices in medieval England (usually involving the imposition of taxes or tithes). In the United States, these evolved into “spurious” class actions.2 Finally, in 1966, the Advisory Committee for the federal rules enacted Federal Rule of Civil Procedure 23, which authorized judges, under specified conditions, to certify lawsuits for prosecution by a “class representative” on behalf of large numbers of “class members,” with the resulting judgment binding on all class members.3 Subsequent amendments have further defined the process under which individual litigation may be certified as a class action.4 This chapter does not describe the history of the class action, nor is it an extended analysis of the policy implications of class actions. Instead, it examines what problems the modern class action is designed to address, and the costs and benefits of using a class action for those purposes. This discussion should accomplish two goals: (1) provide a functional account of what class actions are and what purposes they serve; and (2) inform practitioners of the various concerns they likely will have to address when litigating a class action.

§ 1.1 The Tradition of Single-Plaintiff Lawsuits Ordinarily, a lawsuit is filed by a single plaintiff against a single defendant, and the plaintiff produces specific evidence of how that defendant unlawfully harmed her.5 Most of the time, the single-plaintiff, or “individual,” lawsuit is still an effective vehicle for resolving a dispute because it allows each side to introduce all relevant evidence that supports its claims or defenses, enabling the court to rule as necessary on the legal sufficiency of these claims, and the jury to find facts that lead to a judgment in favor of either the plaintiff or the defendant. Following the so-called “American Rule,”6 each side bears its own fees in individual litigation. However, in certain instances, a state may have passed

1. See generally Stephen C. Yeazell, From Medieval Group Litigation to the Modern Class Action (1987). 2. Fed. R. Civ. P. 23, Advisory Committee Notes, 1937 Adoption and 1966 Amendment. 3. Fed. R. Civ. P. 23, Advisory Committee Notes, 1966 Amendment. 4. Fed. R. Civ. P. 23, Advisory Committee Notes, 1998 Amendment, 2003 Amendments. 5. See Gen. Tel. Co. of Sw. v. Falcon, 457 U.S. 147, 155 (1982) (class action device is “an exception to the usual rule that litigation is conducted by and on behalf of the individual named parties only.”); see also Mark Moller, The Rule of Law Problem: Unconstitutional Class Actions and Options for Reform, 28 Harv. J.L. & Pub. Pol’y 855, 860 (2005) (“The common law typically has preferred individualized proof of liability.”). 6. For more discussion of the effect of the “American rule” on litigation strategy, see § 10.2.

Methods of Aggregating Parties 3

legislation that awards attorneys’ fees either to a prevailing plaintiff or, more rarely, to any prevailing party (including the defendant). This legislation can include consumer-fraud statutes, labor-relations statutes, or even statutes that recognize contractual fee-shifting provisions.7

§ 1.1.1 The Limitations of Single-Plaintiff Lawsuits Despite their many advantages, as a practical matter single-plaintiff lawsuits can be inadequate for dealing with situations in which a defendant has engaged in unlawful conduct that harms a large number of people to a modest degree. To begin, each lawsuit must be tried separately, in front of a separate factfinder, and a separate legal referee. These separate lawsuits can lead to inconsistent outcomes—in which a court finds the defendant’s conduct unlawful in one case, but lawful in another. These inconsistencies can undermine public respect for the judicial system, which—in principle—should reliably determine “the truth” about the legal propriety of a defendant’s actions. They also raise fairness concerns: due to happenstance, two similarly situated plaintiffs could receive different outcomes from litigation against the same defendant, even though those claims rely on the same facts and the same law. Bringing a lawsuit also costs money. The plaintiff must hire a lawyer, who, in turn, must spend money developing the facts and law of the case: researching the elements of her claims, hiring experts, reviewing documents and other evidence. If the defendant’s liability to the plaintiff is clear, and if the claim is worth a large amount of money (because the plaintiff’s compensatory damages are high, punitive damages are likely, or the losing defendant will be liable for attorneys’ fees), then it makes sense for the plaintiff to incur the upfront cost of pursuing the lawsuit. But if the defendant’s liability is harder to prove (because the law in the area is not well-developed, or proving liability will require expensive discovery and expert testimony) and the plaintiff’s individual claim is worth a small amount of money (because her individual compensatory damages are small), then it makes no sense for her to pursue the claim and it will be difficult to find a lawyer to bring that individual case.

§ 1.2 Methods of Aggregating Parties Although class actions are the most recognizable form of aggregated litigation, lawsuits brought on behalf of large numbers of people that seek substantial monetary awards and injunctions against continued unlawful conduct take

7. For more on fee-shifting rules, see § 8.4.1.

4

Chapter 1 What Class Actions are and Why they Exist

many different forms, and methods for aggregating litigation are constantly evolving. There are a number of methods that share some common features with class-action practice. In fact, the original revision of Rule 23 borrowed language from Rules 19 (which governs mandatory joinder) and 24 (which governs intervention).8 In practice, when a lawyer represents a large number of people pursuing similar claims against the same defendant (for example, personal injury claims against the maker of an allegedly defective drug), he will develop efficient ways to avoid reinventing the wheel for each claim, including preparing joint (or cloned) pleadings, serving identical discovery requests and responses, using joint experts, and negotiating for settlement on behalf of the group as opposed to any individual.9 Similarly, lawyers representing a defendant being sued by a large group of people asserting similar claims (for example, the lawyer for the defendant drug company) will also develop strategies for avoiding redundancy, litigating common issues in uniform fashion, but also seeking to debate dissimilar claims separately, and insisting on individualized discovery and trials where substantive legal or evidentiary issues may differ from plaintiff to plaintiff. In the discussion below, we provide a brief overview of these other methods of aggregation, and their respective limitations.

§ 1.2.1 Joinder (Rule 20) Conceptually, the simplest method of aggregating claims is just to join them in the same lawsuit. Rule 20 allows several plaintiffs asserting similar claims against the same defendant to bring their individual claims in a single lawsuit. The Rule provides that: Persons may join in one action as plaintiffs if: (A) they assert any right to relief jointly, severally, or in the alternative with respect to or arising out of the same transaction, occurrence, or series of transactions or occurrences; and (B) any question of law or fact common to all plaintiffs will arise in the action.

8. See Roger H. Trangsrud, James H. Humphreys Complex Litigation Lecture: The Adversary System and Modern Class Action Practice, 76 Geo. Wash. L. Rev. 181, 184–85 (2008) (discussing how Rule 23(b)(1)(a)–(b) “borrow language from Rule 19—the indispensable parties rule—and Rule 24—the intervention rule”). 9. Howard M. Erichson, Beyond the Class Action: Lawyer Loyalty and Client Autonomy in NonClass Collective Representation, 2003 U. Chi. Legal F. 519, 533 (“Regardless of whether plaintiffs’ claims are formally aggregated, the lawyer representing many similarly situated clients necessarily handles the litigation on a group basis.”).

Methods of Aggregating Parties 5

In certain cases, such as the determination of property rights, joinder of parties allows for a full airing in a single forum of all issues that might possibly arise in a controversy.10 The principal advantage of joinder is that—compared to trying the same claims individually—it may reduce costs by allowing the joined parties to pool their resources in determining common issues.11 In addition, each individual claimant retains full control over her own claims, allowing her a full voice in strategy decisions. There is no doctrinal limit to how many parties may join in a single lawsuit. The primary drawback of joinder is that, since each individual claimant has an independent voice in the proceedings, all strategy decisions must be negotiated, and those negotiations will not always proceed easily.12 The more parties joined, and the more complex the issues to be tried, the more likely that the trial will tax the ability of a jury to keep track of the facts to be determined.13 And, as that confusion increases, so does the possibility of prejudice to some party, whether one of the plaintiffs or one of the defendants.14 Indeed, even settlement of a joined action may not benefit all plaintiffs equally.15

10. Provident Tradesmens Bank & Trust Co. v. Patterson, 390 U.S. 102, 119–20 (1968) (discussing efficiencies from joinder of claims). 11. Richard Epstein, Class Actions: Aggregation, Amplification and Distortion, 2003 U. Chi. Legal F. 475, 486 (2003) (“[T]he hope of parties in a permissive joinder situation is that the cost of suit will rise less rapidly than the value of the amalgamated claims, so that in union they will find strength.”); Note, The Challenge of the Mass Trial, 68 Harv. L. Rev. 1046, 1047 (1955) (“If litigation were divided among several trials, either by issues or by parties, the aggregate time required to dispose of it might be greater than the time required for a single trial. There might be much duplication in the introduction of evidence, and the administrative details of a trial, such as the selection of jurors, would be repeated several times.”). 12. Epstein, Class Actions: Aggregation, Amplification and Distortion, 2003 U. Chi. Legal F. at 486 (“[T]ypically [joined parties] quickly learn that these negotiations are fraught with difficulty, for someone has to put together the pool that divides expenses and recovery, and someone has to decide how much each claimant should contribute, both initially and thereafter.”). 13. Note, The Challenge of the Mass Trial, 68 Harv. L. Rev. at 1046–47. 14. See In re Brooklyn Navy Yard Asbestos Litig., 971 F.2d 831, 853 (2d Cir. 1992) (“The systemic urge to aggregate litigation must not be allowed to trump our dedication to individual justice, and we must take care that each individual plaintiff ’s—and defendant’s—cause not be lost in the shadow of a towering mass litigation.”); Note, The Challenge of the Mass Trial, 68 Harv. L. Rev. at 1047 (“The presence of a large number of parties makes it difficult to give a separate and informed consideration to each party’s case.”). 15. See, e.g., Howard M. Erichson, Beyond the Class Action: Lawyer Loyalty and Client Autonomy in Non-Class Collective Representation, 2003 U. Chi. Legal F. 519, 525 (“Such mass collective representation raises a number of problems. One is the problem of inequitable settlement allocations among members of the collectively represented group, without the procedural safeguards of class actions. Lawyers representing the mass of plaintiffs often have little or no incentive to allocate settlements fairly among their clients, and may have incentives to allocate settlements unfairly.”).

6

Chapter 1 What Class Actions are and Why they Exist

In addition, joinder cases, once resolved, only bind those parties actually named in the lawsuit.16 As a result, plaintiffs have less settlement leverage than they might if they could offer a global peace to the defendants on behalf of all those who arguably were injured by the defendant’s conduct (whether or not they chose to retain a lawyer and file a lawsuit at that time and in that court).17 Traditional joinder actions also raise conflicts of interest. If the various plaintiffs’ interests are not identically aligned, then the lawyer representing them may find himself continually choosing between the best interests of the group and the best interests of an individual client.18 This conflict may be particularly acute when settling an aggregated case, where the defendant understandably will demand a release from all plaintiffs.19

§ 1.2.2 Intervention (Rule 24) While it is the most common, joinder is not the only method of aggregation available under the federal rules. A party may also intervene in (in other words, insert herself into) a lawsuit brought by another plaintiff against a defendant if the outcome of the litigation would materially affect her legal rights. Rule 24 provides for both intervention of right and permissive intervention: (a) Intervention of Right. On timely motion, the court must permit anyone to intervene who: (1) is given an unconditional right to intervene by a federal statute; or

16. See, e.g., Id. at 524 (“In non-class litigation, the judgment binds only the named parties and their privies, whereas a class action judgment binds the entire class, except those who have opted out.”). 17. This is not to say that plaintiffs in joinder actions will enjoy no enhanced bargaining leverage. See Id. at 533 (“In many cases, however, lawyers with large numbers of related claims negotiate settlement of those claims either as an entire group or in bundles.”). Instead, it recognizes that plaintiffs in joinder actions lack one important bargaining chip provided by other forms of collective litigation. 18. Id. at 561–62. One issue that has arisen is which plaintiff should try her case first: The lawyer will want to bring the strongest case first, either to prevent preclusion of certain issues or to set a precedent for a high settlement value; individual plaintiffs, however, have strong incentives (such as an immediate need for funds) to bring their own individual lawsuits first. See, Mekdeci v. Merrell Nat’l Labs., 711 F.2d 1510, 1516–21 (11th Cir. 1983) (refusing to allow counsel to withdraw from representing plaintiff who insisted on proceeding with litigation in advance of other, arguably stronger, claimants with same counsel). 19. Erichson, Beyond the Class Action: Lawyer Loyalty and Client Autonomy in Non-Class Collective Representation, 2003 U. Chi. Legal F. at 572 (“Worse yet, plaintiffs’ counsel may have financial interests that conflict with equitable allocation of the settlement.”).

Methods of Aggregating Parties 7 (2) claims an interest relating to the property or transaction that is the subject of the action, and is so situated that disposing of the action may, as a practical matter, impair or impede the movant’s ability to protect its interest, unless existing parties adequately represent that interest. (b) Permissive Intervention. (1) In General. On timely motion, the court may permit anyone to intervene who: (A) is given a conditional right to intervene by a federal statute; or (B) has a claim or defense that shares with the main action a common question of law or fact.

Intervention most often occurs when there is some property, indivisible right, or limited fund in dispute and the intervenor has a tangible interest in the outcome of the dispute, meaning that she has a legitimate desire to ensure that her legal interests are represented. Intervention “represents an accommodation between two potentially conflicting goals: to achieve judicial economies of scale by resolving related issues in a single lawsuit, and to prevent the single lawsuit from becoming fruitlessly complex or unending.”20 While denial of permissive intervention is rare,21 the fact that intervention is essentially an “opt-in” procedure means that Rule 24 is rarely used to aggregate a large number of parties.

§ 1.2.3 Consolidation (Rule 42) Aggregation does not have to occur at the instigation of the parties. A federal court may consolidate separately filed lawsuits before it that it finds to be related. As Rule 42 states: (a) Consolidation. If actions before the court involve a common question of law or fact, the court may: (1) join for hearing or trial any or all matters at issue in the actions; (2) consolidate the actions; or (3) issue any other orders to avoid unnecessary cost or delay.

Since consolidation occurs at the discretion of the court, any party may move for consolidation. Consolidation does not formally affect the rights of any of

20. United States v. Tex. E. Transmission Corp., 923 F.2d 410, 412 (5th Cir. 1991) (internal quotations omitted). 21. See United States v. Pitney Bowes, Inc., 25 F.3d 66, 73 (2d Cir. 1994) (“Reversal of a district court’s denial of permissive intervention is a very rare bird indeed”).

8

Chapter 1 What Class Actions are and Why they Exist

the individual parties in the litigation.22 Each party still must provide its own proof or argument.23 Nor does consolidation necessarily last for the life of the lawsuit; a court may separate the actions once it has resolved any common issues.24 Still, consolidation allows common issues to be litigated together in a more efficient fashion than would otherwise be possible, and ensures a uniform outcome for those issues. If the consolidated lawsuits have been filed by different firms, then the plaintiffs’ (and potentially, the defendant’s) lawyers will also face a challenge in coordinating their efforts for the course of the consolidation.25

§ 1.2.4 Multi-District Litigation In 1968, Congress created a mechanism for centralizing similar lawsuits filed in multiple federal district courts, allowing these “multi-district” actions to be consolidated in a single district court for pretrial proceedings, including motions to dismiss, discovery, motions for summary judgment, and motions for class certification (though not for trial).26 The purpose of multi-district litigation (sometimes referred to as “MDL”) is to temporarily consolidate lawsuits raising similar issues of law or fact so that those issues can be litigated uniformly and efficiently before a single judge.27 Once the purpose of the consolidation has been achieved, the court remands the cases to their original district courts.28

22. Johnson v. Manhattan Ry. Co., 289 U.S. 479, 496–97 (1933) (“consolidation is permitted as a matter of convenience and economy in administration, but does not merge the suits into a single cause, or change the rights of the parties, or make those who are parties in one suit parties in another”). 23. Id. at 496–97 (“consolidation is permitted as a matter of convenience and economy in administration, but does not merge the suits into a single cause, or change the rights of the parties, or make those who are parties in one suit parties in another”). 24. Fed. R. Civ. P. 42 (b) (“For convenience, to avoid prejudice, or to expedite and economize, the court may order a separate trial of one or more separate issues, claims, crossclaims, counterclaims, or third party claims. When ordering a separate trial, the court must preserve any federal right to a jury trial.”). 25. Erichson, Beyond the Class Action: Lawyer Loyalty and Client Autonomy in Non-Class Collective Representation, 2003 U. Chi. Legal F. at 541. 26. 28 U.S.C. § 1407. The MDL panel is empowered to consolidate antitrust cases under the Clayton Act for trial. Id. § 1407(h). 27. 28 U.S.C. § 1407 (a) (“transfers for such proceedings will be for the convenience of parties and witnesses and will promote the just and efficient conduct of such actions”). 28. 28 U.S.C. § 1407(a); see also Lexecon Inc. v. Milberg Weiss Bershad Hynes & Lerach, 523 U.S. 26, 28 (1998) (“28 U. S. C. § 1407(a) authorizes the Judicial Panel on Multidistrict Litigation to transfer civil actions with common issues of fact to any district for coordinated or consolidated pretrial proceedings, but imposes a duty on the Panel to remand any such action to the

Methods of Aggregating Parties 9

Multi-district litigation, like Rule 42 consolidation, poses special challenges for competing plaintiffs’ firms that may have to coordinate efforts.29 Among other issues, given the size of many MDL proceedings, some plaintiffs’ lawyers may have to assume leadership positions over the others, either as lead counsel or as members of a plaintiffs’ steering committee.30 As a result, MDL cases (whether or not they are class actions) frequently assume many of the characteristics of representative litigation.31 Multi-district litigation presents mixed results for defendants as well. On the one hand, consolidating a large number of single-plaintiff cases together for coordinated discovery into the defendant’s alleged misconduct creates an environment in which the defendant will be subjected to more searching, expensive, and disruptive discovery than would occur in any single lawsuit standing alone. On the other hand, MDL coordination allows the defendant to obtain some measure of control over what might otherwise become an unwieldy mess of constituent actions, with different judges directing it to provide different bundles of discovery to different plaintiffs, or reaching inconsistent rulings on key legal disputes that are uniform to all claims. At the same time, because the cases are coordinated only for those matters that are truly common among all cases, the defendant still retains the right to litigate plaintiff-specific issues on an individual basis, either in the MDL proceeding or after the case is remanded to its original district court.

§ 1.2.5 Other Forms of Aggregation These methods are not the only ways to aggregate parties and claims that share similar attributes. To begin, certain types of litigation, such as shareholder derivative actions, bankruptcy proceedings, qui tam lawsuits, or lawsuits by individuals seeking wide-ranging injunctive relief may share characteristics of representative litigation.32

29.

30.

31. 32.

original district at or before the conclusion of such pretrial proceedings.”) (internal quotations and citation omitted). Howard M. Erichson, Beyond the Class Action: Lawyer Loyalty and Client Autonomy in NonClass Collective Representation, 2003 U. Chi. Legal F. 519, 541; see also Charles Silver & Geoffrey P. Miller, The Quasi-Class Action Method of Managing Multi-District Litigations: Problems and a Proposal, 63 Vand. L. Rev. 107, 118 (2010). Erichson, Beyond the Class Action, 2003 U. Chi. Legal F. at 531 (“Although non-class formal aggregation, in theory, can gather claims in which each plaintiff is represented by counsel on an individual basis, much of the work in practice is performed by lawyers on the MDL steering committees or in other leadership positions.”). Id. at 531 (“The dominant role of hub lawyers in MDL and statewide consolidations results in de facto group representation.”). See generally Id.

10

Chapter 1 What Class Actions are and Why they Exist

Collective actions. Certain statutes (like the Fair Labor Standards Act) formally provide for collective actions.33 As in a class action, a plaintiff in a collective action trades individual control over her lawsuit for the economies of scale and bargaining leverage that come with group litigation.34 However, FLSA collective actions follow different procedural rules than class actions.35 At the “notice stage” of the collective action, the trial court decides whether it should notify other “similarly situated” employees who might wish to “opt in” to the litigation.36 If discovery subsequently shows that the case should not be a collective action, the court will decertify it.37 Private attorney-general actions. Some statutes will allow any interested party to bring an action on behalf of the general public, in essence acting as an attorney general.38 If there is no general statute allowing for private attorney-general actions, a plaintiff may ask the government for permission to bring a lawsuit on its behalf in a qui tam capacity. For plaintiffs’ lawyers, private attorney-general actions of this type are an attractive alternative to class actions. They do not have to persuade the judge to certify a class and put them in charge of it because they already hold the attorney general’s power to sue on behalf of the state’s citizens. Those same laws also allow plaintiffs’ lawyers to collect a sizable fine if they prove a technical violation of the law (even if it caused no citizen any actual harm).39 Finally, plaintiffs’ counsel are more likely to litigate the case in a state court, before an elected or appointed judge who may have incentives to favor the state’s Attorney General over an out-of-state corporation. Private attorney-general actions can raise ethical issues, however. The private lawyers whom elected attorneys general hire to represent the state sometimes are major financial contributors to their campaigns—an arrangement that may have at least the appearance of impropriety.40 This has led to

33. 29 U.S.C. § 216(b). For more on FLSA collective actions, see § 3.1.2. 34. Howard M. Erichson, Beyond the Class Action: Lawyer Loyalty and Client Autonomy in Non-Class Collective Representation, 2003 U. Chi. Legal F. 519, 529 (“As in a class action, plaintiffs in collective representation relinquish most of their control over the litigation. Relinquishing autonomy is a perfectly rational decision for many plaintiffs, given the potential advantages of group representation.”). 35. De Asencio v. Tyson Foods, Inc., 342 F.3d 301, 306 (3d Cir. 2003) (describing differences between FLSA collective action and Rule 23 class action). 36. 29 U.S.C. § 216(b) (“No employee shall be a party plaintiff to any such action unless he gives his consent in writing to become such a party and such consent is filed in the court in which such action is brought.”). 37. Anderson v. Cagle’s, Inc., 488 F. 3d 945, 953 (11th Cir. 2007). 38. See, e.g., Cal. Bus. & Profs. Code § 17200; D.C. Code § 28-3905 (k)(1). 39. John H. Beisner, et al., Class Action “Cops”: Public Servants or Private Entrepreneurs?, 57 Stan. L. Rev. 1441, 1457–58 (2005). 40. This is similar to the “pay to play” issues in securities class actions. For more discussion of this issue, see Chapter 3.

Class Actions 11

statutes and court decisions in some states regulating the terms under which attorneys’ general retain private counsel to represent the state.41 Informal aggregation. The plaintiff (or her lawyers) might also consider informal aggregation, filing separate lawsuits in different jurisdictions, but coordinating efforts with other plaintiffs’ firms filing similar suits. Informal aggregation offers some distinct benefits to plaintiffs. Plaintiffs who share information or divide labor may benefit from economies of scale, making greater resources available for each individual case.42 Moreover, if the lawyers are willing to coordinate their settlement discussions, they may enjoy enhanced leverage in negotiation, much like that of other collective bargaining efforts.43 The disadvantages of informal aggregation are similar to those of mass joinder cases. However, there are some additional problems of which plaintiffs’ lawyers must be aware. First, counsel is likely to spend less time proportionately developing the facts and legal issues; to litigate a case on the scale of a class action, however, a lawyer must spend much of his time recruiting plaintiffs to bring in enough cases to make litigation economically viable.44 An additional drawback to informal aggregation is that, because cases proceed to trial as individual cases, an individual plaintiff may not understand the extent to which she has ceded control of the case to her lawyers. As a result, the conflict-of-interest issues present in mass joinder cases are exacerbated in informal aggregation.

§ 1.3 Class Actions Finally, we come to the class action. Under Federal Rule 23 (and its state court equivalents), the litigation proceeds with an individual plaintiff

41. See, e.g., Florida Transparency in Private Attorney Contracting Act (signed April 14, 2010) (requiring public disclosure of retention agreements and capping fees); Meredith v. Ieyoub, 700 So. 2d 478, 481 (La. 1997) (finding contingency fee agreement between state and private firm violated the principles of separation of powers). 42. Erichson, Beyond the Class Action: Lawyer Loyalty and Client Autonomy in Non-Class Collective Representation, 2003 U. Chi. Legal F. at 542 (“Scale economies result from the sharing of information and divvying up of work among coordinating lawyers. The pooling of resources permits greater investment in the litigation.”). 43. Id. at 542 (“To the extent lawyers coordinate their negotiation efforts, enhanced bargaining leverage may result as well.”). 44. Howard M. Erichson, Beyond the Class Action: Lawyer Loyalty and Client Autonomy in NonClass Collective Representation, 2003 U. Chi. Legal F. 519, 547 (quoting Alex H. MacDonald, Esq.: “the first and most pivotal thing to do in a mass tort is to get the cases, is to get the good cases”).

12

Chapter 1 What Class Actions are and Why they Exist

(or small group of plaintiffs) who offer proof at trial of her individual claim. If the individual plaintiff prevails in the litigation, then the class prevails. If she loses, then the class loses. If she settles the case on a class-wide basis, that settlement benefits the entire class, and the claims of the entire class are released. It should go without saying in the following discussion that the benefits of class actions will be most pronounced in class actions in which there is a strong fit between the facts of the case and the requirements of Rule 23. (These requirements will be discussed at greater length in Chapter 2.) Similarly, the costs of class actions will be most pronounced in class actions that are brought (or certified) despite the fact that they do not fit well with Rule 23’s requirements. Which class actions are which? Lawyers (and, after the fact, scholars) will continue to debate that question hotly on a case-by-case basis.

§ 1.3.1 Benefits of the Class-Action Device Used properly, class actions confer certain benefits on society at large. They can also save the judiciary time and resources. And they can provide finality and certainty of outcome to the various parties. Vindication of small, diffuse claims. When used properly, class actions can level the playing field between powerful and well-funded corporations on the one hand, and scattered individual consumers on the other.45 Small-value claims may not be worth the expense to prosecute by themselves.46 By aggregating multiple smaller claims into a single large lawsuit, a class action can make litigation of lower-value claims viable.47

45. See, Mark Moller, The Rule of Law Problem: Unconstitutional Class Actions and Options for Reform, 28 Harv. J.L. & Pub. Pol’y 855, 862–63 (2005). 46. Byron G. Stier, Crimtorts, Class Actions, and the Emerging Mass Tort Method, 17 Widener L.J. 893, 896–97 (2008) (“[T]he most significant systemic concern comes not from largevalue claims, but from small-value claims. A small-value claim may not be sufficient to interest a plaintiff ’s attorney in taking the case on contingency fee, and so, the case may not be brought at all, risking underdeterrence, as well as problems for other tort goals of corrective justice and compensation.”) (internal footnote omitted). 47. See, e.g., Eisen v. Carlisle & Jacquelin, 417 U.S. 156, 161 (1974) (“A critical fact in this litigation is that petitioner’s individual stake in the damages award he seeks is only $70. No competent attorney would undertake this complex antitrust action to recover so inconsequential an amount. Economic reality dictates that petitioner’s suit proceed as a class action or not at all.”); Thorogood v. Sears, Roebuck & Co., 547 F.3d 742, 744 (7th Cir. 2008) (Posner, J.) (“The class action is an ingenious device for economizing on the expense of litigation and enabling small claims to be litigated . . . If every small claim had to be litigated separately, the vindication of small claims would be rare. The fixed costs of litigation make it impossible to litigate a $50 claim . . . at a cost that would not exceed the value of the claim by many times.”). See also Epstein, Class Actions: Aggregation, Amplification and Distortion, 2003 U. Chi. Legal F. at 485 (“Quite simply the unthinkable becomes thinkable when the basic scenario

Class Actions 13

The attraction of the class-action device is that it enables a plaintiff to bring a “negative value” lawsuit. If someone believes she has a 50 percent chance of prevailing in a lawsuit against a major corporation in a claim seeking $100 in compensatory damages, she is unlikely to sue (and unlikely to find a lawyer to represent her) because the cost of litigating far exceeds the potential outcome of the case. On the other hand, if there is a 50 percent chance of proving that a major corporation’s unlawful conduct caused 1 million people to incur $100 each in losses, then a judge’s order certifying the case for class-wide litigation creates a lawsuit whose expected value is $50 million (1 million x $100 x 0.50) in compensatory damages alone. Given these stakes, it makes economic sense for the proposed class representative (and her lawyers) to pursue the case vigorously, taking whatever discovery is needed and hiring whatever experts are needed to prove liability. Even better from a plaintiff’s perspective, the mammoth economic threat such a suit poses makes it far more likely the defendant will settle the lawsuit on negotiated terms.48 Judicial efficiency. There is also no question that, under the right circumstances, trying only one case instead of a thousand cases on identical facts saves both the litigants and the judiciary time and money. For example, the litigants do not have to file, and the judges do not have to decide, repetitive briefings on the same legal issue.49 Even if the class action does not resolve every contested issue between the class and the defendant, if the issues are sufficiently similar, all parties may see some efficiencies from trying common issues in a common forum.

changes—that is, what would otherwise be an unprofitable suit, given the low probability of success and high costs of bringing the suit, becomes a profitable one.”). 48. This applies to class-wide settlements. It should be noted that, in some cases, defendants may be more likely to settle small-dollar claims on an informally negotiated basis (through, say, a customer-service program) than a formal class-wide settlement that includes extensive briefing and payment of attorneys’ fees. A defendant’s propensity to settle claims on an individual or aggregated basis will depend on a number of factors, including its perception of the merits of those claims, its need for a final resolution to any disputes, and the expected additional costs of either a class-wide settlement or a series of individual settlements. 49. Gen Tel. Co. of the Sw., 457 U.S. at 156 (“Class relief is peculiarly appropriate when the issues involved are common to the class as a whole and when they turn on questions of law applicable in the same manner to each member of the class. For in such cases, the class-action device saves the resources of both the courts and the parties by permitting an issue potentially affecting every class member to be litigated in an economical fashion under Rule 23 . . .”) (internal quotations omitted); Am. Pipe & Constr. Co. v. Utah, 414 U.S. 538, 550 (1974) (“A federal class action is no longer ‘an invitation to joinder’ but a truly representative suit designed to avoid, rather than encourage, unnecessary filing of repetitious papers and motions.”); Newton v. Merrill Lynch, Pierce, Fennel & Smith, Inc., 259 F.3d 154, 192 (3d Cir. 2001) (“One of the paramount values in [class actions] is efficiency. Class certification enables courts to treat common claims together, obviating the need for repeated adjudications on the same issue.”) (internal quotations omitted).

14

Chapter 1 What Class Actions are and Why they Exist

The judiciary and the defendant can also benefit from a properly certified class action. If thousands of individuals have the same grievance against the same defendant, it is a waste of judicial resources to open thousands of dockets in order to repeatedly litigate these essentially identical disputes.50 Why commit hundreds or thousands of judges and juries to deciding questions that may have already been litigated? And why force each plaintiff to go through the expense of hiring a lawyer to bring the same case that has already been brought dozens of times before? It is far more efficient, for all concerned, to consolidate these identical claims for litigation in a single class action. Deterrence. Class actions can deter some corporate malfeasance.51 Because class actions allow claimants to band together in a single lawsuit, they increase the likelihood that a defendant will be held accountable for its bad conduct. And because the aggregated liability in a class action is greater than in a smaller individual lawsuit, a defendant may think twice before engaging in questionable conduct. Regulation. Class actions also can provide ad hoc regulation of corporate conduct, using litigation to obtain judicial determinations regarding the propriety of defendants’ conduct that regulatory agencies have not provided.52 There is little question that, in certain cases, class actions have been effective as a “fourth branch” of government, and have raised issues overlooked by legislatures and regulatory agencies. That said, the question of whether the United States should have a private “fourth branch” has been open to heated debate.53 Certainty. Uncertainty poses a cost of its own.54 In fact, the rule of law (as conceived in the United States) relies in part on consistent, predictable,

50. See, e.g., Jenkins v. Raymark Indus., 782 F.2d 468, 473 (5th Cir. 1986) (finding certification of class “clearly 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.’”). 51. Blackie v. Barrack, 524 F. 2d 891, 903 (9th Cir. 1975) (noting “substantial role that the deterrent effect of class actions plays in accomplishing the objectives of the securities laws”); Myriam Gilles & Gary B. Friedman, Exploding the Class Action Agency Costs Myth: The Social Utility of Entrepreneurial Lawyers, 155 U. Pa. L. Rev. 103, 139 (2006) (“the primary goal in small-claims class actions is deterrence”). 52. See, e.g., Beisner, et al., Class Action “Cops”: Public Servants or Private Entrepreneurs?, 57 Stan. L. Rev. at 1451 & n. 53 (quoting plaintiffs’ firm website: “Because the government has limited resources, private parties need to pick up the slack. Our entire system of government is based on private initiatives, and class actions are no different.”). 53. See generally John H. Beisner, et al., Class Action “Cops”: Public Servants or Private Entrepreneurs?, 57 Stan. L. Rev. 1441 (2005). 54. See Jonathan T. Molot, A Market in Litigation Risk, 76 U. Chi. L. Rev. 367, 374 (2009) (“the uncertainty surrounding a significant potential liability may increase a company’s cost of capital by depressing its stock price or increasing the interest rate it must pay on its debt”).

Class Actions 15

outcomes to litigation.55 Uncertainty costs can be particularly acute where large numbers of potential plaintiffs may have similar claims. Disposing of claims one by one presents plaintiffs with potential outcomes that may differ based not just on different factual circumstances or legal rules, but also different legal counsel, different judges, and different juries.56 Trying the issue once in a single jurisdiction reduces the uncertainty from these variations. Similarly, defendants may prefer to define and cap their exposure to liability rather than face the unpredictability of recurring litigation in different jurisdictions.57

§ 1.3.2 Costs of the Class-Action Device The class-action device is far from flawless, however. In fact, legislators, lawyers, and legal scholars have debated its potential adverse consequences for some time. We will focus on only a few of those consequences here, those of most importance to the litigants themselves.58 Conflation of Issues. In cases where the disposition of the claims of thousands of people may rise or fall on the proof of a single litigant’s claims, courts may face a large temptation to ignore inherently individualized issues in order to simplify the litigation.59

55. See Danny J. Boggs, Challenges to the Rule of Law: or Quod Licet Jovi Non Licet Bovi, 2007 Cato S. Ct. Rev. 7, 7 (“The rule of law means that, to the extent that fallible judges are capable of adhering to it, the expectation is that when you go before a court, the outcome depends on the merits of your case, not your political status, relation to the court, or other personal characteristics. It does not mean that the law is a mechanical enterprise—it cannot be. But it should mean that the judge will apply the same standards to the merits of your case, as to those of any other case, whatever the color of your skin or the content of your character.”) 56. See Byron G. Stier, Jackpot Justice: Verdict Variability and the Mass Tory Class Action, 80 Temple L. Rev. 1013, 1015, 1019 (2007) (“A growing, thorough body of empirical jury research has detailed the substantial variability of jury verdicts.”). 57. William B. Rubenstein, Finality in Class Action Litigation: Lessons from Habeas, 82 N.Y.U. L. Rev. 790, 830–31 (2007) (once a class action is completed, “[t]he defendant knows the extent of its liability, if any, and the distraction of litigation ends. The defendant may now proceed with its underlying business affairs more clearly.”). 58. Andrews v. Am. Tel. & Telegraph Co., 95 F.3d 1014, 1025 (11th Cir. 1996). 59. See, e.g., Cimino v. Raymark Indus., 751 F. Supp. 649, 652 (E.D. Tex. 1990) (certifying class for trial and remarking “[i]t is not enough to chronicle the existence of [the asbestos] problem and to lament congressional inaction. The litigants and the public rightfully expect the courts to be problem solvers.”); and Cimino v. Raymark Indus., 151 F.3d 297, 338 (5th Cir. 1998) (Garza, J., concurring) (reversing certification and observing “Judge Parker made a valiant and admirable effort to take such action. Unfortunately, however, this Court is without the power to sanction or condone his approach.”).

16

Chapter 1 What Class Actions are and Why they Exist

Class actions do not just risk ignoring important nuances in claims; they also may magnify the errors resulting from ignoring those nuances.60 When the claims of hundreds or thousands of plaintiffs depend on the outcome of a single trial involving a single representative, the risk that a particularly strong (or particularly weak) case will distort the outcome for the other claimants is far greater.61 As the Seventh Circuit Court of Appeals (no stranger to efficiencybased arguments) has warned: [T]he benefits [of efficiency from class actions] are elusive. The central planning model—one case, one court, one set of rules, one settlement price for all involved suppresses information that is vital to accurate resolution. What is the law of Michigan, or Arkansas, or Guam, as applied to this problem? Judges and lawyers will have to guess, because the central planning model keeps the litigation far away from state courts. . . . And if the law were clear, how would the facts (and thus the damages per plaintiff ) be ascertained? One suit is an all-ornone affair, with high risk even if the parties supply all the information at their disposal. Getting things right the first time would be an accident.62

Drain on judicial resources. In some cases, a thorough class-action trial may be even more of a drain on judicial resources than the individual lawsuits might have been. For example, in declining to certify a class of vehicle owners who claimed that their vehicles had caught fire because of a faulty ignition switch, the District of New Jersey specifically calculated how much time it would take to provide a hearing of all of the relevant issues: Even assuming that the number of contested claims could—as plaintiff suggests— through discovery be narrowed to 3,000, and that the individual “rebuttal trials” were to average just four hours each (a conservative estimate), the second phase of the trial would take approximately twelve years of judicial time. This would

60. Thorogood, 547 F.3d at 744 (“A further problem with the class action is the enhanced risk of costly error. When enormous consequences turn on the correct resolution of a complex factual question, the risk of error in having it decided once and for all by one trier of fact rather than letting a consensus emerge from several trials may be undue.”) (Posner, J.) (internal quotation omitted); see also Epstein, Class Actions: Aggregation, Amplification and Distortion, 2003 U. Chi. Legal F. 4at 478 (“In practice, many (but by no means all) class actions do more than amplify the status quo ante: sometimes they also distort the outcomes by imposing liabilities that are, when the transformations of substance and procedure are taken into account, far more onerous than a rule of simple multiplication would provide.”). 61. Thorogood, 547 F.3d at 744 (“[W]hen the central issue in a case is given class treatment and so resolved by a single trier of fact, a trial becomes a roll of the dice; a single throw will determine the outcome of a large number of separate claims—there is no averaging of divergent responses from a number of triers of fact having different abilities, priors, and biases.”) (internal quotation omitted). 62. In re Bridgestone/Firestone, Inc. Tires Prods. Liab. Litig., 288 F.3d 1012, 1020 (7th Cir. 2002) (emphasis in original).

Class Actions 17 not serve the public well, nor would it provide relatively prompt remediation of the valid claims that exist.63

In a footnote, the court pointed out that the “lengthy trial would also necessarily preclude resolution of most of the Court’s normal caseload of 400 civil and 80 criminal cases filed per year during this period.”64 In other words, there is a very real opportunity cost to certifying class actions of lesser merit. Potential for abuse. Finally, the potential for abuse of class actions is another very real cost.65 This is not to say that class-action lawyers are unethical.66 Rather, it recognizes that there are strong incentives to misuse the device. Given its ability to transform even small claims into attentiongrabbing bet-the-company litigation, some plaintiffs may file lawsuits of questionable merit hoping to collect a quick settlement from a risk-averse defendant. There are also strong incentives for both plaintiffs’ counsel and the defendant to use class actions as a means of quickly capping liability by providing a large payout to the plaintiffs’ lawyers while providing only an illusory benefit to the proposed class.67 A number of scholars (and even some judges) have characterized this public policy concern as an agency problem: class members are too diffuse to oversee their attorneys, and large fee payouts tempt attorneys to watch out for their own interests at the expense of the class.68 Indeed, since the court, rather than the class, determines counsel’s fees, there is a particular danger that the attorneys’ interests will differ from their clients’.69 In addition, class

63. In re Ford Motor Co. Ignition Switch Prods. Liab. Litig., 194 F.R.D. 484, 496 (D.N.J. 2000) (footnote omitted). 64. In re Ford Motor Co. Ignition Switch Prods. Liab. Litig., 194 F.R.D. at 496 n.11. 65. Piambino v. Bailey, 757 F.2d 1112, 1139 (11th Cir. 1985) (“Rule 23 class actions accomplish many salutary goals; at the same time, they can cause great mischief.”). 66. See, e.g., Myrian Gilles, Opting Out of Liability: The Forthcoming, Near-Total Demise of the Modern Class Action, 104 Mich. L. Rev. 373, 373–74 (2005) (characterizing “moralist corner” of class-action critics as offering “the somewhat less nuanced objection that plaintiffs’ lawyers are, well, immoral” and “focus[ing] on the low state of ethical practice in class actions and the sell-out lawyers who, for millions in fees, are willing to sign away the rights of tens of thousands of faceless and lawyerless class members”) (internal quotations omitted). 67. See, e.g., Thorogood, 547 F.3d at 744–45 (“The defendants in class actions are interested in minimizing the sum of the damages they pay the class and the fees they pay the class counsel, and so they are willing to trade small damages for high attorneys’ fees . . . The result of these incentives is to forge a community of interest between class counsel, who control the plaintiff ’s side of the case, and the defendants.”) (internal citations omitted). 68. See, e.g., Id. at 744 (“The class members are interested in relief for the class but the lawyers are interested in their fees, and the class members’ stakes in the litigation are too small to motivate them to supervise the lawyers in an effort to make sure that the lawyers will act in their best interests.”). 69. Culver v. City of Milwaukee, 277 F.3d 908, 910 (7th Cir. 2002) (“The lawyer for the class is not hired by the members of the class and his fee will be determined by the court rather than by

18 Chapter 1 What Class Actions are and Why they Exist

members are often so dispersed that they do not know their representative plaintiff, whom they are trusting to guard their interests.70 If the named plaintiff has been recruited by plaintiffs’ attorneys, and the recovery is particularly small, she may have greater loyalty to counsel than to the class.71 Given these risks, class actions are carefully regulated under the Federal Rules of Civil Procedure. Specifically, Rule 23 governs the inquiry the court must conduct before certifying a class, and the showings the plaintiff must make to meet that inquiry. The terms of the court’s inquiry will influence every debate in a class-action lawsuit, from the defendant’s response to the complaint through the jury instructions and verdict form at the trial. Therefore, in the next chapter, we examine the requirements of Rule 23.

contract with paying clients. The cases have remarked the danger that the lawyer will sell out the class in exchange for the defendant’s tacit agreement not to challenge the lawyer’s fee request.”) (Posner, J.). 70. Id. at 910 (“The class action is an awkward device, requiring careful judicial supervision, because the fate of the class members is to a considerable extent in the hands of a single plaintiff (or handful of plaintiffs, when, as is not the case here, there is more than one class representative) whom the other members of the class may not know and who may not be able or willing to be an adequate fiduciary of their interests.”). 71. Id. (“Often the class representative has a merely nominal stake . . . and the real plaintiff in interest is then the lawyer for the class, who may have interests that diverge from those of the class members.”).

CHAP TER

2 Class Certification Requirements

§ 2.1 Numerosity

21

§ 2.1.1 Feasibility of Joinder

21

§ 2.1.2 Ascertainability

23

§ 2.2 Commonality

25

§ 2.3 Typicality

27

§ 2.4 Adequacy of Representation

30

§ 2.5 Rule 23(b)(1) Classes

33

§ 2.5.1 Rule 23(b)(1)(a) “Incompatible Result” Classes

33

§ 2.5.2 Rule 23(b)(1)(b) “Limited Fund” Classes

35

§ 2.6 Rule 23(b)(2) Injunction Classes § 2.6.1 Hybrid Classes § 2.7 Rule 23(b)(3) Damages Classes

35 38 38

§ 2.7.1 Predominance of Common Issues

39

§ 2.7.2 Superiority

45

§ 2.8 Class Counsel

50

20

Chapter 2 Class Certification Requirements

Federal Rule of Civil Procedure 23 is the centerpiece of class-action litigation. It is the decision rule that sets class actions apart from individual litigation. And, as this book argues, the debate over whether a class action meets Rule 23’s requirements shapes everything else in the litigation from the construction of the complaint through the final disposition, appeals, and even subsequent litigation over the res judicata effect of a class action. Therefore, we offer this summary of the requirements of Rule 23, and the issues the rule raises in litigation. Any discussion of class certification requirements runs the risk of appearing either “pro-plaintiff” or “pro-defense.” That is why there is such a controversy over which treatises to use in briefing Rule 23—some practitioners view certain treatises as advancing either a “watered down” interpretation of Rule 23’s requirements that favors plaintiffs, or an “overly demanding” interpretation that favors defendants. We intend with the discussion below to offer a functional overview—nothing more—of these requirements. There are thousands of permutations of how these issues might play out in the course of litigation, and covering every last one of them would make this book too large to be useful. (That said, in Chapter 5 we will address the most common ways each side argues these requirements.) State rules governing a class action can differ from the federal Rule 23 in a number of ways.1 However, many states’ class-action rules are modeled after Rule 23, and many other states consider federal discussions of Rule 23 persuasive, if not controlling, authority.2 All class actions must meet the four requirements of Rule 23(a): (1) the class is so numerous that joinder of all members is impracticable, (2) there are questions of law or fact common to the class, (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class; and (4) the representative parties will fairly and adequately protect the interests of the class.3

In addition, each class action must satisfy the requirements of either Rule 23(b)(1), 23(b)(2), or 23(b)(3). Rule 23(b) requires: A class action may be maintained if Rule 23(a) is satisfied and if: (1) prosecuting separate actions by or against individual class members would create a risk of: (A) inconsistent or varying adjudications with respect to individual class members that would establish incompatible standards of conduct for the party opposing the class; or

1. For example, Virginia does not have any rule governing class actions, so class actions are not permitted in Virginia state court. 2. See, e.g., Banker v. Circuit City Stores, Inc., 7 So. 3d 992, 997 n.1 (Ala. 2005). 3. Fed. R. Civ. P. 23(a).

Numerosity (B) adjudications with respect to individual class members that, as a practical matter, would be dispositive of the interests of the other members not parties to the individual adjudications or would substantially impair or impede their ability to protect their interests; (2) the party opposing the class has acted or refused to act on grounds that apply generally to the class, so that final injunctive relief or corresponding declaratory relief is appropriate respecting the class as a whole; or (3) the court finds that the questions of law or fact common to class members predominate over any questions affecting only individual members, and that a class action is superior to other available methods for fairly and efficiently adjudicating the controversy. The matters pertinent to these findings include: (A) the class members’ interests in individually controlling the prosecution or defense of separate actions; (B) the extent and nature of any litigation concerning the controversy already begun by or against class members; (C) the desirability or undesirability of concentrating the litigation of the claims in the particular forum; and (D) the likely difficulties in managing a class action.4

Finally, the court must also appoint class counsel under Rule 23(g), requiring it to make a separate inquiry into counsel’s ability to fairly and adequately represent the proposed class.5

§ 2.1 Numerosity Rule 23(a)(1) states that a court may certify a class only if it “is so numerous that joinder of all members is impracticable.”6 The question at the heart of this requirement is whether the litigation is large and complex enough to justify certifying a class instead of using one of the other aggregation methods described in Chapter 1. Despite the label, numerosity does not focus so much on the number of putative class members as it does on whether aggregating the claims of the known class members would be feasible without a class action.

§ 2.1.1 Feasibility of Joinder The plaintiff need not identify the exact number of claimants in the class.7 However, she does have to show that a sufficiently large number of people are

4. 5. 6. 7.

Fed. R. Civ. P. 23(b). Fed. R. Civ. P. 23(g). Fed. R. Civ. P. 23(a)(1). See Hinman v. M&M Rental Center, Inc., 545 F. Supp. 2d 802, 806 (N.D. Ill. 2008) (“plaintiffs are not required to allege the exact number or identity of the class members, and I may make common sense assumptions in determining numerosity”).

21

22

Chapter 2 Class Certification Requirements

in the class to meet her Rule 23 burden, and courts have denied class certification where plaintiffs have not made sufficient effort to show numerosity.8 It should be clear why smaller classes would not satisfy the numerosity requirement. If a class has only five members, then joinder is not impracticable;9 in fact, lawsuits often go forward with five or more joined plaintiffs. While there is no magic number for satisfying numerosity, most courts will allow a class with at least 40 members to proceed.10 But impracticability of joinder does not have to be based solely on numbers. Joinder may be feasible in other circumstances, even with large numbers of plaintiffs. For example, if most of the proposed class live in the same, small geographic region, then joinder may be feasible even with more than 40 plaintiffs.11 Aside from pure numbers, when analyzing numerosity lawyers should look at: • Geographic diversity. While geographic diversity is not a requirement for demonstrating numerosity, the tighter the geographic concentration of the proposed class, the more likely it is that joinder may be feasible.12 • Evidence of the number of claimants. Estimates of class size that are derived from known facts are likely to be sufficient for most courts.13 For example, a plaintiff who alleged racial discrimination by the owner of various rental properties, and who was able to show that the defendant landlord managed more than 200 properties and fielded more than 1,200 inquiries during the class period, would likely meet the numerosity requirement.14

8. See Vega v. T-Mobile USA, 564 F.3d 1256, 1267 (11th Cir. 2009) (reversing certification of statewide class partly because plaintiff “has not cited, and we cannot locate in the record, any evidence whatsoever (or even an allegation) of the number of retail sales associates T-Mobile employed during the class period in Florida who would comprise the membership of the class”). 9. Cook County College Teachers Union, Local 1600 v. Byrd, 456 F.2d 882, 885 (7th Cir. 1972) (class of nine teachers “is not too large to have made joinder impracticable”). 10. See Steven v. Abraham, 275 F.3d 220, 226–27 (3d Cir. 2001). 11. See Liberty Lincoln Mercury, Inc. v. Ford Marketing Corp., 149 F.R.D. 65, 74 (D.N.J. 1993) (“Practicability of joinder depends on a number of factors, including: the size of the class, ease of identifying members and determining addresses, ease of service on members if joined, geographical dispersion and whether proposed members of the class would be able to pursue remedies on an individual basis.”). 12. Liberty Lincoln Mercury, 149 F.R.D. at 74 (“Practicability of joinder depends on a number of factors, including: . . . geographical dispersion”). 13. Miller v. Spring Valley Properties, 202 F.R.D. 244, 247 (C.D. Ill. 2001) (“this court is entitled to make common sense assumptions in making a determination of numerosity”). 14. Miller, 202 F.R.D. at 247–48.

Numerosity

• Plaintiff ’s ability to identify class members. While a class does need to be ascertainable (see below), some courts have ruled that if the plaintiff can identify each individual class member by name, the class may not be too numerous for joinder to be practical.15

§ 2.1.2 Ascertainability “Ascertainability” means that the class is defined in such a way that it is easy to determine, through objective criteria, whether an individual is a member of the class.16 “All shareholders of Acme, Corp. as of December 31, 2010” is an ascertainable class definition because it requires only a single factual inquiry to determine who is in the class. On the other hand, a class defined as “All shareholders of Acme Corp. who bought shares because of Acme’s fraud and lost money when that fraud was revealed” requires a ruling on the merits of the plaintiff’s claim. (Was there a fraud? Did it cause this individual to buy Acme stock?) These merits-based (or “fail-safe”) classes are not ascertainable. Some courts treat “ascertainability” as a threshold inquiry.17 In fact, the leading treatise on civil procedure addresses the question before it begins its discussion of the specific requirements of Rule 23(a).18 However, doctrinally, this inquiry has evolved from discussions of numerosity, because if the class is not properly defined at the outset there is no way of telling how many people are in it. A merits-based (also known as a “fail-safe”) class is like Schrödinger’s cat:19 until the verdict, there is no way of

15. See Liberty Lincoln Mercury, 149 F.R.D. at 74 (“Practicability of joinder depends on a number of factors, including: . . . ease of identifying [class] members . . .”). 16. See Roman v. ESB, Inc., 550 F. 2d 1343, 1348 (4th Cir. 1976). 17. In re Fosamax Prods. Liab. Litig., 248 F.R.D. 389, 395 (S.D.N.Y. 2008) (“Rule 23 contains the additional, implicit requirement that an ascertainable class exists and has been properly defined.”). 18. See 7A Charles Alan Wright et al., Federal Practice and Procedure § 1760 at 142–47 (3d ed. 2005) (“Further, the class must not be defined so broadly that it encompasses individuals who have little connection with the claim being litigated; rather it must be restricted to individuals who are raising the same claims or defenses as the representative. The class definition also cannot be too amorphous.”) (internal footnotes omitted). 19. For those who went to law school to avoid studying quantum physics, here is the basic concept behind Schrödinger’s cat: You put a cat in a box with a gun that will fire if it is set off by a decaying uranium atom. The atom has a 50% chance of decaying during the time the cat is in the box. If the atom decays, the cat dies. If the atom does not decay, the cat lives. As a result, before the box is opened, physicists consider the cat to be half-alive and half-dead. There is no way of telling which state the cat is in until you open the box. See Michio Kaku, Hyperspace: A Scientific Odyssey through Parallel Universes, Time Warps, and the 10th Dimension 260–61 (1994).

23

24

Chapter 2 Class Certification Requirements

telling whether the class has 1,000 members or none at all. If the plaintiffs prove their case, then the class has 1,000 members. If they do not, then the class has none; it never existed, which means the defendant’s “victory” is hollow because nobody is bound by the defense judgment.20 At its heart, that is a numerosity problem. To see this problem at work in actual litigation, take the case of Forman v. Data Transfer Inc.21 Forman challenged a practice known as “blast-faxing,” in which a company, to advertise its products, would send out a fax to as many fax numbers as possible.22 Blast-faxing was prohibited by a federal statute, the Telecommunications Protection Act (TCPA), which imposed a $500 penalty for each unsolicited fax.23 In this case, the plaintiff sued Data Transfer, claiming that it had sent it an unsolicited fax,24 and seeking to represent a class of “all residents and businesses who have received unsolicited facsimile advertisements since January 1, 1992 from Data Transfer, Inc.”25 The plaintiff moved for class certification, and Data Transfer opposed, challenging, among other things, the class definition. The court denied certification on ascertainability grounds, explaining: Although no magic number exists as to the numerosity requirement, at a minimum, plaintiff must “define the class in a way that enables the court to determine whether a particular individual is a class member.” However, plaintiff faces a unique problem because the proposed class definition flies directly in the face of a basic tenet of class certification: a court may not inquire into the merits of the case at the class certification stage. . . . Here, defining the purported class as “all residents and businesses who have received unsolicited facsimile advertisements” requires addressing the central issue of liability to be decided in the case. Determining a membership in the class would essentially require a minihearing on the merits of each case. The proposed class definition is untenable.26

In other words, defining the class in this way does not eliminate the need for fact-intensive individual inquiries that could preclude efficient aggregation of

20. Adashunas v. Negley, 626 F.2d 600, 604 (7th Cir. 1980) (“The new class definition, if allowed, would result in a ‘fail-safe’ class, a class which would be bound only by a judgment favorable to plaintiffs but not by an adverse judgment.”). 21. 164 F.R.D. 400 (E.D. Pa. 1995). 22. Forman v. Data Transfer, Inc., 164 F.R.D. 400, 402 (E.D. Pa. 1995). 23. 47 U.S.C. § 227(a)(4), (b)(3); see also Forman, 164 F.R.D. at 402. 24. Forman, 164 F.R.D. at 402. 25. Id. at 402. 26. Id. at 403 (internal citations omitted, emphasis in original); but see Hinman v. M&M Rental Center, Inc., 545 F. Supp. 2d 802, 808 (N.D. Ill. 2008) (certifying class of “[a]ll persons who . . . were sent, without permission, telephone facsimile messages of material advertising the commercial availability of any property, goods, or services by or on behalf of defendant.”).

Commonality 25

claims in a class action; it just shifts those merits inquiries from the trial to the pretrial class notice. As a result, ascertainability requires lawyers to pay attention to several questions: • Is the class defined using objective criteria? “All people who received a fax from defendant between the dates of January 1 and January 15, 2010,” is objective. “All people who received an unsolicited fax from defendant” is not. • Does the definition refer to causation. “All people who bought stock in Acme between January 1 and January 15, 2011,” does not refer to causation. “All people who lost money on Acme stock because of its fraud” does. • Does the class definition assume any of the ultimate facts that plaintiffs will have to prove? “All people who bought a 2005 Mazda Miata with a defective crankshaft” assumes an ultimate fact (the crankshaft is defective). “All people who bought a 2005 Mazda Miata” does not.

§ 2.2 Commonality The second requirement of Rule 23(a) is that the litigation present disputed “questions of law or fact common to the class.”27 In other words, the lawsuit must call upon the court or jury to decide a factual or legal issue whose outcome logically must be the same for each class member. This requirement probes the cohesiveness of the class, and the efficiency of using Rule 23. If the class has common issues, then it may be efficient to bind the class to the outcome of the named plaintiff’s claim. For example, in a proposed class action against a state welfare agency alleging that the agency neglected the children in its care, the common questions might include whether the agency had complied with its legal mandates,28 or whether injunctive relief would be appropriate for the class members.29 Commonality does not require that every question of law or fact in the lawsuit be common to the class.30 In fact, a number of courts have held that

27. Fed. R. Civ. P. 23(a)(2). 28. Baby Neal ex rel. Kanter v. Casey, 43 F.3d 48, 56 (3d Cir. 1994).; see also Dukes v. Wal-Mart Stores, Inc., __ F.3d __, No. 04-16688 (slip op.) at 6186 (9th Cir. Apr. 26, 2010) (en banc) (common issue is whether Wal-Mart’s policy of giving store managers discretion regarding pay and promotion decisions has discriminatory effects against female employees). 29. Baby Neal, 43 F.3d at 57. 30. See Hanlon v. Chrysler Corporation, 150 F. 3d 1011, 1019 (9th Cir. 1998) (“Rule 23(a)(2) has been construed permissively. All questions of fact and law need not be common to satisfy the rule.”); see also 7A Wright, et al., Federal Practice and Procedure § 1763 at 215–17

26

Chapter 2 Class Certification Requirements

commonality exists if there is any issue of law or fact common to the class,31 or have simply presumed that common issues exist.32 While it is not hard to identify at least one relevant common issue lurking in virtually any class action, this does not mean that courts will find commonality in every circumstance. In the context of Rule 23(a)(2), a question is not common if its resolution “turns on a consideration of the individual circumstances of each class member.”33 So the question of whether a defendant engaged in fraudulent conduct toward the class may not be common if it turns out that the defendant made different representations to different class members. In fact, some courts have gone so far as to announce that if a nationwide class will be tried under the varying laws of different jurisdictions, there cannot be any common legal issues.34 As a result, neither the plaintiff nor the defendant should simply assume that the commonality requirement can be met. While commonality is a comparatively simple inquiry, the defendant may challenge it successfully if the issues portrayed as common to the class do not apply in identical fashion to all class members. For example, taking the state welfare agency lawsuit above, if the class were expanded from the children under the care of a single state welfare agency to children under the care of several state welfare agencies, the questions of whether each agency met its mandate, or whether injunctive relief would be appropriate for all class members may no longer be common issues. Different agencies may have operated under different mandates and employed different policies, and the injunctive relief appropriate for children subject to one agency might do the children subject to a different agency no good. (For a fuller treatment of how both plaintiffs and defendants may approach commonality when briefing class certification, see Chapter 5.) So what should litigants look for when analyzing commonality?

31.

32.

33. 34.

(“It is important to note that this provision does not require that all of the questions of law and fact raised by the dispute be common; nor does it establish any quantitative or qualitative test of commonality.”). See Dukes v. Wal-Mart, Inc., 474 F. 3d 1214, 1225 (8th Cir. 2007) (“The commonality test is qualitative rather than quantitative—one significant issue common to the class may be sufficient to warrant certification.”); Baby Neal, 43 F.3d at 56 (“The commonality requirement will be satisfied if the named plaintiffs share at least one question of fact or law with the grievances of the prospective class.”). See 7A Wright, et al., Federal Practice and Procedure § 1763 at 218 (“In other [cases], the court simply has stated that ‘clearly’ or ‘certainly’ common questions exist, without indicating the basis for that conclusion or shedding any light on the way Rule 23(a)(2) might be applied in other cases.”). See Thorn v. Jefferson-Pilot Life Ins. Co., 445 F.3d 311, 319 (4th Cir. 2006) (quoting 7A Wright et al., Federal Practice and Procedure § 1763). See In re Bridgestone/Firestone Tires Prods. Liab. Litig., 288 F.3d 1012, 1015 (7th Cir. 2002) (“No class action is proper unless all litigants are governed by the same legal rules. Otherwise the class cannot satisfy the commonality and superiority requirements of Fed. R. Civ. P. 23(a), (b)(3).”).

Typicality

• Are there any common legal rules uniting all of the class members? Are the class members all asserting the same claim? If so, are they doing so under the same substantive state law? • Are there any common factual issues that apply to all of the class members? For the most part, this is a question of properly defining the issues. The question: “does the defendant owe the class members damages,” may appear common to the entire class, but it is defined so broadly as to be meaningless. On the other hand, the question of whether each class member paid a defendant the same fee and then used the same service could be a common question.35

§ 2.3 Typicality Rule 23(a)(3) requires that “the claims or defenses of the representative parties are typical of the claims or defenses of the class.” The typicality requirement ensures that the named plaintiff is equipped to bring a collective, rather than an individual, lawsuit.36 Typicality “serve[s] as a guidepost for determining whether maintenance of class action is economical and whether [a] named plaintiff’s claim and class claims are so interrelated that interests of class members will be fairly and adequately protected in their absence.”37 The primary question the typicality requirement asks is: By proving her individual case, could the named plaintiff prove everyone else’s claims at the same time? Courts have formulated this question in a number of ways,38 but the

35. See Robinson v. Fountainhead Title Group Corp., 252 F.R.D. 275, 287 (D. Md. 2008) (“The putative class shares common issues of fact in that each paid fees to Assurance and each closed their loan using Fountainhead’s services. The legitimacy vel non of Assurance as an entity also is a question of law common to the class.”). 36. Deiter v. Microsoft Corp., 436 F.3d 461, 466–67 (4th Cir. 2006) (“The representative party’s interest in prosecuting his own case must simultaneously tend to advance the interests of the absent class members. For that essential reason, plaintiff ’s claim cannot be so different from the claims of absent class members that their claims will not be advanced by plaintiff ’s proof of his own individual claim.”); In re Am. Medical Sys., 75 F.3d 1069, 1082 (6th Cir. 1996) (“A necessary consequence of the typicality requirement is that the representative’s interests will be aligned with those of the represented group, and in pursuing his own claims, the named plaintiff will also advance the interests of the class members.”). 37. Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 626 n.20 (1997). 38. See In re Am. Med. Sys., 75 F.3d 1069, 1082 (6th Cir. 1996) (“A necessary consequence of the typicality requirement is that the representative’s interests will be aligned with those of the represented group, and in pursuing his own claims, the named plaintiff will also advance the interests of the class members.”); In re Welding Fumes Prods. Liability Litig., 245 F.R.D. 279, 304 (N.D. Ohio 2007) (“Having pored over these cases seeking a unifying theme, the Court has noticed two factors worthy of mention. The first is that, when examining typicality, Courts tend to have one of two perspectives. Courts focus either on: (a) the defendant’s

27

28

Chapter 2 Class Certification Requirements

most common is: “as goes the claim of the named plaintiff, so go the claims of the class.”39 The typicality inquiry provides a useful (if underused) framing device for the courts. If proof of the named plaintiff’s claims would not necessarily prove all of the absent class members’ claims, then they are not typical of those asserted by the proposed class.40 Typicality does not require that that the named plaintiff’s claims be completely identical to those of every class member.41 It is enough if both the named plaintiff’s and class members’ claims arise from similar conduct and implicate the same legal theories.42 As a result, courts have noted that the typicality inquiry “tends to merge” with the adequacy and predominance inquiries.43 However, while the predominance inquiry searches for those parts of the class claims that are similar to one another, the typicality inquiry asks how great the differences are.44 “Thus, it follows that the appropriate analysis of typicality must involve a comparison of the plaintiffs’ claims or defenses with those of the absent class members.”45 So what should plaintiffs and defendants look for as typicality issues? • Unique defenses. Because the outcome of the class’s claims relies on the outcome of the named plaintiff ’s individual claim, the court must be careful that the named plaintiff ’s claim would not undermine the class claim. Therefore, if the class would be bound by a defense that is unique to the

39.

40. 41.

42. 43. 44.

45.

conduct, and the degree to which it affected each plaintiff equally, or (b) the effects on the plaintiff class of the defendants’ conduct, and the degree to which those effects are similar from plaintiff to plaintiff. Put more simply, the first focus is on what the defendants did; the second focus is on how the plaintiffs were affected by what defendants did.”) (emphasis in original). Sprague v. Gen. Motors Corp., 133 F.3d 388, 399 (6th Cir. 1998) (“The premise of the typicality requirement is simply stated: as goes the claim of the named plaintiff, so go the claims of the class.”); see also Deiter, 436 F.3d at 466 (same). Sprague, 133 F.3d at 399 (finding no typicality because “[i]n pursuing their own claims, the named plaintiffs could not advance the interests of the entire early retiree class.”). Deiter, 436 F.3d at 467 (“That is not to say that typicality requires that the plaintiff ’s claim and the claims of class members be perfectly identical or perfectly aligned.”); Daffin v. Ford Motor Co., 458 F.3d 549, 553 (6th Cir. 2006) (“The mere fact that Daffin’s throttle body assembly stuck, while other class members’ throttles have not stuck, does not render Daffin atypical.”). James v. City of Dallas, Texas, 254 F.3d 551, 571 (5th Cir. 2001). Amchem Prods., 521 U.S. at 626 n.20. Deiter, 436 F.3d at 467 (“But when the variation in claims strikes at the heart of the respective causes of actions, we have readily denied class certification.”); In re Welding Fume, 245 F.R.D. at 303 (“commonality focuses on similarities, while typicality focuses on differences.”) (citing Dukes, 474 F.3d at 1232 n.10). Deiter, 436 F.3d at 467.

Typicality

named plaintiff, the plaintiff is not typical of the class.46 Even only an “arguable defense” may be enough to stand in the way of certification.47 Unique defenses may include: an assertion that the class representative was treated differently from other class members,48 the named plaintiff engaged in the same conduct as the defendant,49 or the named plaintiff engaged in conduct that undermined the cause of action she now asserts.50 However, merely speculative defenses may not be enough to defeat certification.51 • Wide variations in factual situations. This inquiry is similar to the predominance inquiry under Rule 23(b)(3).52 When there are too many factual variations in the class claims, the court may hold that the named plaintiff ’s proof would not prove the claims of other class members operating under different sets of facts, making her atypical.53

46. Beck v. Maximus, 457 F.3d 291, 297 (3d Cir. 2006) (“Other courts of appeal emphasize, as do we, the challenge presented by a defense unique to a class representative—the representative’s interests might not be aligned with those of the class, and the representative might devote time and effort to the defense of the issue at the expense of issues that are common and controlling for the class.”). 47. See Ross v. Bank South N.A., 837 F.2d 980, 990–91 (11th Cir. 1988); but see Feder v. Elec. Data Sys., 429 F.3d 125, 136–37 (5th Cir. 2005) (presence of “arguable” unique defenses not sufficient grounds to overturn district court’s ruling certifying class). 48. See Joseph L. v. Conn. Dep’t of Children and Families, 161 F. Appx. 72, 75 (2d Cir. 2005) (in class action seeking right to hearing to contest conditions of treatment, fact that named plaintiff had been offered hearing rendered him atypical of class); Gaston v. Exelon Corp., 247 F.R.D. 75, 84 (E.D. Pa. 2007) (named plaintiffs in employment-discrimination class action were not typical where they had been disciplined for legitimate); Porter v. Nationscredit Consumer Disc. Co., 229 F.R.D. 497, 499 (E.D. Pa. 2005) (named plaintiffs in TILA class action were not typical where they had received disclosures from defendant). 49. See Boca Raton Cmty. Hosp., Inc. v. Tenet Healthcare Corp., 238 F.R.D. 679, 694 (S.D. Fla. 2006) (refusing to certify class because named plaintiff ’s conduct was identical to defendant’s, rendering it vulnerable to defense of unclean hands). 50. See Spann v. AOL Time Warner, Inc., 219 F.R.D. 307, 318 (S.D.N.Y. 2003) (no typicality in ERISA class where named plaintiffs did not exhaust administrative remedies before bringing lawsuit); Rocco v. Nam Tai Elecs., Inc., 245 F.R.D. 131, 136 (S.D.N.Y. 2007) (refusing to certify securities-fraud class action where named plaintiff bought more of defendant’s securities after alleged fraud was revealed). 51. See Beck, 457 F.3d at 300 (“To defeat class certification, a defendant must show some degree of likelihood a unique defense will play a significant role at trial. If a court determines an asserted unique defense has no merit, the defense will not preclude class certification.”). 52. This is an example of how these inquiries tend to merge. See Amchem Prods., 521 U.S. at 626 n.20. For more on predominance, see § 2.7.1. 53. See Broussard v. Meineke Discount Muffler Shops, Inc., 155 F.3d 331, 340 (4th Cir. 1998) (“the contract claims of plaintiffs are not typical of claims of franchisees who entered into [franchise agreements] containing different language”); In re Vioxx Products Liability Litig., 239 F.R.D. 450, 460 (E.D. La. 2006) (variations in factual allegations and governing legal rules precluded typicality); Blain v. Smithkline Beecham Corp., 240 F.R.D. 179, 187–89 (E.D. Pa. 2007) (no typicality where class members had different medical histories and took different

29

30

Chapter 2 Class Certification Requirements

Determining typicality is a balancing act. Not every variation between the named plaintiff’s claims and the claims of the class will render a named plaintiff atypical, but at the same time, the mere fact that a named plaintiff is willing to sue the defendant will not make her typical of the proposed class.

§ 2.4 Adequacy of Representation Rule 23(a)(4) requires the named plaintiff to show that “the representative parties will fairly and adequately protect the interests of the class.”54 While the typicality requirement asks whether the named plaintiff could represent the class (because she is enough like the rest of the class to make a class lawsuit workable), the adequacy requirement asks whether the named plaintiff should do so. This is not a rhetorical distinction. Among other differences, the adequacy requirement protects all parties’ due process rights. Because the named plaintiff is litigating on behalf of class members who are not present in the courtroom (and who may not even be aware of their claims), due process requires that the she possess undivided loyalties to those absent class members.55 Otherwise, class members may find their valid claims barred by res judicata, or settled for less than their full value by a plaintiff with a weak claim or a clear conflict of interest.56 Courts tend to make two inquiries into the adequacy of the class representative.57 The first asks whether any conflict of interest exists between the named plaintiff and the class.58 The second asks whether the class representative is competent to carry out her fiduciary duties to the proposed class by effectively overseeing her counsel and testifying on behalf of the class.59

54. 55. 56. 57. 58.

59.

doses of Paxil); Doe v. Unified School Dist. 259, 240 F.R.D. 673, 680 (D. Kan. 2007) (no typicality where “harassment allegations took place in different settings, with different students and involving other relationships”); O’Neill v. The Home Depot U.S.A., Inc., 243 F.R.D. 469, 478 (S.D. Fla. 2006) (“The differences identified in the proposed class members’ individual experiences with the purchase of Home Depot’s damage waiver precludes a finding of commonality and typicality.”). Fed. R. Civ. P. 23(a)(4). Broussard, 155 F.3d at 338. London v. Wal-mart Stores, Inc., 340 F.3d 1246, 1253 (11th Cir. 2003). See Sweet v. Pfizer, 232 F.R.D. 360, 370 (C.D. Cal. 2005). Amchem Prods., 521 U.S. at 625 (“The adequacy inquiry under Rule 23(a)(4) serves to uncover conflicts of interest between named parties and the class they seek to represent.”); Broussard, 155 F.3d at 337–39 (no adequacy where conflict of interest among class members). See Berger v. Compaq Computer Corp., 257 F.3d 475, 482–83 (5th Cir. 2001) (adequacy “require[s] the class representatives to possess a sufficient level of knowledge and

Adequacy of Representation

Both of these inquiries stem from the same concern: Because the named plaintiff is representing the legal interests of people she does not know and has likely never met, the court must consider her to be a fiduciary to the class.60 If the named plaintiff is going to serve as a fiduciary, the court must ensure that she has no competing interests that would undermine her ability to represent the interests of the class, and that she has the personal characteristics that class members would look for in a representative. The inquiry into conflicts between the named plaintiff and the class does not focus on hypotheticals;61 instead, it focuses on conflicts involving issues fundamental to the class and specific to the litigation.62 There are several kinds of conflicts that might concern the court. The first is that the conduct the plaintiff challenges may be harmful to some class members, but helpful to others.63 The second kind involves conduct that allegedly harmed the entire class, but where proving the claims of one part of the class may undermine the claims of another part.64 The third involves unique defenses that are available against the named plaintiff but not the rest of the class. The “unique

60.

61.

62.

63.

64.

understanding to be capable of ‘controlling’ or ‘prosecuting’ the litigation.”); Kirkpatrick v. JC Bradford & Co., 827 F.2d 718, 727 (11th Cir. 1987) (class certification properly denied where “where the class representatives had so little knowledge of and involvement in the class action that they would be unable or unwilling to protect the interests of the class against the possibly competing interests of the attorneys”). See Culver v. City of Milwaukee, 277 F.3d 908, 910 (7th Cir. 2002) (“the fate of the class members is to a considerable extent in the hands of a single plaintiff (or handful of plaintiffs, when, as is not the case here, there is more than one class representative) whom the other members of the class may not know and who may not be able or willing to be an adequate fiduciary of their interests”). See In re Neurontin Mktg. and Sale Practices Litig., 244 F.R.D. 89, 108 (D. Mass. 2007) (“The conflict that will prevent a plaintiff from meeting the Rule 23(a)(4) prerequisite must be fundamental, and speculative conflict should be disregarded at the class certification stage.”) (internal quotation omitted). That said, a court may imply a conflict in the absence of hard evidence if it believes there is a realistic possibility of conflict. Colomar v. Mercy Hosp., Inc., 242 F.R.D. 671, 679 (S.D. Fla. 2007). See Pickett v. Iowa Beef Processors, 209 F.3d 1276, 1280 (11th Cir. 2000) (“It is axiomatic that a putative representative cannot adequately protect the class if his interests are antagonistic to or conflict with the objectives of those he purports to represent.”). See Pickett, 209 F.3d at 1280–81 (while named plaintiffs lost money on forward contracts, other class members benefitted, rendering named plaintiffs inadequate representatives); see also Samuel Issacharoff & Richard A. Nagareda, Class Settlements Under Attack, 156 U. Pa. L. Rev. 1649, 1678 (2008) (“[N]o representative, no matter how capable or faithful, can adequately represent a class comprised of persons whose interests in the litigation diverge. No agent, in other words, can adequately serve multiple principals when the interests of the principals themselves conflict.”). See Broussard, 155 F.3d at 338 (“The first group, former franchisees, have an interest only in maximizing any damages Meineke would have to pay. But because of the EDP releases, EDP franchisees are unable to benefit from a damage award. In fact, one group of EDP franchisees sought to intervene below and appear as amici on appeal, claiming that their ongoing business relationship with Meineke and their interests in the long-term financial health of the

31

32

Chapter 2 Class Certification Requirements

defense” inquiry is similar to that for typicality.65 But where the typicality inquiry focuses on whether proof of the unique defense will advance the class claims,66 here the question is whether the unique defense will prevent the named plaintiff from fulfilling her duty to represent the interests of the class.67 In addition to looking at whether conflicts exist between the named plaintiff and the proposed class, Rule 23(a)(4) also examines whether the named plaintiff has the ability to oversee class counsel effectively. Factors to consider in this inquiry are: • Does the named plaintiff know enough about the case to oversee class counsel?68 This does not mean that the named plaintiff must be an expert in the field in which she is suing.69 However, she cannot be completely ignorant of the subject matter of the case.70 • Does the named plaintiff have enough independence to oversee class counsel? The focus of this inquiry is whether the named plaintiff has some personal or professional relationship with class counsel that would compromise her loyalty to the class.71 • Does the named plaintiff have the personal qualities to serve as a class representative? The defendant is entitled to explore the personal traits that might bear directly on the named plaintiff ’s ability to represent

65. 66. 67.

68.

69. 70.

71.

company were imperiled by plaintiffs’ efforts to wring a large damage award out of defendants.”). Beck, 457 F.3d at 296 (“Because of the similarity of these two inquiries, certain questions—like whether a unique defense should defeat class certification—are relevant under both.”). See § 2.3, above. See Doll v. Chicago Title Ins. Co., 246 F.R.D. 683, 687 (D. Kan. 2007) (“unique defenses can make a representative inadequate because they are likely to usurp a significant portion of the litigant’s time and energy”). See Kirkpatrick, 827 F.2d at 727 (a “potential class is entitled to more than blind reliance upon even competent counsel by interested and inexperienced representatives”); Hillis v. Equifax Consumer Servs., Inc., 237 F.R.D. 491, 502 (N.D. Ga. 2006) (no adequacy where plaintiff was “unfamiliar with many of the specific allegations that form the basis for the claims”). Hicks v. Client Servs., Inc., 2008 WL 5479111, *9 (S.D. Fla. 2008) (named plaintiff ’s lay understanding of case was enough to make her an adequate class representative). See In re Enron Secs. & ERISA Litig., 529 F. Supp. 2d 644, 733 (S.D. Tex. 2006) (finding several proposed named plaintiffs inadequate class representatives where they “lacked knowledge of the mediation in the case. They did not know why certain parties were dismissed and others added. They did not know the names of other putative class representatives.”). London, 340 F.3d at 1255 (“Long-standing personal friendship” and prior business relationship between plaintiff and counsel rendered plaintiff inadequate class representative); Susman v. Lincoln Am. Corp., 561 F.2d 86, 94–95 (7th Cir. 1977) (counsel’s brother and colleague were inadequate class representatives).

Rule 23(b)(1) Classes

the class at trial.72 Those traits include, but are not limited to, the named plaintiff ’s credibility and her personal integrity.73

§ 2.5 Rule 23(b)(1) Classes Rule 23(b)(1) states that a class action may be maintained if: (1) prosecuting separate actions by or against individual class members would create a risk of: (A) inconsistent or varying adjudications with respect to individual class members that would establish incompatible standards of conduct for the party opposing the class; or (B) adjudications with respect to individual class members that, as a practical matter, would be dispositive of the interests of the other members not parties to the individual adjudications or would substantially impair or impede their ability to protect their interests.74

Rule 23(b)(1) addresses cases where multiple suits would create a risk of inconsistent rulings or establish incompatible standards of conduct and where individual actions would—as a practical matter—decide the interests of absent class members.75 A notable feature of Rule 23(b)(1) class actions is that class members are not entitled to notice of the pendency of the class action, nor allowed to opt out of the class. Practically, as discussed below, a plaintiff will rarely invoke either prong of the rule.76

§ 2.5.1 Rule 23(b)(1)(a) “Incompatible Result” Classes A Rule 23(b)(1)(A) class may be maintained if “prosecuting separate actions by or against individual class members would create a risk of inconsistent

72. In re WorldCom Inc., 358 B.R. 585, 604 (S.D.N.Y. 2006) (“To determine the adequacy of representation by class representatives, courts generally consider only those challenges to the personal characteristics of the class representatives that arise out of or touch on the prosecution of the class action litigation”) (internal quotations omitted). 73. Davidson v. Citizens Gas & Coke Util., 238 F.R.D. 225, 229 (S.D. Ind. 2006) (“personal characteristics, such as the credibility and integrity of a putative class representative, have a direct bearing on their ability to adequately represent absent members of the class”). 74. Fed. R. Civ. P. 23(b)(1). 75. Petrolito v. Arrow Fin. Servs., LLC, 221 F.R.D. 303, 312–13 (D. Conn. 2004). 76. Samuel Issacharoff, Governance and Legitimacy in the Law of Class Actions, 1999 Sup. Ct. Rev. 337, 349 (“Because of the requirement that there in fact be a limited fund, Rule 23(b)(1) was rarely invoked until the rise of the settlement class action in the 1990s.”).

33

34

Chapter 2 Class Certification Requirements

or varying adjudications with respect to individual class members that would establish incompatible standards of conduct for the party opposing the class.”77 The language of Rule 23(b)(1)(A) is arguably broad enough to justify certification of any proposed class action, but courts have applied it in a more limited fashion.78 Rule 23(b)(1)(A) classes are for the benefit of parties opposing the class—to prevent them from being required by different courts to act inconsistently toward identically situated adversaries.79 The classic example of a Rule 23(b)(1)(A) class is an owner of water rights in a river who is sued by downriver owners to establish the nature of their respective rights. A court may certify this case under Rule 23(b)(1)(A) because, if several downriver plaintiffs sued the upriver defendant separately, different courts might issue incompatible judgments against the defendant—providing one downriver owner with different rights than another. In that case, the defendant could not comply with all courts’ orders because complying with one court order might require violating another.80 Rule 23(b)(1)(A) is generally reserved for cases seeking injunctive relief. Courts are more reluctant to certify classes seeking compensatory damages under Rule 23(b)(1)(A); courts are queasy about litigating monetary damage claims on a classwide basis without affording absent class members notice and opt-out rights. Specifically, courts have held that Rule 23(b)(1)(A) does not cover class situations where the “inconsistent result” is that some members might recover damages while others do not, reasoning that “inconsistency” is not the same as “incompatibility”—while it may be “inconsistent” to require the defendant to pay one plaintiff and not another plaintiff identically situated, this result does not place the defendant in the untenable position of having to comply with one court’s injunctive order in a manner that violates another court’s injunctive order.81

77. Fed. R. Civ. P. Rule 23(b)(1)(A). 78. Petrolito, 221 F.R.D. at 313. 79. Amchem Prods., 521 U.S. at 614; United Brotherhood of Carpenters & Joiners, Local 899 v. Phoenix Associates, 152 F.R.D. 518, 523 (S.D. W. Va. 1994) (certifying class under Rule 23(b) (1)(A) because allegations of conduct violating union agreement could produce inconsistent outcomes in individual cases); Boggs v. Divested Atomic Corp., 141 F.R.D. 58, 67 (S.D. Ohio 1991) (certifying class under Rule 23(b)(1)(A) because it was “unlikely that two different courts would tailor a remedial order in the same fashion, and . . . therefore entirely conceivable that different remedial orders would contain incompatible provisions”). 80. Amchem Prods., 521 U.S. at 614. 81. Id.; see also In re Dennis Greenman Sec. Litig., 829 F.2d 1539, 1545 (11th Cir. 1987) (“Rule 23(b)(1) does not apply to actions seeking compensatory damages”); In re Ford Motor Co. Ignition Switch Prod. Liab. Litig., 174 F.R.D. 332, 354 (D.N.J. 1997) (“This case is substantially about defendants’ potential obligation to pay monetary damages or repair certain vehicles. Defendants would be not required to adopt inconsistent conduct by paying damages to, or repairing the vehicles belonging to, only some of the putative plaintiffs in this action.”).

Rule 23(b)(2) Injunction Classes 35

§ 2.5.2 Rule 23(b)(1)(b) “Limited Fund” Classes Rule 23(b)(1)(B) governs cases in which there is only a limited fund from which to pay damages to class members.82 A Rule 23(b)(1)(B) class may be maintained if prosecuting separate actions by or against individual class members would create a risk of adjudications with respect to individual class members that, as a practical matter, would be dispositive of the interests of the other members not parties to the individual adjudications or would substantially impair or impede their ability to protect their interests.83

Theoretically, a court will certify a case under Rule 23(b)(1)(B) when either party shows that the defendant lacks sufficient funds to satisfy the identical claims of all potential class members, making it unfair to later claimants that the first few litigants to reach a favorable final judgment will exhaust the limited fund.84 Practically, however, if there is no indication that the defendant either has severely limited assets or is close to insolvency, courts will not certify a class under this subsection of the rule.85

§ 2.6 Rule 23(b)(2) Injunction Classes Rule 23(b)(2) governs the certification of classes for injunctive relief to the class members. It states that a class action may be certified if: the party opposing the class has acted or refused to act on grounds that apply generally to the class, so that final injunctive relief or corresponding declaratory relief is appropriate respecting the class as a whole.86

Rule 23(b)(2) was “designed specifically for civil rights cases seeking broad declaratory or injunctive relief for a numerous and often unascertainable or

82. Amchem Prods., 521 U.S. at 614 (“Rule 23(b)(1)(B) includes, for example, ‘limited fund’ cases, instances in which numerous persons make claims against a fund insufficient to satisfy all claims.”). 83. Fed. R. Civ. P. 23(b)(1)(B). 84. Larionoff v. United States, 533 F. 2d 1167, 1170 (D.C. Cir. 1976) (noting district court certified class of enlisted Navy personnel seeking payment of variable reenlistment bonuses under Rule 23(b)(1)(B)). 85. See Ortiz v. Fibreboard Corp., 527 US 815, 864 (1999) (the “applicability of Rule 23(b)(1)(B) to a fund and plan purporting to liquidate actual and potential tort claims is subject to question, and its purported application in this case was in any event improper”). 86. Fed. R. Civ. P. 23(b)(2).

36

Chapter 2 Class Certification Requirements

amorphous class of persons.”87 Rule 23(b)(2) classes are also commonly used to obtain injunctive remedies in antitrust cases (e.g., to enjoin price-fixing) and employment discrimination cases (e.g., to enjoin discriminatory practices). Class members are not entitled to notice of the pendency of the litigation and may not opt out of a Rule 23(b)(2) class.88 As a result, a plaintiff seeking certification under Rule 23(b)(2) must seek injunctive relief,89 and most courts have also held that Rule 23(b)(2) certification is only available when the injunction is the primary form of relief sought.90 Monetary relief may be appropriate when it is incidental to the injunctive relief sought; meaning that “the computation of damages is mechanical, ‘without the need for individual calculation,’ so that a separate damages suit by individual class members would be a waste of resources.”91 (Other courts have framed the inquiry differently, asking whether, if monetary relief were not available, the plaintiff would still have brought the lawsuit.)92 Courts focus on the predominance of injunctive relief because awarding monetary damages frequently requires analysis of the particular circumstances of individual class members under Rule 23(b)(3).93 And, in cases like that, due process requires that absent class members receive both notice and an opportunity

87. Barnes v. Am. Tobacco Co., 161 F.3d 127, 142 (3d Cir. 1998). 88. In re Allstate Ins. Co., 400 F.3d 505, 506 (7th Cir. 2005) (Posner, J.) (“A Rule 23(b)(2) class action does not require giving class members notice of the suit and a chance to opt out of it and bring their own, individual suits; a Rule 23(b)(3) class action does. The thinking behind this distinction is that declaratory or injunctive relief will usually have the same effect on all the members of the class as individual suits would.”). 89. Christ v. Beneficial Corp., 547 F.3d 1292, 1298 (11th Cir. 2008) (refusing to certify class under Rule 23(b)(2) where underlying statute did not allow for injunctive relief). 90. Clay v. Am. Tobacco Co., 188 F.R.D. 483, 495 (S.D. Ill. 1999) (refusing to certify class under Rule 23(b)(2) where “it is obvious that the primary relief sought by the plaintiffs in this case is monetary relief ”). 91. In re Allstate Ins. Co., 400 F.3d at 507 (quoting Manual for Complex Litigation (Fourth) § 21.221 (2004)); see also Allison v. Citgo Petroleum Corp., 151 F.3d 402, 415 (5th Cir. 1998) (incidental damages are “damages that flow directly from liability to the class as a whole on the claims forming the basis of the injunctive or declaratory relief ”) (emphasis in original). 92. Robinson v. Metro-North Commuter R.R. Co., 267 F.3d 147, 164 (2d Cir. 2001) (court should ask whether “even in the absence of a possible monetary recovery, reasonable plaintiffs would bring the suit to obtain the injunctive or declaratory relief sought”); see also Dukes, No. 04-16688 (slip op.) at 6217 (court should focus on “whether the monetary relief sought determines the key procedures that will be used, whether it introduces new and significant legal and factual issues, whether it requires individualized hearings, and whether its size and nature—as measured by recovery per class member—raise particular due process and manageability concerns”). 93. Allison, 151 F.3d at 413, 416–17 (certification under Rule 23(b)(2) not appropriate when determining whether monetary relief appropriate required individualized inquiries into effect of discriminatory conduct on particular class members).

Rule 23(b)(2) Injunction Classes 37

to opt out and pursue their claims individually.94 These requirements are substantive, not technical, so courts frown on requests for injunctive relief that do nothing more than order defendants to pay money to the plaintiff.95 Rule 23(b)(2) “does not relieve a court of its obligation to determine whether the existence of individual issues precludes certification.”96 For Rule 23(b)(2) to apply, “the class claims must be cohesive.”97 In fact, some courts have held that a “Rule 23(b)(2) class should actually have more cohesiveness than a Rule 23(b)(3) class.”98 The focus on cohesiveness (or, as some courts have put it, “homogeneity”) stems from the fact that the “latter half of Rule 23(b)(2) requires that final injunctive relief be appropriate for the class as a whole.”99 Since, unlike with Rule 23(b)(3) classes, class members cannot opt out of injunctive relief awarded to a Rule 23(b)(2) class, it is far more important to the court that various class members’ interests not diverge.100 So what kinds of cases will qualify as class actions under this subsection? Courts have certified classes alleging disparate treatment and disparateimpact claims under Title VII101 and challenging discriminatory treatment in insurance practices that violated 42 U.S.C. § 1981.102

94. Lemon v. Int’l Union of Operating Engineers, Local No. 139, 216 F.3d 577, 580 (7th Cir. 2000) (“in recognition of the potential divergence of interests within the class, each class member in actions for money damages is entitled as a matter of due process to personal notice and an opportunity to opt out of the class action”). 95. See Richards v. Delta Air Lines Inc., 453 F.3d 525, 528 (6th Cir. 2006) (refusing to certify 23(b)(2) class where plaintiff “effectively seeks a declaratory judgment that Delta owes monetary damages and an injunction requiring Delta to pay them”). 96. See Dhamer v. Bristol-Myers Squibb Co., 183 F.R.D. 520, 529 (N.D. Ill. 1998). 97. Barnes v. Am. Tobacco Co., 161 F.3d 127, 143 (3d Cir. 1998). 98. Clay, 188 F.R.D. at 495. 99. Shook v. Bd. of County Comm’ners of El Paso, 543 F.3d 597, 604 (10th Cir. 2008) (“Put differently, Rule 23(b)(2) demands a certain cohesiveness among class members with respect to their injuries, the absence of which can preclude certification.”); Allison, 151 F.3d at 413 (“because of the group nature of the harm alleged and the broad character of the relief sought, the (b)(2) class is, by its very nature, assumed to be a homogenous and cohesive group with few conflicting interests among its members”). 100. In re St. Jude Med., Inc., Silzone Heart Valve Prod. Liab. Litig., 425 F.3d 1116, 1121 (8th Cir. 2005) (“Because unnamed members are bound by the action without the opportunity to opt out of a Rule 23(b)(2) class, even greater cohesiveness generally is required than in a Rule 23(b)(3) class.”); In re Allstate Ins. Co., 400 F.3d at 507 (“[T]he fact that declaratory or injunctive relief is sought (and no, or only incidental, damages) should not automatically entitle the class to proceed under Rule 23(b)(2). There can be critical differences among class members that are independent of differences in the amount of damages.”); Allison, 151 F.3d at 413 (“because of the group nature of the harm alleged and the broad character of the relief sought, the (b)(2) class is, by its very nature, assumed to be a homogenous and cohesive group with few conflicting interests among its members”). 101. See Dukes, 474 F.3d at 1237; Robinson, 267 F. 3d at 155. 102. See In re Monumental Life Ins. Co., 365 F.3d 408, 411–12 (5th Cir. 2004).

38

Chapter 2 Class Certification Requirements

2.6.1 Hybrid Classes Occasionally, when faced with requests to certify a class that seeks both injunctive relief and substantial monetary damages, a court may certify a “divided” class103 or a “hybrid” class.104 These hybrid certifications are still comparatively rare.105 In a hybrid class, the court either certifies the injunctive aspects of the suit under Rule 23(b)(2) and the damages under Rule 23(b)(3),106 or certifies the class under Rule 23(b)(2) for both the equitable and monetary relief and then exercises its plenary authority under Rules 23(d)(1)(B) and 23(d)(1)(E) to provide all class members with personal notice and opportunity to opt out.107 However, despite recognizing that hybrid certification may be possible, some courts have expressed concern that hybrid classes may violate the Seventh Amendment.108

§ 2.7 Rule 23(b)(3) Damages Classes The requirements of Rule 23(b)(3) apply to proposed class actions in which the plaintiffs primarily seek monetary damage awards. Unlike Rules 23(b)(1) and (b)(2), Rule 23(b)(3) authorizes “opt-out” classes, meaning that members of the class may elect not to participate in the class action, presumably because they believe they can protect their legal rights more effectively on

103. See Jefferson v. Ingersoll Int’l, Inc., 195 F.3d 894, 898 (7th Cir. 1999). 104. This certification is also sometimes referred to as “composite” certification. See Fisher v. Va. Elec. & Power Co., 217 F.R.D. 201, 214 (E.D. Va. 2003) (“Instead of divided certification, a district judge may grant composite certification. Composite certification allows a court to certify the class under Rule 23(b)(2) for both monetary and equitable remedies and exercise its plenary authority under Rules 23(d)(2) and 23(d)(5) to provide all class members with personal notice and the opportunity to opt out, as if the class were certified under Rule 23(b)(3).”). 105. To date, hybrid certification has been most common in Title VII cases involving back pay, which courts have agreed is an equitable, easy-to-calculate remedy. See In re Monumental Life Ins. Co., 365 F. 3d at 418 (“Equitable monetary relief is compatible with a rule 23(b)(2) class. Importantly, this pronouncement has been limited to the context of title VII backpay, a remedy designated by statute as ‘equitable.’”); Dukes, 474 F.3d at 1237 (“it is wellestablished that backpay is an equitable, make-whole remedy under Title VII that is fully consistent with Rule 23(b)(2)”). 106. See Jefferson, 195 F.3d at 898. 107. See Eubanks v. Billington, 110 F.3d 87, 94–95 (D.C. Cir. 1997) (“the language of Rule 23 is sufficiently flexible to afford district courts discretion to grant opt-out rights in (b)(1) and (b)(2) class actions” in limited cases). 108. See Allison, 151 F.3d at 426 (“the Seventh Amendment precludes a partial certification of a class action on the plaintiffs’ claims for equitable relief ”).

Rule 23(b)(3) Damages Classes

their own through individual litigation.109 As a result, in addition to showing numerosity, commonality, typicality and adequacy, the plaintiff must also show that “the questions of law or fact common to class members predominate over any questions affecting only individual members, and that a class action is superior to other available methods for fairly and efficiently adjudicating the controversy.”110 (These two requirements are often shorthanded to “predominance” and “superiority.”)

§ 2.7.1 Predominance of Common Issues Courts examining the predominance requirement look at two different kinds of predominance: factual and legal. Factual predominance evaluates whether the class trial will focus more on the common evidentiary issues plaintiffs raise, or on those facts that are specific to each plaintiff or claimant. Legal predominance focuses on whether the legal issues to be resolved are common to the class, or specific to smaller groups of class members. Factual predominance. The basic principle behind the factual predominance inquiry is that individualized factual issues should not swamp the common issues at trial. For example, in the recent case Gintis v. Bouchard Transportation Co., Inc.,111 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.112 The defendants admitted they had been negligent in causing the spill,113 although they refused to concede liability to any individual property owners.114 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.”115 The Command used a common methodology for cleaning the spill, dividing the coastline into segments and categorizing them by the degree of oil contamination.116 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.117

109. The procedure for opting out of a Rule 23(b)(3) class action is discussed in more detail in §§ 6.2.1 and 8.3.5. 110. Fed. R. Civ. P. 23(b)(3). 111. 596 F.3d 64 (1st Cir. 2010) (Souter, J.). 112. 596 F.3d at 65. 113. Id. at 67. 114. Id. at 66. 115. Id. at 65. 116. Id. 117. Id. at 66.

39

40

Chapter 2 Class Certification Requirements

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 the opinion (by retired Supreme Court Justice Souter) suggested “plaintiffs presented substantial evidence of predominating common issues.”118 Among the predominating common issues it found were the defendants’ admission of negligence,119 the plaintiffs’ intent to use the Command’s records to prove harm to their parcels,120 the plaintiffs’ expert’s common methodology for determining damages,121 and the defendants’ uniform objection to the admissibility of the Command’s records.122 While Gintis provides an excellent illustration of a situation in which common issues predominate over claimant-specific issues, courts have also recognized a number of instances when individualized issues may predominate over any common issues. Among them: • Causation. Torts or other causes of action requiring the plaintiffs to prove that a specific chain of events caused personal injury or monetary loss may lead to a predominance of individual issues.123 In particular, both sides should watch for cases where the alleged defect is not common to the entire class,124 or where individual use of the product or service may vary from class member to class member.125

118. 119. 120. 121. 122. 123.

Id. Id. at 67. Id. Id. Id. See Duncan v. Northwest Airlines, Inc., 203 F.R.D. 601, 612 (W.D. Wash. 2001) (“plaintiff is pursuing a negligence claim, which requires an individualized examination of causation and proof of present injury”); Mahoney v. R.J. Reynolds Tobacco Co., 204 F.R.D. 150, 157 (S. D. Iowa 2001) (“Causation is another area in which individualized inquiries will prove critical.”); In re Ford Motor Co. Ignition Switch Prods. Liab. Litig., 194 F.R.D. 484, 491 (D.N.J. 2000) (no factual predominance where individual issues of causation). 124. See Badillo v. Am. Tobacco Co., 202 F.R.D. 261, 265 (D. Nev. 2001) (“the products in question are not of a single identifiable brand or design”); Sanneman v. Chrysler Corp., 191 F.R.D. 441, 450 (E.D. Pa. 2000) (declining to certify class where there were “at least eight model years, 13 different manufacturing plants and hundreds of makes and models, with hundreds of different kinds and colors of paint supplied by two different paint companies.”); Emig v. Am. Tobacco Co., 184 F.R.D. 379, 391 (D. Kan. 1998) (“[c]igarettes have not been a static product”). 125. See Rink v. Cheminova, Inc., 203 F.R.D. 648, 666 (M.D. Fla. 2001) (“While Plaintiffs’ theories of defectiveness and negligence are constant, the circumstances of this program were not, and the proof will likely involve distinct considerations of each shipment of Fyfanon, its storage, and the circumstances of each spraying.”); Badillo, 202 F.R.D. at 265 (“It does not require an expert to conclude that the exposure to secondhand tobacco smoke of an employee who works in one area of a particular casino would be different from that of an employee who works in another area. The permutations are endless and do not lend themselves easily to grouping under the rubric of a class action.”).

Rule 23(b)(3) Damages Classes

• Reliance. Reliance is a specialized form of causation. In fraud (and certain other tort) claims, each claimant must prove that she relied on the allegedly false information the defendant put out.126 As a result, questions of individual reliance can preclude certification of a class because the individual inquiries into what information each claimant received (and whether that information caused her to make the decision that led to her injury) will swamp other common issues in the litigation.127 There are several arguments that plaintiffs can make to counter the problem of reliance, with varying degrees of success. These will be discussed in more detail in Chapter 5. • Affirmative defenses. The presence of individualized affirmative defenses to any of plaintiff ’s claims also may cause a court to find that claimant-specific factual issues predominate over common ones.128

126. See In re St. Jude Med., Inc., 522 F.3d 836, 838 (8th Cir. 2008) (“In a typical common-law fraud case, a plaintiff must show that he or she received the defendant’s alleged misrepresentation and relied on it.”); Morgan v. Markerdowne Corp., 201 F.R.D. 341, 349 (D.N.J. 2001) (“The rule is well-established that fraud cases based on alleged oral misrepresentations are unsuitable for class action treatment”); Van West v. Midland Nat’l Life Ins. Co., 199 F.R.D. 448, 454 (D.R.I. 2001) (“to the extent that the alleged misrepresentations include different statements made to individual class members by a variety of agents or brokers, it would require proof of what each class member was told and the nature of the relationship between Midland and the particular agent or broker making the statements”); Begley v. Acad. Life Ins. Co., 200 F.R.D. 489, 498 (N.D. Ga. 2001) (“Because the common scheme does not appear to have been followed on a consistent basis, individual issues of whether a material fact was misrepresented to a particular class member and whether such class member detrimentally relied thereupon predominates over any common issue.”). 127. Fed. R. Civ. P. 23 advisory committee’s note (discussing the 1966 Amendment to subdivision (b)(3): “[A]lthough having some common core, a fraud case may be unsuited for treatment as a class action if there was material variation in the representations made or in the kinds or degrees of reliance by the persons to whom they were addressed.”); see also In re St. Jude Med., Inc., 522 F.3d at 838 (“Because proof often varies among individuals concerning what representations were received, and the degree to which individual persons relied on the representations, fraud cases often are unsuitable for class treatment.”); Gariety v. Grant Thornton LLP, 368 F.3d 356, 362 (4th Cir. 2004) (“Because proof of reliance is generally individualized to each plaintiff allegedly defrauded, fraud and negligent misrepresentation claims are not readily susceptible to class action treatment, precluding certification of such actions as a class action.”) (internal citations omitted); Szabo v. Bridgeport Machs., Inc., 249 F.3d 672, 674 (7th Cir. 2001) (declining to certify class where “oral representations may vary substantially from one dealer (or occasion) to another, destroying the commonality of the claims.”); Andrews v. AT & T Co., 95 F.3d 1014, 1025 (11th Cir. 1996) (decertifying class in part because “the plaintiffs would . . . have to show, on an individual basis, that they relied on the misrepresentations, suffered injury as a result, and incurred a demonstrable amount of damages”); Castano v. Am. Tobacco Co., 84 F.3d 734, 745 (5th Cir.1996) (“[A] fraud class action cannot be certified when individual reliance will be an issue.”). 128. See Vega, 564 F.3d at 1274 (no factual predominance where “T-Mobile apparently would proffer individualized and varying evidence to defend against claims of individual class members by showing what they knew or should have known about the charge back

41

42

Chapter 2 Class Certification Requirements

As a result, both sides should check whether the legal claims asserted are subject to any particular affirmative defenses. Individual affirmative defenses that may predominate over common issues include (but are not limited to) assumption of risk,129 comparative negligence,130 and the statute of limitations.131 Legal predominance. The basic principle behind legal predominance has been summarized by the Seventh Circuit Court of Appeals: “No class action is proper unless all litigants are governed by the same legal rules.”132 This principle does not necessarily mean that class actions under the laws of several states are impossible; just that if a proposed class requires decisions under the laws of more than one state, those laws cannot conflict in ways that would change the outcome of the litigation.133 Legal predominance most often arises as an issue when plaintiffs have brought state-law claims in either a nationwide or a multi-state class action. At that point, the court must determine whether the individualized legal issues raised by the laws of the various states swamp the common legal questions raised by the class.134 Often, single-state classes will meet the legal predominance test. (Not always, however; sometimes, even single-state class actions may—if not defined properly—implicate the laws of various jurisdictions.) It is also possible to bring a nationwide class that meets the legal predominance test, provided the plaintiff invokes the exact same law for all of the class members.135

129.

130.

131.

132. 133. 134. 135.

procedures”); Castano, 84 F.3d at 742 n.15 (“Each of these factual differences impacts the application of legal rules such as causation, reliance, comparative fault, and other affirmative defenses.”); but see Winkler v. DTE, Inc., 205 F.R.D. 235, 244 (D. Ariz. 2001) (certifying class of buyers car dealership because applicability of defendant’s affirmative defense “is a common issue appropriate for consideration on a class-wide basis”). See Arch v. Am. Tobacco Co., 175 F.R.D. 469, 491 (E.D. Pa. 1997) (“Assumption of risk is an inherently individual question, turning as it does upon the subjective knowledge and behavior of individual plaintiffs.”). See Castano, 84 F.3d at 742 n.15; Rink, 203 F.R.D. at 667; Duncan, 203 F.R.D. at 613 (“the allocation of liability under the various comparative fault rules would involve the individual knowledge of each plaintiff and would require examination of the extent to which each individual flight attendant volunteered for the flights”); Sanneman, 191 F.R.D. at 454. Mahoney, 204 F.R.D. at 159); Sanneman, 191 F.R.D. at 454; but see Winkler, 205 F.R.D. at 244 (“The interpretation of the discovery rule’s application to the present case is a common legal issue, and a finding in the Plaintiffs’ favor would dispose of the need for individual assessments.”). In re Bridgestone/Firestone, Inc., 288 F.3d at 1015. Klay v. Humana, Inc., 382 F.3d 1241, 1262 (11th Cir. 2004) (“if a claim is based on a principle of law that is uniform among the states, class certification is a realistic possibility”). See Cole v. Gen. Motors Corp., 484 F.3d 717, 725–30 (5th Cir. 2007). Klay, 382 F.3d at 1262.

Rule 23(b)(3) Damages Classes

These classes are most common when the plaintiff invokes a federal law,136 although they may also occur if the state-law claims the proposed class asserts are uniform across the states. Over time, federal courts have held that, in classes that encompass the laws of all 51 jurisdictions in the United States,137 individualized legal issues are likely to predominate over common legal issues.138 Theoretically, it is still possible that a plaintiff could demonstrate that common legal issues would predominate over individual ones in a class trial, but practical experience so far has indicated that she would face an uphill battle in doing so. To begin, the plaintiff would have to demonstrate that, whatever the cause of action she invokes, there are no material differences in the way that law is applied across the fifty states.139 So far, federal courts have found very few causes of action that can meet this test: courts have held that the laws of the fifty states vary in applying (among other claims) negligence,140 negligent misrepresentation,141 unjust enrichment,142 fraud,143 breach of warranty,144

136. Klay, 382 F.3d at 1257–58 (certifying nationwide RICO class). 137. The fifty states plus the District of Columbia. Theoretically, it is also possible for nationwide class actions to include claims under the laws of U.S. territories like Puerto Rico, Guam, or the United States Virgin Islands. 138. In re Bridgestone/Firestone, Inc., 288 F.3d at 1015 (“state laws about theories such as those presented by our plaintiffs differ, and such differences have led us to hold that other warranty, fraud, or products-liability suits may not proceed as nationwide classes”); Oxford v. Williams Cos., 137 F. Supp. 2d 756, 764 (E.D. Tex. 2001) (“with probably thousands of plaintiffs and the requirement to apply the various state laws . . . predominance . . . cannot be achieved.”); In re Ford Motor Co. Ignition Switch, 174 F.R.D. at 349 (“no federal court ha[s] tried a class action that would require the application of the laws of fifty-one jurisdictions”). 139. See Cole, 484 F.3d at 725–30. 140. In re Rhone-Poulenc Rorer, Inc., 51 F.3d 1293, 1301 (7th Cir. 1995) (Posner, C.J.) (individual issues predominate in nationwide negligence class because “[t]he voices of the quasisovereigns that are the states of the United States sing negligence with a different pitch.“); Harding v. Tambrands, Inc., 165 F.R.D. 623, 629 (D. Kan. 1996) (“There is no one standard of negligence, for example, which would be applicable to all members of the plaintiff class. The law of negligence is not uniform and cannot be abstracted into a single instruction.”). 141. See Weikel v. Tower Semiconductor Ltd., 183 F.R.D. 377, 402 (D.N.J. 1998); In re Control Data Corp. Secs. Litig., 116 F.R.D. 216 (D. Minn. 1986). 142. Thompson v. Jiffy Lube Int’l, Inc., 250 F.R.D. 607, 626 (D. Kan. 2008) (“Because of such variations [in state laws], federal courts have generally refused to certify a nationwide class based upon a theory of unjust enrichment.”); but see Agostino v. Quest Diagnostics, Inc., 256 F.R.D. 437, 464 (D.N.J. 2009) (finding “no actual conflicts among the laws of unjust enrichment”). 143. See In re Bridgestone/Firestone, Inc., 288 F.3d at 1015 (“differences [in state laws] have led us to hold that other . . . fraud . . . suits may not proceed as nationwide classes”); In re Ford Motor Co. Vehicle Paint Litig., 182 F.R.D. 214, 223 (E.D. La. 1998). 144. See In re Bridgestone/Firestone, Inc., 288 F.3d at 1015 (“differences [in state laws] have led us to hold that other warranty . . . suits may not proceed as nationwide classes”).

43

44

Chapter 2 Class Certification Requirements

breach of contract,145 and violations of consumer-protection acts.146 A few courts have found that legal variations would not swamp smaller multijurisdictional classes in which the legal rules governing each state-law claim did not differ materially.147 Similarly, some courts have found that subclassing may minimize legal variations.148 And some district courts have allowed multi-state classes to proceed under the laws of a single state where the applicable choice-of-law rule would select the law of the forum jurisdiction or the defendant’s home state.149 The legal predominance inquiry is not confined to the elements of these causes of actions. Affirmative defenses, like the applicability of the statute of limitations150 or assumption of risk151 also may affect predominance. Nonetheless, plaintiffs’ lawyers have tried a number of approaches to bring nationwide class actions based on state-law claims—some successful, some not. We will discuss the arguments they have advanced in greater detail in Chapter 5.

145. Agostino, 256 F.R.D. at 467–68; Bishop’s Property & Invs., LLC v. Protective Life Ins. Co., 255 F.R.D. 619, 625 (M.D. Ga. 2009) (variations in state law governing implied contract claims swamped common issues); but see Klay, 382 F.3d at 1263 (“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.”). 146. See In re Bridgestone/Firestone, Inc., 288 F.3d at 1018 (“State consumer-protection laws vary considerably, and courts must respect these differences rather than apply one state’s law to sales in other states with different rules.”). 147. Dornberger v. Metro. Life Ins. Co., 182 F.R.D. 72, 79–82 (S.D.N.Y. 1999) (finding legal variation did not preclude predominance where court could use subclasses to group nine European jurisdictions). 148. Miles v. Am. Online, Inc., 202 F.R.D. 297, 305 n.6 (M.D. Fla. 2001) (“To the extent there are any meaningful state law deviations in the unfair and deceptive trade practice statutes, the Court may choice [sic] to create subclasses or decertify those subclasses that are unmanageable.”); Dornberger, 182 F.R.D. at 79–82. 149. In re St. Jude Med., Inc., 522 F.3d at 840–41 (declining to certify class on other grounds, but noting that “district court eliminated the diversity of legal issues by applying Minnesota law to all claims” and assuming for sake of argument that “it is proper under Minnesota choice of law principles and the Constitution to apply Minnesota law to every claim”); In re Great Southern Life Ins. Co. Sales Practices Litig., 192 F.R.D. 212, 217–19 (N.D. Tex. 2000) (applying Texas law to claims of policyholders from 46 states). 150. See In re Jackson Nat’l Life Ins. Co. Premium Litig., 183 F.R.D. 217, 222 (W.D. Mich. 1998); Thompson v. Am. Tobacco Co., Inc., 189 F.R.D. 544, 556 (D. Minn. 1999) (“Determining whether a class member’s claim is barred by the statute of limitations would take thousands of ‘mini-trials’”.). 151. Castano, 84 F.3d at 743 n.15 (variations in law governing assumption of risk precluded certification).

Rule 23(b)(3) Damages Classes

§ 2.7.2 Superiority Rule 23(b)(3) also states that the court must find that “a class action is superior to other available methods for fairly and efficiently adjudicating the controversy.”152 That finding requires the court to make four separate inquiries: (A) the class members’ interest in individually controlling the prosecution or defense of separate actions; (B) the extent and nature of any litigation concerning the controversy already begun by or against class members; (C) the desirability or undesirability of concentrating the litigation of the claims in the particular forum; and (D) the likely difficulties in managing a class action.153

While courts will not always separate out these four factors in determining whether a proposed class is superior, it is worth examining each inquiry in turn. Individual interest. This factor is closely linked to the question of opt-outs. If the individual members of the class have a compelling interest in controlling separate lawsuits, then it is likely that they would opt out of class litigation, suggesting it is not superior to individual litigation. If enough litigants opt out of the class, then it does not provide any judicial finality for defendants, and essentially becomes no different than a simple mass-joinder action, except that it might bar class members from asserting other legal theories later.154 The “individual interest” inquiry turns on the cost of litigating the class members’ claims, and the complexity of the issues surrounding those claims. The less the lawsuit is worth, the more likely it is that individuals will have no interest in controlling their own lawsuits. If individual lawsuits are likely to be “negative-value” suits (that is, they would cost more to litigate than any possible recovery), then the court will find there is no compelling individual interest in controlling the litigation.155 (Conversely, if individual claims are

152. Fed. R. Civ. P. 23(b)(3). 153. Id. 154. In re Fosamax, 248 F.R.D. at 403 (“certification of the proposed monitoring-only class could lead to the result that class members who fail to opt out will be barred from later seeking damages by operation of res judicata”). 155. See Thorogood v. Sears, Roebuck & Co., 547 F.3d 742, 744 (7th Cir. 2008) (“The class action is an ingenious device for economizing on the expense of litigation and enabling small claims to be litigated. . . . If every small claim had to be litigated separately, the vindication of small claims would be rare. The fixed costs of litigation make it impossible to litigate a $50 claim . . . at a cost that would not exceed the value of the claim by many times.”); see also Samuel Issacharoff & Richard A. Nagareda, Class Settlements Under Attack, 156 U. Pa. L. Rev. 1649, 1651 (2008) (“Some cases have value when aggregated but are simply not

45

46

Chapter 2 Class Certification Requirements

worth enough on their own, then a class action may not be superior to individual litigation.)156 Moreover, if the issues in the litigation are complex enough to require extensive, unwieldy discovery, it is possible that no individual litigant would be willing to pursue an individual lawsuit.157 However, this does not mean that all low-recovery suits are negative-value suits. For example, the presence of statutory attorneys’ fees may give individuals an incentive to pursue smaller lawsuits.158 And if individual plaintiffs could join other, related claims to their individual lawsuits, they might have an interest in pursuing smaller-value claims.159 Similarly, if individualized issues are likely to predominate in the lawsuit, it is likely that individual litigants will have a compelling interest in controlling their own lawsuits.160 Other litigation. The most convincing evidence that individuals have an interest in pursuing their own litigation is the presence of other individual lawsuits against the defendant.161 These do not have to be individual lawsuits for compensatory damages; courts also will consider lawsuits seeking injunctive

156.

157.

158. 159. 160.

161.

viable—they have ‘negative value,’ in the modern economic parlance of class action law—as individual claims.”). See Castano, 84 F.3d at 748 (no superiority where “individual damage claims are high, and punitive damages are available in most states”); County of Santa Clara v. Astra USA, Inc., 257 F.R.D. 207, 213 (N.D. Cal. 2009) (no superiority where “the sums at stake are likely large enough for the 340B entities to justify launching their own stand-alone suits. Each entity would be able to protect its own interests. Put differently, the 340B entities are not consumers with small claims that need a collective action to vindicate their rights. They are sophisticated and, more to the point, they have sufficiently large stakes involved to justify their own litigation catered to their own circumstances”). Substantial damages on their own may not make individual litigation superior, however. See Gintis, 596 F.3d at 67–68 (suggesting individual recoveries between $12,000 and $39,000 may not justify individual lawsuits once court considered cost of retaining environmental expert). In re EDS Secs. Litig., 226 F.R.D. 559, 570–71 (E.D. Tex. 2005) (class action superior because “there is no indication that any member of the class would prefer to prosecute its own claim, especially since this is a sophisticated action involving extensive discovery that would be impractical for any one individual to control”). See Castano, 84 F.3d at 748 (plaintiffs’ proposed class action not superior in part because statutory attorneys’ fees available for individual lawsuits). In re Fosamax, 248 F.R.D. at 402 (finding individual interest in litigation because “[t]here is no reason . . . why class members must limit the relief they seek to dental monitoring”). Id. (finding individual interest in pursuing lawsuits where “[c]lass members may wish to seek a monitoring program that is tailored, under the advice of their own physicians, to their individual preferences and unique medical histories”). Id. at 403 (finding no individual interest in litigation where “[h]undreds of other Fosamax users have already filed suit against Merck seeking similar relief under many legal theories, and more lawsuits are filed each week”); Blaine, 240 F.R.D. at 192 (“The existence of individual lawsuits filed in jurisdictions outside of the forum generally weighs against certification.”).

Rule 23(b)(3) Damages Classes

or other equitable relief or lawsuits that include the class claims with other related individual damages claims.162 Conversely, courts often will find the absence of any other litigation an indication that individuals do not have an interest in controlling separate lawsuits.163 Desirability of concentrating litigation in a particular forum. Courts tend to find class actions superior to individual litigation when there are actual efficiencies to be gained from aggregating the cases; for example, when the class action will resolve the predominant issue in the litigation.164 If class members share common issues, then courts often find concentrating litigation into a single forum desirable.165 Consolidation allows a number of plaintiffs to try certain fact-intensive issues requiring common proof—such as the meaning of a uniform contract term, the effect of certain disclosures on a stock’s price, or the definition of a market in an antitrust case—only once, to a uniform result. However, in some cases, novel legal theories may convince a court that concentrating litigation in a single forum is not a good idea.166 In particular, concentrating novel (or “immature”)167 litigation in a single forum may deprive all parties of information about the value of each lawsuit. Judge Easterbrook discussed this concern in In re Bridgestone/Firestone, Inc. Tires Prods. Liability Litigation: Efficiency is a vital goal in any legal system—but the vision of “efficiency” underlying this class certification is the model of the central planner. . . .

162. See Gregory v. Finova Capital Corp., 442 F.3d 188 (4th Cir. 2006) (class action not superior when adversary bankruptcy proceeding already addressed same issues). 163. See In re Reliant Energy ERISA Litig., No. Civ.A. H-02-2051, 2005 WL 2000707, *4 (S.D. Tex. Aug. 18, 2005) (“the absence of other litigation concerning these same claims indicates that the individual class members have little interest in pursuing independent actions”). 164. See Fisher, 217 F.R.D. at 227 (E.D. Va. 2003) (proposed class action superior to individual litigation “[g]iven the efficiency gains that will result from a resolving the predominant common issues on a representative basis”). 165. Coco v. Inc. Village of Bele Terre, 233 F.R.D. 109, 116 (E.D.N.Y. 2005) (“Given the large number of potential plaintiffs and the commonality of their claims, certifying the class will allow a more efficient adjudication of the controversy than individual adjudications would do.”). 166. In re Fosamax, 248 F.R.D. at 403 (“Assuming that it would be appropriate for a court to determine whether someone who takes an FDA-approved drug is entitled to medical monitoring even before the FDA recommends such monitoring for any user of the drug, a more cautious, case-by-case approach focusing on the particular factual circumstances of individual plaintiffs would be more prudent.”). 167. See Castano, 84 F.3d at 740–41 (‘while the tort is immature . . . class certification cannot be found to be a superior method of adjudication”); In re Rhone-Poulenc Rorer, 51 F.3d at 1300 (no superiority where “[f]or this consensus or maturing of judgment the district judge proposes to substitute a single trial before a single jury instructed in accordance with no actual law of any jurisdiction”).

47

48

Chapter 2 Class Certification Requirements The central planning model—one case, one court, one set of rules, one settlement price for all involved—suppresses information that is vital to accurate resolution. What is the law of Michigan, or Arkansas, or Guam, as applied to this problem? Judges and lawyers will have to guess, because the central planning model keeps the litigation far away from state courts. . . . And if the law were clear, how would the facts (and thus the damages per plaintiff ) be ascertained? One suit is an all-or-none affair, with high risk even if the parties supply all the information at their disposal. Getting things right the first time would be an accident. Similarly Gosplan or another central planner may hit on the price of wheat, but that would be serendipity. Markets instead use diversified decisionmaking to supply and evaluate information. Thousands of traders affect prices by their purchases and sales over the course of a crop year. This method looks “inefficient” from the planner’s perspective, but it produces more information, more accurate prices, and a vibrant, growing economy.168

Following Judge Easterbrook’s logic in Bridgestone/Firestone, some courts have expressed skepticism about certifying a strict-liability class with an abnormally large payout.169 Some courts have also found that the geographic dispersal of plaintiffs, witnesses, or evidence may reduce the benefit from concentrating the litigation into a single forum.170 In addition, some courts have found that, where variations in state law predominate, individual class members may have a strong interest in bringing suits in separate fora.171 Manageability. The manageability requirement “encompass[es] the whole range of practical problems that may render the class action format inappropriate for a particular suit.”172 One factor that affects manageability is whether the case will be tried in front of a judge or a jury.173 Generally speaking, courts

168. In re Bridgestone/Firestone, Inc., 288 F.3d at 1020 (emphases in original). 169. Hillis, 237 F.R.D. at 506–07 (no superiority where statutory damages would lead to crippling damages award). 170. See Zinser v. Accufix Research Institute, Inc., 253 F.3d 1180, 1191–92 (9th Cir. 2001) (“where the potential plaintiffs are located across the country and where the witnesses and the particular evidence will also be found across the country, plaintiffs have failed to establish any particular reason why it would be especially efficient for this Court to hear such a massive class action lawsuit”). 171. See In re Control Data Corp. Secs. Litig., 116 F.R.D. 216 (D. Minn. 1986) (“Notwithstanding the constitutional ability to apply Minnesota law, the court believes that the class members have a significant interest in individually controlling the prosecution of these tort claims in the forum of their choice because of the significant variations in state law with regard to the alleged common law torts, especially negligent misrepresentation.”) (internal footnote omitted). 172. Eisen v. Carlisle & Jacquelin, 417 U.S. 156, 164 (1974) (internal quotations omitted); see also Andrews v. Am. Tel. & Telegraph Co., 95 F.3d 1014, 1023 (11th Cir. 1996) (same). 173. See In re Reliant Energy, 2005 WL 2000707 at *4 (finding superiority where “[t]he entire case will be tried to the Court without a jury”). Ironically, plaintiffs’ lawyers often prefer jury trials.

Rule 23(b)(3) Damages Classes

are more concerned that a lay jury will be overwhelmed by numerous individualized legal or factual issues than that judges themselves (highly trained and experienced legal experts) will be. Hence, certain manageability issues may cause more concern in jury trials than bench trials. However, manageability also includes any logistical problems that may be posed by a class where individual issues predominate over common issues. In this way, the predominance and superiority inquiries are tightly linked. For example, many courts have held that the logistical issues raised by a class action invoking the laws of all fifty states—particularly the need to issue accurate but understandable jury instructions—render a class action inferior to other forms of litigation.174 A trial plan is not a prerequisite for a finding of superiority,175 but, it is certainly helpful to the court.176 Therefore, if plaintiffs do not submit a trial plan, the court will still require them to discuss how they intend to try the various issues in the litigation on a class-wide basis. Viable alternatives. The court must also determine whether the class action is superior to other methods of resolving the controversy.177 The alternative method does not necessarily have to be litigation. For example, courts have found superiority to be lacking where there is some form of governmental regulation already in place.178 Several courts have found that manageability: should be considered only in relation to alternative means of adjudication and thus should not be used to deny certification in the face of novel challenges, but ‘only where the attention and resources which would have to be devoted strictly to administrative matters will overwhelm any relief ultimately accruing to the plaintiff class.’179

174. See Oxford, 137 F. Supp. 2d at 764 (applying property and remedies laws of 51 jurisdictions “would be an unmanageable task for this, or any, court”); Lyon v. Caterpillar, Inc., 194 F.R.D. 206, 221 (E.D. Pa. 2000) (“If I find plaintiff ’s jury instructions confusing, how can I expect a lay jury to wade through these question[s]?”). 175. Feder, 429 F.3d at 139 (“We did not hold . . . that the submission of a trial plan was a prerequisite for a finding of superiority. Instead, we stated that a court must consider ‘how a trial on the alleged causes of action would be tried.”) (internal quotations omitted). 176. See Vega, 564 F.3d at 1279 n.20 (“[C]ourts must consider how a case will be tried as part of the superiority assessment. Accordingly, the proposal of a workable trial plan will often go a long way toward demonstrating that manageability concerns do not excessively undermine the superiority of the class action vehicle.”) (internal citations omitted); Robinson v. Tex. Auto Dealers Ass’n, 387 F.3d 416, 426 (5th Cir. 2004). 177. Sanneman, 191 F.R.D. at 455 (“To find superiority, a court must find all other methods of resolving the issues in a case to be inferior to a class action.”). 178. In re Bridgestone/Firestone, Inc., 288 F.3d at 1019 (“Regulation by the NHTSA, coupled with tort litigation by persons suffering physical injury, is far superior to a suit by millions of uninjured buyers for dealing with products that are said to be failure-prone.”). 179. See Fisher, 217 F.R.D. at 227 (internal quotations omitted).

49

50

Chapter 2 Class Certification Requirements

This means that the manageability inquiry most often pits the class action against individual litigation,180 but may also force a comparison with government investigation or mediation and arbitration. So, what issues should lawyers look for in determining whether a proposed class action is superior? • The value of an individual claim. The smaller the claim (assuming it is the only claim an individual could bring), the more likely it is that a class action will be superior to individual litigation. • The presence of other individual litigation. If other litigants have brought suits on an individual basis, that is a powerful argument that a class action may not provide enough benefits to overcome its costs. • Statutes that enable small-claims litigation. Consumer-fraud acts and other statutes authorizing attorneys’ fees (like the TCPA or FACTA) allow for small-claims litigation. In addition, the presence of statutory damages (like in the TCPA or FACTA) may also mean that individual litigation is superior to a class action. • The presence of other, related claims that individuals could bring. If certifying the class may require class members to forgo other, more valuable claims (such as claims for fraud based on oral representations, or personal-injury claims from exposure to hazardous materials), then a class action may not be a superior alternative to individual litigation. • The presence of government regulation of some kind. What government agencies are involved in the issue? Do they often regulate similar issues? Have they specifically said that they have no interest in regulating?

§ 2.8 Class Counsel The court’s Rule 23 inquiry no longer ends with Rule 23(a) and (b). The court must also appoint class counsel under Rule 23(g). Rule 23(g) provides: (1) Appointing Class Counsel. Unless a statute provides otherwise, a court that certifies a class must appoint class counsel. In appointing class counsel, the court: (A) must consider: (i) the work counsel has done in identifying or investigating potential claims in the action; (ii) counsel’s experience in handling class actions, other complex litigation, and the types of claims asserted in the action;

180. See id. at 228 (internal quotations omitted).

Class Counsel 51 (iii) counsel’s knowledge of the applicable law; and (iv) the resources that counsel will commit to representing the class; (B) may consider any other matter pertinent to counsel’s ability to fairly and adequately represent the interests of the class; (C) may order potential class counsel to provide information on any subject pertinent to the appointment and to propose terms for attorney’s fees and nontaxable costs; (D) may include in the appointing order provisions about the award of attorney’s fees or nontaxable costs under Rule 23(h); and (E) may make further orders in connection with the appointment. (2) Standard for Appointing Class Counsel. When one applicant seeks appointment as class counsel, the court may appoint that applicant only if the applicant is adequate under Rule 23(g)(1) and (4). If more than one adequate applicant seeks appointment, the court must appoint the applicant best able to represent the interests of the class. (3) Interim Counsel. The court may designate interim counsel to act on behalf of a putative class before determining whether to certify the action as a class action. (4) Duty of Class Counsel. Class counsel must fairly and adequately represent the interests of the class.

Because Rule 23(g) is relatively new, there is little caselaw that explicates its requirements. As a result, many courts still use the Rule 23(a)(4) framework to evaluate whether class counsel will fairly and adequately represent the interests of the class.181 Plaintiffs’ lawyers typically support their requests for appointment as class counsel with declarations listing the other class actions they have brought and their outcomes, and attesting that they have the resources, skill, and willingness to represent the class. Challenges to the adequacy of class counsel are comparatively rare.182 Despite the adversarial relationship between class-action plaintiffs’ and defense counsel, the bar in general still aspires to collegiality, and so defense lawyers are loath to attack plaintiffs’ lawyers personally.183 In addition, defense lawyers sense (rightly, we believe) that judges dislike attacks on other counsel.184 This does not mean that a defendant will never challenge the

181. See Evans v. IAC/Interactive Corp., 244 F.R.D. 568, 578–79 (C.D. Cal. 2007). 182. In fact, it is common for courts to note that defendants have not challenged the adequacy of plaintiffs’ counsel. See Robinson v. Fountainhead Title Group Corp., 252 F.R.D. 275, 288 (D. Md. 2008) (“Defendants do not challenge class counsel’s competency”). 183. Linda S. Mullinex, Taking Adequacy Seriously: The Inadequate Assessment of Adequacy in Litigation and Settlement Classes, 57 Vand. L. Rev. 1687, 1701 (2004) (discussing defense counsel’s “inability or disinclination to call proposed class counsel as a witness for examination on adequacy issues”). 184. Bogner v. Masari Invs., LLC, 257 F.R.D. 529, 533 (D. Ariz. 2009) (“The character and ethics of class counsel may conceivably bear on the adequacy of representation. One, however,

52

Chapter 2 Class Certification Requirements

adequacy of class counsel, just that it will only do so when adequacy is clearly lacking, and when it has clear evidence indicating just that. So what factors might render class counsel inadequate to represent a class? • Failure to conduct a thorough investigation into the class claims. If class counsel have not met their duty to investigate the claims of their class representatives, a court may rule that class counsel itself has not performed adequately.185 • Failure to inform class representatives of their duty to the class. Class representatives are not lawyers, but they are expected to have an educated layperson’s understanding of their claims. So if the class representative has no idea of her responsibilities, the court may decide that class counsel has not fulfi lled its responsibility to educate the named plaintiff.186 • Conflicting representation of more than one class. Often, a plaintiff ’s firm will represent more than one class in similar litigation. In some instances, that may lead to a clear conflict between two different classes, which can be grounds for disqualifying class counsel.187 Rule 23 provides the legal basis for the class action, so a thorough understanding of its dictates and its limits is important for both the plaintiff and the defendant. However, merely understanding the rule is not enough to provide either side with an understanding of the realities that dictate class-action practice. Therefore, beginning with the next chapter, we will examine how financial pressures, institutional pressures, and other legal rules shape classaction litigation. We begin with the various strategic considerations that go into filing a class-action complaint.

should not lightly impugn the integrity or professional ethics of another.”) (internal quotations omitted); see also Mullinex, Taking Adequacy Seriously, 57 Vand. L. Rev. at 1701–02 (“The prospect of having to evaluate professional competence is painful; both judges and even opposing counsel are uncomfortable passing judgment on another attorney’s career.”). 185. See Evans, 244 F.R.D. at 578–79 (refusing to certify class because class counsel inadequate where they relied on false factual declarations to support class certification motion); Williams v Balcor Pension Investors, 150 F.R.D. 109, 119–20 (N.D. Ill. 1993) (finding class counsel inadequate where they did not adequately investigate class representatives before filing class certification motion). 186. Porter v. Nationscredit Consumer Discount Co., 229 F.R.D. 497, 499 (E.D. Pa. 2005) (“Counsel’s apparent failure to properly inform Ms. Porter of her presumable role and responsibilities as lead Plaintiff is just one of the many reasons that the Court harbors a concern over Plaintiff ’s Counsel’s ability to adequately represent any class.”). 187. See Moore v. Margiotta, 581 F. Supp. 649, 651 (E.D.N.Y. 1984) (simultaneous representation of both taxpayer class and insurance broker class in RICO case against local government grounds for disqualifying class counsel).

CHAP TER

3 Constructing a Class Action Lawsuit

§ 3.1 Types of Class Actions

54

§ 3.1.1 Securities

55

§ 3.1.2 Labor/Employment

57

§ 3.1.3 Product Liability

59

§ 3.1.4 Consumer Fraud

59

§ 3.1.5 Antitrust

60

§ 3.1.6 Environmental

61

§ 3.1.7 Civil Rights

62

§ 3.1.8 Statutory Violations

63

§ 3.2 Identifying a Potential Class Action

64

§ 3.3 Forum Considerations

67

§ 3.4 Selecting Appropriate Defendants

73

§ 3.5 Identifying Class Representatives

75

§ 3.6 Drafting the Complaint

77

§ 3.6.1 Selecting Claims

78

§ 3.6.2 Selecting Remedies

79

§ 3.6.3 Defining the Proposed Class

81

§ 3.6.4 Pleading

82

§ 3.7 Working With Other Plaintiff’s Counsel

83

54

Chapter 3 Constructing a Class Action Lawsuit

One striking way in which class actions differ from other lawsuits is their entrepreneurial origins. Unlike most individual lawsuits, in which a client who has been harmed approaches a lawyer, the typical class action involves a lawyer who has unearthed a class-wide wrong that caused class-wide injury. The lawyer then recruits a client and files a lawsuit. As a result, constructing a successful class action requires far more than just taking a client’s statement, matching it to a legal theory, and filing a complaint. Instead, it requires strategic vision, extensive research, and high tolerance for financial risk.1 This chapter provides an overview of the strategic issues that confront a plaintiff’s attorney at each step of constructing a class action. It begins by examining the built-in risks and benefits of filing class actions in specific areas of law. Then it moves to more practical issues: identifying the potential class issues in an inciting incident; selecting the appropriate forum and appropriate defendants; identifying and recruiting class representatives; defining the proposed class; selecting class-wide causes of action and remedies; and, finally, pleading the initial claim.

§ 3.1 Types of Class Actions While each class action poses its own unique set of legal and factual challenges, many class actions fall into specific types which—either because of the substantive law that governs them or the specific facts applicable to them—offer distinct opportunities and pose distinct challenges for each side. Following are some of the major areas of substantive law into which class actions fall. These types are not rigid; certain class actions may combine aspects of more than one type. And these descriptions are (necessarily) simplifications of often-complex bodies of law. But these simplifications should provide a guide to the most common types of class actions, and the issues each raises. Some plaintiffs’ lawyers focus primarily on one substantive area of class practice (such as securities, labor, or antitrust); others find it better business strategy to file a number of different kinds of claims and manage a diversified portfolio of class-action cases.2

1. See Pinto v. Princess Cruise Lines, Ltd., 513 F. Supp. 2d 1334, 1340 (S.D. Fla. 2007) (“From the time Class Counsel filed suit, there existed a real possibility that they would achieve no recovery for the Class and hence no compensation. Class Counsel’s investment of time and expenses has always been at risk and wholly contingent on the result they achieved.”). 2. See Note, Risk-Preference Asymmetries in Class Action Litigation, 119 Harv. L. Rev. 587, 595 (2005) (“Class counsel . . . can diversify against risk much like an insurer can.”).

Types of Class Actions

§ 3.1.1 Securities The typical securities class action involves a shareholder suing a corporation on behalf of a class of shareholders because its management’s dishonest conduct caused its share price to drop,3 harming the various shareholders. This dishonest conduct usually involves either affirmative misrepresentations—or the withholding of information—about events that materially influence the value of the company’s stock. A securities class action usually involves allegations that corporate management engaged in improper accounting methods to disguise poor company performance, in order to keep the stock price artificially high. The harm occurs when the truth is revealed, driving the stock price down from its peak. A number of courts have remarked that securities-fraud allegations are particularly well suited to resolution by class litigation.4 They do offer distinct advantages to plaintiffs’ lawyers equipped to handle them: much of the evidence is both publicly available (in the form of stock prices and public disclosures), and presumed to apply to the class as a whole.5 As a result, the popular perception is that securities class actions are easier to certify than other types of class actions.6 Partly because of the perceived ease of certifying a class, securities class actions themselves have become heavily regulated. The Private Securities Litigation Reform Act (PSLRA)—originally passed to curb perceived abuses

3. Stephanie Planich, et al., 2008 Trends: Subprime and Auction-Rate Cases Continue to Drive Filings, and Large Settlements Keep Averages High, NERA Economic Consulting, July 2008, at 8 (noting that large price drops affect the probability that a securities class action will be filed). 4. Green v. Wolf Corp., 406 F.2d 291, 296 (2d Cir. 1968) (securities class action “may well be the appropriate means for expeditious litigation of the issues, because a large number of individuals may have been injured, although no one person may have been damaged to a degree which would have induced him to institute litigation solely on his own behalf ”); Eisenberg v. Gagnon, 766 F.2d 770, 785 (3d Cir. 1985) (“Class actions are a particularly appropriate and desirable means to resolve claims based on the securities laws, since the effectiveness of the securities laws may depend in large measure on the application of the class action device.”(internal quotation omitted)); In re Vivendi Universal, S.A. Sec. Litig., 242 F.R.D. 76, 91 (S.D.N.Y. 2007) (“As courts have frequently noted, class action treatment is particularly appropriate when plaintiffs seek redress for violations under the securities laws.”). 5. Basic, Inc. v. Levinson, 485 U.S. 224, 250 (1988) (“It is not inappropriate to apply a presumption of reliance supported by the fraud-on-the-market theory.”); see also Amchem Prods. Inc. v. Windsor, 521 U.S. 591, 625 (1997) (“Predominance is a test readily met in certain cases alleging consumer or securities fraud or violations of the antitrust laws.”). 6. This does not mean that certification is automatic for securities class actions, however. See Newton v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 259 F. 3d 154, 162 (3d Cir. 2001) (affirming denial of certification of securities class).

55

56

Chapter 3 Constructing a Class Action Lawsuit

by members of the plaintiffs’ bar7—imposes a number of additional requirements on the plaintiff and her counsel before filing a complaint. Before a plaintiff files a securities complaint, she must certify through a sworn statement that she: • reviewed the complaint and authorized filing; • did not buy the security just to file suit; • is willing to serve as a class representative, even if that means giving testimony at trial; • has provided all information about her transactions in the stock during the class period; • has identified all securities actions in which she has participated in the last three years; and • will not accept payment beyond her pro-rata share of recovery.8 A securities plaintiff must also provide notice to class members within 20 days of filing a complaint.9 The PSLRA imposes additional burdens at the motion-to-dismiss stage, including requiring the plaintiff to specifically plead facts showing how defendant’s misconduct caused her investments to suffer a loss (known as “loss causation”)10 and to specifically plead facts underlying any allegations of falsity or the defendant’s state of mind (scienter).11 Despite these additional statutory requirements, securities class actions remain a popular form of class action, especially in the wake of the Enron-era scandals of the early 2000’s and the financial industry calamities of 2008.12 One distinct subset of the securities class action is the retirement plan “company stock” class action under the Employee Retirement Income Security Act (“ERISA”).13 Because the substantive law underlying the litigation is different—ERISA, instead of the securities laws—ERISA “company stock” class

7. Stephen J. Choi & Robert B. Thompson, Securities Litigation and its Lawyers: Changes During the First Decade after the PSLRA, 106 Colum. L. Rev. 1489, 1489 (2006); see also Patrick Dillon & Carl M. Cannon, Circle of Greed: The Spectacular Rise and Fall of the Lawyer Who Brought Corporate America to Its Knees (2010) 225 (noting that Republican Congressional staffers called the PSLRA the “Get Lerach Act” after the prominent securities lawyer William Lerach). 8. 15 U.S.C. §§ 77z-1(a)(2)(A)–78u-4(a)(2)(A). 9. Id. §§ 77z-1(a)(3)(A)(i)(II), 78u–4(a)(3)(A)(i)(II). 10. Dura Pharms., Inc. v. Broudo, 544 U.S. 336, 346–48 (2005). 11. Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (2007). 12. John C. Coffee, Jr. & Stefan Paulovic, Class Certification: Developments Over the Last Five Years, 2002-2007: The Future of Class Actions, 8 Class Action Litig. Report (BNA) 787 (Oct. 26, 2007) (“Securities class actions have long been the largest single category of class actions.”). 13. 29 U.S.C. § S 1001 et seq. ERISA class actions are a recent growth area. See Coffee & Paulovic, Class Certification Developments, 8 Class Action Litig. Report (BNA) 787.

Types of Class Actions

actions are not subject to the PSLRA. However, the general theory of liability— that plaintiffs who work for a particular employer invested in a retirement plan (usually a 401(k)), which in turn invested in the stock of the plaintiffs’ employer that lost value—is very similar to a securities class action. As a result, some firms will specialize in ERISA-based securities class action, filing them parallel to other securities lawsuits. The market for securities class actions tends to be saturated, dominated by a few large firms, and therefore more difficult to enter successfully.14 Securities class actions tend to attract established, well-funded plaintiffs’ firms with large institutional clients.15 Given these environmental factors, securities class actions often delve into the merits of plaintiff’s claims faster than in other class actions. The defendant will often file a motion to dismiss (or motion for summary judgment) denying that it knowingly committed any fraudulent act. To the extent that the defendant does challenge certification, it will most likely focus on arguing that the plaintiff is not an adequate class representative, on demonstrating that the particular securities market was efficiently traded, and on reducing the length of the defined class period.

§ 3.1.2 Labor/Employment The typical labor or employment class action challenges a policy or pattern of conduct at an employer firm that allegedly harmed certain categories of its employees. That conduct might involve discrimination16 or not paying required wages or benefits.17 In some cases, plaintiffs might also bring—and courts might consider—class actions involving more individualized allegations, such as a pattern of sexual harassment.18 The most common recent filings have been wage-and-hour actions, which allege that the plaintiff was not paid for all the time she actually worked, and invoke either the Fair Labor

14. Choi & Thompson, Securities Litigation and its Lawyers, 106 Colum. L. Rev. at 1518. 15. For one example of competition to represent an institutional investor that was made public, see http://www.law.com/jsp/tal/digestTAL.jsp?id=1202437875355&Plaintiffs_Secrets_Revealed_ Proposals_from_Florida_Pension_Fund_Beauty_Contest_Are_Treasure_Trove_of_Client_ and_Fee_Info. 16. See, e.g., Carpenter v. Boeing Co., 456 F.3d 1183, 1187 (10th Cir. 2006) (“Discrimination suits are often filed as putative class actions.”). 17. See In re Wal-Mart Stores, Inc. Wage and Hour Litig., 505 F. Supp. 2d 609 (N.D. Cal. 2007). 18. For an in-depth discussion of the challenges faced by one firm that ultimately prevailed in bringing a sexual-harassment class action, see Clara Bingham & Laura Leedy Gansler, Class Action: The Story of Lois Jenson and the Landmark Case that Changed Sexual Harassment Law (2002).

57

58

Chapter 3 Constructing a Class Action Lawsuit

Standards Act, (“FLSA”), state minimum-wage laws, or both.19 Labor class actions have proved a growth area for complaints in recent years.20 The FLSA—which generally requires employers to pay set minimum wages and overtime rates—also allows for collective actions under 29 U.S.C. § 216(b), provided the members of the proposed class are “similarly situated.”21 The procedure for obtaining certification of FLSA collective actions is different than that for Rule 23 class actions,22 and is generally considered more permissive.23 FLSA certification usually occurs in two parts. First, at the “notice stage,” the trial court decides (based on pleadings and affidavits) whether it should notify potential class members of the actions.24 At this point, it considers two factors: (1) are there other employees who want to join the action, and (2) are those employees “similarly situated” to the plaintiff?25 If the court decides in favor of notice (and with it, conditional certification), it informs the putative class members with a court-ordered notice and provides them an opportunity to opt into (not out of) the class.26 Once any other plaintiffs have opted in, discovery commences.27 Once discovery is mostly complete, the defendant moves for decertification if appropriate.28 “[T]he more material distinctions [are] revealed by the evidence, the more likely the district court is to decertify the collective action.”29 That said, some individualized issues may not justify decertification if the underlying law has granted the plaintiff certain “procedural advantages.”30 If the court decertifies the proposed opt-in class action, it dismisses the opt-in plaintiffs without prejudice to reasserting their claims individually.31

19. Coffee & Paulovic, 8 Class Action Litig. Report (BNA) 787; see also Ellis v. Edward D. Jones & Co., L.P., 527 F. Supp. 2d 439, 459 n.19 (W.D. Pa. 2007) (noting “explosion” of hybrid lawsuits including both state and FLSA actions”). 20. Howard M. Erichson, CAFA’s Impact on Class Action Lawyers, 156 U. Pa. L. Rev. 1593, 1619–21 (2008) (noting rise in FSLA class-action filings); see also Coffee and Paulovic, Class Certification Developments, 8 Class Action Litig. Report (BNA) 787. 21. The Age Discrimination in Employment Act has also borrowed this mechanism. 29 U.S.C. § 626(b); see also Thiessen v. Gen. Elec. Capital Corp., 267 F.3d 1095, 1102 (10th Cir. 2001). 22. Bouapha v. Tyson Foods, Inc., 564 F. Supp. 2d 870, 887 (N.D. Iowa 2008) (“Despite their confusing semantic similarities, the differences between class actions and collective actions are great.”). 23. Thiessen, 267 F.3d at 1105 (noting “similarly situated” standard easier than Rule 23). 24. See Mooney v. Aramco Servs. Co., 54 F.3d 1207, 1214 (5th Cir. 1995). 25. Anderson v. Cagle’s, Inc., 488 F.3d 945, 953 (11th Cir. 2007). 26. Mooney, 54 F.3d at 1213–14. 27. Id. 28. Id. at 1214. 29. Anderson, 488 F.3d at 953. 30. See Thiessen, 267 F.3d at 1107–1108 (district court erred in decertifying proposed “pattern or practice” class because of presence of individualized affirmative defenses). 31. Mooney, 54 F.3d at 1214.

Types of Class Actions

In general, labor class actions (and FLSA collective actions) center around the scope of the defendant’s alleged conduct. The plaintiff will try to show that the conduct is part of a pattern or practice that affected a large number of employees in a similar fashion. The defendant will try to show that it treated individual employees differently.

§ 3.1.3 Product Liability The typical product-liability class action involves a consumer suing a manufacturer for releasing an allegedly defective product into the marketplace. The alleged defect can be in either design or manufacture. Debates over the certifiability of products-liability class actions center on issues of causation and injury. The plaintiff will argue that the alleged defect caused the same injury across the class. The defendant will argue that variations in design, manufacture, or use mean that causation and injury cannot be established on a class-wide basis. Product liability class actions, while popular through the 1990s and early 2000s, are now widely perceived as difficult to certify.32 The primary reason for this change is the number of courts that have held that causation of legally cognizable injury is difficult to establish on a class-wide basis.33 Plaintiffs who still pursue products-liability classes now bring fraudulent concealment, breach-of-warranty, or breach-of-contract claims, and ask for damages that do not require proving a specific, concrete injury.34

§ 3.1.4 Consumer Fraud In the typical consumer-fraud class action, the plaintiff claims that she was misled (either by an affirmative misrepresentation or the omission of important information) into overpaying for some good or service. Consumer fraud is not industry specific, it can exist almost anywhere. Consumer fraud cases are appealing because they tell a compelling story: Unscrupulous corporation with vast resources takes advantage of unwitting consumers. Moreover, individuals often have not lost enough money to justify prosecuting individual

32. See Amchem Prods. Inc., 521 U.S. at 620–22 (noting that mass torts are generally not suitable for certification); In re Am. Med. Sys., 75 F.3d 1069, 1089 (6th Cir. 1996) (recognizing national trend of denying certification to proposed products-liability class actions); In re Fosamax Prods. Liab. Litig., 248 F.R.D. 389, 396 (S.D.N.Y. 2008) (“Lower courts almost unanimously have rejected class certification in pharmaceutical products liability actions . . .”). 33. In re Fosamax Prods. Liab. Litig., 248 F.R.D. at 395. 34. See Robinson v. Am. Honda Motor Co., Inc., 551 F.3d 218, 223–25 (4th Cir. 2009) (plaintiffs brought breach-of-warranty case claim alleging tires wore down too quickly).

59

60

Chapter 3 Constructing a Class Action Lawsuit

lawsuits, and consumer protection agencies may lack the resources to investigate all alleged frauds. The central debate in a consumer-fraud class action focuses on reliance. Most courts have held that “a fraud class action cannot be certified where individual reliance will be an issue.”35 As a result, the plaintiff will seek to remove the question of individual reliance from the case, either by invoking a consumer-fraud statute that arguably does not require it,36 or by recasting her claim as another cause of action, like breach of contract or breach of warranty.37 The defendant, on the other hand, will seek to make individual reliance (or its cousin, causation) the most important issue in the case.

§ 3.1.5 Antitrust In the typical antitrust class action, the plaintiff sues a firm for either conspiring to fix prices or engaging in some other anticompetitive conduct that resulted in artificially inflated prices for the product.38 Antitrust class claims are attractive because courts often rule that liability may be proven on a classwide basis, even if damages are more individualized.39 Some trial courts have gone so far as to say the inherent nature of antitrust class actions justifies certification: 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 or allowing the class.40

While the Third Circuit has since disavowed this dictum,41 the sentiment remains popular among some trial courts. Antitrust class actions also involve

35. See, e.g., Castano v. Am. Tobacco Co., 84 F.3d 734, 745 (5th Cir. 1996). 36. See In re Mercedes-Benz Tele Aid Contract Litig., 257 F.R.D. 46, 66 n.9 (D.N.J. 2009) (noting that New Jersey Consumer Fraud Act does not require proof of reliance). 37. See Robinson, 551 F.3d at 223–25. 38. The former conduct is a violation of Section 1 of the Sherman Act; the latter a violation of Section 2. 15 U.S.C. §§ 1–2. 39. See, e.g., Amchem Prods. Inc., 521 U.S. at 625 (“Predominance is a test readily met in certain cases alleging . . . violations of the antitrust laws.”); Cordes & Co. Fin. Servs. v. A.G. Edwards & Sons, Inc., 502 F.3d 91, 105 (2d Cir. 2007). 40. Cumberland Farms, Inc. v. Browning-Ferris Indus., Inc., 120 F.R.D. 642, 645 (E.D. Pa. 1988) (citations omitted). 41. In re Hydrogen Peroxide Antitrust Litig., 552 F.3d 305, 321 (3d Cir. 2008) (“These statements invite error. Although the trial court has discretion to grant or deny class certification, the court should not suppress ‘doubt’ as to whether a Rule 23 requirement is met—no matter the area of substantive law.”).

Types of Class Actions

an attractive populist rhetoric,42 as well as established methods of proving class-wide liability using economic formulae and statistics. However, antitrust cases have experienced some backlash in recent years. As the Third Circuit has observed, “certain antirust class actions may present prime opportunities for plaintiffs to exert pressure upon defendants to settle weak claims.”43 And other appellate courts have pointed out that a trial court may not assume that class-wide evidence exists for all antitrust claims.44 There are two central debates in an antitrust class action. The first concerns whether the plaintiff can prove the effect of anticompetitive conduct on a class-wide basis.45 The other, related debate concerns the definition of the relevant market.46 The plaintiff will try to define both antitrust injury and the relevant market in a way that allows her to demonstrate the elements of an antitrust claim using class-wide proof. The defendant, on the other hand, will emphasize the varied behaviors of customers in the relevant market that make proving antitrust injury an individualized issue.

§ 3.1.6 Environmental In the typical environmental class action, the plaintiff sues the defendant for contaminating the local environment in some fashion.47 For example, a firm

42. Kristian v. Comcast Corp., 446 F.3d 25, 58 (1st Cir. 2006) (“[W]ithout some form of class mechanism—be it class action or class arbitration—a consumer antitrust plaintiff will not sue at all.”). 43. In re Hydrogen Peroxide Antitrust Litig., 552 F.3d at 310. 44. See, e.g., Robinson v. Tex. Auto. Dealers Ass’n, 387 F.3d 416, 425 (5th Cir. 2004) (trial court abused discretion by assuming predominance of allegedly common issues); Blades v. Monsanto Co., 400 F.3d 562, 571 (8th Cir. 2005) (“The ability to use common evidence to show impact on all class members cannot always be assumed.”). 45. See In re Hydrogen Peroxide Antitrust Litig., 552 F.3d at 311. 46. See Heerwagen v. Clear Channel Commc’ns, 435 F.3d 219, 224 (2d Cir. 2006) (“resolution of the class action motion boiled down to one pivotal question: whether the relevant market for assessment of plaintiff ’s § 2 claim was national, thus justifying a national class”). This is also a central merits debate in most antitrust cases. See Republic Tobacco Co. v. N. Atl. Trading Co., 381 F.3d 717, 737 (7th Cir. 2004) (plaintiff could not avoid defining specific market in monopolization claim because “[e]conomic analysis is virtually meaningless if it is entirely unmoored from at least a rough definition of a product and geographic market”). 47. See Gintis v. Bouchard Transp. Co., Inc., 596 F.3d 64, 65–66 (1st Cir. 2010) (suing tugboat company for accident that spilled oil along Massachusetts coastline); Mejdrech v. Met-Coil Sys. Corp., 319 F.3d 910, 910–911 (7th Cir. 2003) (Posner, J.) (granting appellate review “in order to determine the appropriateness of class action treatment in pollution cases”); Sterling v. Velsicol Chem. Corp, 855 F.2d 1188, 1192 (6th Cir. 1988) (“[P]laintiffs, who either lived or owned property near defendant’s landfill, brought a class action for personal injuries and property damage resulting from hazardous chemicals leaking from the landfill and contaminating the local water supply.”).

61

62

Chapter 3 Constructing a Class Action Lawsuit

that dumps waste into groundwater,48 or releases contaminants into the air,49 may be the focus of an environmental class action. Unlike a number of other class actions, environmental classes are frequently defined by reference to geographic areas.50 Environmental class actions will often assert causes of action such as negligence,51 trespass,52 nuisance,53 and violation of state54 or federal environmental statutes. And the damages they seek usually center on damage to (or diminution in value of) property.55 As a result, environmental class actions are likely to center on issues of ascertainability56 and causation.57 The plaintiff will try to show that a single incident or pattern of conduct caused harm to a group of claimants; the defendant, on the other hand, will argue that determining causation of injury presents too many individual issues to certify a class.

§ 3.1.7 Civil Rights Civil rights class actions have a long and storied history. In fact, the 1966 amendments to Rule 23 were enacted in large part to enable the beneficial effects of various civil rights class actions.58

48. Sterling, 855 F.2d at 1192; Turner v. Murphy Oil USA, Inc., 234 F.R.D. 597, 602 (E.D. La. 2006) (plaintiffs sued oil company for Hurricane Katrina-related oil spill that, among other things, polluted groundwater). 49. Trimble v. Asarco, Inc., 232 F.3d 946, 950 (8th Cir. 2000) (plaintiffs alleged lead smelter had released contamination into air). 50. Mejdrech, 319 F.3d at 911 (“The class members’ homes occupy a contiguous area the boundaries of which are known precisely.”); Labavue v. Olin Corp., 231 F.R.D. 632, 638, 641 (S.D. Ala. 2005) (defining class as “all property owners within a 20 to 25 kilometer radius of Olin’s McIntosh facility”); Olden v. La-Farge Corp., 203 F.R.D. 254, 268 (E.D. Mich. 2001) (plaintiffs defined class as “all owners of single family residences in the City of Alpena whose property was invaded by toxic pollutants and contaminants which originated from Defendant’s facility”). 51. See Labavue, 231 F.R.D. at 640; Olden, 203 F.R.D. at 259. 52. See Olden, 203 F.R.D. at 259. 53. See Gintis, 596 F.3d at 66; Olden, 203 F.R.D. at 259. 54. See Gintis, 596 F.3d at 66 (plaintiffs asserted causes of action under Massachusetts environmental-damage statutes). 55. Labavue, 231 F.R.D. at 638 (plaintiffs seek “recovery for alleged property damage on the theory that mercury contamination originating from Olin has diminished the value of their property”). 56. See id. at 662–65. 57. See Gintis, 596 F.3d at 67 (“focus will be on the plaintiffs’ claims that common evidence will suffice to prove injury, causation and compensatory damages”); Labavue, 231 F.R.D. at 680 & n.103 (discussing role of causation in certification debate for various environmental class actions and noting “the causation inquiry is critical”). 58. See Fed. R. Civ. P. 23, Advisory Committee Notes, 1966 Amendments, Subdivision (b)(2) (“Illustrative are various actions in the civil-rights field, where a party is charges with

Types of Class Actions

In the typical civil rights class action, the plaintiff sues the defendant for violating some right guaranteed by the United States Constitution. Civil rights class actions are most effective when challenging a pattern or practice of discriminatory conduct, as opposed to conduct that may be the exception to the rule.59 And, because they usually challenge some ongoing practice, they often involve requests for injunctive relief.60 Civil rights class actions have become harder to certify in recent years. Since Title VII has been revised to allow for jury trials, compensatory damages, and punitive damages, the justifications for seeking sweeping injunctive relief in a class action have lessened.61

§ 3.1.8 Statutory Violations Entrepreneurial class-action lawyers may also seek out statutes that may grant large damage awards. For example, in the late 1990s, class actions against “blast faxers” under the Telecommunications Protection Act (“TCPA”)62 were popular;63 since then, class actions alleging violations of the Fair and Accurate Credit Transaction Act of 2003 (“FACTA”)64 have come into vogue.65 (The TCPA imposes a $500 penalty on any entity that sends an “unsolicited” fax;66 FACTA imposes between $100 and $1,000 in statutory damages on any vendor who fails to redact all but the last five digits of a credit-card number on a receipt.)67 Because the alleged violations of these statutes are technical, meaning the plaintiff need not demonstrate actual harm in order to prove liability, and because violations (if they occur) tend to

59. 60.

61. 62. 63. 64. 65.

66. 67.

discriminating unlawfully against a class, usually one whose members are incapable of specific enumeration.”). Cooper v. Fed. Reserve Bank, 467 U.S. 867, 876 (1984); see also Reid v. Lockheed Martin Aeronautics Co., 205 F.R.D. 655, 659–60 (N.D. Ga. 2001). See Miller v. Spring Valley Props., 202 F.R.D. 244, 247 (C.D. Ill. 2001) (“Plaintiffs seek a permanent injunction enjoining Defendants from discriminating against African Americans in violation of the Fair Housing Act and remedial relief to remedy the past effects of Defendants’ alleged discriminatory practices.”). See Reid, 205 F.R.D. at 660–61. 47 U.S.C. § 227 et seq. See, e.g., Kenro, Inc. v. Fax Daily, Inc. 962 F. Supp. 1162 (S.D. Ind. 1997); Forman v. Data Transfer, Inc., 164 F.R.D. 400 (E.D. Pa. 1995). 15 U.S.C. § 1681 et seq. See, e.g., Cicilline v. Jewel Food Stores, Inc., 542 F. Supp. 2d 831, 834 (N.D. Ill. 2008) (certifying FACTA class); Ramirez v. MGM Mirage, Inc., 524 F. Supp. 2d 1226, 1237 (D. Nev. 2007) (denying motion to dismiss FACTA class action). See also Sheila B. Scheuerman, Due Process Forgotten: The Problem of Statutory Damages and Class Actions, 74 Mo. L. Rev. 103, 112–13 (2009) (enumerating various FACTA class actions). 47 U.S.C. § 227(b)(3). 15 U.S.C. § 1681n(a)(1)(A).

63

64

Chapter 3 Constructing a Class Action Lawsuit

involve a single company practice that affects large numbers of people, there may be little individualized evidence for the jury to evaluate at trial. There are risks to pursuing mandatory statutory penalties in a class action. Some courts may balk at what they view as large-stakes “gotcha” litigation where millions of dollars of liability may turn on a technical violation of a statute.68 As a result, they may deny class certification simply to avoid bankrupting a defendant as a result of an innocent mistake that caused little harm. While they might not explicitly say so, courts may exercise judicial discretion to deny class certification by looking more carefully at, for example, the superiority requirement.69 Or they might invoke the absurdity doctrine of statutory interpretation, which counsels that “statutes are not to be applied according to their literal terms when doing so achieves a result manifestly not intended by the legislature.”70

§ 3.2 Identifying a Potential Class Action Not all lawsuits are well suited to be class actions. Ironically, individual cases with extremely compelling facts—a particularly sympathetic plaintiff, a clearcut fraudulent statement, large potential damages—can be the worst candidates for expanding into a class action. A particularly sympathetic plaintiff may not be typical of other class members; a clear-cut fraudulent statement may be difficult to prove on a class-wide basis; and large potential damages to individual victims may indicate that individual lawsuits are not only feasible, but a better alternative than class-action litigation. A plaintiff’s lawyer interested in class litigation should look for conduct involving a large-scale, uniform harm, preferably one in which the harm per person is too small to justify individual lawsuits. These characteristics fit well with “the policy at the very core of the class mechanism,” which “is to overcome the problem that small recoveries do not provide the incentive for any individual to bring a solo action prosecuting his or her rights.”71 A plaintiff’s lawyer should ask himself whether the case has nationwide scope. If so, can it be pursued under federal law? If not, can plaintiff argue for

68. See Blanco v. CEC Ent. Concepts, L.P., No. CV 07-0559 GPS (JWJx), 2008 WL 239658 (C.D. Cal. Jan. 10, 2008) (“In essence, this is a class action for a technical violation of FACTA . . .”). 69. Parker v. Time-Warner Ent. Co., 331 F.3d 13, 22 (2d Cir. 2003) (remanding and suggesting lower court could decline to certify FACTA class action based on statutory damages awards); Leysoto v. Mama Mia I., 255 F.R.D. 693, 694 (S.D. Fla. 2009) (finding FACTA class action not superior because of size of statutory damages award). 70. Parker, 331 F.3d at 23 (Newman, J., concurring). 71. Amchem Prods., 521 U.S. at 617.

Identifying a Potential Class Action

the extraterritorial application of state law? Or is the case worth filing as a state-only class?72 In selecting a legal theory, a plaintiff must watch out for the danger of federal preemption. She must also beware of other legal restrictions on claims, such as class-action caps under the Truth in Lending Act.73 It is also important to make sure that there are no strong matter-of-law defenses against the claim. And the plaintiff must also watch out for various pre-filing requirements; in addition to those in the PSLRA, some states’ consumer-fraud acts and warranty statutes may require pre-filing notice to the defendant of its alleged breach or bad conduct. The single most important component to successfully identifying a potential class action is extensive research. At least in successful cases, much of plaintiff’s counsel’s work is done long before any complaint is filed.74 Ideally, the plaintiff should be prepared to sketch the contours of a summary judgment motion by the time she files her complaint.75 The plaintiff should know specifically what the defendant’s bad conduct was, what effect that conduct had on the class, how to prove causation on a class-wide basis, and how to establish damages on a class-wide basis. Researching the complaint before filing it costs both time and money, both of which are being spent with no guarantee of return.76 However, strong research up front reduces the need to rely on extensive discovery for basic information about the value and likely arc of a case, and allows for greater leverage at any early settlement talks when the plaintiff may be in greater control of the facts than the defendant is. Some lawyers will follow the news, watching for various corporate disasters, investigative reports of widespread frauds or defective products,77

72. Different plaintiffs’ firms will have different tolerances for profit margins on a case. Some firms specialize in low-overhead, but comparatively low-recovery cases. Other firms specializing higher-margin lawsuits may be able, in individual cases, to subsidize a lower-margin state court lawsuit if the reasons are compelling. 73. See Johnson v. W. Suburban Bank, 225 F. 3d 366, 374 (3d Cir. 2004) (“individual plaintiff recoveries available in a class action may be lower than those possible in individual suits because the recovery available under TILA’s statutory cap on class recoveries is spread over the entire class”). 74. See Jonathan T. Molot, A Market in Litigation Risk, 76 U. Chi. L. Rev. 367, 384 (2009) (“More prominent, successful plaintiffs’ lawyers take only more valuable cases, and they engage in serious due diligence before they decide to take a case.”). 75. Dillon & Cannon, Circle of Greed 83 (plaintiffs’ lawyer William Lerach viewed complaint as “instrument of torture” for defendant); Jane Schapiro, Inside a Class Action: The Holocaust And The Swiss Banks 28 (2003) (plaintiff ’s attorney spent months compiling documents before filing complaint). 76. Id. at 40, 108–09 (describing resources spent on preparing complaint). 77. See In re Synthroid Marketing Litig., 264 F.3d 712, 714 (7th Cir. 2001) (noting that after publication of drug study, “lawyers across the county began filing class action suits”); In re Orthopedic Bone Screw Prods. Liab. Litig., 176 F.R.D. 158, 165 (E.D. Pa. 1997) (noting plaintiffs pursued claims following 20/20 broadcast examining the screws used during spinal

65

66

Chapter 3 Constructing a Class Action Lawsuit

government investigations of alleged corporate wrongdoing,78 or where a company has engaged in a product recall of some kind.79 (Sometimes, plaintiff’s counsel do not have to follow the news: press coverage of some issues may simply bring clients to their door;80 this, however, is not an event on which counsel can rely.) There are good reasons to follow government investigations in looking for controversies that may be well suited to class litigation. To begin, they may require less investment relative to the return they ultimately provide, since the government has already done much of the necessary work to prepare the case for trial.81 As a result, cases following government investigations can move faster.82 They may also be more valuable than non-investigated cases: at least one study has found that—for securities class actions—an official investigation may increase the settlement value of the case by as much as

78.

79.

80. 81.

82.

fusion surgery); see also Dillon & Cannon, Circle of Greed 343 (“Ritually, William Lerach . . . scanned the headlines of the national and local newspapers . . . look[ing] for early signs of corporate misdeeds.”). In re Hydrogen Peroxide Antitrust Litig., 552 F.3d at 308 (noting that “[a]fter the United States Department of Justice and the European Commission began investigating possible violations of the antitrust laws in the hydrogen peroxide industry, several plaintiffs filed class action complaints against producers of hydrogen peroxide and persalts”); Krell v. Prudential Ins Co., 148 F.3d 283, 292 (3d Cir. 1998) (“While the Task Force was conducting its investigation, parties continued to file individual claims and class actions against Prudential in both state and federal court.”); Baum v. Great W. Cities, Inc., 703 F.2d 1197, 1201–02 (10th Cir. 1983) (class action followed FTC investigation); Jones v. Allercare, Inc., 203 F.R.D. 290, 294 (N.D. Ohio 2001) (class action followed EPA-urged product recall); see also William B. Rubinstein, On What a “Private Attorney General” Is—And Why It Matters, 57 Vand. L Rev. 2129, 2159 (2004) (“On the heels of the Justice Department’s pursuit of Microsoft for antitrust violations, class action attorneys filed cases on behalf of private consumers of Microsoft products in state courts throughout the country.”); Jeffrey Toobin, “ The Man Chasing Enron,” The New Yorker, Sept. 9, 2002, at 86 (describing how Lerach “shadow[s] the procession of corporate disasters”). See Diaz-Ramos v. Hyundai Motor Co., 501 F.3d 12, 14 (1st Cir. 2007) (plaintiff filed class action in Puerto Rico after Hyundai launched recalls of various model-year Accents whose suspensions were susceptible to corrosion in “salt belt” states); Cole v. Gen. Motors Corp., 484 F.3d 717, 719 (5th Cir. 2007) (plaintiffs filed class action after receiving notice of Cadillac recall from GM). Schapiro, Inside a Class Action 54–55 (press coverage of Swiss Bank controversy prompted plaintiff to approach counsel). See, e.g., John H. Beisner, et al., Class Action “Cops”: Public Servants or Private Entrepreneurs?, 57 Stan. L. Rev. 1441, 1453–54 (2005) (“The reason class action lawyers prefer to follow—rather than to lead— government investigations is simple: those lawyers prefer ‘no research’ lawsuits that appear likely (from the investigation itself) to yield lucrative settlements with only a minimal investment of time and money.”). See Dillon & Cannon, Circle of Greed 177 (Lerach noted in pitch to institutional investor than, in proposed securities class action against Charles Keating, “We’ve got the government out front, and they’re getting documents within forty-eight hours, where it might take us a year . . .”)

Forum Considerations

20 percent.83 Indeed, the publicity resulting from a government investigation (or government litigation) may provide very attractive background atmospherics for litigation.84 However, there are also a number of risks to piggybacking upon government investigations. First, assuming the plaintiff seeks monetary damages, a class action based on a government investigation may flunk the superiority test of Rule 23—a court may find that class litigation is not the “superior” way to address the wrongdoing because a regulatory agency is already addressing the issue.85 In addition, given the plaintiffs’ firms that are out researching new causes of action (and, as discussed below, given that sometimes nudging the government into investigation may be one firm’s litigation tactic), following a government investigation runs the risk of filing a lawsuit that has ceded a significant head start to other plaintiffs’ firms.86

§ 3.3 Forum Considerations For a long time, the phrase “forum-shopping” evoked for defendants images of plaintiff’s counsel settling in a “magnet jurisdiction” or “judicial hellhole,” and using a heavily politicized state court as a preferred forum in which to file large numbers of industry-shaking class actions.87 On the other side, plaintiffs would argue that keeping a case in state court allowed them to leverage their “greater familiarity with state procedure,” afforded a “greater likelihood of securing justice for clients,” and kept cases in front of “local judges . . .

83. See Planich, et al., 2008 Trends, NERA Economic Consulting, July 2008, at 22 (“We find that cases with any kind of official investigation, consent decree or penalty settle for approximately 20% more than cases without any official action. This includes any announced investigation by any official body (the SEC, the New York Attorney General’s Office, etc.) relevant to the allegations in the complaint. Although many such investigations result in no finding of fault, this broad measure of official action has greater predictive power for settlements than does a measure that considers only cases where there was some finding of fault.”). 84. See William H. Page, Class Certification in the Microsoft Indirect Purchaser Litigation, 1 J. Comp. L. & Econ. 303, 328 (2005) (noting rash of state-law indirect-purchaser class actions against Microsoft: “The Microsoft indirect purchaser plaintiffs undoubtedly expected to benefit from the rulings in United States v. Microsoft.”). 85. See Kamm v. Cal. City Dev. Co., 509 F.2d 205 (9th Cir. 1975); Brown v. Blue Cross & Blue Shield, Inc., 167 F.R.D. 40, 46 (E.D. Mich. 1996) (refusing to certify class where state attorney general had already settled with defendant for public benefit). 86. See Lentell v. Merrill Lynch & Co., 396 F.3d 161, 164–65 (3d Cir. 2005) (noting that “[w]ithin weeks [of the New York Attorney General’s Investigation] some 140 class action complaints were filed, relying on the NYAG’s application to allege securities fraud”). 87. See generally Kevin M. Clermont & Theodore Eisenberg, Exorcising the Evil of Forum Shopping, 80 Cornell L. Rev. 1507 (1995).

67

68 Chapter 3 Constructing a Class Action Lawsuit

elected by the very people whose disputes they will hear, motivating speedy and fair adjudication.”88 While there are elements of truth to each side’s caricature,89 relying on them obscures many of the strategic choices that go into choosing a forum in which to bring a class-action lawsuit. A favorable judge and favorable substantive law are of course helpful, and it is naïve to think that either side will not try to focus the litigation in a court likely to be sympathetic to its arguments. But guarantees are few and far between. Judges appointed or elected by Democrats do not always side with plaintiffs and Republican judges do not always side with defendants. Further, jurisdictions that develop reputations as biased toward either side tend to implode over time. Indeed, the tendency of some state courts to “rubber stamp” class actions was one of the factors that led to the passage of the Class Action Fairness Act (CAFA).90 CAFA moved a number of class actions that formerly were filed as a matter of course in state court into federal court instead.91 But the passage of CAFA did not eliminate the need to carefully determine in which forum one should bring a class action.92 First, plaintiffs now face the question of whether it is better to seek more limited remedies on behalf of a smaller class in order to keep their case in state court. And second, while plaintiffs now file cases in federal court much more frequently,93 they still have to decide in which federal court to file.

88. Erik B. Walker, Keep Your Case in State Court, Trial, Sept. 2004, at 22, 22. 89. See, e.g., John H. Beisner & Jessica Davidson Miller, They’re Making a Federal Case Out of It . . . in State Court, 25 Harv. J. L. & Pub. Pol’y, 43 (2001) (making case for reforming jurisdictional requirements based on disproportionate number of class-action filings in Madison County, Illinois); Davis v. Cannon Chevrolet-Olds, Inc., 182 F.3d 792, 798–99 (11th Cir. 1999) (Nangle, concurring) (noting that “Plaintiffs’ attorneys are increasingly filing nationwide class actions in various state courts, carefully crafting language . . . to avoid . . . the federal courts”). 90. See S. Rep. No. 109–14, at 22–23; H.R. Rep. No. 108–144, at 12–14. See also Richard A. Nagareda, Aggregation and Its Discontents: Class Settlement Pressure, Class-Wide Arbitration, and CAFA, 106 Colum. L. Rev. 1872, 1912 (2006) (“At its extremes, the class certification game prior to CAFA involved a search for the anomolous state court that would certify a nationwide class action even though federal courts and, for that matter, most other state courts would not.”); Howard M. Erichson, CAFA’s Impact on Class Action Lawyers, 156 U. Pa. L. Rev. 1593, 1601 (2008) (“Mistrust of class action lawyers, combined with mistrust of the state court judges charged with monitoring them (or at least of the state court judges whom class action lawyers were thought most likely to seek out), propelled the expansion of federal jurisdiction over class actions.”). 91. For a further discussion of CAFA’s requirements and effects see § 4.2.2.1. 92. Samuel Issacharoff & Richard A. Nagareda, Class Settlements Under Attack, 156 U. Pa. L. Rev. 1649, 1660–61 (2008) (Forum matters . . .”). 93. Erichson, CAFA’s Impact on Class Action Lawyers, 156 U. Pa. L. Rev. at 1610 (“CAFA has increased not only the number of class action removals to federal court, but also the number of class action original filings in federal court. Indeed, the increase in original filings exceeds the increase in removals.”).

Forum Considerations

The question of where to file a class action remains a detailed, fact-intensive inquiry. Among the many factors a plaintiff must consider: • • • • • •

What is the state substantive law? What is the federal procedural law in the circuit?94 Which judges might hear the case? What local lawyers might have influence in the jurisdiction? Does the firm have a relationship with any of them? Will the demographics of the jurisdiction produce viable named plaintiffs?

One pre-CAFA empirical study identified the three factors most strongly related to a plaintiff’s choice of forum as: (1) attorney perceptions that the judges would rule favorably for their client; (2) the source of law applicable to claims; and (3) “state connections,” a measurement of in-state claimants or in-state transactions.95 Other factors that had a statistically significant relationship to choice of forum included: the substantive law, discovery rules, and the location of any competing class actions. Law. The legal environment has a real effect on forum-choice decisions.96 Differences in substantive law can drive the decision to file certain kinds of cases in different jurisdictions. For example, a plaintiff filing a consumer class action against a major cell-phone carrier might want to file in a state (such as California) that has overturned contractual requirements for arbitration of cell-phone contracts as unconscionable.97 In each of these cases, finding a favorable legal environment is an important consideration.98 The Second Circuit, for example, reviews grants of class certification under a lenient “abuse of discretion” standard, but gives denials of certification a more searching de novo standard of review.99 As a result, plaintiffs, when

94. Id. at 1612 (“federal court forum selection tends to focus on the law applied by the courts of appeals, and sometimes on specific judges hearing related cases”). 95. See Thomas E. Willging & Shannon R. Wheatman, Attorney Choice of Forum in Class Action Litigation; What Difference Does It Make?, 81 Notre Dame L. Rev. 591, 602 (2006). The statistics were based on attorney responses to questionnaires. 96. Id. at 602. 97. See § 4.2.1. 98. Erichson, CAFA’s Impact on Class Action Lawyers, 156 U. Pa. L. Rev. at 1607 (noting that “[w]hereas pre-CAFA forum shopping by class action plaintiffs focused on identifiable jury pools and judges, often in small counties, post-CAFA forum shopping focuses on circuit law, and more often lands in big cities”). 99. See, e.g., Parker, 331 F.3d at 18 (“We review class certification rulings for abuse of discretion. We review de novo the district court’s conclusions of law that informed its decision to deny class certification.”).

69

70

Chapter 3 Constructing a Class Action Lawsuit

possible, will file class actions in the Second Circuit.100 The panoply of appellate decisions also suggests that the Ninth Circuit is a more favorable venue for plaintiffs bringing a class action than the Fourth, Fifth, or Seventh Circuits. In addition, some plaintiffs, hoping to certify nationwide classes, based on state-law causes of action, may file in the defendant’s home state in order to reduce any potential choice-of-law issues. Judges. The plaintiff will also look at which jurisdictions have the best judges (that is, the most likely to favor her claims) for her lawsuit.101 In state courts—where, often, judges are elected—this can also mean looking at the local political climate. This consideration is not limited to state courts, however. The plaintiff may also favor certain federal districts because the mix of potential judges is more favorable to her interests.102 In federal court, this analysis may require determining which districts have more judges appointed by Democratic presidents as opposed to Republican presidents. While a judge’s party affiliation is not a guarantee of favorable treatment to one side or the other, it still provides a decent ruleof-thumb for determining his sympathies.103 In fact, a conscientious plaintiff will devote a great deal of energy to determine which judges might prove favorable. Finally, the plaintiff may look to which courts have the most experience adjudicating class actions. Some local courts, like the Philadelphia Court of Common Pleas, have established “mass tort” dockets.104 Some federal districts, and even individual judges (such as Judge Weinstein in the Eastern

100. Planich, et al., 2008 Trends, NERA Economic Consulting, July 2008, at 4 (“Historically, securities class action filings have been concentrated in the Second Circuit . . . and the Ninth Circuit . . . This remains the case in 2008. Year-to-date, the Second Circuithas seen more than twice as many filings as the Ninth, due in large part to subprime and auction-rate cases . . .”). 101. Willging & Wheatman, Attorney Choice of Forum in Class Action Litigation, 81 Notre Dame L. Rev. at 602–04. 102. Erichson, CAFA’s Impact on Class Action Lawyers, 156 U. Pa. L. Rev. at 1614 (“According to the FJC data, seventy percent of the federal districts saw post-CAFA increases in diversity class actions, sixteen percent decreased, and fourteen percent had no change. Notable increases occurred in the Central District of California, the District of New Jersey, the Northern District of California, the Eastern District of Pennsylvania, and the Eastern District of New York.”). 103. Kevin M. Clermont & Theodore Eisenberg, CAFA Judicata: A Tale of Waste and Politics, 156 U. Pa. L. Rev. 1553, 1585 (2008) (regression analysis indicates that judges appointed by Democratic presidents tend to rule in favor of remanding cases under CAFA more frequently than judges appointed by Republican presidents); Richard A. Posner, How Judges Think 73 (Harvard 2008) (“[A]part from the play of unconscious influences, we cannot expect federal judges to be complete political eunuchs, their decisions never influenced by politics because they have no politics. Such political neuters are unlikely to be appointed.”). 104. See Deborah R. Hensler & Mark. A. Peterson, Understanding Mass Personal Injury Litigation: A Socio-Legal Analysis, 59 Brook. L. Rev. 961, 964 (1991).

Forum Considerations

District of New York) likewise have developed reputations for expertise in class actions. This homework does not guarantee results, however—at least not in deciding between state and federal courts. One empirical study found that federal and state judges “were about equally likely to certify cases as class actions,” although federal courts were more likely to deny certifying a class, while state courts were more likely to take “no action.”105 The study also found no difference among state and federal courts regarding how they rule on dispositive procedural motions.106 The study did find differences in the amount recovered in settlements: median recovery was almost three times greater in state court than in federal court, while per-plaintiff recovery was greater in federal court.107 Different jurisdictions may also operate at different paces, which can provide additional sources of pressure on the defendant.108 The Eastern District of Virginia, for example—known locally as the “Rocket Docket”—provides very strict deadlines for bringing a case to class certification, and, ultimately, trial. A plaintiff’s lawyer who believes the imminence of a class action trial will pressure the defendant to settle may find such a jurisdiction attractive. Similarly, other jurisdictions have reputations for being less stringent with deadlines, allowing the parties to control the pace to a greater degree. These jurisdictions may be more attractive to those plaintiff’s lawyers who want sufficient time to develop a discovery record involving a complex matter,109 but they come with the added cost of allowing the defendant greater control over the pace as well. Demographics. A plaintiff may also look to file in a jurisdiction in which a large number of potential named plaintiffs reside. This allows the plaintiff to trust that, even if one class representative is disqualified for some reason, other plaintiff candidates exist for whom the court is still an appropriate venue. Moreover, a jurisdiction that produces a number of potential class representatives will likely furnish a more sympathetic jury pool. A plaintiff will occasionally file a class action in a given jurisdiction because that is where the defendant is located. For example, most securities class

105. Willging & Wheatman, Attorney Choice of Forum in Class Action Litigation, 81 Notre Dame L. Rev. at 605. It is unclear what Willging and Wheatman mean by “no action,” particularly since their certification figures appear to include certification for settlement purposes. Id. 106. Id. 107. Id. at 605–06. 108. For more on the effect of pace on class-action litigation, see § 4.4.1. 109. See Dillon & Cannon, Circle of Greed 178 (describing how Milberg Weiss transferred case “from a problematic federal judge in Los Angeles intent on a quick start to the trial—thus foreshortening the plaintiffs’ discovery, in a complicated, multidefendant case that Lerach likened to a stew simmering slowly—to a court in Tucson, Arizona, that Lerach believed would prove much friendlier terrain”).

71

72

Chapter 3 Constructing a Class Action Lawsuit

actions are filed in the Second Circuit, home to New York City, America’s financial center.110 Local politics. Finally, the plaintiff will also look at the role played by—for lack of a better term—local politics. Many jurisdictions with favorable substantive law or pro-plaintiff judges also have a well-developed local bar, which has usually invested considerable time and resources into developing the “natural resources” of the jurisdiction. This local bar is unlikely to look favorably on carpetbagging. As a result, a plaintiff filing class actions in a foreign jurisdiction must consider forging alliances with local lawyers.111 To the defendant, these alliances may look like a traditional pairing of a class-action specialist firm with “local counsel” who is admitted in the jurisdiction and has earned credibility with the local courts. But often, the relationship is different than that. It often requires cutting a local lawyer in on a share of the profits in exchange for an agreement not to interfere with a case that has been filed on their turf without their approval.112 Multiple jurisdictions. A final consideration is whether to bring a single statewide or nationwide class action in one court, or to file several single-state class actions in different courts. Bringing several single-state class actions in multiple courts can create additional pressure on the defendant. It can also reduce risk for the plaintiff. If even one state court certifies a class, the plaintiff wins, but if a single court denies class certification based on state law, that will not necessarily doom other attempts at certifying a class under a different state’s law.113

110. Planich, et al., 2008 Trends, NERA Economic Consulting, July 2008, at 4 (noting that, while securities class actions are concentrated in both the Second and Ninth Circuits, in 2008 “the Second Circuit has seen more than twice as many filings as the Ninth, due in large part to subprime and auction-rate cases; the financial institutions that these cases target are concentrated in New York”). 111. Dillon & Cannon, Circle of Greed 88 (describing alliances between “referral” firms that originated cases and Milberg, which would assume control of case). 112. See id. 89 (describing how Milberg Weiss “so dominated the field of class action securities lawsuits that ‘if other firms did not come to us with California cases, they very much risked being excluded altogether from those cases,’ Lerach wrote in an article, describing the history of Milberg Weiss”). 113. See In re Bridgestone/Firestone, Inc., Tires Prods. Liab. Litig., 333 F.3d 763, 766–67 (7th Cir. 2003) (“Relitigation can turn even an unlikely outcome into reality. Suppose that every state in the nation would as a matter of first principles deem inappropriate a nationwide class covering these claims and products. What this might mean in practice is something like ‘9 of 10 judges in every state would rule against certifying a nationwide class’ (in the federal courts, it has meant that 3 of 4 judges have ruled against the proposed nationwide classes). Although the 10% that see things otherwise are a distinct minority, one is bound to turn up if plaintiffs file enough suits—and, if one nationwide class is certified, then all the nocertification decisions fade into insignificance. A single positive trumps all the negatives. Even if just one judge in ten believes that a nationwide class is lawful, then if the plaintiffs

Selecting Appropriate Defendants 73

There are strategic costs to pursuing multi-front litigation. For one thing, it is more expensive than single-front litigation. It also requires forging alliances with numerous local law firms, which dilutes the profits any one firm will receive. And coordinating among multiple firms and courts can prove difficult, particularly if one or more of the cases appear likely to settle.

§ 3.4 Selecting Appropriate Defendants There are several factors the plaintiff must consider when selecting an appropriate defendant. First, the plaintiff will look at the depth of the defendant’s pockets.114 At the very least, the defendant must be solvent. After all, if the defendant does not have available funds, or enters bankruptcy shortly after the complaint is filed, then the plaintiff will receive no relief. In addition, the plaintiff will often try to confirm whether the defendant carries liability insurance that can cover at least part of the cost of a settlement or verdict. A defendant with insurance may be more likely to settle than one who has to pay all losses completely out-of-pocket, making it a more attractive target for litigation.115 In addition, selecting a defendant with bad press can also provide a distinct advantage early in the litigation.116 A defendant that already feels targeted by the media or government regulators may be more inclined to settle a case quickly to avoid further adverse publicity, or because it fears that its poor public reputation may undermine any chance of exoneration by the courts.117 (On the other hand, as discussed in § 3.2, a potential defendant with bad press is likely to attract a number of competing lawsuits.)

114. 115.

116.

117.

file in ten different states the probability that at least one will certify a nationwide class is 65% (0.9 10 = 0.349). Filing in 20 states produces an 88% probability of national class certification (0.920 = 0.122). This happens whenever plaintiffs can roll the dice as many times as they please—when nationwide class certification sticks (because it subsumes all other suits) while a no-certification decision has no enduring effect.”). See Dillon & Cannon, Circle of Greed 74 (Weiss and Lerach worked to prevent “overlooking [any] wealthy culpable defendant”). Cf. Richard H. Thaler & Cass R. Sunstein, Nudge: Improving Decisions About Health, Wealth & Happiness (Yale 2008) at 51 (discussing loss aversion and how people like to play with “house money”). See generally William H. Page, Class Certification in the Microsoft Indirect Purchaser Litigation, 1 J. Comp. L. & Econ. 303 (2005) (noting rise in certification of indirect-purchaser class actions attributable almost solely to litigation against Microsoft). See, e.g., Dillon & Cannon, Circle of Greed 174, 177 (describing how case against criminally accused banker Charles Keating grew stronger with each new revelation from government). For more on the effect of publicity on the defendant, see §§ 4.1.2–3.

74

Chapter 3 Constructing a Class Action Lawsuit

The plaintiff must also decide how many defendants to sue. Certain kinds of cases, like securities fraud class actions, may require the plaintiff to name multiple defendants.118 Suing multiple defendants also confers some strategic benefits. It provides the plaintiff multiple sources for recovery, and it allows the plaintiff to pursue some theories (like conspiracy or civil RICO) that would be more difficult to prove against only a single defendant. In addition, much as plaintiff lawyers face difficulties coordinating multiple lawyers in a single lawsuit, defense lawyers face the same problems: this is especially true if the plaintiff sues multiple defendants who have incentives to point fingers at each other, rather than bury their disagreements and present a common defense. (One example of this is when the plaintiff sues the manufacturer of an allegedly defective component in a consumer product, the assembling manufacturer of the finished product, and the chain of stores that sold the product to consumers. Another is when the plaintiff sues both a firm that has misstated its earnings to inflate its stock price and the accounting firm that performed its business audits.) Of course, suing multiple defendants also entails risks. The plaintiff faces an increased discovery burden. On offense, she must depose more witnesses and process more documents. On defense, there are more parties that may serve interrogatories,119 seek documents, and notice depositions. In addition, suing multiple defendants can significantly slow the pace of the litigation. The coordination problems among defendants can lead to requests for extensions, and, in general, it takes more time to reach agreement with multiple defendants on anything (protective orders, case management orders, settlement) than it would with a single defendant. Moreover, the plaintiff must ensure that the defendants have some significant connection to each other; otherwise the number of defendants alone may render the class action unmanageable.120

118. Securities-fraud plaintiffs often must name multiple defendants because of the proportionate liability provisions of the PSLRA. See Regents of the Univ. of Cal. v. Credit Suisse First Boston, Inc., 482 F.3d 372, 379 (5th Cir. 2007) (noting that trial court ordered defendants to prepare list of non-parties who might share responsibility for losses). 119. Fed. R. Civ. P. 33(a)(1) limits the number of interrogatories each party may serve on another party to 25. The more defendants a plaintiff joins in the litigation, the more interrogatories it faces. 120. See Santa Clara v. Astra USA, Inc., 257 F.R.D. 207, 210 (N.D. Cal. 2009) (“Plaintiff has joined a dozen different defendants in a similar suit on a similar theory but raises stand-alone allegations against each. Plaintiff nevertheless moves to certify a single class consisting of all California 340B entities allegedly overcharged by any of the dozen defendants. . . . Certification at this stage would be a massive undertaking fraught with a long list of questions that will vary from defendant to defendant.”).

Identifying Class Representatives

§ 3.5 Identifying Class Representatives In the early 1990s, William Lerach said: “I have the greatest law pratice in the world. No clients.”121 Lerach has been quoted often for this statement, because it reflects a deep truth about plaintiff-side practice: identifying, recruiting, and dealing with named plaintiffs can be one of the most challenging aspects of filing a class action. Despite the stories pundits may tell about American lawsuits run amok, most individuals are not litigious; instead, they view lawsuits as enormous sinks of time and resources.122 The kind of non-lawyer who is committed enough to see a class-action lawsuit through to its finish may prove very difficult to control at depositions or in court.123 Conversely, a named plaintiff who is easier to control may not be as engaged with the lawsuit, and so may lack the appearance of independent judgment courts require from an adequate class representative.124 In recent years, the difficulty of finding adequate clients has been illustrated by several trends. First, there has been a resurgence in challenges to a plaintiff’s adequacy under Rule 23(a)(4). Second, the emergence of “pay-toplay” practices, where plaintiffs’ firms make political contributions to state comptrollers who oversee pension funds in return for consideration as class counsel in securities class actions indicates that at least in securities class actions, competition for adequate clients remains fierce.125 At its worst, the indictment and prosecution of lawyers who ran kickback schemes for named plaintiffs shows the lengths some lawyers will go to in order to recruit plaintiffs.126

121. Dillon & Cannon, Circle of Greed 74; see also Jeffrey Toobin, “The Man Chasing Enron,” The New Yorker, Sept. 9, 2002, at 87. 122. See, e.g., Choi and Thompson, Securities Litigation and its Lawyers, 106 Colum. L. Rev. at 1504 (“Serving as a lead investor and monitoring litigation costs money and takes the time of employees who otherwise could be engaged in alternative income-producing activities.”). 123. See Andrews v. Bechtel Power Corp., 780 F.2d 124, 132–38 (1st Cir. 1985) (describing tensions between named plaintiff and class counsel); see also Gary L. Sasso, Class Actions: De Minimis Curat Lex?, 31(4) Litigation 20–21 (Summer 2005) (“Not surprisingly, individuals who willingly throw themselves into class action litigation often carry a great deal of baggage with them, such as personal grudges against the defendant, knowledge of the allegedly withheld facts, late-filed claims, waiver, contributory fault, lack of injury, unclean hands, releases of the claims they seek to prosecute, or agendas that are antagonistic to the interests of absent class members.”). 124. For more about plaintiff adequacy, see §§ 2.4.1, 5.2.2.4. 125. See Stephen J. Choi, et al., The Price of Pay to Play in Securities Class Actions, Working Paper Draft 22 December 2009, SSRN.com/abstract=1527047 (describing effects of “pay-to-play” practices). 126. See generally Dillon & Cannon, Circle of Greed; James B. McDonald, Milberg’s Monopoly: Restoring Honesty and Competition to the Plaintiffs’ Bar, 58 Duke L.J. 505, 506 (2009).

75

76

Chapter 3 Constructing a Class Action Lawsuit

Nonetheless, there are a number of accepted tools a lawyer can employ to identify an appropriate representative for his proposed class action. Advertising. While traditionally, bar associations have frowned on advertising for clients, it is an extremely effective way to identify potential class representatives. For example, a number of firms spend heavily on Google advertising, looking for possible class representatives. Plaintiffs’ firms also use websites to advertise potential class actions. One of the more common methods is to announce that the firm is investigating a “potential class action” about a specific subject, and ask anyone interested (or who might have information) to contact the firm.127 Similarly, some firms will set up a website officially addressing the subject matter of the lawsuit.128 If the announced investigation draws responses, the firm knows that there is a potential class action; if not, it may abandon its lawsuit with little difficulty. In general, web advertising has become an effective tool for finding potential class representatives.129 In addition, some plaintiff lawyers may use “aggregator websites” (like ClassAction.com) that, for a fee, will match a lawyer with possible litigants.130 Existing client relationships. Since the PSLRA was passed, securities plaintiffs’ lawyers have made attempts to build relationships with large institutional investors.131 This is a more common strategy in securities class actions—where institutional investors are repeat players in litigation—than in other types of class actions. Indeed, some plaintiff firms now offer free “investment monitoring” services to institutional investors: The firm offers to monitor the investor’s investments; in return, the investor agrees to use the firm if it files a lawsuit.132 There is a risk to using repeat clients outside the securities class-action context: Clients can come to be viewed as “professional plaintiffs,” which can call their adequacy as class representatives into question.133 Even in securities

127. 128. 129.

130. 131. 132. 133.

It is fair to note that, of the 56 cases listed in the Milberg indictment, only three were postPLSRA class actions. Choi and Thompson, Securities Litigation and its Lawyers, 106 Colum. L. Rev. at 1511. See Robert H. Klonoff, et al., Making Class Actions Work: The Untapped Potential of the Internet, 69 U. Pitt. L. Rev. 727, 738–40 (2008). Id. See In re Enron Corp. Secs. & ERISA Litig., 529 F. Supp. 2d 644, 726–27 (S.D. Tex. 2006) (named plaintiff “believes he learned on the Internet about the proposed class action suit.”). Klonoff, et al., Making Class Actions Work, 69 U. Pitt. L. Rev at 741–42 (describing function of aggregator websites). Choi & Thompson, 106 Colum. L. Rev. 1489, 1506. Iron Workers Local No. 25 Pension Fund v. Credit-Based Asset Servicing & Securitization, LLC, — F. Supp. 2d.—, 2009 WL 1444400, *2 (S.D.N.Y. May, 26, 2009). Some courts, however, have observed that a “professional plaintiff ” may not necessarily be an inadequate class representative. See Murray v. GMAC Mortgage Corp., 434 F. 3d 948, 954

Draft ing the Complaint

class actions, the use of “investment monitoring” agreements may compromise an investor’s ability to serve as an adequate class representative.134 Referrals/extended network. Some plaintiffs’ counsel will also make inquiries through their extended network of friends, colleagues, staff, and even family in order to identify potential class representatives. There are significant risks to this practice, however. If the named plaintiff’s relationship to the plaintiff firm is too close, then the court may find the named plaintiff to be an inadequate class representative.135 “Pay to play.” Perhaps the most controversial method of client recruitment involves making campaign donations to politicians who oversee large institutional funds (such as pension finds) in the hopes of receiving favorable treatment for work assignments down the line.136 These are, of course, only some of the most common methods plaintiff’s counsel use to identify potential class representatives. Some of the rest, like buying an assignment in bankruptcy137 are necessarily rare. Others may not have been developed yet. To a great extent, recruiting practices are limited by only two things: plaintiff’s counsel’s imagination, and the bar’s canon of ethics.

§ 3.6 Drafting the Complaint The complaint is arguably the most important document in the plaintiff’s case. It lays out the blueprint for the litigation: what the claims are, the allegations supporting them, the discovery needed to prove the case,138 even whether or not the proposed class can be certified.

134.

135.

136.

137. 138.

(7th Cir. 2006) (“What the district judge did not explain, though, is why ‘professional’ is a dirty word. It implies experience, if not expertise.”) (Easterbrook, J.). Iron Workers Local No. 25 Pension Fund v. Credit-Based Asset Servicing & Securitization, LLC, 2009 WL 1444400, *2 (monitoring arrangement “cast in doubt the adequacy of the fund to serve as lead plaintiff ”). See London v. Wal-Mart Stores, Inc., 340 F.3d 1246, 1255 (11th Cir. 2003) (“[L]ong-standing personal friendship” and prior business relationship between plaintiff and counsel rendered plaintiff inadequate class representative); Susman v. Lincoln Am. Corp., 561 F.2d 86, 94–95 (7th Cir. 1977) (counsel’s brother and colleague were inadequate class representatives). See Choi, et al., The Price of Pay to Play in Securities Class Actions, Working Paper Draft 22 December 2009, SSRN.com/abstract=1527047 (describing effects of “pay-to-play” practices). Cordes & Co. Fin. Servs., 502 F.3d at 103. See In re St. Jude Med., Inc. Sec. Litig., 629 F. Supp. 2d 915, 920 (D. Minn. 2009) (“The amended complaint is the document as to which discovery was conducted.”).

77

78

Chapter 3 Constructing a Class Action Lawsuit

§ 3.6.1 Selecting Claims The plaintiff has several strategic goals when pleading her claims. First, she needs claims that will survive a motion to dismiss.139 Second, she needs claims that can encourage settlement. Third, she needs claims that will survive precertification motions practice. Sometimes, plaintiffs’ lawyers may include claims for strategic reasons that are not strictly related to the merits of the case. For example, plaintiffs may include negligence or other unintentional tort claims (like negligent misrepresentation), not because they fit the facts of the case, but because they can allow the defendant to draw on insurance policies in settling, rather than just a litigation budget. The hope is that including such allegations will motivate the defendant to settle the case rather than litigate, because it can pass the costs of settlement on to the insurance carrier.140 The plaintiff may also file claims in order to expand the scope of discovery she can take of the defendant, even if she does not expect ultimately to prevail in those claims (or even see them included as part of any certified class action). Some plaintiffs lawyers assert every conceivable claim they can imagine in a putative class action in order to “occupy the field” of the litigation—not wanting another lawyer to obtain control over the same class members by filing a different claim that to date has not been asserted. Finally, the plaintiff may include all conceivable claims suspecting that the defendant will eventually enter into a class-wide settlement, and therefore want the broadest possible release. The plaintiff may also exclude claims for strategic reasons. For example, a number of class-action plaintiffs will file cases that appear similar to personalinjury cases, but exclude personal-injury claims from the lawsuit in order to avoid defendants’ argument that the claims cannot be certified because the issue of what caused class members’ personal injuries is inherently individualized.141 Similarly, the plaintiff may try to plead around allegations of fraud,

139. See, e.g., Gilles & Friedman, Exploding the Class Action Agency Cost Myth: The Social Utility of Entrepreneurial Lawyers, 155 U. Pa. L. Rev. 103, 156 (“Where class actions survive dispositive motions, they settle.”). 140. Former plaintiffs’ counsel William Lerach would occasionally do the opposite, filing fraud claims against officers or directors of a corporation personally with the intention of preventing them from invoking their insurance policies. “Rather than fight the charge and risk losing indemnification, the overwhelming percentage of the companies . . . sued chose to settle without ever going to court.” See Dillon & Cannon, Circle of Greed 162. 141. See, e.g., Benedict v. Altria Group. Inc., 241 F.R.D. 668, 675 (D. Kan. 2007) (noting that named plaintiff “has chosen not to pursue a claim for personal injury, which would likely inject individual issues defeating class certification”).

Draft ing the Complaint

recasting them as breach-of-contract claims in order to eliminate any problems causation or reliance might cause at certification.142 The Class Action Fairness Act (CAFA) has also affected the kinds of claims plaintiffs bring in class actions.143 And one intriguing trend is an apparent increase in class actions that invoke federal questions (as opposed to just arising under state substantive law).144

§ 3.6.2 Selecting Remedies There are several considerations to choosing remedies for a class action. The choice of remedy has a very real effect on whether or not a class can be certified. To begin, if a plaintiff seeks primarily injunctive relief instead of money, then she may ask the court to certify her class under Rule 23(b)(2) instead of Rule 23(b)(3), meaning, in practical terms, that she will not have to demonstrate that certain common issues predominate among the class, or that the class action is superior to all other forms of relief. Moreover, the choice of relief itself may have an effect on the plaintiff’s ability to demonstrate that she meets the Rule 23 requirements: for example, a plaintiff who asks for a “virtual recall” of a defective product (in the form of damages representing a uniform cost to repair) may run afoul of the superiority prong of Rule 23(b)(3), since there are government agencies tasked with ensuring that unsafe products are taken off the market.145 All else being equal, a plaintiff will usually prefer a damages award. One cannot run a law firm on injunctive relief alone, and it is easier to calculate a

142. See Sarah Roshanne Anchors, Mass Market Fraud Theory: Dispensing With Individual Reliance in Class Actions Where Plaintiffs Allege Pervasive Misrepresentations to the Public, 43 Tort Trial & Ins. Prac. L.J. 221, 222 (2008) (discussing consumer-plaintiff attempts to plead around causation requirements in fraud actions). 143. Erichson, CAFA’s Impact on Class Action Lawyers, 156 U. Pa. L. Rev. at 1615–16 (“Certain categories of class actions—contract, fraud, property damage, labor—increased after CAFA, while personal injury class actions decreased and civil rights class actions held steady. . . . The FJC data show no change or a slight decrease in personal injury tort class actions but an increase in class actions claiming property damage, breach of contract, and fraud. To a class action lawyer deciding which mass litigation opportunities justify a substantial investment of time and money, personal injury class actions may have appeared worth pursuing in state court before CAFA, but post-CAFA, if the cases would be removed to a federal court where class certification is unlikely, the lawyer may choose instead to pursue a different legal theory, demand a different type of relief, or pursue different sorts of cases.”). 144. Id. at 1617 (noting “increase in federal question class actions”). 145. See In re Bridgestone/Firestone, Inc. Tires Prods. Liab. Litig., 288 F.3d at 1019 (“Regulation by the NHTSA, coupled with tort litigation by persons suffering physical injury, is far superior to a suit by millions of uninjured buyers for dealing with consumer products that are said to be failure-prone.”) (emphasis in original).

79

80

Chapter 3 Constructing a Class Action Lawsuit

reasonable attorney’s fee by reference to a cash payment than it is to place a value on injunctive (or other non-monetary) relief.146 That said, seeking injunctive relief offers several strategic advantages: it allows plaintiff to focus almost exclusively on the defendant’s alleged bad conduct, allows her to emphasize her desire to protect absent class members, can stop behavior that affects absent class members, and can justify invoking Rule 23(b)(2) instead of Rule 23(b)(3) for class certification. In addition, injunctive relief may provide more relief to the class (and more fees to the attorneys) at less cost to everyone: injunctions may not cost the defendant as much as cash out of pocket, injunctions may cost less to oversee, and notice to the class may cost less as well.147 Rule 23(b)(2) classes also do not require the same extensive notice as Rule 23(b)(3) classes.148 Rule 23(b)(2) allows a court to certify a class where “the party opposing the class has acted or refused to act on grounds generally applicable to the class, thereby making appropriate final injunctive relief or corresponding declaratory relief with respect to the class as a whole.”149 It was originally adopted in 1966, and began as a method of enforcing federal social welfare and civil rights laws.150 If a plaintiff is hoping to bring a 23(b)(2) or a hybrid class action, she may focus more on equitable relief, including claims for equitable accounting, disgorgement, restitution, constructive trust, equitable estoppel, and rescission.151

146. See Geoffrey P. Miller & Lori S. Singer, Nonpecuniary Class Action Settlements, 60 L. & Contemp. Problems 97, 107 (1997). Alternatively, plaintiffs’ counsel could request fees based on their billed work, but these tend to be lower awards than fees tied to the amount of relief the class receives. For more on fee calculations, see § 8.4. 147. Fed. R. Civ. P. 23(c)(2), Advisory Committee Notes 2003 (“The authority to direct notice to class members in a (b)(1) or (b)(2) class action should be exercised with care. For several reasons, there may be less need for notice than in a (b)(3) class action. There is no right to request exclusion from a (b)(1) or (b)(2) class. The characteristics of the class may reduce the need for formal notice. The cost of providing notice, moreover, could easily cripple actions that do not seek damages. The court may decide not to direct notice after balancing the risk that notice costs may deter the class relief against the benefits of notice.”). For a fuller discussion, see Chapter 6. 148. See Rule 23(c)(2)(A). 149. Fed. R. Civ. P. 23(b)(2); see also DG v. DeVaughn, 594 F.3d 1188, 2010 U.S. App. LEXIS 2597, *29 (10th Cir. 2010) (certifying class because “injunction applies to the proposed class as a whole without requiring differentiation between class members”). 150. See Fed. R. Civ. P. 23, Advisory Committee Notes, 1966, (b)(2) (“Illustrative are various actions in the civil rights field where a party is charged with discriminating unlawfully against a class, usually one whose members are incapable of specific enumeration.”); see also Thomas R. Grande, Innovative Class Action Techniques: The Use of Rule 23(b)(2) in Consumer Class Actions, 14 Loyola Consumer L. Rev. 251, 257 (2002). 151. See, Grande, Innovative Class Action Techniques: The Use of Rule 23(b)(2) in Consumer Class Actions, 14 Loyola Consumer L. Rev. at 257.

Draft ing the Complaint

However, if it appears the plaintiff is really seeking monetary relief, then Rule 23(b)(3) will apply instead. Therefore, a plaintiff must walk a fine line in bringing a hybrid class—too much focus on monetary relief, and the class may be subject to the arguably more rigorous 23(b)(3) standard.152 Too much focus on equitable relief, and the total relief to the class may appear too small to justify substantial attorneys’ fees.

§ 3.6.3 Defining the Proposed Class The class definition must answer certain basic questions: who will be entitled to relief? Who will be bound by the judgment? As a corollary to the requirement to define a class, many courts have held that a class must be ascertainable.153 Defining a class is not like framing an appellate issue. Unlike many forms of pleading, it is actually counterproductive to import advocacy into the class definition. The class definition cannot be merits-oriented. In other words, “defining the purported class [cannot] require[] addressing the central issue of liability to be decided in the case.”154 Defining a class in terms of those who were treated “unfairly,” “improperly,” “wrongly,” “unconstitutionally,” “unreasonably,” or who were “defrauded,” are surefire ways of drawing an objection that the class cannot be defined without deciding the merits of the case first.155 Even language that contemplates “substantially similar” conduct or products may raise questions about the ascertainability of the class, because it is not sufficiently objective.156 Given these constraints, the soundest classes are defined solely in terms of objectively verifiable criteria: “all people who bought Acme stock between

152. See, e.g., Presbyterian Church of Sudan v. Talisman Energy, Inc., 226 F.R.D. 456, 468 (S.D.N.Y. 2005) (applying Rule 23(b)(3) to plaintiffs’ claims because “[t]he plaintiffs’ request for a constructive trust is 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.”). 153. Benedict v. Altria Group, Inc., 241 F.R.D. 668, 680 & n. 57 (D. Kan. 2007) (noting an “implied requirement of Rule 23 that [plaintiff ] identify an ascertainable class”); Daigle v. Shell Oil Co., 133 F.R.D. 600, 602 (D. Colo. 1990) (“Although not expressly required by Rule 23 . . . it is obvious that the party seeking certification must establish that an identifiable class exists.”); Adashunas v. Negley, 626 F.2d 600, 604 (7th Cir. 1980) (refusing to certify class as “not adequately defined” where it was not “nearly ascertainable”). 154. Forman, 164 F.R.D. at 403 (refusing to certify class where “defining the purported class as ‘all residents and businesses who have received unsolicited facsimile advertisements’ requires addressing the central issue of liability to be decided in the case”) (emphasis in original); see also Kenro, 962 F. Supp. at 1169 (refusing to certify class where plaintiffs “simply incorporated the language of the statutory prohibition into [their] class definition”). 155. See, e.g., Forman, 164 F.R.D. at 403. 156. For more on class definition, see § 2.1.2.

81

82

Chapter 3 Constructing a Class Action Lawsuit

January 1 and December 31, 2011;” “all people who bought the 2011 Acme Auto Mobile;” “all employees of Wal-Mart between January 1 and December 31, 2011.” There can be a risk even to these definitions. If a statute excludes relief for a subset of purchasers, the defendant may argue that the class action as defined will require individualized inquiries to adjudicate. Folding those inquiries into the definition does not eliminate the issue, however; it just turns a predominance problem into an ascertainability problem. The plaintiff also needs to take care not to define classes in an overbroad fashion.157 Finally, the plaintiff should also avoid continually revising the class definition. Revising a class definition is not always fatal; sometimes, a court will simply adopt the most recent iteration of the class definition.158 However, in other cases, the court may view a continually revised definition as evidence that a class is not ascertainable, or that plaintiffs’ counsel have not adequately considered the ramifications of certifying a class, and hence cannot be trusted when they argue the case can be managed on a class basis.159 Similarly, if the revision to the class definition appears to be strategic, a court may consider it as reason to suspect plaintiffs’ motives when they move it to grant some other relief.160

§ 3.6.4 Pleading The plaintiff faces a very real dilemma when pleading a class-action complaint. The more specific details she pleads, the likelier it is that she will

157. See Prado-Steiman v. Bush, 221 F.3d 1266, 1280–81 (11th Cir. 2000) (declining to certify certain class claims because of the “overbreadth of [the] class”); Thompson v. Jiffy Lube Int’l, Inc. 250 F.R.D. 607, 621 (D. Kan. 2008) (“Plaintiff ’s arguments are hampered by the exceptionally broad nature of the proposed classes, which makes it difficult to determine who would qualify as a class member and doubtful that many of the stated issues would apply to all or substantially all of the defined classes.”); Pop’s Pancakes, Inc. v. NuCO2, Inc., 251 F.R.D. 677, 680 (S.D. Fla. 2008) (“The Court questions whether the proposed class definitions sufficiently identify proper potential class members, as the definitions are overly broad because they include all entities that leased equipment and paid a full administrative fee.”); In re Fosamax Prods. Liab. Litig., 248 F.R.D. at 397 (“The proposed class is uncertifiable for overbreadth alone.”). 158. Pop’s Pancakes, Inc. 251 F.R.D. at 680 (noting plaintiffs’ class definition changed from complaint to motion, and analyzing definition in certification motion). 159. In re FEMA Trailer Formaldehyde Prods. Liab. Litig., Case 2:07-md-01873-KDE-ALC, 2008 WL 5423488 at 2 n.1 (E.D. La. Dec. 29, 2008) (“This Court also reasons that this sub-class should be denied strictly because it is not adequately defined (i.e., one specific definition has not been provided to this Court for consideration; three very different definitions have been provided).”). 160. Oppenheimer Fund, Inc. v. Sanders, 437 U.S. 340, 345, 353 (1978) (when plaintiffs arbitrarily limited class definition to exclude some shareholders with legitimate claims in order to facilitate notice, court took redefinition of class as evidence that plaintiffs sought only to reduce notice costs).

Working With Other Plaintiff ’s Counsel

provide the defendant with grounds to move for dismissal, or to oppose certification. However, the vaguer her pleadings, the more likely her complaint will be dismissed under Rule 8(a).161 CAFA has also affected the way in which the plaintiff drafts her complaint. A plaintiff who wishes her case to remain in state court must ensure that her pleading is precise enough to limit the proposed class to one within CAFA’s “local controversy” exception.162 In general, the plaintiff will plead as much of the defendant’s bad conduct as she can. Given the need to establish that the harms for which she seeks redress are class-wide, she may plead only minimal facts about her own individual claims, lest the defendant seize on some detail as grounds for arguing that she is atypical, or that common issues will not predominate over the litigation. She must, however, ensure that she has pled more than just conclusory allegations that she has met the elements of each cause of action she asserts.163

§ 3.7 Working With Other Plaintiff ’s Counsel In a perfect world, a given plaintiff’s lawyer will bring a class action against a corporate wrongdoer without any involvement by co-counsel. This tactic allows the lawyer sole control over the prosecution of the class action and results in that lawyer receiving all attorneys’ fees the court ultimately awards if the case settles or is litigated to a favorable result. If the subject matter of the litigation is sufficiently low-profile, it may be possible for the sole practitioner or small firm lawyer to control the litigation in this manner. For many plaintiffs’ lawyers, there is not actually a choice between proceeding on one’s own and teaming with another firm. If the stakes are large enough, the firm will need to divide labor and rely on other firms that specialize in specific aspects of class-action litigation. For some smaller class actions, it may be possible to “go it alone.” For larger cases, however, a team approach (or “consortium”) may be unavoidable. (However, technology is changing this to a certain degree. It is now sometimes possible to “go it alone” in a given smaller case while actually relying on a larger network of plaintiffs’ lawyers with similar interests.)164

161. For more on Rule 8(a) dismissals, see § 4.2.4.3. 162. Lewis v. Ford Motor Co., 610 F. Supp. 2d 476, 487 (W.D. Pa. 2009) (court found jurisdiction under CAFA in part because “Plaintiffs’ imprecise drafting of the Complaint has opened them to a much broader potential class . . .”). For more on removal under CAFA, see § 4.2.1.1. 163. See generally Ashcroft v. Iqbal, — U.S. ——, 129 S. Ct. 1937 (2009). 164. See, e.g., Bryon G. Stier, Resolving the Class Action Crisis: Mass Tort Litigation as Network, 2005 Utah L. Rev. 863, 895–96 (2005) (discussing effect of better communications technology on smaller plaintiffs’ firms).

83

84

Chapter 3 Constructing a Class Action Lawsuit

There are structural incentives for even larger plaintiff firms to team up with smaller firms. First, there are the benefits from division of labor. As several scholars have observed: The dominant class action model is a pyramid-shaped structure comprised of numerous small firms. Two or more co-lead counsel typically sit on top of the pyramid. The co-lead counsel are empowered to make all decisions relating to the litigation, and to submit a unified fee application at the close of the case. Beneath them on the pyramid are lawyers tasked with responsibility for important areas of the case and, in the lower strata, attorneys whose duties include the yeoman’s work of document review and so forth.165

In addition, in some areas—like securities litigation—larger firms have become more willing to pair with smaller firms “in an effort to build a client group with the largest financial interest, a new requirement for lead plaintiffs which had been specified in the PSLRA.”166 Also, in certain cases, it makes sense for smaller firms to partner with larger firms. In addition to mollifying potential rivals, a smaller firm may need the expertise of a larger class-action firm to establish adequacy of counsel. (This is particularly true for a smaller firm that may not have tried any class actions before.) The construction of a strong class-action lawsuit represents a significant investment of time, effort, and money for the plaintiff. Once the plaintiff files her complaint, however, she subjects it to a gantlet of substantive and procedural challenges. She also embarks on a prolonged effort to acquire enough evidence to show a court that her case should be certified on behalf of the proposed class for trial. These various challenges form the subject of the next chapter.

165. Gilles & Friedman, Exploding the Class Action Agency Cost Myth, 155 U. Pa. L. Rev. at 148–49. 166. Choi & Thompson, Securities Litigation and its Lawyers, 106 Colum. L. Rev. at 1490.

CHAP TER

4 Pre-Certification Steps

§ 4.1 Plaintiff’s Opening Moves

87

§ 4.1.1 Media Coverage

88

§ 4.1.2 Generating External Pressure on Defendants

89

§ 4.2 Defendant’s Response to Complaint

91

§ 4.2.1 Invoking Arbitration

91

§ 4.2.2 Removal

93

§ 4.2.2.1 Diversity Jurisdiction/Class Action Fairness Act

94

§ 4.2.2.2 Federal Question Jurisdiction

96

§ 4.2.2.3 Appeals

97

§ 4.2.3 Consolidation

98

§ 4.2.4 Motion to Dismiss

98

§ 4.2.4.1 Standing

101

§ 4.2.4.2 Personal Jurisdiction

101

§ 4.2.4.3 Pleading Deficiencies

102

§ 4.2.4.4 Substantive Legal Problems

103

§ 4.2.5 Motion to Strike/Early Challenge to Class Certification

104

§ 4.2.6 Answer

106

§ 4.2.7 Offer of Judgment

108

§ 4.2.8 Motion for Sanctions

109

§ 4.3 Amending the Complaint

110

§ 4.4 Case Management Orders

111

§ 4.4.1 Timing

111

§ 4.4.2 Discovery Procedures

112

§ 4.4.3 Motions Practice

113

§ 4.4.4 Appointment of Lead Counsel

114

§ 4.5 Pre-Certification Discovery § 4.5.1 Initial Disclosures

115 116

86

Chapter 4 Pre-Certification Steps § 4.5.2 Protective Orders

116

§ 4.5.3 Plaintiff’s Discovery

117

§ 4.5.3.1 Interrogatories

118

§ 4.5.3.2 Document Requests

120

§ 4.5.3.3 Requests for Admission

121

§ 4.5.3.4 Depositions

121

§ 4.5.4 Defendant’s Discovery

125

§ 4.5.4.1 Interrogatories

125

§ 4.5.4.2 Document Requests

125

§ 4.5.4.3 Requests for Admission

126

§ 4.5.4.4 Depositions

126

§ 4.6 Expert Witnesses

128

§ 4.7 Pre-Certification Summary Judgment Motion

129

Plaintiff ’s Opening Moves 87

Because the debate over certification is the central focus of a class action, it has an effect on every opening move in the litigation. Both the plaintiff and the defendant must develop the facts supporting their version of the merits—while still keeping an eye on whether those facts will support or undermine a bid for certification. The large potential stakes in class actions also have an effect, justifying moves on either side that might be deemed too costly in individual litigation. In most class actions, these opening moves are the heart of the litigation. The structure of procedural orders, the resolution of dispositive motions, and the facts revealed in discovery all contribute to whether a class is ultimately certified. Moreover, none of these moves are costless. Each requires—at a bare minimum—attorney time. Many (like document review) also require large expenditures on third-party vendors, contract attorneys, or hired experts. As a result, each of these pre-certification moments will also influence each party’s attitude towards settlement. For the plaintiff, the process of preparing the case for certification may seem more like a gantlet. She must ensure her complaint survives any early dispositive motions, such as a motion to dismiss or a pre-certification motion for summary judgment. She must develop a record that supports both certification of a class and an eventual trial verdict. She needs to encourage the defendant to negotiate and then convince it to settle for as much as possible. And—in securities and other consolidated class actions—her counsel need to position themselves to be appointed class counsel, fending off any challenges from other plaintiffs’ counsel with competing agendas. As a result, to the extent possible, the plaintiff will prize flexibility throughout this process. She may prefer vagueness to specificity in her pleadings, and she will resist responding to discovery that may prevent her from developing alternative theories of recovery as emerging events require. The defendant has three goals through this process: (1) dispose of the case on the merits, if possible; (2) develop a record to support the denial of class certification; and (3) convince the plaintiff the case is not worth much. Depending on the defendant’s view of the merits, it may try to aim the case towards either an early dispositive motion or settlement negotiations. Given the one-sided nature of class-action discovery,1 the defendant may also resist answering many of the plaintiff’s discovery requests. Doing so allows the defendant to limit the plaintiff’s flexibility, and also reduces the defendant’s costs.

§ 4.1 Plaintiff ’s Opening Moves While, in some class actions, the “file and wait” strategy might be effective, most plaintiffs prefer to generate as much momentum as possible early in

1. See § 4.4.2.

88

Chapter 4 Pre-Certification Steps

the case. Among other benefits, doing so keeps the defendant reacting to events rather than deploying its resources to develop its own story on the merits. Keeping the case moving also may convey a sense of urgency to the court.2 One factor that influences how aggressively the plaintiff will move is whether her counsel faces any competition for representing the class. The more potential competition there is, the greater the need for an aggressive approach. Whether accurate or not, there is a perception that “first-to-file” plaintiffs—and those who make early strides in prosecuting a case—enjoy an advantage in securing lead-counsel appointments.3 Another factor dictating a need for an aggressive approach is the degree to which the alleged wrong has received public attention. Cases conducted under the glare of publicity can place additional pressure on defendants.4 If the media is reporting on the alleged product defect, environmental disaster, or stock scandal, the plaintiff will need to file her suit and commence discovery as quickly as possible, in order to take advantage of any public outcry.

§ 4.1.1 Media Coverage Media coverage can place additional pressure on the defendant.5 In the shortterm, it may affect sales, and force the defendant to either spend time and money defending itself in the press, or risk allowing the plaintiff to shape its public image. It may also affect the defendant’s stock price,6 which may generate pressure from shareholders to resolve the litigation quickly. Combined, these pressures may motivate a defendant to settle particularly controversial matters. Plaintiffs’ attorney Morris Ratner described his strategy for inducing a number of powerful international banks to settle claims related to the alleged mismanagement of World War II-era bank accounts as follows: The credible threat of an involuntary judgment posed by the class action litigation combined with (1) intense media attention, (2) political pressure from

2. Cf. Business Guides, Inc. v. Chromatic Commc’ns Enters., Inc., 498 U.S. 533, 549 (1991) (inferring urgency from plaintiff ’s request for immediate injunction). 3. See Jane Shapiro, Inside A Class Action: The Holocaust And The Swiss Banks 35 (2003) (attorney Ed Fagan “was intent on being the first one out of the gate and on securing a position as lead counsel”); Patrick Dillon & Carl M. Cannon, Circle of Greed: The Spectacular Rise and Fall of the Lawyer Who Brought Corporate America to Its Knees 366 (2010) (discussing “rush to the courthouse” in securities class actions). 4. See Morris A. Ratner, The Settlement of Nazi-Era Litigation through the Executive and Judicial Branches, 20 Berkeley J. Int’l L. 212, 213 (2002); Dillon & Cannon, Circle of Greed 177 (Lerach stressed advantages of media coverage in pitch to institutional investor client). 5. For a general discussion, see Steven Garberg & Anthony G. Bower, Newspaper Coverage of Automotive Product Liability Verdicts, 33 L. & Soc’y Rev. 93 (1999). 6. See Jeffrey Haymond & James E. West, Class Action Extraction, 116 Pubic Choice 91, 103–04 (2003) (finding statistically significant relationship between threat of class action and drop in stock price).

Plaintiff ’s Opening Moves 89 well-situated victims’ advocates, (3) the ongoing efforts of institutions such as the World Jewish Restitution Organization, and (4) mounting public support within Switzerland to face past wrongs, to produce immense pressure on the Swiss bank defendants to address their liability.7

Media coverage can provide other benefits as well. Coverage that mentions plaintiff’s counsel’s involvement in a case can signal that a firm has staked a claim to litigation, which may discourage competition. Extensive press coverage can also provide “free” discovery: if the story is newsworthy, journalists may investigate the defendant’s conduct on their own,8 and media coverage may also encourage additional witnesses to come forward.9 Finally, media pressure may force the defendant to make tactical mistakes the plaintiff can exploit later in the litigation. For example, a number of defendants have inadvertently waived work product protection over litigation-related materials by disclosing them to public-relations firms.10 There are drawbacks to using the press to prosecute a class action, however. While an established plaintiffs’ firm might have the clout to generate coverage that supplements discovery or uncovers new witnesses, most law firms will not. Moreover, journalists will not ask the same questions—or tell the same story—as the plaintiff wants. Even when there may be significant overlap between the agendas of the press and a given plaintiff, the press will not have the same understanding of the legal theories the plaintiff is pursuing. More importantly, facts that tell compelling individual stories may undermine the more generalized story the plaintiff will want to tell at class certification.

§ 4.1.2 Generating External Pressure on Defendants There are several other avenues for generating external pressure on defendants. Assuming her complaint was not inspired by one,11 a plaintiff may petition for a government investigation of defendant’s conduct. State attorneys-general, for example, may have strong incentives to intervene, like an aggressive desire to protect the public good, a need to fill depleted state coffers, or even a need to generate positive publicity to facilitate re-election. Plaintiff’s attorney Richard Scruggs allied himself with state prosecutors

7. 8. 9. 10.

Ratner, The Settlement of Nazi-Era Litigation, 20 Berkeley J. Int’l L. at 213. See Jeffrey Toobin, “The Man Chasing Enron,” The New Yorker, Sept. 9, 2002, at 88. Id. at 91. See, In re Vioxx Prods. Liab. Litig., 501 F. Supp. 2d 789, 807 (E.D. La. 2007); United States v. Philip Morris, Inc., 209 F.R.D. 13, 17 (D.D.C. 2002). 11. See § 3.2.

90 Chapter 4 Pre-Certification Steps

when litigating a series of fraud suits against tobacco companies.12 And plaintiffs’ firm Cohen Milstein joined forces with various politicians when prosecuting its Holocaust-related class actions against Swiss banks.13 Public investigations offer other benefits to plaintiff’s counsel. The increased scrutiny of defendant’s activity may convince a court (or later, a jury) that there is a genuine wrong that only a class-wide verdict can remedy. A public investigation also may provide free discovery for the plaintiff, or generate information she would otherwise have difficulty obtaining.14 Finally, a finding of wrongdoing, defect, or threat to safety can significantly increase the value of a plaintiff’s case.15 Public investigations carry their own risks, however. The investigation could exonerate the defendant. While a plaintiff still may sue an exonerated defendant on the ground that privately enforced statutes require higher standards of conduct, it is more difficult to generate viable legal theories or public outrage if a government agency has not found any wrongdoing. And, if a government agency does decide to investigate, the fact that it has taken an active role in addressing the problem gives the defendant a much stronger argument that a class action is not superior to other methods of resolving the controversy.16 The plaintiff also may coordinate with special-interest groups to pressure the defendant into early resolution of controversial litigation.17 There are a number of public-interest groups that involve themselves in class-action litigation; some because they have a genuine interest in advancing a specific

12. Alan Lange & Tom Dawson, Kings of Tort, 80–85 (2009); see also Dillon & Cannon, Circle of Greed 128–29 (describing “symbiotic” relationship between William Lerach and then-New York Attorney General Eliot Spitzer in corporate fraud cases). 13. Shapiro, Inside a Class Action at 69 (noting assistance from Senator Alfonse D’Amato, who was holding concurrent Senate hearings on issue), 201 (coordination with California state officials). 14. See Kevin Roddy, Workshop Transcript, Panel 7: Class Actions As An Alternative to Regulation: The Unique Challenges Presented By Multiple Enforcers And Follow-On Lawsuits, 18 Geo. J. Legal Ethics 1311, 1319 (2005) (describing cooperation with FTC in investigation of Rexall); Dillon & Cannon, Circle of Greed 177 (government investigation of Charles Keating was producing documents in 48 hours that might otherwise take months). 15. See Deborah R. Hensler & Mark. A. Peterson, Understanding Mass Personal Injury Litigation: A Socio-Legal Analysis, 59 Brook. L. Rev. 961, 969 (1991) (“the Food and Drug Administration’s (‘FDA’) decision to prohibit silicone breast implantation under most circumstances likely increased the value of pending and future breast implantation claims and encouraged a large number of new claims”). 16. For a fuller discussion of defendant’s superiority argument, see § 5.2.2.6. See also Shapiro, Inside a Class Action 138–39 (describing plaintiffs’ efforts to coordinate with State Department and Commerce Department to avoid “the vise of the U.S. Government”). 17. See, e.g., Ratner, The Settlement of Nazi-Era Litigation, 20 Berkeley J. Int’l L. at 213.

Defendant’s Response to Complaint 91

policy agenda,18 others because they have close ties to members of the trial bar. This tactic requires caution, however. To the extent the group is perceived as too enmeshed with the plaintiffs’ bar, it will lack the credibility to force a settlement; to the extent a group is independent, it may actively undermine a plaintiff’s settlement efforts in its pursuit of its own public policy agenda.19

§ 4.2 Defendant’s Response to Complaint There are three questions a defendant must consider when responding to the complaint. First, is the litigation in the right forum? Is the plaintiff’s complaint better addressed by arbitration, or by a federal or state regulatory agency? If the complaint is best addressed by litigation, has it been filed in the correct court?20 Second, has the defendant stated a proper legal claim? Would a court, properly briefed, dismiss some (or all) of plaintiff’s claims? Finally, if the plaintiff has brought a claim in the proper court that will survive a motion to dismiss, how should the defendant answer the complaint?

§ 4.2.1 Invoking Arbitration Defendants that have a contractual relationship with the plaintiff (such as a franchise agreement or cell-phone plan) may have included a mandatory arbitration clause in the contract. If so, the defendant may consider invoking its arbitration rights. Most federal courts have held that, unless express language in the agreement states otherwise, Section 4 of the Federal Arbitration

18. See generally Robert C. Fellmuth, et al., Summit: Taking the Offensive: Court Strategy, 40 San Diego L. Rev. 115 (2003) (counsel from Public Citizen Litigation Group, NAACP Legal Defense and Educational Fund, and American Civil Liberties Union discuss use of class actions in advancing policy goals). 19. See Shapiro, Inside a Class Action at 96–100 (noting tension between plaintiffs and World Jewish Congress, and referring to tensions between plaintiffs in human-rights litigation against Estate of Ferdinand Marcos and Amnesty International); 141–42 (describing how Independent Committee of Independent Persons requested discovery stay opposed by plaintiffs); Fellmuth, et al., Taking the Offensive, 40 San Diego L. Rev. at 141 (representative from Public Citizen Litigation Group discusses objecting to private firms’ attorneys fees in class settlements). 20. Samuel Issacharoff & Richard A. Nagareda, Class Settlements Under Attack, 156 U. Pa. L. Rev. 1649, 1660–61 (2008) (“Forum matters. It may appear banal to observe that the court in which a case is situated, the rules and substantive laws that operate, and even the presiding judge all have important effects on the prospects of a case.”).

92

Chapter 4 Pre-Certification Steps

Act (“FAA”) prohibits class-wide arbitration of claims.21 Depending on the language of the arbitration clause, the defendant could either shift litigation of the class claims into arbitration (where, presumably, they would be cheaper to resolve),22 or shut down the class aspects of the case completely.23 Simply invoking arbitration may not settle the matter, however. In most cases, the plaintiff will challenge the enforceability of the arbitration clause. In cases where invoking arbitration merely shifts the venue for the class claims, the plaintiff must weigh any cost advantages against the loss of her preferred forum, as well as the lost leverage from the imposition of discovery under the federal rules. In cases where arbitration would preclude class treatment, opposition is almost certain. The trend in state courts is to find arbitration clauses that contain classaction waivers to be unenforceable because they are “unconscionable.”24 Federal courts, however, have split in how they address class-action waivers in arbitration clauses. The Second Circuit has held some class-action waivers to be per se unconscionable.25 The Ninth Circuit has adopted the analysis adopted by the state court in which the federal court sits,26 which has led trial

21. See Champ v. Siegel Trading Co., 55 F.3d 269, 276 (7th Cir. 1995) (section 4 of Federal Arbitration Act requires enforcement of arbitration provision according to terms). 22. See Christopher R. Drahozac & Quentin R. Wittrock, Franchising, Arbitration and the Future of the Class Action, 3 Entrepreneurial Bus. L.J. 275, 280–94 (2009) (discussing differing effects of class arbitration waivers and class action waivers). 23. See Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 559 U. S. ____, slip op. at 23 (2010) (where arbitration agreement is silent as to class arbitration, “parties cannot be compelled to submit their dispute to class arbitration.”). 24. See Fiser v. Dell Computer Corp., 188 P.3d 1215, 1221 (N.M. 2008) (“While we agree that Defendant’s “terms and conditions” may not rise to the level of an adhesive contract, we nevertheless conclude that the terms are unenforceable because there has been such an overwhelming showing of substantive unconscionability.”); Tillman v. Commercial Credit Loans, Inc., 655 S.E.2d 362, 370 (N.C. 2008) (“We conclude that, taken together, the oppressive and one-sided substantive provisions of the arbitration clause at issue in the instant case and the inequality of bargaining power between the parties render the arbitration clause in plaintiffs’ loan agreements unconscionable.”); McKee v. AT&T Corp., 191 P.3d 845, 852 (Wash. 2008) (class-action waiver “conflicts with Washington’s fundamental public policy favoring the availability of class-based relief for small consumer claims”); Discover Bank v. Superior Court, 36 Cal. 4th 148, 153 (2005) (“we conclude that, at least under some circumstances, the law in California is that class action waivers in consumer contracts of adhesion are unenforceable”). See also Drahozac & Wittrock, Franchising, Arbitration and the Future of the Class Action, 3 Entrepreneurial Bus. L.J. at 277–78 (observing “an increasing number of courts holding class action arbitration waivers to be unenforceable”). 25. In re Am. Express Merchs’ Litig., 554 F.3d 300, 320 (2d Cir. 2009) (“We therefore hold that the class action waiver in the Card Acceptance Agreement cannot be enforced in this case because to do so would grant Amex de facto immunity from antitrust liability by removing the plaintiffs’ only reasonably feasible means of recovery.”) 26. See Hoffman v. Citibank, N.A., 546 F.3d 1078, 1083 (9th Cir. 2008) (instructing court on remand to “specifically address whether the enforceability of this class arbitration waiver under South Dakota law is contrary to a fundamental policy of California”).

Defendant’s Response to Complaint 93

courts to find some arbitration clauses valid,27 and others unconscionable.28 The Third Circuit disagrees, holding that the FAA preempts state court rulings striking class-action arbitration waivers.29 As a result, the defendant should be prepared to brief a motion to compel arbitration.

§ 4.2.2 Removal If the plaintiff filed the case in state court, the defendant should consider removing it to federal court. While the ideological balance of federal courts changes over time, appointed, life-tenured federal judges tend to treat certification more rigorously than elected state court judges,30 and there is a more developed (and hence more predictable) body of precedent governing class certification.31 There are drawbacks to removing a case to federal court: most importantly, some states may not impose the same onerous electronicdiscovery obligations as federal courts.32 However, most defendants will find that, on balance, the advantages of removal outweigh the problems. The procedure for removal is simple. A defendant must file a notice of removal with the appropriate federal court within 30 days of being served with the complaint.33 (A defendant already litigating in state court may file a notice of removal within 30 days after receiving some paper that provides new grounds for removal.)34 The notice should contain a short and plain statement of the grounds justifying the removal, and include copies of all documents served on the defendant in state court.35 Once the defendant has removed the case to federal court, the plaintiff has the option of moving the court to remand the case to state court under 28

27. 28. 29. 30.

31.

32. 33.

34. 35.

See Carideo v. Dell, Inc., 520 F. Supp. 2d 1241, 1250 (W.D. Wash 2007). See Chalk v. T-Mobile USA, Inc., 560 F.3d 1087, 1095–97 (9th Cir. 2009). Gay v. CreditInform, 511 F.3d 369, 378 (3d Cir. 2007). See Haymond & West, Class Action Extraction, 116 Public Choice at 94–95 (“in states where judges are elected, there is evidence to support the claim that judges will transfer outof-state resources to in-state recipients”). See Samuel Issacharoff & Catherine M. Sharkey, Backdoor Federalism, 53 UCLA L. Rev. 1356, 1356 (2006) (discussing “considerable benefits that flow from national regulatory uniformity and to protect an increasingly unified national (and international) commercial market from the imposition of externalities by unfriendly state legislation”). See Michael R. Pennington & Robert J. Campbell, The Class Action Fairness Act and the New Federal E-Discovery Rules: To Remove or Not to Remove?, 56 Fed. Lawyer 42, 47 (2009). 28 U.S.C. § 1446(b); see also Murphy Bros., Inc. v. Michetti Pipe Stringing, Inc., 526 U.S. 344, 347–48 (1999) (30-day period for filing removal begins running when defendant is formally served with complaint). The defendant also files a notice in state court that informs it the case has been removed. See, e.g., Harris v. Bankers Life & Cas. Co., 425 F.3d 689, 694–96 (9th Cir. 2005) (finding removal on receipt of amended complaint “timely” under 28 U.S.C. § 1446(b)). 28 U.S.C. § 1446(a)–(b). For an exemplar removal notice, see Appendix 4A.

94

Chapter 4 Pre-Certification Steps

U.S.C. § 1447(c). If the removal notice was defective for some reason—it was filed late, the defendant did not give notice to the state court or the plaintiff— then the plaintiff must move to remand within 30 days.36 If the plaintiff wishes to remand for lack of subject-matter jurisdiction, she may do so at any time, although the earlier she does so, the more credible her argument will seem. § 4.2.2.1 Diversity Jurisdiction/Class Action Fairness Act Much of the fight over diversity jurisdiction has been obviated by the passage of the Class Action Fairness Act (“CAFA”).37 CAFA grants federal courts original jurisdiction over any action in which the proposed class has at least 100 members,38 minimal diversity exists (meaning any one member of the class hails from a different state than any one defendant),39 and the aggregate amount in controversy exceeds $5 million, excluding interest and costs.40 There are a few exceptions to CAFA. A court may remand a case where between one- and two-thirds of the class (and the primary defendants) are citizens of the same state.41 And it must remand if the case concerns a “local controversy” (meaning more than two-thirds of the plaintiff class comes from the same state as one defendant, the principal conduct occurred in the state, and no related class actions have been filed in the previous three years);42 if the primary defendant and at least two-thirds of the class come from the same state;43 or if the lawsuit concerns any security under § 2(a)(1) of the Securities Act of 1933.44 The defendant may also remove “mass actions” under CAFA.45 CAFA defines a “mass action” as a lawsuit brought on a non-class basis by 100 or more plaintiffs in which the claims involve common questions of law or fact.46 An action is not a mass action under CAFA if: (1) the alleged conduct

36. 28 U.S.C. § 1447(c). 37. 28 U.S.C. § 1332. CAFA also included several provisions governing class settlements, which will be discussed in Chapter 8. 38. 28 U.S.C. § 1332(d)(5)(B). 39. 28 U.S.C. § 1332(d)(2)(A). 40. 28 U.S.C. § 1332(d)(6). 41. 28 U.S.C. § 1332(d)(3). 42. 28 U.S.C. § 1332(d)(4)(A). 43. 28 U.S.C. § 1332(d)(4)(B). 44. 28 U.S.C. § 1332(d)(9)(C). 45. 28 U.S.C. § 1332(d)(11)(A) (defining “mass action”). 46. 28 U.S.C. § 1332(d)(11)(B); see also Lowery v. Ala. Power Co., 483 F.3d 1184, 1202–03 (11th Cir. 2007) (lawsuit is mass action under CAFA if it meets “(1) an amount in controversy requirement of an aggregate of $5,000,000 in claims; (2) a diversity requirement of minimal diversity; (3) a numerosity requirement that the action involve the monetary claims of 100 or more plaintiffs; and (4) a commonality requirement that the plaintiffs’ claims involve common questions of law or fact.”).

Defendant’s Response to Complaint 95

occurred in the forum state and the effects were limited to surrounding states; (2) the defendant moved to join the claims; (3) the claims were asserted on behalf of the public pursuant to a private attorney general statute; or (4) the claims were coordinated solely for pretrial proceedings.47 Courts have so far disagreed over whether at least one plaintiff must assert a claim greater than the $75,000 individual amount-in-controversy requirement.48 As a practical matter, the defendant should offer evidence that the removed class action meets each of CAFA’s requirements. A number of courts have held that the defendant still bears the burden of showing that CAFA-based jurisdiction exists.49 Even in those jurisdictions that have not placed the burden on the defendant, much of the debate surrounding CAFA jurisdiction involves the kind of evidence the defendant proffers to meet each requirement. For example, a number of cases involving the amount-in-controversy requirement have turned on the quality of evidence presented to the court.50 That said, the burden is not an onerous one: An affidavit usually suffices as “evidence.”51 The plaintiff bears the burden of demonstrating that one of CAFA’s exceptions to federal diversity jurisdiction applies.52 Similarly, debates involving

47. 28 U.S.C. § 1332(d)(11)(B)(ii). 48. Compare Lowery, 483 F.3d at 1205 (“it seems clear that the $75,000 provision was not intended to bar district courts from asserting jurisdiction over the entire case if each individual plaintiff ’s claims do not exceed $75,000”), with Abrego v. Dow Chemical Co., 443 F.3d 676, 689 (9th Cir. 2006) (“we do conclude—as should be obvious—that the case cannot go forward unless there is at least one plaintiff whose claims can remain in federal court”) (emphasis in original). 49. See Serrano v. 180 Connect, Inc., 478 F.3d 1018, 1021 (9th Cir. 2007); Blockbuster, Inc. v. Ga1eno, 472 F.3d 53, 58 (2d Cir. 2006) (“[W]e hold that CAFA did not change the traditional rule and that defendant bears the burden of establishing federal subject matter jurisdiction.”); Evans v. Walter Indus., 449 F.3d 1159, 1164 (11th Cir. 2006) (“CAFA does not change the traditional rule that the party seeking to remove the case to federal court bears the burden of establishing federal jurisdiction”); Morgan v. Gay, 471 F.3d 469, 473 (3d Cir. 2006) (“Under CAFA, the party seeking to remove the case to federal court bears the burden to establish that the amount in controversy requirement is satisfied.”); Brill v. Countrywide Home Loans, Inc., 427 F.3d 446, 448 (7th Cir. 2005); Abrego, 443 F.3d at 683–84. 50. See Guglielmino v. McKee Foods Corp., 506 F.3d 696, 701 (9th Cir. 2007) (requiring defendant to prove amount in controversy by preponderance of evidence); Brill v. Countryside Home Loans,, 427 F.3d 446, 449 (7th Cir. 2005) (“part of the removing party’s burden is to show not only what the stakes of the litigation could be, but also what they are given the plaintiff ’s actual demand[]”) (emphasis in original). 51. Lewis v. Ford Motor Co., 610 F. Supp. 2d 476, 484 (W.D. Pa. 2009) (accepting affidavit because “made under penalty of perjury and based on [witness’s] personal knowledge”). 52. Preston v. Tenet Healthsystem Mem. Med. Center, Inc., 485 F.3d 804, 812–13 (5th Cir. 2007); Serrano, 478 F.3d at 1022; Hart v. FedEx Ground Package Sys.Inc., 457 F.3d 675, 680 (7th Cir. 2006); Evans, 449 F.3d at 1164 (“[T]he plaintiffs bear the burden of establishing that they fall within CAFA’s local controversy exception”).

96

Chapter 4 Pre-Certification Steps

the local controversy exception tend to turn on the type and amount of evidence presented to the court.53 § 4.2.2 2 Federal Question Jurisdiction 28 U.S.C. § 1441(b) provides that a party can remove a lawsuit “founded on a claim or right arising under the Constitution, treaties or laws of the United States,” regardless of whether diversity jurisdiction exists. The plaintiff can usually plead around federal-question jurisdiction by simply not mentioning federal law.54 The defendant nevertheless may invoke the “substantial federal question” doctrine to argue that, although the plaintiff has asserted state-law claims, resolving them would require the court to resolve disputed issues of federal law.55 In some cases, the defendant can still remove a class action on federal preemption grounds,56 but courts tend not to favor this strategy. There are two additional subsets of federal-question jurisdiction that occasionally affect class actions. The first involves the Securities Litigation Uniform Standards Act (“SLUSA”). SLUSA provides that no “covered class action” may be maintained in any State or Federal court by any private party alleging: (A) a misrepresentation or omission of a material fact in connection with the purchase or sale of a covered security; or (B) that the defendant used or employed any manipulative or deceptive device or contrivance in connection with the purchase or sale of a covered security. . . . Any covered class action brought in any State court involving a covered security, as set forth [above] shall be removable to the Federal district court for the district in which the action is pending . . . .57

Roughly speaking, a “covered class action” under SLUSA is any litigation in which the plaintiff seeks damages on behalf of at least 50 other people, and the litigation is based on common questions of fact or law.58 The definition does not include an “exclusively derivative action” on behalf of shareholders.59

53. Evans, 449 F.3d at 1164–65. See also Richard L. Marcus, Assessing CAFA’s Stated Jurisdictional Policy, 156 U. Pa. L. Rev. 1765, 1784–85 (2008). 54. Caterpillar, Inc. v. Williams, 482 U.S. 386, 392 & n.7 (1987) (plaintiff is “master of the claim; he or she may avoid federal jurisdiction by exclusive reliance on state law”); Indeck Maine Energy, L.L.C. v. ISO New England, Inc., 167 F. Supp. 2d 675, 684 (D. Del. 2001) (“If the plaintiff has asserted only state law claims, even though he could have asserted federal claims, there is no federal question jurisdiction.”). 55. See Grable & Sons Metal Prods., Inc. v. Darue Eng’g & Mfg., 545 U.S. 308 (2005). 56. See Arana v. Oschner Health Plan, 338 F.3d 433, 435 (5th Cir. 2003) (federal court had jurisdiction over ERISA claim). 57. 15 U.S.C. §§ 78bb(f)(1)–(2); see also 15 U.S.C. §§ 77p(b)–(c) (identical provision amending the Securities Act of 1933). 58. 15 U.S.C. § 77p(f)(2)(A). 59. 15 U.S.C. § 77p(f)(2)(B).

Defendant’s Response to Complaint 97

As a result, SLUSA allows for removal of most securities class actions to federal court, whether or not they explicitly invoke federal securities laws. Second, cases related to bankruptcy proceedings may also be removable to federal court: “the district courts shall have original but not exclusive jurisdiction of all civil proceedings arising under title 11 (the Federal Bankruptcy Code), or arising in or related to cases under title 11.”60 The question of which cases “relate to” bankruptcy has been hotly debated in the federal courts,61 and is beyond the scope of this discussion, but class-action litigators should pay attention to whether the litigation might implicate any bankruptcy proceedings, thus giving rise to removal. § 4.2.2.3 Appeals Generally, an order denying remand is considered interlocutory; therefore it is not reviewable except as part of an appeal from final judgment.62 There are a few exceptions: the court may certify the question for appellate review;63 the plaintiff may appeal pursuant to the collateral order doctrine;64 or, in extraordinary cases, she may seek mandamus.65 Similarly, an order granting remand is generally not appealable, except the defendant may appeal:66 (1) a remand not based on a defect in the removal notice;67 (2) pursuant to the collateral order doctrine;68 or (3) if the remand order is coupled with some other order

60. 28 U.S.C. § 1334(b). 61. Compare Celotex Corp. v. Edwards, 514 U.S. 300 (1995) (noting most circuits have held “an action is related to bankruptcy if the outcome could alter the debtor’s right, liabilities, options, or freedom of action (either positively or negatively) and which in any way impacts upon the handling and administration of the bankruptcy estate”) (citation omitted) with In re Turner, 724 F.2d 338, 341 (2d Cir. 1983) (“related to” jurisdiction requires a “significant connection” between the litigation and the bankruptcy). 62. Bender v. Pa. Co., 148 U.S. 502 (1893); Willoughby v. Sinclair Oil & Gas Co., 188 F.2d 902 (10th Cir. 1951). 63. 28 U.S.C. § 1292(b). 64. The collateral order doctrine applies if the remand satisfies “three conditions: It must conclusively determine the disputed question, resolve an important issue completely separate from the merits of the action, and be effectively unreviewable on appeal from a final judgment.” Richardson-Merrell, Inc. v. Koller, 472 U.S. 424, 431 (1985) (citation omitted). 65. See, e.g., In re Daimler-Chrysler Corp., 294 F.3d 697, 698–99 (5th Cir. 2002) (issuing writ of mandamus directing Texas district court to recall its remand order because a Delaware court had previously ordered that all cases be transferred to Delaware). 66. Things Remembered, Inc., v. Petrarca, 516 U.S. 124, 127–28 (1995). 67. Thermtron Prods., Inc. v. Hermansdorfer, 423 U.S. 336, 345 (1976) (allowing appeal where district court remanded because docket was too crowded); Quackenbush v. Allstate Ins. Co., 517 U.S. 706, 712–13 (1996) (allowing appeal of remand based on abstention). 68. Quackenbush, 517 U.S. at 710.

98

Chapter 4 Pre-Certification Steps

that precedes it “in logic or in fact” (for example, an order dismissing some of plaintiff’s claims).69 CAFA has created one opportunity for the losing party in a class action remand decision to seek interlocutory appeal. Under CAFA, a party may seek interlocutory review of an order granting or denying remand based upon CAFA’s jurisdictional principles within seven days after its entry.70 If the Court of Appeals grants the petition, it must decide the appeal within sixty days (which may be extended sua sponte by the court by up to ten days or by stipulation of the parties for an unlimited time). If the court does not rule on the appeal within the applicable time period, it is deemed denied.

§ 4.2.3 Consolidation One final consideration is whether the case should be consolidated with any other litigation. As discussed in Chapter 3, different plaintiffs may file overlapping class actions in different jurisdictions, either as part of a coordinated national strategy or as a result of fierce competition among plaintiff’s firms.71 Federal courts allow for consolidation of scattered but related litigation under the auspices of the Judicial Panel on Multi-district Litigation (“JPML”).72 The defendant should be cautious in moving to consolidate cases under the JPML: it has a “commonality” standard that, while different from Rule 23(a)’s standard, sounds very similar.73 If the defendant is not careful how it frames the similarities between cases for purposes of consolidation, the plaintiff may quote those similarities back in her class certification motion.74

§ 4.2.4 Motion to Dismiss Motions to dismiss are quite common in class actions. A recent study of preCAFA class actions in the federal courts found that defendants filed motions

69. See Waco v. U.S. Fid. & Guar. Co., 293 U.S. 140, 143 (1934); First Nat’l Bank v. Genina Marine Servs., Inc., 136 F.3d 391, 394 (5th Cir. 1998). 70. 28 U.S.C. § 1453(c). This appellate device does not extend to class actions where removal was based on non-CAFA jurisdictional arguments (like federal question jurisdiction). See Wallace v. Louisiana Citizens Property Ins. Corp., 444 F.3d 697, 702–03 (5th Cir. 2006). 71. See §§ 3.2, 3.3, 3.7. 72. See § 1.2.4. 73. See Mark Herrmann & Pearson Bownas, An Uncommon Focus on “Common Questions”: Two Problems With the Judicial Panel on Mulitdistrict Litigation’s Treatment of the “One or More Common Questions of Fact” Requirement for Centralization, 82 Tulane L. Rev. 2297, 2299 (2008) (noting “the MDL Panel sometimes borrows a key term of art from Rule 23—whether common factual questions ‘predominate’ over unique factual questions”). 74. See Herrmann & Bownas, Uncommon Focus on “Common Questions”, 82 Tulane L. Rev. at 2307–12 (noting dilemma faced by class action defendants when seeking MDL consolidation).

Defendant’s Response to Complaint 99

to dismiss for failure to state a claim in 39 percent of all cases, and that courts decided roughly 40 percent of those motions in favor of the defendant.75 For the defendant, the motion to dismiss is the first chance to rid itself of a meritless case; failing that, it is a method of pruning bad claims and educating the court on its side of the case. In fact, even if a motion to dismiss fails, it may still frame the issues for the court in ways that reduce the defendant’s liability.76 For the plaintiff, the motion to dismiss is the first—and primary—battle in the lawsuit: losing means losing the case, but defeating a motion to dismiss can force the defendant to begin negotiating settlement.77 A defendant will move to dismiss for one of three reasons. First, the motion to dismiss, if granted, would end the case completely. Second, the motion, if granted, would result in the dismissal of some plaintiffs or some claims, effectively carving the lawsuit into smaller parts that are less amenable to classwide proof. Third, the mere act of deciding the motion would require the court to educate itself about issues that would favor the defendant at summary judgment or class certification. For an example of how the motion to dismiss helps the defendant at a class certification briefing, look at In re FEMA Trailer Formaldehyde Products Liability Litigation,78 a proposed class action that alleged that various manufacturing defendants had built emergency trailers for hurricane victims that contained unsafe levels of formaldehyde, a chemical preservative. The defendants moved to dismiss several of the plaintiffs’ claims that were brought under varying state laws.79 The trial court denied the motion to dismiss, but when it ruled on class certification, it held that the named plaintiffs were not typical of the proposed class in part because of the legal variations among the

75. Federal Judicial Center, Impact of the Class Action Fairness Act on the Federal Courts: Preliminary Findings from Phase Two’s Pre-CAFA Sample of Diversity Class Actions 5–6 (2008). 76. See Chris Guthrie, et al., Blinking on the Bench: How Judges Decide Cases, 93 Cornell. L. Rev. 101, 105, 121 (2007) (discussing “anchoring effects”). 77. See Synfuel Tech., Inc. v. DHL Express (USA), Inc., 463 F.3d 646, 648 (7th Cir. 2006) (“After the district court denied Airborne’s motion to dismiss, the company decided to come to the table.”); see also Shapiro, Inside a Class Action: The Holocaust and the Swiss Banks at 136 (“’All we need to do is state a claim and stay alive,’ [plaintiffs’ attorney] Hausfeld concluded.”); 144 (plaintiffs concluded if they survived motion to dismiss, bankers would negotiate). 78. Case 2:07-md-01873-KDE-ALC, 2008 WL 5423488 (E.D. La. Dec. 29, 2008). This opinion was not published in either the F.R.D. or F. Supp. 2d reporters. Perhaps because of that fact, the court was particularly candid about the effects of previous motions on its certification decision. 79. 2008 WL 5423488 at *7 n.6. The plaintiffs had brought causes of action for, among other things, liability under the Louisiana Products Liability Act, strict liability under Mississippi law, liability under Alabama’s Extended Manufacturer’s Doctrine, and negligence under Texas law. Id. at 13–14.

100

Chapter 4 Pre-Certification Steps

claims of various class members.80 The trial court specifically stated that these legal variations were “evident in the Court’s Order and Reasons [on the Motion to Dismiss], wherein the Court analyzed these claims in considerable detail according to the laws of the applicable states.”81 Courts are rarely this explicit about how earlier rulings eventually influence their class-certification decisions, but there is little doubt that the process of sifting through complicated choice-of-law analyses or individualized allegations about statutes of limitations can convince a court that a full-fledged class trial will be more work than it can adequately manage.82 A defendant will not move to dismiss a complaint if it believes denial is assured, or if the denial would pave the way to eventually certifying a class. To use another concrete example, take the case of In re Bridgestone/Firestone, Inc. ATX, ATX II and Wilderness Tires Products Liability Litigation (“Bridgestone/Firestone”).83 Bridgestone/Firestone arose from a well-publicized recall of various tires that were alleged to cause serious accidents because the treads would separate from the rest of the tire, making the vehicle lose control. Following the recall, hundreds of lawsuits were filed in different courts against both Bridgestone/Firestone and Ford Motor Company (which had used the tires on a number of its vehicles).84 The JPML transferred the various lawsuits to a trial court in the Southern District of Indiana.85 Once the various plaintiffs had filed a consolidated master complaint, the defendants moved to dismiss it.86 The motion-to-dismiss debate focused on choice of law: should the trial court apply the law of each claimant’s state of residence, or the laws of Michigan and Tennessee, where the defendants were headquartered?87 The district court decided to apply Michigan and Tennessee law, and then denied the defendants’ motion to dismiss.88 That decision proved a turning point for the litigation, leading inexorably to the court’s certifying a nationwide class because the defendants’ strongest potential argument—that variations among different state laws precluded certification—was no longer available. Indeed, when one of the defendants

80. Id. at *9. 81. Id. at *8 n.7. 82. See Guthrie, et al., Blinking on the Bench, 93 Cornell L. Rev. at 119 (“We have found that anchors trigger intuitive judicial decision making.”). 83. In re Bridgestone/Firestone, Inc. Tires Prods. Liab. Litig., 205 F.R.D. 503, 509 (S.D. Ind. 2001) (noting that it had ruled that court could apply the law of Michigan—Ford’s home state—in deciding Ford’s motion to dismiss, and then using that choice-of-law ruling as basis to certify class). 84. For a description of this dynamic, see § 3.2. 85. In re Bridgestone/Firestone, Inc. Tires Prods. Liab. Litig., 155 F. Supp. 2d 1069, 1076 (S.D. Ind. 2001). 86. Id. at 1076. 87. Id. at 1078–85. 88. Id. at 1117.

Defendant’s Response to Complaint 101

asked the court to reconsider its decision on choice of law, it declined to do so, observing that “[i]t is clear that Firestone seeks review of the choice of law determination, not because of its impact on the Court’s substantive rulings that certain claims alleged in the Master Complaint should not be dismissed, but instead because of its impact on the propriety of class certification.”89 And, when the court did certify a class, it said that: “The choice of law determination set forth in the July 27, 2001 Order is, in fact, an important element of the class certification analysis.”90 Should the defendant decide to move to dismiss, there are certain legal flaws that occur more frequently in class actions that it should watch for. Most of these occur because the plaintiff has attempted to plead her complaint to implicate as many class-wide issues as possible.91 § 4.2.4.1 Standing In some instances, plaintiffs’ counsel’s rush to file a new class action may lead them to file a case in the name of a plaintiff who either lacks standing to assert certain claims or lacks standing to sue certain defendants. The former may be caused by an imperfect fit between the named plaintiff’s factual situation and the class-wide allegations.92 The latter occurs most frequently in multidefendant class actions. Motions challenging standing have the added rhetorical benefit of suggesting to the court that, since there is no live controversy, the lawsuit is entirely the invention of plaintiff’s counsel. § 4.2.4 2 Personal Jurisdiction Rule 12(b)(2) allows a party to move to dismiss a claim when there is a “lack of jurisdiction over the person.”93 Ordinarily, there is little reason for a defendant to move for dismissal based on personal jurisdiction.94 However, a Rule 12(b)(2) motion may be the best response when the client is convinced it has

89. Bridgestone/Firestone, 205 F.R.D. at 509. The Bridgestone/Firestone litigation ultimately reached a different conclusion: the Seventh Circuit reversed certification, in an opinion by Judge Easterbrook that provided subsequent defendants with useful language for opposing class certification. In re Bridgestone/Firestone, Inc. Tires Prods. Liab. Litig., 288 F.3d 1012 (7th Cir. 2002). For some potential uses of Judge Easterbrook’s opinion, see §§ 5.2.2.5–6. 90. Bridgestone/Firestone, 205 F.R.D. at 509. 91. See § 3.8. 92. To the extent this is true, it may also be a sign of typicality or adequacy problems. See §§ 2.3, 2.4.1. 93. Fed. R. Civ. P. 12(b)(2). 94. This discussion does not cover some of the grounds for dismissal that might exist in multinational class actions, such as forum non conveniens or comity. For a greater discussion of the problems and strategies involved in multinational class actions, see § 10.1.

102

Chapter 4 Pre-Certification Steps

simply been wrongly named. To demonstrate that it did not manufacture the product (or make the hiring or firing decision, etc.), a defendant would have to wait until it could produce the right facts in discovery before challenging its inclusion in the case. But Rule 12 does allow for limited discovery into whether the court has personal jurisdiction over a defendant.95 As a result, a defendant who has compelling evidence that it did not distribute or sell the product in question, or did not do so in the jurisdiction in which the plaintiff has brought suit, may introduce that evidence through a Rule 12 personal jurisdiction motion.96 § 4.2.4.3 Pleading Deficiencies97 Moving to dismiss based solely on deficiencies in plaintiff’s pleadings has become a more feasible strategy since the Supreme Court’s ruling in Ashcroft v. Iqbal.98 Iqbal, along with a predecessor case—Bell Atlantic v. Twombly99— established that plaintiffs cannot rely solely on conclusory pleadings, and instead must plead facts that establish a plausible theory of the case.100 As discussed in greater detail in Chapter 3, given the strategic pressure on the plaintiff to file vague pleadings where possible, the Iqbal and Twombly opinions provide the defendant with additional leverage at an earlier stage of the litigation. In addition, in cases pleading fraud of some kind, a plaintiff will be subject to the heightened pleading standard of Rule 9(b).101 As a result, the plaintiff must identify, with particularity, who made the fraudulent representations, where and when the representation took place, and what the content of that representation was.102

95. See Daynard v. Ness, Motley, Loadholt, Richardson & Poole, P.A., 290 F.3d 42, 50, 50–51 (1st Cir. 2002) (court must consider whether plaintiff has adduced specific evidence in favor of jurisdiction). 96. See Diaz-Ramos v. Hyundai Motor Co., 501 F.3d 12, 14 (1st Cir. 2007) (noting that co-defendant Hyundai American Technical Center, Inc. filed and won motion to dismiss under Rule 12(b)(2) because plaintiff “cannot show that HATCI has in any way purposely entered the Puerto Rico market”). 97. For a discussion of these issues from the plaintiff ’s perspective, see § 3.8. 98. — U.S. ——, 129 S. Ct. 1937 (2009). 99. 550 U.S. 554 (2007). 100. Iqbal, 129 S. Ct. at 1949 (“To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’”). 101. Fed. R. Civ. P. 9(b) (“In alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake.”) (citation omitted). 102. See Frederico v. Home Depot, 507 F.3d 188, 200 (3d Cir. 2007) (complaint should allege “the date, time and place of the alleged fraud or otherwise inject precision or some measure of substantiation into a fraud allegation,”); ABC Arbitrage Plaintiffs Group v. Tchuruk, 291 F.3d 336, 350 (5th Cir. 2002) (Rule 9(b) requires complaint to “specify each allegedly misleading

Defendant’s Response to Complaint 103

Similarly, in securities cases, the PSLRA requires that the complaint “state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind.”103 Group pleading (referring to “defendants” in an undifferentiated fashion) cannot satisfy this requirement.104 The disadvantage to moving to dismiss based solely on pleading deficiencies is that the plaintiff may simply move to amend to address those deficiencies, a motion the court is likely to grant.105 However, there are advantages as well. If the defendant forcefully attacks the plausibility of the plaintiff’s claims, it can begin framing its side of the story earlier, and plant doubts about the merits of the plaintiff’s claims. In addition, by forcing the plaintiff to provide more specific (or more plausible) pleadings, the defendant can pin the plaintiff down to its legal theory earlier in the case, giving her less room to maneuver during the period leading up to class certification. Given the effect of these holdings, the motion to dismiss has supplanted the motion for more definite statement, which the defendant used to file when a plaintiff had filed a vague complaint. Motions for more definite statement were always comparatively rare in federal courts: a recent survey of preCAFA class action filings found that defendants filed these motions in only about 3 percent of cases.106 § 4.2.4.4 Substantive Legal Problems As in any litigation, defendants may file motions to dismiss based on substantive legal problems that invalidate plaintiff’s claims as a matter of law. However, because of the particular constraints imposed by Rule 23 on any class to be certified, certain substantive legal problems occur more frequently in class-action complaints. Often, in order to keep the complaint generalized, the plaintiff will avoid specifically alleging facts showing how she was personally injured. Indeed, an entire wave of products-liability and consumer-fraud class actions have

103. 104.

105. 106.

statement . . . identify the speaker” and “explain the reason or reasons why the statement is misleading”); Mills v. Polar Molecular Corp., 12 F.3d 1170, 1175 (2d Cir. 1993) (“Specifically, the complaint must: (1) specify the statements that the plaintiff contends were fraudulent, (2) identify the speaker, (3) state where and when the statements were made, and (4) explain why the statements were fraudulent.”). 15 U.S.C. § 780–4(b)(2). See In re Cross Media Mktng. Corp. Secs. Litig., 314 F. Supp. 2d 256, 262–64 (S.D.N.Y. 2004) (dismissing securities complaint where plaintiffs tried to allege scienter through group pleading). See, e.g., id. at 269 (dismissing complaint without prejudice to refiling of amended complaint). Federal Judicial Center, Impact of the Class Action Fairness Act on the Federal Courts: Preliminary Findings from Phase Two’s Pre-CAFA Sample of Diversity Class Actions 5 (2008).

104 Chapter 4 Pre-Certification Steps

asserted what are often called “no-injury” theories of liability, arguing that a latent defect or a missing piece of non-material information reduced the value of the product plaintiff bought, warranting a class-wide recovery of the inflated price of the product, regardless of each class member’s individual circumstances.107 In cases like these, the plaintiff may specifically exclude from the class anyone who has suffered an actual injury from the product.108 In these cases, the defendant will often move to dismiss because the plaintiff has not alleged an essential element of her claim.109 (Most—though not all— causes of action require the plaintiff to prove injury as an element.)110 The plaintiff may also refrain from making any specific allegations regarding how the alleged product or practice caused the injury to the class.111 There is a clear strategic reason for doing this: the more specific the plaintiff is about causation, the stronger the possibility that the defendant can argue that proving causation will require individualized inquiries that predominate over any class-wide issues.112 However, like with no-injury claims, claims where the named plaintiff has not alleged any causation may face dismissal because the plaintiff has not alleged an essential element.113

§ 4.2.5 Motion to Strike/Early Challenge to Class Certification Contrary to common perception, the defendant does not have to wait for the plaintiff to move for class certification in order to debate the propriety of class treatment. Nothing in Rule 23 prevents the defendant from moving the court

107. See In re Bridgestone/Firestone, Inc., 288 F.3d at 1014–15, 1017; Briehl v. Gen. Motors Corp., 172 F.3d 623 (8th Cir. 1999). 108. See § 3.6.1. These allegations may create claim-splitting problems if they are allowed to proceed. See Feinstein v. Firestone Tire & Rubber Co., 535 F. Supp. 595, 606 (S.D.N.Y. 1982) (refusing to certify class action for economic losses where plaintiffs also had personal injury claims because of “significant risks” that class members would “later [be told] that they had impermissibly split a single cause of action”). 109. See Briehl, 172 F.3d at 628–29 (dismissing no-injury claims because plaintiffs did not adequately plead damages element). 110. See In re Bridgestone/Firestone, Inc. Tire, Prods. Liab. Litig., 288 F.2d at 1017 (“No injury, no tort, is an ingredient of every state’s law.”); but see Lloyd v. Gen. Motors Corp., 916 A.2d 257, 265 (Md. 2007) (recognizing exception to economic loss doctrine in Maryland for productliability claims that invoke safety concerns). 111. See § 3.6.1. 112. See § 5.2.2.5. 113. See Dura Pharms. v. Broudo, 544 U.S. 336, 348 (2005) (affirming dismissal of securitiesfraud lawsuit where plaintiffs did not adequately allege loss causation); Powell v. Barrett, 496 F.3d 1288, 1319 (11th Cir. 2007) (affirming dismissal of claims related to allegations of unconstitutional strip searches where plaintiffs did not adequately allege causation against county).

Defendant’s Response to Complaint 105

to deny certification.114 While a defendant may file a motion to deny certification after discovery, “sometimes the issues are plain enough from the pleadings to determine whether the interests of the absent parties are fairly encompassed within the named plaintiff’s claim . . .”115 In other words, the Supreme Court has indicated that, in certain circumstances, a defendant might be able to defeat certification of a class before the plaintiff moves for certification, thereby saving the court and the parties from expensive discovery directed at a pointless debate of class treatment.116 In fact, Rule 23(d)(i) (D) provides that a court may issue an order “requiring that the pleadings be amended to eliminate therefrom allegations as to representation of absent persons.”117 Since a motion to strike is a discovery-free class certification opposition, it is likely to be decided on a Rule 12(b)(6) standard.118 As a result the defendant should only pursue this strategy when it is clear from the face of the complaint that there is no way a plaintiff could convince a court to certify a class. Several issues in particular lend themselves to motions to strike: • Fatal defect in the class definition. In some circumstances, the plaintiff defines the proposed class in such a way that the court cannot determine membership without inquiry into the merits of the case.119 Sometimes, this is simply the result of sloppy drafting. Other times, however, defining the class in any other way makes it too broad to certify. In these cases, defendants may consider striking the class allegations because the class is not ascertainable.120 • Plaintiff is not a member of the class. In some circumstances, the allegations in the complaint reveal that the named plaintiff is not a member of the class–or a subclass—she seeks to represent; in those cases, courts

114. See Vinole v. Countrwide Home Loans, Inc., 571 F.3d 935, 939 (9th Cir. 2009) (“Rule 23 does not preclude a defendant from bringing a ‘preemptive’ motion to deny certification.”). 115. Gen. Tel. Co. of Sw. v. Falcon, 457 U.S. 147, 160 (1982). 116. See also Cook County College Teachers Union, Local 1600 v. Byrd, 456 F.2d 882, 885 (7th Cir. 1972) (one opposing class action may move for an order determining that the action may not be maintained as a class suit); Stubbs v. McDonald’s Corp., 224 F.R.D. 668, 674 (D. Kan. 2004) (“Federal courts have used motions to strike to test the viability of a class at the earliest pleading stage of the litigation.”). 117. Fed. R. Civ. P. 23(d)(i)(D). 118. See Picus v. Wal-Mart Stores, Inc., 256 F.R.D. 651, 653 (D. Nev. 2009). 119. For a more extensive discussion, see §§ 2.1, 3.6. 120. See John v. Nat’l Sec. Fire & Cas. Co., 501 F.3d 443, 445 (5th Cir. 2007) (“Where it is facially apparent from the pleadings that there is no ascertainable class, a district court may dismiss the class allegation on the pleadings.”).

106

Chapter 4 Pre-Certification Steps

have found that plaintiffs may be per se not adequate to represent those classes.121 • Superiority. In certain cases (particularly in the wake of a public investigation), some courts have held that, based on the complaint and the public record to which the plaintiff has referred, a class action may not be superior to other forms of resolving the controversy.122 • Collateral estoppel. If a plaintiff in a proposed class action was also a proposed member of a class action another court refused to certify, and if that court already rejected the same bases for certification, the named plaintiff may be estopped from pursuing class treatment in the new case.123 While some defendants have successfully convinced courts to strike class allegations,124 courts will often provide plaintiffs with additional chances to allege that the requirements of Rule 23 have been met.125 As a result, the defendant should only move to strike when it is confident it can win completely, or when doing so will support an eventual motion to deny or opposition to class certification.

§ 4.2.6 Answer As in individual litigation, answering the complaint is sometimes preferable to moving to dismiss. The defendant may not believe it has good arguments for dismissing all of the claims asserted in the complaint (meaning it must file

121. Stubbs, 224 F.R.D. at 674–75 (striking class allegations on adequacy grounds where employment-discrimination class plaintiff was not member of subclasses he sought to represent). 122. Baum v. Great W. Cities, Inc. of New Mexico, 703 F.2d 1197, 1210 (10th Cir. 1983) (affirming dismissal of class allegations because likely existence of individual issues undermined superiority); Kamm v. California City Development Co., 509 F.2d 205, 210–11 (9th Cir. 1975) (affirming dismissal of class allegations without discovery where “the [public] record itself provided a sufficient evidentiary base on which the ‘superiority’ question might be determined” and administrative remedy already provided was superior). 123. For more on the preclusive effect of prior case rulings, see § 9.1. 124. See John, 501 F.3d at 445 (affirming dismissal of class allegations because it was “facially apparent from the pleadings that there is no ascertainable class”); Mantolete v. Bolger, 767 F.2d 1416, 1424 (9th Cir. 1985) (“[T]he plaintiff bears the burden of advancing a prima facie showing that the class action requirements of Fed. R. Civ. P. 23 are satisfied or that discovery is likely to produce substantiation of the class allegations. Absent such a showing, a trial court’s refusal to allow class discovery is not an abuse of discretion.”); Baum, 703 F.2d at 1210 (affirming dismissal of class allegations in fraud case because likely existence of individual issues undermined superiority). 125. See John, 501 F.3d at 445 (noting that “[b]ecause this case is ongoing, [plaintiffs] may amend their complaint pursuant to the district court’s discretion under Federal Rule of Civil Procedure 15”).

Defendant’s Response to Complaint 107

at least a partial answer), or it may not want to risk a ruling adverse to its longer-term interests. For the most part, answering a class-action complaint is similar to answering a complaint in individual litigation. The two primary differences are in how the defendant treats the class-related allegations and what affirmative defenses the defendant asserts. The defendant may deny class-related allegations, or, in some cases, treat them as matters of law to be demurred or denied. Because the burden of establishing that a class action is appropriate rests on the plaintiff,126 a defendant does not have to assert that a class action is inappropriate as an affirmative defense. (In fact, since the defendant bears the burden of proving affirmative defenses, asserting that a class may not be certified as an affirmative defense risks undercutting its argument that the plaintiff bears the burden of persuasion on certification issues.) There are no affirmative defenses unique to class actions. However, it is worth noting that a court must consider what affirmative defenses the defendant has asserted when it determines whether class certification is appropriate, particularly if those defenses will introduce factual variations of their own.127 Therefore, the defendant may assert affirmative defenses in the answer that are inherently individualized, and pointing out that the claims of some putative class members may be barred by—among other things—the statute of limitations,128 comparative negligence,129 assumption of risk,130 or accord and satisfaction.131 In addition, because res judicata is an affirmative defense, a defendant facing multiple class actions where one has already reached

126. See Garierty v. Grant Thornton, LLP, 368 F.3d 356, 363 (4th Cir. 2004). For fuller discussion, see § 5.1. 127. See, e.g., Sanneman v. Chrysler Corp., 191 F.R.D. 441, 454 (E.D. Pa. 2000) (refusing to certify class where “Defendant’s affirmative defenses present more issues to be decided on an individual basis”). Not all courts have agreed with this line of reasoning, however. See Winkler v. DTE, Inc., 205 F.R.D. 235, 244 (D. Ariz. 2001) (certifying class because deciding affirmative defenses in plaintiff ’s favor “would dispose of the need for individual assessments”); Olden v. La-Farge Corp., 203 F.R.D. 254, 270 (E.D. Mich. 2001) (“The mere existence of individualized defenses does not bar class certification.”). For a fuller discussion, see § 5.2.2.5. 128. See, e.g., Thorn v. Jefferson-Pilot Life Ins. Co., 445 F.3d 311, 320–21 (4th Cir. 2006) (affirming denial of class certification, in part, because determining accrual for statute-of-limitations purposes would require individualized inquiries); Barnes v. Am. Tobacco Co., 161 F.3d 127, 149 (3d Cir. 1998). 129. See Gunnells v. Healthplan Servs., Inc. 348 F.3d 417, 438 (4th Cir. 2003) (“the affirmative defense[] of comparative negligence . . . pose[s] significant obstacles to class certification”). 130. Id. (“The affirmative defense[] of . . . assumption of risk . . . pose[s] significant obstacles to class certification”). 131. See Jones v. Allercare, Inc., 203 F.R.D. 290, 303, 305 (N.D. Ohio 2001) (finding no predominance in part because of individual issues associated with trying affirmative defense of accord and satisfaction).

108

Chapter 4 Pre-Certification Steps

a final judgment should make sure it asserts that defense in its answer.132 If the defendant does not assert any of these affirmative defenses in its answer, the court may find it has waived them if it tries to argue that they create variations that would preclude class certification.133

§ 4.2.7 Offer of Judgment Rule 68 allows the defendant to make an offer of judgment to the plaintiff.134 If the plaintiff declines the offer, then she may be responsible for any litigation costs incurred after the offer was made.135 In the past, defendants have occasionally used Rule 68 as a way of “picking off” a named plaintiff by making the offer of judgment and then moving to dismiss plaintiffs’ claims as moot.136 The Supreme Court has warned lower courts against allowing this tactic to succeed.137 And the Third Circuit has forbidden it because it would interfere with Rule 23’s policy objectives of allowing for aggregation of small claims.138 If the defendant intends to try this tactic, it must make the offer before the plaintiff moves for class certification. There is a second possible use to Rule 68: the defendant might also make an offer of judgment at the beginning of litigation as a means of limiting its ultimate costs. If the plaintiff (or, more specifically, her counsel) declines the offer and then does not prevail in getting the class certified and winning more than the offer, she will be responsible for the remaining costs in the lawsuit.

132. See Carr v. Tillery, 591 F.3d 909, 913 (7th Cir. 2010). 133. Hillis v. Equifax Consumer Servs., 237 F.R.D. 491, 500 (N.D. Ga. 2006) (“Defendants’ ability to assert this argument depends upon their having a viable set-off defense. The problem for Defendants is that they failed to plead the defense of set-off in their answers.”). 134. Fed. R. Civ. P. 68 (“More than 10 days before the trial begins, a party defending against a claim may serve on an opposing party an offer to allow judgment on specified terms, with the costs then accrued.”). 135. Id. (“If the judgment that the offeree finally obtains is not more favorable than the unaccepted offer, the offeree must pay the costs incurred after the offer was made.”). 136. See Weiss v. Regal Collections, 385 F.3d 337, 339–40 (3d Cir. 2004) (defendants made Rule 68 offer of judgment, then moved to dismiss plaintiffs’ claims as moot); Carroll v. United Compucred Collections, Inc., 399 F.3d 620, 622 (6th Cir. 2005) (same). 137. See Deposit Guaranty Nat’l Bank v. Roper, 445 U.S. 326, 339 (1980) (“Requiring multiple plaintiffs to bring separate actions, which effectively could be ‘picked off ’ by a defendant’s tender of judgment before an affirmative ruling on class certification could be obtained, obviously would frustrate the objectives of class actions; moreover it would invite waste of judicial resources by stimulating successive suits brought by others claiming aggrievement.”). 138. See Weiss, 385 F.3d at 345 (denying defendant’s motion to dismiss because in part because “[a]llowing defendants to ‘pick off ’ putative lead plaintiffs contravenes one of the primary purposes of class actions-the aggregation of numerous similar (especially small) claims in a single action.”).

Defendant’s Response to Complaint 109

In essence, this tactic tests the plaintiff’s confidence in the likelihood (and by proxy, the propriety) of certifying the proposed class. This tactic is also controversial (though not prohibited),139 and a number of courts have struck these offers on policy grounds.140

§ 4.2.8 Motion for Sanctions Rule 11 requires that “[e]very pleading, written motion, and other paper shall be signed by at least one attorney of record.”141 This signature represents to the court that the pleading is “not submitted for any improper purpose,” the legal contentions are warranted by law, and the factual allegations have evidentiary support.142 If an attorney falsely represents these facts to the court, he faces sanctions at the court’s discretion. Tempting as a Rule 11 motion can sound to parties locked in high-stakes litigation, a court will rarely grant it, and the potential costs of failure are great. A poorly founded Rule 11 motion can alienate a court, harden opposition from opposing counsel, and lay the groundwork for later personal attacks against the defendant’s lawyer. However, in certain limited circumstances, the Rule 11 motion may still be appropriate. Leaving aside the general application when there has been some fraud on the court, there are two situations peculiar to class-action practice that might warrant a Rule 11 letter or motion. First, when a plaintiff has clearly made no factual investigation into whether a defendant is actually the proper defendant to sue (particularly in suits involving multiple defendants), and second, when a given plaintiff did not suffer the injury alleged in the complaint. (Theoretically, Rule 11 motions are also possible against a class-action defendant, but they are much less common in practice.)

139. See Id. at 344 & n.12 (discussing controversy over applying cost-sharing provision of Rule 68 to class actions); Marek v. Chesny, 473 U.S. 1, 35 n. 49 (1985) (Brennan, J., dissenting) (noting conflict of interest between named plaintiff and class in face of offer of judgment). From the defense perspective, there is nothing underhanded about this tactic. Faced with a potentially meritless class action, a Rule 68 offer of judgment would force plaintiffs’ counsel (who often assume the costs of bringing the class certification motion instead of the named plaintiff ) to rethink any tactics based on imposing large costs on the defendant. 140. See, e.g., Ziegenfuse v. Apex Asset Mgmt., 239 F.R.D. 400, 403 (E.D. Pa. 2006) (“Whichever approach a defendant takes under Rule 68, the purpose is to dampen the efforts of the putative representative in pursuing the class action, if not to cause her to withdraw. It is an attempt to inject a conflict of interest between her and those she seeks to represent. The use of Rule 68 to shift the risk of costs is simply a more indirect and perhaps somewhat more subtle means to undermine Rule 23 and the procedural and substantive benefits it affords.”). 141. Fed. R. Civ. P. 11. 142. Id.

110

Chapter 4 Pre-Certification Steps

A Rule 11 letter to opposing counsel can be a useful way of broaching the subject of a case’s weak factual foundation without crossing the Rubicon by filing an actual motion. In sending a letter, the defendant can send a strong signal as to where and how it believes a plaintiff’s complaint to be insufficient. The most important point in sending a Rule 11 letter is to be dispassionate and specific. Rule 11 letters are not an occasion for rhetoric. They are surgical strikes, designed only to inform the other side of clear and demonstrable deficiencies and build a record of sanctionable conduct.

§ 4.3 Amending the Complaint Rule 15 allows for liberal amendment of the complaint.143 As a result, the plaintiff may respond to an initial motion to dismiss by amending her complaint to address legal defects the defendant has identified.144 The plaintiff may also amend a complaint because she has identified new defendants,145 new potential class representatives,146 or new facts that may give rise to new claims.147 This tactic suffers from the law of diminishing returns. In addition to creating demonstrable prejudice to the defendant,148 repeated amendment may signal to the court that the plaintiff does not have a coherent theory of the case. It may also try the court’s patience,149 a resource both sides spend only sparingly. Moreover, multiple amendments may signal to the defendant that

143. See Fed. R. Civ. P. 15(a)(2) (“The court should freely give leave [to amend] when justice so requires.”). 144. See, e.g., Knudsen v. Liberty Mut. Ins. Co., 411 F.3d 805, 806 (7th Cir. 2005) (observing that “plaintiffs proposed to amend the class definition in a way that would make them members, and hence eligible to be representatives” and noting that “Plaintiffs routinely amend their complaints, and proposed class definitions”) (Easterbrook, J.). 145. See Braud v. Transport Serv. Co. of Ill., 445 F.3d 801, 802 (5th Cir. 2006) (noting plaintiffs amended class-action complaint to add new defendant). 146. See Phillips v. Ford Motor Co., 435 F.3d 785, 786 (7th Cir. 2006) (plaintiffs amended complaint to add new class representative) (Posner, J.). 147. See Heerwagen v. Clear Channel Commc’ns, 435 F. 3d 219, 223 (2d Cir. 2006) (plaintiff amended complaint to add unjust enrichment claim). 148. Panetta v. SAP Am., Inc., 294 Fed. App’x 715, 718 (3d Cir. 2008) (denying late amendment because of prejudice to defendant). 149. Kendall v. Visa USA, Inc., 518 F.3d 1042, 1051–52 (9th Cir. 2008) (affirming denial of leave to amend because plaintiffs “were already granted leave to amend once and were given an opportunity to conduct discovery to discover the facts needed to plead their causes of action, yet their First Amended Complaint contained the same defects as their original Complaint”); In re St. Jude Med., Inc., Secs. Litig., 629 F. Supp. 2d 915, 921 (D. Minn. 2009) (refusing to allow second amendment of complaint in response to summary judgment motion).

Case Management Orders

the plaintiff lacks substantial evidence supporting her case, which can significantly reduce any possibility of a substantial settlement. And, at a certain point, amendment is simply no longer an option. The Federal Rules now require a judge to identify a cutoff date after which amendment of the complaint is no longer allowed.150 In addition, in securities class actions, the PSLRA may require plaintiffs to republish notice after an amendment to the complaint,151 and in certain cases may bar amendment completely.152

§ 4.4 Case Management Orders As is well documented by psychologists and behavioral economists, starting places matter.153 And, in many cases, the negotiation of the procedural rules for managing the litigation through a court-approved case management order is the starting place for the parties to maneuver for tactical advantage in a class-action lawsuit. It sets the schedule for the case, establishes a procedure for resolving discovery disputes, dictates motion practice, and even determines who may speak for each side.

4.4.1 Timing The case management order has great significance, because it controls the pace of the litigation. As the Fifth Circuit recently observed: “Rule 23(c)(1) (A) no longer demands that the district court rule on certification ‘as soon as is practicable,’ but instead insists only upon ruling ‘at an early practicable time.’”154 As a result, the parties often have room to debate the schedule in the

150. Fed. R. Civ. P. 16(b), Advisory Committee Notes, 2007 (court “must enter [a] scheduling order that limits the time to . . . join other parties and to amend the pleadings. . . .”); see also In re Milk Prods. Antitrust Litig., 195 F.3d 430, 437 (8th Cir. 1999) (“When the district court has filed a Rule 16 pretrial scheduling order, it may properly require that good cause be shown for leave to file an amended pleading that is substantially out of time under that order.”); O’Neill v. Home Depot U.S.A., Inc., 243 F.R.D. 469, 483 (S.D. Fla. 2007) (denying leave to amend after class certification motion had been filed). 151. See In re Morgan Stanley and Van Kampen Mut. Fund. Sec. Litig., No. 03 Civ. 8208 (RO), 2006 WL 1008233, at *2 (S.D.N.Y. Apr. 18, 2006); Teamsters Local 445 Freight Div. Pens. Fund v. Bombardier Inc., No. 05 Civ. 1898 (SAS), 2005 WL 1322721, at *3 (S.D.N.Y. June 1, 2005). 152. See N.J. Carpenters Pension & Annuity Funds v. Biogen IDEC Inc., 537 F.3d 35, 57 (1st Cir. 2008) (reserving right to bar late amendments to theory of case, in light of damage to PLSRA’s statutory purpose from late amendment). 153. See generally Richard Thaler & Cass Sunstein: Nudge: Improving Decisions about Health, Wealth and Happiness (2008) (discussing how “choice architecture” influences strategic decisions). 154. Oscar Private Equity Invs. v. Allegiance Telecom, Inc., 487 F.3d 261, 267 (5th Cir. 2007).

111

112

Chapter 4 Pre-Certification Steps

case management order. An aggressive case management order can put additional pressure on the defendant (or the plaintiff), while a less aggressive order can provide more breathing room for either side to prepare its case. In general, the conventional wisdom is that a faster pace favors the plaintiff, while a slower pace favors the defendant. The faster pace usually favors the plaintiff because it keeps the defendant off-balance and preserves a sense of urgency, keeping the case fresh in the court’s view. In addition, the earlier in a case the court must make a class certification decision, the more likely it is to view the case in terms of generalities and commonalities, which argue in favor of certifying a class. Finally, because of the entrepreneurial posture of most class actions, more time represents a drain on resources for the plaintiff,155 if only because it increases the opportunity cost of the capital that the plaintiff has already spent on the litigation. (On the other hand, if the plaintiff’s lawyers have limited resources, a more aggressive class-certification schedule can put them at a disadvantage, since they may not be able to collect and process the discovery in time to use it in briefing class certification.) The slower pace favors the defendant because it provides more time to develop the case. The more time a judge invests in understanding the legal and factual nuances of a case, the less likely he is to certify a class based on sweeping generalities. The longer a case goes on, the less dramatic it seems, and the greater the chance the plaintiff will lose enthusiasm for the case. Finally, because for the defendant money spent on litigation represents an expense rather than an investment, a slower pace tends to represent a potential savings rather than an opportunity cost. (There is an exception to this analysis. If the expected liability from the litigation is sufficiently large, it may depress the defendant’s balance sheet, which could encourage it to move more quickly.) As a result, the defendant will often push for a class-certification schedule that allows for a more careful consideration of the issues. In some jurisdictions (like the Eastern District of Virginia), the court will set deadlines with little input from counsel. In others, counsel will meet and confer about appropriate deadlines, and then present either an agreed schedule to the court, or two conflicting schedules.

§ 4.4.2 Discovery Procedures The most important question is whether to proceed immediately with meritsrelated discovery or to bifurcate the discovery process into class-related and merits-related discovery.

155. See Dillon & Cannon, Circle of Greed 84–85 (defense strategy “inexorably slowed the pace of litigation, [and] Lerach and [co-counsel] Savett were indeed feeling the squeeze of time and money”).

Case Management Orders

Courts have taken two different approaches to discovery. Some have divided discovery into class certification-related discovery and merits-related discovery.156 Others have conflated class- and merits-related discovery.157 Each approach offers a mix of strategic benefits and costs. If certification is in doubt, keeping the two phases separate may reduce costs for both sides. However, where certification-related and merits-related issues are likely to overlap, bifurcation may lead to an increase in discovery disputes that will do little to contain costs for either side.158 The parties will also need to determine whether to modify the discovery limits imposed by the federal (or local) rules. Currently, the federal rules of civil procedure limit each party to 25 interrogatories and ten seven-hour depositions.159 It is possible that these limits will work for both sides if the class action has no more than a few named plaintiffs, involves simple issues, and requires testimony from only a few defense witnesses. More likely, however, the case is more complicated, and either the plaintiff or the defendant will press to expand those limits. In general, the plaintiff will favor expanded discovery. The cost of responding to discovery tends to exceed the cost of serving it. And in most class actions, which pit an individual consumer or employee against a corporate defendant, the defendant will have more potentially relevant evidence in its possession than the plaintiff. As a result, extensive discovery will be more costly to the defendant than to the plaintiff.

§ 4.4.3 Motions Practice Another question the parties must resolve is whether to build additional motions practice into the schedule. The defendant will often be interested in preserving opportunities to challenge the plaintiff’s pleadings before class certification. As a result, it will press for a motion-to-dismiss briefing and possibly summary-judgment briefing before the class certification motion has been filed or fully briefed. While the plaintiff will likely oppose further motions practice, she will have to consider several strategic factors. A court is not likely to forbid any motions briefing. In addition, if motions briefing is not included in the scheduling

156. See Labavue v. Olin Corp., 231 F.R.D. 632, 640 (S.D. Ala. 2005) (“the parties conducted bifurcated discovery, limited (in theory at least) to class certification issues”). 157. See In re Rail Freight Fuel Surcharge Antitrust Litig., 258 F.R.D. 167, 173 (D.D.C. 2009). 158. See Id. at 174 (denying request for bifurcation because if discovery were “bifurcated, this Court would likely have to resolve various needless disputes that would arise concerning the classification of each document as ‘merits’ or ‘certification’ discovery”). 159. Fed. R. Civ. P. 33, 34.

113

114

Chapter 4 Pre-Certification Steps

order, the default assumption may be that it can occur at any time.160 The larger question is whether the court will suspend discovery while it decides a motion to dismiss, or whether it will allow summary judgment briefing to predate class certification briefing. From the plaintiff’s perspective, any additional dispositive motions simply lengthen the gantlet she must survive before her investment in the litigation begins to pay off.

§ 4.4.4 Appointment of Lead Counsel Finally, if multiple plaintiffs have filed overlapping lawsuits, the case management order must also appoint lead counsel for the litigation. For securities litigation in particular, this can be an involved process. The PLSRA requires the various plaintiffs to compete to be named as lead plaintiff, which requires a finding that the lead plaintiff is the “most capable of adequately representing the interests of class members.”161 The lead plaintiff must then appoint a lead counsel who must be approved by the court, based on, among other factors: (1) who has filed the complaint or made a motion for appointment in response to a notice to class members about the pendency of the suit; (2) who has the “largest financial interest in the relief sought by the class”; and (3) who otherwise satisfies the requirements of Rule 23.162 While those three factors will create a presumption that a particular plaintiff should be lead plaintiff, that presumption is rebuttable.163 A competing plaintiff may rebut the presumption by offering evidence that the presumptive lead plaintiff either (1) will not adequately protect the interests of the class; or (2) is subject to “unique defenses” that make it incapable of adequately representing the class.164 This inquiry is not a full-fledged investigation into whether the proposed lead plaintiff is adequate or typical,165 but just whether it can demonstrate “prima facie” typicality and adequacy.166 This determination represents a strategic balancing act for each plaintiff. On the one hand, each plaintiff with a plausible claim to lead plaintiff status has a strong financial incentive to do everything she can to be appointed; as lead, she will control the purse strings, and the overall strategy of the litigation.

160. This assumption may depend on the local rules of the jurisdiction. 161. 15 U.S.C. § 78u-4(a)(3)(B)(i). The competition can be intense. See Asher v. Baxter Int’l, Inc., 505 F.3d 736, 737 (7th Cir. 2007) (noting “extended wrangling about who should be the ‘lead plaintiff ’ . . . and thus which firm would control the plaintiffs’ side of the litigation”). 162. 15 U.S.C. § 78u-4(a)(3)(B)(iii)(I). 163. 15 U.S.C. § 78u-4(a)(3)(B)(iii)(II). 164. 15 U.S.C. § 78u-4(a)(3)(B)(iii)(II). See also In re Royal Ahold N.V. Secs. & ERISA Litig., 219 F.R.D. 343, 348 (D. Md. 2003). 165. See §§ 2.3–4. 166. In re Royal Ahold N.V. Secs. & ERISA Litig., 219 F.R.D. at 350.

Pre-Certification Discovery 115

On the other hand, too vigorous a fight (by, say, attacking the prima facie adequacy and typicality of other plaintiffs) may plant some doubt about the efficacy of the class action in the court’s mind, may carve off possible sources of damages,167 or provide the defendant later with strong arguments that the lead plaintiff is not typical or adequate to represent the proposed class.168

§ 4.5 Pre-Certification Discovery As in general litigation, discovery is one of the most important phases of the lawsuit: it is the primary source of information (and admissible evidence) about plaintiff’s claims and defendant’s defenses. Even in general litigation, the extent of discovery has become a major concern.169 Indeed, a recent report by the Joint Project of the American College of Trial Lawyers Task Force on Discovery found that: [D]iscovery is increasingly expensive and . . . the expense and burden of discovery are having substantial adverse effects on the civil justice system. There is a serious concern that the costs and burdens of discovery are driving litigation away from the courts and forcing settlements based on the costs, as opposed to the merits, of the cases.170

Because class actions aggregate hundreds (or thousands) of individual claims, the volume of discovery can become truly punishing, turning litigation into a battle of attrition.171

167. See Id. at 353–54 (disqualifying potential named plaintiffs for lack of subject-matter jurisdiction because they were foreign investors buying foreign stock on foreign markets). There are strong strategic and policy justifications for making these challenges early. It is better for most of the class if it weeds out representatives with fatal flaws before the class certification inquiry. But the potential downside of the strategy must be considered as well. 168. See §2.3–4. In some ways, this choice is similar to one faced by political candidates. If one party’s presidential candidates face a hotly contested primary, they face a strong incentive to do everything they can to secure the nomination. However, every attack made during the primary provides the other party’s candidate with ammunition for the (more important) general election. 169. This concern is hardly new. See Blue Chip Stamps v. Manor Drug Stores, 421 US 723, 741 (1975) (“The prospect of extensive deposition of the defendant’s officers and associates and the concomitant opportunity for extensive discovery of business documents, is a common occurrence in this and similar types of litigation.”). 170. Joint Project of the Am. College of Trial Lawyers Task Force on Discovery and the Institute for the Advancement of the Am. Legal Sys., Aug. 1, 2008, at 1. 171. See In re Rail Freight Fuel Surcharge Antitrust Litig., 258 F.R.D. at 173 (plaintiffs served 70 document requests and 100 deposition notices on defendants); In re Tyco Int’l Ltd. Multidistrict Litig., 535 F. Supp 2d 249, 254 (D. N.H. 2007) (“It would be difficult to overstate

116

Chapter 4 Pre-Certification Steps

Discovery serves several purposes: (1) it gets information from one’s opponent necessary to try the case, (2) it tests the opponent’s factual claims, and (3) it makes one’s opponent spend money. This final point is one of the many ways in which the plaintiff (or the defendant) can leverage the other side into settlement decisions.172

§ 4.5.1 Initial Disclosures Rule 26(a) now requires both the plaintiff and the defendant to provide some information at the outset of the case. Each party must identify: (a) names and contact information of witnesses that party intends to rely on; (b) documents it may use to support its claims or defenses; (c) a compilation of damages; and (d) any insurance agreements.173 There is some leeway as to how much information needs to be disclosed in the initial disclosures. In some instances—for example, when a product manufacturer faces a class action after a series of personal injury suits— documents may be available and organized such that providing them with the initial disclosures will save some resources later in responding to certain discovery requests.

§ 4.5.2 Protective Orders Unlike in individual-to-individual litigation (in which neither private individual likely cares about the information that may come out in the litigation), or in business-to-business litigation (in which both sides have similar interests in protecting proprietary information), in class actions the two sides have strong incentives to treat business-confidential information differently. The defendant is more likely to have confidential business information that requires protection, while the plaintiff is more likely to have a strong interest

the volume of discovery in this case. Co-lead counsel propounded over 700 requests for admission, document requests, and interrogatories participated in over 220 depositions in New York, Florida, Massachusetts, and New Hampshire; and reviewed some 82.5 million pages of documents produced by defendants. . . . Moreover, because of the complexity of the alleged fraud, Co-lead counsel needed to retain expert consultants and forensic accountants to assist them in interpreting the information they obtained through discovery.”); In re Bankamerica Corp. Secs. Litig., 210 F.R.D. 694, 701 (E.D. Mo. 2002) (“During several years of discovery, the parties have taken more than seventy-five depositions, reviewed a million and a half documents, and agreed to thousands of stipulations of fact.”). 172. Shapiro, Inside A Class Action at 139 (“Without the threat of discovery, the bankers would not be motivated to come to the table.”), 189 (same). 173. Fed. R. Civ. P. 26(a)(1)(A)(i)-(iv).

Pre-Certification Discovery 117

in disseminating information, either to place additional pressure on the defendant,174 or to allow for uses outside of the litigation. The most common areas of dispute in confidentiality orders are: • Definition of confidential information. The defendant usually wants to make the definition of confidential information as broad as possible. The plaintiff may characterize this as an attempt to prevent other litigants from learning about the alleged problem.175 However, for many corporate defendants, aggressively protecting proprietary business information is an important component of protecting the company’s comparative advantage. • Sharing provisions. The plaintiff will often propose provisions allowing her to share information with other plaintiff ’s firms pursuing similar litigation. The defendant will usually oppose these provisions. • Provisions for challenging designations. One key issue is who bears the burden of demonstrating whether a challenged designation is appropriate. Should the defendant have to convince the court that its designation was supportable, or does the plaintiff have to show that it was not? The parties will also often include a meet-and-confer process for resolving confidentiality disputes without involving the court. There are reasons a party might choose not to do so (a strategy of litigating the litigation, deep distrust of the other party), but demonstrating to the court an intent to spare it pettier disputes can help both sides establish credibility.

§ 4.5.3 Plaintiff ’s Discovery There are generally several purposes to a plaintiff’s discovery of the defendant. The first is to document as many facts about the case as possible, providing support for debate over class certification and other dispositive motions. Sometimes, the plaintiff may use discovery as a means of refining her original theory of the case into a theory that can be certified for class treatment and prevail at trial.176 However, discovery also has a collateral use—particularly

174. See §§ 4.1.2.3. 175. See Muehlbauer v. Gen. Motors Corp., No. 05 C 2676, 2009 WL 874511, at *3 (N.D. Ill. Mar. 31, 2009) (“plaintiffs argue that . . . it is a matter of public safety that [the documents] be released”); see also Robert C. Fellmuth, et al., Summit: Taking the Offensive: Court Strategy, 40 San Diego L. Rev. 115, 156 (2003) (representatives of public-interest groups express concern over documents about safety defects kept confidential in litigation). 176. Cf. In re St. Jude Med., Inc. Secs. Litig., 629 F. Supp. 2d at 920–21 (plaintiff sought to update theory underlying class complaint after discovery).

118

Chapter 4 Pre-Certification Steps

for plaintiffs—as a means of wearing down one’s opponent’s means and will to litigate.177 Finally, the plaintiff may also use discovery to research new potential causes of action. There are a number of reasons for conducting aggressive discovery. Most obviously, the more information a plaintiff has about her case, the better. In some cases, discovery can produce information that substantially increases the value of the case.178 These serve at least two goals beyond learning more information about the case: (1) they impose additional costs on the defendant, and (2) massive discovery efforts can either reveal a pattern of recalcitrance, or force the defendant into making mistakes in complying with discovery requests, either of which can become a focus of the litigation. If the plaintiff has alleged that a defendant covered up a defect in a product, or material information that would have reduced a stock’s price, then the defendant’s failure to produce requested discovery can appear part of a similar pattern of bad conduct. The defendant may object to the plaintiff’s discovery as not allowable unless she can establish a prima facie case that the class can be certified.179 § 4.5.3.1 Interrogatories Interrogatories are a scarce resource. Unless the case management order directs otherwise, the federal rules limit each party to 25 interrogatories per opposing party.180

177. See Carl von Clausewitz, On War 77 (Michael Howard and Peter Paret, eds. and trans.) (Princeton Univ. Press 1984) (“If you want to overcome your enemy, you must match your effort against his powers of resistance, which can be expressed as the product of two inseparable factors, viz. the total means at his disposal and the strength of his will. The extent of the means at his disposal is a matter—though not exclusively—of figures, and should be measurable. But the strength of his will is much less easy to determine and can only be gauged approximately by the strength of the motive animating it. Assuming you arrive in this way at a reasonably accurate estimate of the enemy’s power of resistance, you can adjust your own efforts accordingly; that is, you can either increase them until they surpass the enemy’s or, if this is beyond your means, you can make your efforts as great as possible.”) (emphasis in original). 178. See Deborah R. Hensler & Mark. A. Peterson, Understanding Mass Personal Injury Litigation: A Socio-Legal Analysis, 59 Brook. L. Rev. 961, 969 (1991) (noting that, in asbestos litigation, “the discovery of the ‘Sumner-Simpson’ papers, indicating knowledge among major defendants of asbestos’ injurious effects, exposed these defendants to significant punitive damages. This increased the value of all asbestos claims against those defendants, not simply those claims directly involved in the relevant discovery.”). 179. See Heerwagen, 435 F.3d at 234; Manolete, 767 F.2d at 1424 (“Although in some cases a district court should allow discovery to aide the determination of whether a class action is maintainable, the plaintiff bears the burden of advancing a prima facie showing that the class action requirements of Fed. R. Civ. P. 23 are satisfied or that discovery is likely to produce substantiation of the class allegations.”). 180. Fed. R. Civ. P. 33(a)(1).

Pre-Certification Discovery 119

For the plaintiff, interrogatories may cover any number of topics. However, certain interrogatories are likely to be standard, as they deal with questions that recur in almost all cases against a corporate defendant. Among other questions, the plaintiff may ask for: • • • •

the identity of any corporate witnesses; a list of all products sharing a common component; a list of all lawsuits related to plaintiff ’s complaint; and an estimation of the size of the proposed class.

The plaintiff may also ask the defendant to identify prospective class members. There are at least three reasons to do this. First, prospective class members are potential witnesses. Second, they are potential clients. Third, the more potential class members the plaintiff can identify earlier in the case, the more they can defray some of the costs of issuing notice later. While each of these strategic goals is sound, the United States Supreme Court has ruled much of that information off-limits in Oppenheimer Fund, Inc. v. Sanders.181 In Oppenheimer, the plaintiffs filed a securities class action against the Oppenheimer Fund, an open-ended diversified investment company.182 During the course of the litigation, the Court of Appeals for the Second Circuit issued a ruling in another class action, Eisen v. Carlisle & Jacquelin, that the trial court in that case had erred when it ordered the defendants to pay 90 percent of the costs of notifying members of a Rule 23(b)(3) class that had been certified.183 In the course of discovery, the plaintiffs had learned that determining the names and addresses of the class members (necessary for notice) would cost approximately $16,000.184 At that point, the plaintiffs embarked on several strategies to reduce the cost of class notice.185 So the plaintiffs sought an order requiring the defendants to provide a list of all class members, arguing that the federal discovery rules authorized the court to do so.186 The Supreme Court ultimately decided that the rules did not. It observed that “a court is not required to blind itself to the purpose for which a party seeks information,”187 and holding that: “Respondents’ attempt to obtain the class members’ names and addresses

181. 437 U.S. 340, 352 (1978). 182. Id. 183. See Id. at 344 (citing Eisen v. Carlisle & Jacquelin, 479 F.2d 1005 (2d Cir. 1973)). The Eisen case would be appealed at least one more time, eventually resulting in a seminal Supreme Court opinion on class actions. 184. Oppenheimer Fund, 437 U.S. at 345. 185. See generally Id. at 345–53. Plaintiffs’ tactics for reducing the cost of class notice will be discussed at greater length in Chapter 6. 186. Id. at 340. 187. Id. at 352 n.17

120

Chapter 4 Pre-Certification Steps

cannot be forced into the concept of ‘relevancy’ described” in the federal rules.188 Contention interrogatories. Many lawyers spend several of their interrogatories on so-called “contention interrogatories,” asking for each side to list all facts and evidence underlying one of the contentions in the case. For example, a plaintiff might serve an interrogatory that reads: INTERRGATORY NO. 1:List each fact and identify each document that supports your denial that the class is so numerous as to render joinder impracticable. (See Answer. ¶ 36.)

This practice is not limited to plaintiffs. A defendant might serve the mirror image of that interrogatory, seeking each fact and document that supports the plaintiff’s assertion of numerosity. The difficulty with these interrogatories is that they are too easy to ignore. The opposing party can almost always avoid answering them in any meaningful fashion, claiming that they seek attorney work product, or that discovery is not complete yet. While technically, a party is under a continuing duty to update its responses to interrogatories, it is rare for any party to do so in response to a contention interrogatory. § 4.5.3 2 Document Requests Unlike interrogatories, the Federal Rules do not limit the number of document requests a party may file.189 Document requests can vary greatly from class action to class action. For some, straightforward fraud or overcharge cases, the plaintiff may not require many documents. For more complex cases, like Sherman Act conspiracy cases or complicated securities-fraud cases, discovery may be much more voluminous, involving, potentially, years of discovery and tens of millions of documents.190 The plaintiff will also request electronically stored information (commonly referred to as “ESI”). The increasing complexity of discovery of ESI (often referred to as “e-discovery”) has spawned a cottage industry of consultants and contract attorneys. Much of the give-and-take of e-discovery is beyond the scope of this chapter, but we will briefly mention a few topics that both parties should consider in responding to document requests in general: • Disputes over format. More sophisticated litigants will likely use compatible systems for reading and producing documents, but occasionally they will not. More often, despite the fact that some electronic documents will not exist in a searchable format, the plaintiff will ask for all

188. Id. at 352. 189. See generally Fed. R. Civ. P. 34. 190. See Regents of the Univ. of Cal. v. Credit Suisse First Boston, Inc., 482 F.3d 372, 378 (5th Cir. 2007) (“Years of discovery have ensued, and tens of millions of documents have been produced.”).

Pre-Certification Discovery 121

documents to be searchable. Complying with that request may require reformatting documents, leading to a debate over who should bear the cost of doing so. • Disputes over search terms. Because e-discovery often resides in databases, the plaintiff may have to request that the defendant conduct searches for her. This can lead to conflict over how to conduct the searches. The plaintiff will want the searches to be as broad as possible. The defendant may resist providing some information to the plaintiff (like a list of all searchable fields) because doing so may reveal proprietary information beyond the scope of the case. 4.5.3.3 Requests for Admission Requests for admission are a powerful, if underused, discovery tool. Because any request not properly denied is deemed admitted, the opposing party must answer them fully and on time. While requests for admission are powerful, they are also limited. The response is limited to “admit” or “deny.” Still, the plaintiff can use requests for admission to lock the defendant into admitting certain essential facts. For example, the plaintiff could ask the defendant to admit: • The defendant used certain common language in its representations to the class; • The terms of a uniform contract; • The existence of an official policy that affected the class in a uniform manner; • The existence of an environmental incident on a given date. 4.5.3.4 Depositions The plaintiff usually focuses on three different types of depositions: (1) 30(b)(6) depositions of corporate representatives of defendants; (2) individual depositions of key fact witnesses; and (3) depositions of any experts who are assisting the opposition to class certification. In addition, some plaintiffs will try to take depositions of high-ranking executives at a defendant company (sometimes called “apex” depositions), although these have become rarer since courts have ruled that a party must show good cause to depose a top-level corporate executive. The federal rules limit the number of depositions that may be taken,191 and the time each deposition may take,192 although a party may ask the court to extend deposition limits. For the plaintiff, who often has, at most only a few

191. Fed. R. Civ. P. 30(a)(2)(A)(i) (default limit on depositions is 10). 192. Fed. R. Civ. P. 30(d)(1) (default option is “1 day of 7 hours”).

122

Chapter 4 Pre-Certification Steps

witnesses to offer for depositions, this may seem a more attractive option than for defendants. Rule 30(b)(6) depositions. Rule 30(b)(6) provides that: a party may name as the deponent a public or private corporation, a partnership, an association, a governmental agency, or other entity and must describe with reasonable particularity the matters for examination. The named organization must then designate one or more officers, directors, or managing agents, or designate other persons who consent to testify on its behalf; and it may set out the matters on which each person designated will testify. . . . The persons designated must testify about information known or reasonably available to the organization.

The 30(b)(6) deposition is appropriate when the plaintiff knows that someone at the defendant corporation knows (or can be educated about) particular subjects important to the case, but does not know who that witness is. It is also useful for topics where a plaintiff has some general knowledge of the facts involved, but needs additional information about the corporation or various document-handling practices. Most importantly, the 30(b)(6) deposition is often the plaintiff’s best chance to bind a corporate defendant to a particular statement or point of view. 30(b)(6) depositions are usually formally noticed, and include a description of the topics to be addressed as well as documents to be provided. A party may not serve more than one 30(b)(6) notice on a single corporation.193 As a result, plaintiffs will often issue a 30(b)(6) notice that combines multiple topics into a single deposition. Topics vary widely, depending on the availability of evidence in other forms, the maturity of the litigation, and the plaintiffs’ knowledge of the facts to date. However, some topics may include: • the location of records from which class members’ names and addresses may be derived should a class be certified;194 • the number of potential members of class as defined;195 and • any company practices or procedures that will apply to the entire class.196

193. Fed. R. Civ. P. 30(a)(2)(A)(i)–(ii) (“A party must obtain leave of court, and the court must grant leave to extent consistent with Rule 26(b)(2) . . . if the parties have not stipulated to the deposition, and . . . the deponent has already been deposed in the case. . . .”); Ameristar Jet Charter, Inc. v. Signal Composites, Inc., 244 F.3d 189, 192 (1st Cir. 2001) (applying Rule 30 (a)(2)(A)(ii) to Rule 30(b)(6) notice). 194. See Oppenheimer Fund, 437 U.S. 340 at 344. 195. See Id. at 344–45. 196. See § 2.2, 5.1.2.2; see also Morgan v. Family Dollar Stores, Inc., 551 F.3d 1233, (11th Cir. 2008) (plaintiffs offered testimony of 30(b)(6) witness to demonstrate common issues).

Pre-Certification Discovery 123

The first thing the defendant does when receiving a 30(b)(6) notice is to narrow the scope. Given the strong incentives for the plaintiff to load the 30(b)(6) notice with multiple topics, often one witness could not know—or be educated—on all potential topics. Defense counsel can formally object to the notice, opt to informally negotiate the scope if that seems more appropriate, or present separate witnesses to speak to different topics within the notice. Under the federal rules, the defendant does not have to provide the witness who is most knowledgeable on each topic. In fact, the defendant can select whomever it wants, provided that witness can be educated on certain facts and speaks on behalf of the defendant. Since the witness may be called at trial as well, it makes sense to avoid people who cannot communicate effectively, or who can be unnerved easily into making mistakes. A witness who comes off as well-spoken and sincere can be educated on subject matter more easily than a brilliant but combative witness can be educated to be more appealing to a jury. If discovery deadlines are tight, or if there are a large number of depositions in the case, a defendant may be tempted to combine a 30(b)(6) and personal deposition. The advantages are: fewer witnesses to prepare, and less preparation time overall. The risk is: confusing a 30(b)(6)’s personal opinions with the company position. Therefore, it is important to distinguish between the witness’s personal knowledge and the knowledge he gains from the education process. If a 30(b)(6) witness is not adequately prepared to discuss the subject matter identified in his notice, the defendant may be subject to sanctions.197 Equally important, if an inadequately prepared 30(b)(6) witness misstates the facts or answers questions imprecisely, he may commit the defendant to a position that makes it more difficult to defend the lawsuit. The defense attorney has two other jobs in preparing a 30(b)(6) witness. First, he needs to educate the witness about the themes of the case, so the witness understands what the case is about. Second, the attorney must ensure the witness understands the peculiarities of a class action. Since the classcertification opposition may rely on showing how individual issues of proof predominate over common issues, testimony from a corporate representative about the various facts required to establish each individual class member’s claims can help persuade a court that a class is not certifiable.198

197. See Fed. R. Civ. P. 37(d) (failure to appear for 30(b)(6) deposition is grounds for sanctions); Black Horse Lane Assoc., L.P. v. Dow Chemical Corp., 228 F.3d 275, 304 (3d Cir. 2000) (inadequate preparation for 30(b)(6) deposition may constitute failure to appear). 198. See Pop’s Pancakes, Inc. v. NuCO2, Inc., 251 F.R.D. 677, 686–87 (S.D. Fla. 2008) (finding that plaintiffs could not demonstrate commonality based in part on testimony of “corporate representative”).

124

Chapter 4 Pre-Certification Steps

Individual depositions. A plaintiff may also name individual witnesses she would like to depose. The plaintiff will most often seek to depose: people with lots of emails or other documents, witnesses from prior related lawsuits or investigations, people identified as possible witnesses in a 30(b)(6) deposition, and corporate executives. The plaintiff may also seek to depose former employees that she has reason to believe might testify more candidly about issues related to the lawsuit; unemployed former employees and employees now working for competitors of the defendant are often good starting points. Like with 30(b)(6) witnesses, the more an individual defense witness knows about specific facts that will show why individual issues predominate over common ones, the more useful the witness is to the defendant.199 As a result, when preparing an individual witness, the defendant should make sure the witness knows as much as possible about the role of class certification in the case. Apex Depositions. “Apex” depositions, or corporate executive depositions are particularly controversial. While in some cases, like the Enron litigation, corporate executives may be defendants themselves,200 in most cases, apex depositions run a high risk of proving more harassing than probative.201 As a result, most courts require that plaintiffs must show good cause before they allow an apex deposition to proceed.202 Specifically, the plaintiff must show: (1) that the corporate executive possesses relevant knowledge about the case; (2) that the corporate executive also possesses unique knowledge pertinent to the issues in the case; and (3) that the plaintiff has exhausted less intrusive means of seeking the same information.203 One effective tactic defendants have employed to block apex depositions is to preemptively file

199. See Id. at 682 (finding that plaintiffs could not demonstrate commonality based in part because of salesman’s testimony “that he was taught to explain anything in the agreements to the customers they sat down with and that he explains the charges that he is aware of to every customer including” the charge at issue in the case). 200. See In re Enron Corp. Secs. & ERISA Litig., 529 F. Supp. 2d 644 (S.D. Tex. 2006). 201. See Folwell v. Hernandez, 210 F.R.D. 169, 173 (M.D.N.C. 2002) (courts “must be attuned to the possibility that the noticing of the deposition of a high level executive may have the potential for harassment”). 202. See Mulvey v. Chrysler Corp., 106 F.R.D. 364, 366 (D.R.I. 1985) (a high-level executive is a “singularly unique and important individual who can be easily subjected to unwarranted harassment and abuse. He has a right to be protected, and the courts have a duty to recognize his vulnerability”); Liberty Mutual Ins. Co. v. Superior Court, 10 Cal. App. 4th 1282, 1288 (1992) (“federal decisions recognize the potential for abuse and generally do not allow a plaintiffs deposition power to automatically reach the pinnacle of the corporate structure”). 203. See Thomas v. International Business Machines, 48 F.3d 478, 483–84 (10th Cir. 1995) (upholding protective order barring deposition of top executive where lower level employees were available).

Pre-Certification Discovery 125

an affidavit by the executive stating that he has no specific knowledge relevant to the case.204 Expert depositions. If either side identifies experts, then the other side will want to take the experts’ depositions. There are some ways in which expert depositions differ from individual and 30(b)(6) depositions. For one thing, any preparation done, including the substance of conversations, is subject to discovery.

§ 4.5.4 Defendant’s Discovery The defendant faces a profound asymmetry in class-action discovery. Corporate defendants will often have many documents (including ESI), many potential witnesses, and lots of institutional knowledge to serve as the basis for interrogatory responses. By contrast, in most class actions, an individual named plaintiff will have comparatively little information: usually she will have kept only a few (if any) documents relative to her claim, will be in possession of only a few facts that inform her claim, and is often the only witness the defendant can depose. This imbalance will be somewhat lessened if the plaintiff is an institutional investor in a securities class action; but even there the plaintiff is likely to have far less relevant information than the defendant. 4.5.4.1 Interrogatories The most effective interrogatories will lock in the facts of the plaintiff’s claim. They should aim at the journalist’s basic “5 W’s and an H”: who, what, when, where, why and how. The defendant can use interrogatories to discover: • What events may have given rise to the claim (the purchase of a product, the various days that an employee might have worked overtime). • When and where those events took place. • Who witnessed the events. § 4.5.4 2 Document Requests However, most plaintiffs have comparatively few documents relevant to their claim. For a products-liability class action, they may—if they are organized— have kept the receipt from their purchase and documentation of the warranty.

204. See Mulvey, 106 F.R.D. at 366 (granting protective order because corporate executive filed affidavit professing ignorance to the information the plaintiffs sought); Evans v. Allstate Ins. Co., 216 F.R.D. 515, 519 (N.D. Okla. 2003) (granting protective order because corporate executives filed affidavits stating that they had no personal knowledge of the facts of the case).

126

Chapter 4 Pre-Certification Steps

For a FLSA class action, they might have time records and pay stubs. Nonetheless, a defendant can use document requests to discover: • Any correspondence the plaintiff participated in about the subject of the lawsuit; • The plaintiff ’s participation in internet forums on the subject; • The plaintiff ’s purchase records; • The plaintiff ’s maintenance of an allegedly defective product; • Any advertising the plaintiff may have seen and kept; • Any other printed disclosures the plaintiff may have received; • Any contracts the plaintiff has related to the lawsuit. The plaintiff may object to at least some of these requests by claiming that the documents are equally in the defendant’s possession. § 4.5.4 3 Requests for Admission Like plaintiffs, a defendant can use requests for admission to pin down named plaintiffs as to the theory of the case they are asserting. For example, the defendant can request that the plaintiff admit: • • • •

That she received certain disclosures; That she did not hear or see certain alleged misrepresentations; That she bought her product or security on a certain date; That her contract contains certain terms.

§ 4.5.4.4 Depositions As with the plaintiff, the deposition is possibly the single most important discovery tool a defendant can use. Asking questions of the plaintiff will reveal whether she had a legal and factual basis to bring her claims in the first place, what evidence exists to support her claims, what variations may exist between her claims and other class members’ claims, whether she has enough independence from counsel to represent the class, and whether she has exercised sufficient oversight of counsel to represent the class. Questions to ask include: • When did plaintiff retain counsel? • When did plaintiff learn she had a claim? • When did plaintiff buy the product? Typicality. This probes the details of the plaintiff’s specific claims. Because plaintiffs are often recruited after the theory of the case has been developed,

Pre-Certification Discovery 127

they rarely fit the facts perfectly. (This is true even in securities and antitrust cases.) Predominance. Particularly when there is more than one named plaintiff, asking the same questions of each can yield variations in vital elements of the claim, like reliance on allegedly fraudulent statements. Questions include: • Did the plaintiff ever actually see or hear the allegedly fraudulent statement? • Did the plaintiff ever see any information that corrected the fraudulent information?205 Superiority. Investigate other avenues the plaintiff could have pursued (or did pursue). Questions may include: • Did the plaintiff consider an individual lawsuit? • Did the plaintiff approach the company about the alleged injury? • Did the plaintiff make a report to the appropriate government authorities? Adequacy. Adequacy is one of the most important areas of a named-plaintiff deposition.206 Questions include: • • • •

Can you explain, in your own words, the claims you are bringing? Can you explain your responsibility to the rest of the class?207 Do you have any personal relationship with class counsel?208 Do you have any business relationship with class counsel?209

205. Cf. Oscar Private Equity Invs., 487 F.3d at 262 (“Given the lethal force of certifying a class of purchasers of securities enabled by the fraud-on-the-market doctrine, we now in fairness insist that such a certification be supported by a showing of loss causation that targets the corrective disclosure appearing among other negative disclosures made at the same time.”). 206. See Linda S. Mullinex, Taking Adequacy Seriously: The Inadequate Assessment of Adequacy in Litigation and Settlement Classes, 57 Vand. L. Rev. 1687, 1707 (2004) (“To establish a record concerning the adequacy of the class representative, defense counsel routinely depose all class representatives prior to the motion for class certification.”); for more on adequacy, see §§ 2.4, 5.2.2.4. 207. See, e.g., In re FEMA Trailer Formaldehyde Prods. Liab. Litig., Case 2:07-md-01873-KDEALC, Document 1014 at 20 (E.D. La. Dec. 29, 2008) (denying certification in part on adequacy grounds and noting that “proposed class representatives believe that they have no responsibility to other class members”). 208. See London v. Wal-Mart Stores, Inc., 340 F.3d 1246, 1255 (11th Cir. 2003) (“The long-standing personal friendship of [plaintiff ] and [counsel] casts doubt on London’s ability to place the interests of the class above that of class counsel.”). 209. See Id. (noting concerns about adequacy because “the former financial relationship creates a potential conflict of interest”) (emphasis in original).

128

Chapter 4 Pre-Certification Steps

A defendant may also wish to investigate the character of the named plaintiff.210 Questions may include: • Have you ever been convicted of a felony?211 These questions may draw objections (and even instructions not to answer) from plaintiffs’ counsel, invoking the attorney-client privilege.212

§ 4.6 Expert Witnesses Experts have become integral to all kinds of litigation, but given the sprawling size and complex issues involved in class actions, they can be particularly important for explaining issues to the judge and jury.213 Benefits. A good expert can explain complicated concepts to a judge or jury in ways that are surprisingly easy to grasp, and extremely difficult to refute. In addition, experts can be used in other ways. At times over the last several decades, plaintiffs have used experts as the primary evidence that certification was appropriate, because courts were reluctant to engage in a “battle of the experts” at the certification stage.214 This particular tactic is falling out of

210. See Id. at 1254 (vigorous prosecution and lack of apparent conflict may not be sufficient to establish adequacy “if the named plaintiffs . . . do not possess the personal characteristics and integrity necessary to fulfill the fiduciary role of class representative”) (internal quotations omitted). 211. See Maddox & Starbuck, Ltd. v. British Airways, 97 F.R.D. 395, 397 (S.D.N.Y. 1983) (named plaintiff ’s conviction for an unrelated criminal offense imposed “stigma that prevents it from proceeding as the class representative”); but see Benedict v. Altria Group, Inc., 241 F.R.D. 668, 674 (D. Kan. 2007) (while named plaintiff ’s “convictions for felony theft, burglary, writing bad checks, and possession of drug paraphernalia” were “more than a bit troubling . . . at the end of the day, the court is unpersuaded that [plaintiff ’s] criminal history, as a matter of law, renders her an inadequate class member”). 212. See Mullinex, Taking Adequacy Seriously: The Inadequate Assessment of Adequacy in Litigation and Settlement Classes, 57 Vand. L. Rev. at 1707 n.86 (“To the extent that plaintiff ’s counsel invoke attorney-client privilege (and instruct the class representative not to answer questions), taking the class representative’s deposition frequently may prove to be a frustrating exercise for defense counsel. Such invocations of attorney-client privilege in this context are usually inappropriate and improper invocations of the privilege. Defense counsel have the right to make inquiries of the class representative that have bearing on the adequacy issue, and no privilege shields the class representative from answering these questions.”). 213. See § 7.9. 214. See Manual for Complex Litigation (Fourth) (2004) § 21.21.

Pre-Certification Summary Judgment Motion

favor, as more appellate courts recognize the need to “rigorously examine” the expert’s opinions at the class certification stage.215 Risks. The primary risk with retaining an expert witness is that all work he engages in is discoverable. Every draft of his report, every piece of information he receives, must be turned over to the other side. As a result, litigants are often limited in exactly what they can show to an expert. Attorney work product, such as memoranda of interviews or other notes from factual investigations, may only be turned over if the litigant wants to see that same material brandished in front of a jury in open court. Rebuttal experts. Finally, a party may put up an expert specifically to rebut expert testimony offered by the other party. The benefit of this strategy is that there will not be undisputed expert testimony on key issues. The drawback is that, most often, courts will split the difference on any factual issue that involves a “battle of the experts.”

§ 4.7 Pre-Certification Summary Judgment Motion Finally, both parties may consider motions for summary judgment before the plaintiffs file a motion for class certification.216 These motions are not uncommon. (A recent study of pre-CAFA class actions in the federal courts found that, of the cases that were disposed of by motion in its sample, 34.8 percent

215. See, e.g., In re Hydrogen Peroxide Antitrust Litig., 552 F.3d 305, 323 (3d Cir. 2008) (“Expert opinion with respect to class certification, like any matter relevant to a Rule 23 requirement, calls for rigorous analysis.”); Blades v. Monsanto Co., 400 F.3d 562, 575 (8th Cir. 2005) (“We have stated that in ruling on class certification, a court may be required to resolve disputes concerning the factual setting of the case. This extends to the resolution of expert disputes concerning the import of evidence concerning the factual setting—such as economic evidence as to business operations or market transactions.”). 216. See, e.g., Schweizer v. TransUnion Corp., 136 F.3d 233, 239 (2d Cir. 1998) (“There is nothing in Rule 23 which precludes the court from examining the merits of plaintiff ’s claims on a proper . . . Rule 56 motion for summary judgment simply because such a motion ‘precedes resolution of the issue of class certification.’”) (citation omitted); Curtin v. United Airlines, Inc., 275 F.3d 88, 92 (D.C. Cir. 2001) (“nothing in Eisen or Rule 23(c) requires the district court to rule on class certification before granting or denying a motion for summary judgment”); Kehoe v. Fidelity Bank & Trust, 421 F.3d 1209, 1211 (11th Cir. 2005) (“it is within the court’s discretion to consider the merits of the claims before their amenability to class certification”) (internal quotations omitted); Larsen v. JBC Legal Group, P.C., 235 F.R.D. 191, 193–94 (E.D.N.Y. 2006) (“The district court may consider a motion for summary judgment before a motion for class certification.”); Evans v. Taco Bell Corp., No. Civ. 04CV103JD, 2005 WL 2333841, at *4 n.6 (Sep. 23, 2005) (“It is well-settled that, absent prejudice to the plaintiff, a court may decide a defendant’s motion for summary judgment before taking up the issue of class certification.”).

129

130 Chapter 4 Pre-Certification Steps

were disposed of by a motion for summary judgment.)217 Some courts, however, may be skeptical of the plaintiff’s filing a pre-certification motion for summary judgment.218 For the defendant, a pre-certification motion for summary judgment may present a “win-win” scenario. The motion allows the defendant to focus on the individual named plaintiff’s ability to prove her claims, based on actual facts instead of deliberately vague allegations. If the court grants the motion, the case either goes away entirely, or is carved into smaller components.219 If the court denies the motion, it often does so because it has found a “genuine issue of material fact” that demonstrates the individualized nature of the plaintiff’s claims.220 However, those same genuine issues of material fact will prevent a plaintiff from being able to offer class-wide proof of her claims. After all, if a jury must decide the facts of the named plaintiff’s individual claims, it will have to make the same fact-intensive determination for each class member’s claims. That alone may be reason enough not to certify a class.221 The plaintiff, on the other hand, may wish to move for summary judgment against the defendant when doing so will make the issues simpler for the court to decide at class certification.222

217. Federal Judicial Center, Impact of the Class Action Fairness Act on the Federal Courts: Preliminary Findings from Phase Two’s Pre-CAFA Sample of Diversity Class Actions 9 (2008). 218. See Larsen, 235 F.R.D. at 194 (denying plaintiff ’s pre-certification summary judgment motion, noting that pre-certification summary judgment motions are acceptable when filed by defendants); but see Vega v. Credit Bureau Enterprises, No. CV-02-1550, 2005 WL 711657, at *10 (E.D.N.Y. Mar. 29, 2005) (granting plaintiff ’s motion for summary judgment and motion for class certification). 219. Bennett v. Behring Corp., 737 F.2d 982, 985 (11th Cir. 1984) (“In 1979, Behring Corporation’s motion for summary judgment as to the state law class action claims was granted, and the individual fraud claims of the class representatives were settlement and dismissed”) (internal citation omitted). 220. See, e.g., Benedict, 241 F.R.D. at 680–81, 683 (denying defendant’s motion for partial summary judgment on plaintiff ’s consumer-fraud claim because “a genuine issue of material fact exists as to causation,” and simultaneously denying plaintiff ’s motion for class certification because “it is not at all clear to the court how [plaintiff ] and other class members can recover damages caused by the statements without showing individual reliance on them”); Barnes, 161 F.3d at 133–34 (noting that trial court decertified class “[a]fter reviewing the summary judgment record,” because “the individual issue of addiction, which plaintiffs had previously represented as playing no part in this case, is still actually part of the present case”). 221. See Newton v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 259 F.3d 154, 178–79 & n.20 (3d Cir. 2001) (noting trial court relied on summary judgment record to determine that individual issues would predominate over classwide issues). 222. See, Smith v. Univ. of Wash. Law School, 233 F.3d 1188, 1196–97 (9th Cir. 2000) (noting plaintiff filed partial motion for summary judgment that was denied by trial court); Hills,

Pre-Certification Summary Judgment Motion

Because the pre-certification stage involves so many disparate tactics, it can be easy for either the plaintiff or the defendant to lose sight of their ultimate goals. But all of these different battles lead to a single turning point in the litigation: the debate over whether the case can proceed on a class-wide basis. That debate is the subject of the next chapter.

237 F.R.D. at 495 (deciding plaintiffs’ motion for partial summary judgment and motion for class certification simultaneously).

131

CHAP TER

5 The Class Certification Motion

§ 5.1 Plaintiff’s Certification Motion

136

§ 5.1.1 Themes

137

§ 5.1.2 Arguments in Support of Certification

141

§ 5.1.2.1 Numerosity

141

§ 5.1.2.2 Commonality

141

§ 5.1.2.3 Typicality

142

§ 5.1.2.4 Adequacy

142

§ 5.1.2.5 Availability of Rule 23(b)(1)

143

§ 5.1.2.6 Availability of Rule 23(b)(2)

144

§ 5.1.2.7 Availability of Rule 23(b)(3)

145

§ 5.1.2.7.1 Predominance

145

§ 5.1.2.7.2 Superiority

147

§ 5.1.2.8 Adequacy of Counsel

148

§ 5.1.3 Packaging the Presentation § 5.2 Defendant’s Certification Opposition

148 151

§ 5.2.1 Themes

151

§ 5.2.2 Arguments Against Certification

153

§ 5.2.2.1 Numerosity

153

§ 5.2.2.2 Commonality

154

§ 5.2.2.3 Typicality

155

§ 5.2.2.4 Adequacy

157

§ 5.2.2.5 Predominance

158

§ 5.2.2.6 Superiority

159

§ 5.2.3 Packaging the Presentation

161

§ 5.3 Plaintiff’s Certification Reply

163

§ 5.4 The Certification Hearing

164

134 Chapter 5 The Class Certification Motion

The main event in most class actions is the court’s ruling on a plaintiff’s class certification motion.1 If certification is denied, the plaintiff may abandon the litigation entirely, either by dismissing the case voluntarily or by settling her claims on an individual basis for nominal relief.2 If the court does certify a class, the pressure on the defendant to settle a “bet-your-company” lawsuit becomes immense, and the opportunities to appeal are limited.3 For the plaintiff, the primary goal of the certification motion is to get some kind of class action certified; regardless of whether she proceeds to trial, certification increases the value of her case.4 A secondary goal is to set up her story at trial. The plaintiff’s fallback position is to make sure that there are issues to appeal if class certification is denied. For the defendant, the primary goal is to get the court to deny certification outright and, failing that, certify something less than the entire action for en masse adjudication. A secondary goal is to make sure it preserves any appellate issues. A third goal is, in the course of arguing class certification, to advance the merits of the defendant’s case, or at least not concede the merits of plaintiff’s claims. The central debate in class-certification briefing is whether the most important issues in the case are similar enough to be tried on a class-wide basis, or too disparate to be contained in a single trial. If the issues are sufficiently similar, then a class trial will satisfy due process and promote judicial efficiency; if not, it will create more complications than it eliminates, and risk an unfair result for absent class members or the defendant. In this debate, the plaintiff will focus on the defendant’s alleged misconduct, arguing that it is the dominant issue determining liability in the case, that it adversely affected all class members uniformly, and that class litigation is the only economically feasible way for the many victims of the defendant’s misconduct to hold it to account for its unlawful actions. By contrast, the defendant will focus on the named plaintiff (and possibly other individual class members), arguing that her ability to prove each element of her class claims turns on individual issues because its challenged conduct was not uniform across the

1. See Broussard v. Meineke Discount Muffler Shops, Inc., 155 F.3d 331, 337 (4th Cir. 1998) (referring to “ruling that had the largest impact on the conduct of this lawsuit, class certification”). 2. See, e.g., Carpenter v. Boeing Co., 456 F.3d 1183, 1189 (10th Cir. 2006) (“When class-action status is denied, the plaintiffs may need to abandon the case, or settle for a pittance, because the cost of continuing will far outweigh any potential recovery in the individual actions remaining.”). 3. See, e.g., Prado-Steiman v. Bush, 221 F.3d 1266, 1274 (11th Cir. 2000) (granting certification may “raise [] the cost and stakes of the litigation so substantially that a rational defendant would feel irresistible pressure to settle”). 4. For more on how the plaintiff and defendant each value the case, see § 8.2.

The Class Certification Motion 135

proposed class, and therefore different class members were differently affected by its conduct. A recent class-certification ruling summarizes both plaintiff’s and defendant’s rhetorical strategies. The trial court was discussing how different courts have ruled on typicality, but its point applies more generally: Having pored over these cases seeking a unifying theme, the Court has noticed two factors worthy of mention. The first is that, when examining typicality, Courts tend to have one of two perspectives. Courts focus either on: (a) the defendant’s conduct, and the degree to which it affected each plaintiff equally, or (b) the effects on the plaintiff class of the defendants’ conduct, and the degree to which those effects are similar from plaintiff to plaintiff. Put more simply, the first focus is on what the defendants did; the second focus is on how the plaintiffs were affected by what defendants did. And because the latter is naturally more variable, this focus more often leads to denial of certification.5

Indeed, class-action litigation can sometimes seem almost fractal in nature. From the 30,000-foot view the plaintiff advocates, all issues look common: contracts are uniform, misrepresentations are substantially similar, and reasons for not hiring are all part of a larger pattern or practice.6 But from the close-up view the defendant advocates, every class member is unique, and common proof could never resolve everyone’s claims.7 One could say that the outcome of the class certification debate turns on whether the court decides that the lawsuit is best viewed through a telescope or a microscope. The following discussion assumes the traditional briefing sequence, in which the plaintiff files a motion to certify a class, the defendant files a response opposing certification, and the plaintiff files a reply brief.8 It identifies the most common themes and arguments that each side uses in briefing certification.

5. In re Welding Fumes Prods. Liab. Litig., 245 F.R.D. 279, 304 (N.D. Ohio 2007). 6. Richard A. Nagareda, Class Certification in the Age of Aggregate Proof, 84 N.Y.U. L. Rev. 97, 103 (2009) (“The implication invited by class counsel is that only by taking an aggregate, classwide perspective does the wrong allegedly committed by the defendant come into focus. The ultimate factfinder would be entitled to disbelieve the plaintiffs’ aggregate proof, just as it might disbelieve any other form of evidence. But that recognition—so certification proponents contend—is all the more reason for a court not to abort consideration from a class-wide perspective by withholding class treatment in the first place.”). 7. Id. at 102 (in defense briefs “the wrongs, if any, committed vis-à-vis class members are not the same; rather, they exhibit individualized features that cannot plausibly comprise a cohesive unit”). 8. This trend has begun to reverse in recent years—see § 4.2.5—although it is likely to remain the predominant method of briefing class certification. For concrete examples of these briefs, see Appendices 5A–5C.

136 Chapter 5 The Class Certification Motion

§ 5.1 Plaintiff ’s Certification Motion There are two approaches to filing a class-certification motion.9 In the first approach, the plaintiff treats class certification as similar to summary judgment or trial. She lays out a detailed factual recitation of the defendant’s bad conduct, and refers to it frequently as she explains how many people it affected, specifically identifies common issues stemming from that misconduct, describes how the named plaintiff’s claim is typical of the claims the rest of the class would bring, explains how she is an adequate representative of the class based on her conduct in the litigation and her motivation to sue, and explains how a class action is otherwise appropriate because it will promote efficient resolution of the class claims and discourage similar wrongdoing in the future. The benefit of this approach is its persuasive power. It signals to the court (and to the defendant) that the plaintiff has a strong case to make on the merits, and that the only practical way to bring that strong case to trial is to certify a class.10 In the other approach, the plaintiff files a bare-bones certification motion that does little more than lay out the Rule 23 requirements for certifying a class, cites authorities holding that those requirements are usually easily met and asserts—in conclusory fashion—that those requirements have been met. She then reserves the meat of her arguments for the reply brief.11 There is sound strategy behind this option as well. First, filing a minimal class certification brief allows the plaintiff to ease a very real tension in making a thorough argument for class certification: the more rigorously the plaintiff analyzes each Rule 23 requirement in her initial brief, the more she risks highlighting potential problems with the class for both the defendant and the court. Instead, by simply laying out each Rule 23 requirement with a minimal analysis of how it has been met, the plaintiff can shift the burden of identifying potential problems with certification to the defendant.12 This approach allows the plaintiff to use the reply to rebut defendant’s critiques of

9. This discussion assumes the traditional sequence of the plaintiff filing a motion to certify, and the defendant opposing. For more on motions to deny certification, see § 4.2.5. 10. For an example of this kind of class certification motion, see App. 5A. 11. For an extreme example of this tactic, see Karnes v. Fleming, No. H-07-0620, 2008 WL 4528223, at *1 (S.D. Tex. July 31, 2008) (plaintiff filed motion for class certification before initial Rule 16 scheduling conference, followed later by 83 page reply brief). For further indirect evidence of this tactic, see Hicks v. Client Servs., Inc., No. 07-61822-CIV., 2008 WL 5479111 (S.D. Fla. Dec. 11, 2008) (slip op.) (numerous references to plaintiffs’ burden, but analyzes several class claims by referring to defendants’ challenge and then plaintiffs’ response). 12. While theoretically, the defendant could argue that the plaintiff has not met her burden in demonstrating a class can be certified, it will rarely rely solely on that argument. Since defendants tend to be risk-averse, it will likely make all relevant arguments against certification in its opposition.

Plaintiff ’s Certification Motion 137

class certification; if the rebuttal is persuasive, the court will be more likely to certify the class. In either case, the plaintiff’s primary challenge is to fulfill her burden of persuading the court that her proposed class meets all of the requirements of Rule 23.

§ 5.1.1 Themes A good class certification brief is not just a collection of legal and factual arguments. It instead stresses some theme that explains to the court why it should certify the proposed class. There are several reasons why themes are important to a brief. The first is that they provide an organizing principle for the brief, making it easier for the court to understand. The second is that wellchosen themes can influence a judge’s final decision. Judges, like all people, are intuitive thinkers, and cannot help being influenced by the way in which issues—even procedural issues—are framed.13 With forty-five years of modern class-action practice to draw from, plaintiffs have found certain themes particularly reliable in persuading a court to certify a class. The ease of certifying a class. One theme the plaintiff may stress is the comparative ease of certifying a class. She will point out that the trial court has wide discretion to certify a class,14 and argue that Rule 23 should be construed liberally.15 She will point out that some courts have held that, in close cases, the court should err in favor of certification because it may always decertify the class later.16 The plaintiff may also argue that the court should not delve too deep into the merits of her claims in determining whether

13. Chris Guthrie, et al., Blinking on the Bench: How Judges Decide Cases, 93 Cornell L. Rev. 101, 105, 117 (2007). 14. See Allison v. Citgo Petroleum Corp., 151 F.3d 402, 407 (5th Cir. 1998) (“district court maintains substantial discretion in determining whether to certify a class action”); In re Terazosin Hydrochloride Antitrust Litig., 220 F.R.D. 672, 684 (S.D. Fla. 2004). (“the district court retains broad discretion in determining whether an action should be certified as a class action”). 15. See Gunnells v. Healthplan Servs., Inc., 348 F.3d 417, 424 (4th Cir. 2003) (“federal courts should give Rule 23 a liberal rather than a restrictive construction, adopting a standard of flexibility in application which will in the particular case ‘best serve the ends of justice for the affected parties and . . . promote judicial efficiency”) (internal quotations omitted). 16. See Daffin v. Ford Motor Co., 458 F.3d 549, 554 (6th Cir. 2006) (“If at a subsequent point in the litigation the district court determines that the express warranty is limited to defects that manifest themselves within the warranty period, the district court may consider at that point whether to modify or decertify the class.”); see also App. 5A at 12. This particular argument has become more difficult to advance in light of the 2003 amendments to Rule 23, which deleted any reference to “conditional certification.” See Fed. R. Civ. P. 23, 2003 Advisory Committee Notes; In re Hydrogen Peroxide Antitrust Litig., 552 F. 3d 305, 319 (3d Cir. 2009) (“Additionally, the 2003 amendments eliminated the language that had appeared in Rule 23(c)(1) providing that a class certification ‘may be conditional.’ The Advisory Committee’s

138 Chapter 5 The Class Certification Motion

certification is appropriate because the class certification ruling is not the right time to evaluate the merits of the case.17 Occasionally, the plaintiff may take the “no merits” argument a step further, and argue that a court should not look past the pleadings at all in determining whether certification is appropriate.18 This argument is becoming outdated: many federal appellate courts now hold that a trial court not only can, but should, examine some evidence in determining whether class certification is appropriate.19 This argument can backfire in another way: by continuing to make the (now discredited) argument that a court should look only at the pleadings in certifying a class, a plaintiff can actually highlight the need for examining evidence carefully, which may prove counter to her aims if that review reveals important claimant-specific issues of fact or law that preclude class-wide litigation. Fairness. Another theme the plaintiff invariably will stress is the court’s obligation to certify a class action in order to promote fairness for the legal rights of the proposed class. Pundit Mark Moller describes one use of this theme in plaintiffs’ briefing of a series of related class actions brought by doctors against health-management organizations (HMOs): The doctors . . . appealed to considerations of fairness, a value they claimed excused them from proving each claim individually. “The individual claims of many [doctors],” said the plaintiffs “are so small that the cost of individual litigation would be far greater than the value of those claims.” Unless a class were certified, they argued, no doctors would file suit, leaving the medical profession without a remedy. Accordingly, they contended that it would be fair to eliminate

note explains: ‘A court that is not satisfied that the requirements of Rule 23 have been met should refuse certification until they have been met.’”) (internal footnote omitted). 17. See Eisen v. Carlisle & Jacquelin, 417 U.S. 156, 177 (1974) (“[W]e find 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.”). The Eisen Court was primarily concerned with courts that conditioned certification on whether “petitioner was ‘more than likely’ to prevail on his claims.” Id. 18. See App. 5A at 12. 19. See In re Hydrogen Peroxide, 552 F. 3d at 307 (“the court must resolve all factual or legal disputes relevant to class certification, even if they overlap with the merits—including disputes touching on elements of the cause of action.”); Oscar Private Equity Invs. v. Allegiance Telecom, Inc. 487 F.3d 261, 268 (5th Cir. 2007) (“A district court still must give full and independent weight to each Rule 23 requirement, regardless of whether that requirement overlaps with the merits.”); In re Initial Pub. Offerings Secs. Litig., 471 F.3d 24, 27 (2d Cir. 2006). (“the fact that a Rule 23 requirement might overlap with an issue on the merits does not avoid the court’s obligation to make a ruling as to whether the requirement is met”); Szabo v. Bridgeport Machs., Inc., 249 F.3d 672, 676 (7th Cir. 2001) (“if some of the considerations under Rule 23(b)(3), such as ‘the difficulties likely to be encountered in the management of a class action’, overlap the merits . . . then the judge must make a preliminary inquiry into the merits”).

Plaintiff ’s Certification Motion 139 the elements of proof that made class litigation untenable: individuated reliance and proof of actual damages.20

A plaintiff will often stress this “David vs. Goliath” formulation, arguing that her case is one in which essentially powerless individuals with legitimate grievances against a deep-pocketed corporation need the procedural advantages and economic leverage of a certified class to vindicate their claims.21 Defendant’s bad conduct. The third key theme in a plaintiff’s classcertification briefing usually will be that defendant has engaged in serious misconduct, and the only way to remedy that misconduct and deter its recurrence is to certify a class for trial.22 There are several reasons for a plaintiff to emphasize the defendant’s bad conduct in her class certification brief. First, the more bad conduct the defendant appears to have engaged in, the more convinced the court may become about the need to certify a class as a first step toward righting the wrongs the defendant has committed. (There is, of course, a tension between this tactic and any argument that the court should not delve into the merits of the claims. Similarly, there may be tension between the defendant’s arguments that some merits inquiry may be necessary, but that its allegedly bad conduct is irrelevant to the class-certification debate.) Second, by keeping the focus on the defendant’s conduct, the plaintiff strengthens (at least rhetorically) her argument that the defendant’s uniform misconduct, not the specific circumstances of any given class member’s claim,

20. Mark Moller, The Rule of Law Problem: Unconstitutional Class Actions and Options for Reform, 28 Harv. J.L. & Pub. Pol’y 855, 862 (2005). 21. See Katz v. Blanche Corp., 496 F.2d 747 (3d. Cir. 1974) (“While there is biblical if not historical support for the motion that one David did slay a Goliath, the social desirability of consumer class actions was to insure that a David plaintiff has a Goliath capability against the Goliath propensities of his adversary . . .”); In re Am. Express Merch. Litig., 554 F.3d 300, 320 (2d. Cir. 2009) (noting that “[t]he plaintiffs continually refer to themselves as ‘small merchants’ and as ‘small businesses’”); Mitchell-Tracey v. United Gen. Title Ins. Co., 237 F.R.D. 551, 560 (D. Md. 2006) (“This is precisely the kind of case that class actions were designed for, with small or statutory damages brought by impecunious plaintiffs who allege similar mistreatment by . . . comparatively powerful defendant.”) (internal quotations omitted). This runs counter to at least one judge’s observation about the judicial temperament: “Most judges are (surprisingly to non judges) unmoved by the equities of the individual case . . . just as doctors tend to be callous about sick people, judges tend to be callous about pathetic litigants because they have seen so many of them. This is true of liberal judges as well as conservative judges.” Richard A. Posner, How Judges Think 119 (2008). 22. See Patrick Dillon & Carl M. Cannon, Circle of Greed: The Spectacular Rise and Fall of the Lawyer Who Brought Corporate America to Its Knees 152–53 (2010).

140

Chapter 5 The Class Certification Motion

will be the predominant issue at any class trial.23 That makes certifying a class more palatable for the court.24 Third, by focusing on the defendant’s wrongdoing, the plaintiff can highlight the need for class litigation to create opportunities to deter future wrongdoing by this defendant and others in the same industry—one of the most persuasive policy arguments for certifying a class.25 The need for a class action to address the problem. The plaintiff will also stress that, without a class action (indeed, without this class action), she and the unnamed class members will receive no relief for the wrongs they have suffered. In doing so, the plaintiff often will focus on the small value of individual claims,26 as well as the vast resources available to the defendant. But the plaintiff will also describe the inadequacy of any remedial effort the defendant has already made, or the government’s inability (or refusal) to force the defendant to correct the problem, and use that to suggest that the only effective means of regulating defendant’s conduct is to allow her to act as a “private attorney general,” holding the defendant accountable for its misconduct through private litigation.27

23. See, In re Jackson Nat’l Life Ins. Co. Premium Litig., 183 F.R.D. 217 (W.D. Mich. 1998) (“In making this assessment, the Court is urged by plaintiffs to focus on the common course of Jackson National’s misconduct said to be relevant to all of the putative class members’ claims.”). 24. See In re Serzone Prods. Liab. Litig., 231 F.R.D. 221, 240 (S.D.W.V. 2005) (finding predominance where determination of liability “focuses upon the actions of ” the defendant); Mick v. Level Propane Gases, Inc., 203 F.R.D. 324, 331 (S.D. Ohio 2001) (certifying statewide class to determine common issue of “whether Level’s practices were deceptive”); Miles v. Am. Online, 202 F.R.D. 297, 304–05 (M.D. Fla. 2001) (redefining class to only include those “for whom reliance may be inferred by the class member’s conduct”). 25. Blackie v. Barrack, 524 F. 2d 891, 903 (9th Cir. 1975) (noting “substantial role that the deterrent effect of class actions plays in accomplishing the objectives of the securities laws”); Myriam Gilles & Gary B. Friedman, Exploring the Class Acton Agency Costs Myth: The Social Utility of Entrepreneurial Lawyers, 155 U. Pa. L. Rev. 103 (2006) (arguing generally that class actions are useful because of deterrence of corporate conduct rather than compensation to individual claimants). For more on deterrence, see § 1.3.1. 26. See Eisen, 417 U.S. at 161 (1974) (“A critical fact in this litigation is that petitioner’s individual stake in the damages award he seeks is only $70. No competent attorney would undertake this complex antitrust action to recover so inconsequential an amount. Economic reality dictates that petitioner’s suit proceed as a class action or not at all.”); Thorogood v. Sears, Roebuck & Co., 547 F.3d 742, 744 (7th Cir. 2008) (Posner, J.) (“The class action is an ingenious device for economizing on the expense of litigation and enabling small claims to be litigated. . . . If every small claim had to be litigated separately, the vindication of small claims would be rare. The fixed costs of litigation make it impossible to litigate a $50 claim . . . at a cost that would not exceed the value of the claim by many times.”). See also Richard Epstein, Class Actions: Aggregation, Amplification and Distortion, 2003 U. Chi. Legal F. 475, 485 (2003) (“Quite simply the unthinkable becomes thinkable when the basic scenario changes—that is, what would otherwise be an unprofitable suit, given the low probability of success and high costs of bringing the suit, becomes a profitable one.”). 27. See Johnson v. W. Suburban Bank, 225 F. 3d 366, 369 (3d Cir. 2000) (plaintiff argued that TILA class-action provision “is meant to serve public policy goals through plaintiffs who act

Plaintiff ’s Certification Motion 141

§ 5.1.2 Arguments in Support of Certification § 5.1.2.1 Numerosity Because numerosity is rarely an issue, the plaintiff will often not spend much time on it in the class certification brief. Where appropriate, the plaintiff will focus on how the defendant has no reasonable grounds to contest numerosity.28 In addition, she will point at the approximate number of class members she alleges exist, and cite caselaw that indicates that so long as a class includes more than either 20 or 40 people, it should be certified.29 She may also argue that, because of geographic dispersal or other reasons, joinder of all class members will be impracticable.30 § 5.1.2.2 Commonality Because commonality overlaps with predominance, the plaintiff often will not spend much time discussing commonality in her brief. The plaintiff will instead stress that commonality is a very low bar to pass, and that she only needs to show the existence of one common issue of law or fact for the commonality requirement to be met.31 The plaintiff may also include a list of purported common issues of law or fact;32 this will frequently be the same list she provided in their complaint. Finally, the plaintiff may add common issues that were uncovered in discovery, demonstrating to the court that discovery has shown that it will be possible to try additional important issues in the lawsuit on a class-wide basis.

28. 29.

30.

31.

32.

as private attorneys general”); see also John H. Beisner, et al., Class Action “Cops”: Public Servants or Private Entrepreneurs?, 57 Stan. L. Rev. 1441, 1451 (2005) (providing further examples of private attorney-general rhetoric). This strategy comports with Judge Posner’s advice to emphasize the “background or general facts that influence a legislative decision” to judges. Posner, How Judges Think 118. See, e.g., Lemire v. Wolpoff & Abramson, LLP, 256 F.R.D. 321, 324 (D. Conn. 2009); Reid v. Lockheed Martin Aeronautics Co., 205 F.R.D. 655, 666 (N.D. Ga. 2001). See Thompson v. Jiffy Lube Int’l, Inc., 250 F.R.D. 607, 616 (D. Kan. 2008) (plaintiff provided estimate of class size based on total number of Jiffy Lube customers and number of complaints); see also App. 5A at 12. See Colo. Cross-Disability Coal. v. Taco Bell Corp., 184 F.R.D. 354, 358 (D. Colo. 1999) (“The fact that a class is dispersed over several counties weighs in favor of a finding of numerosity.”). Baby Neal ex rel. Kanter v. Casey, 43 F.3d 48, 56 (3d Cir. 1994) (“The commonality requirement will be satisfied if the named plaintiffs share at least one question of fact or law with the grievances of the prospective class.”). See also § 2.2, App. 5A at 13. See Thompson, 250 F.R.D. at 616 (in support of commonality, plaintiff “identified a laundry list of asserted common factual issues”).

142 Chapter 5 The Class Certification Motion

§ 5.1.2.3 Typicality Here, too, the plaintiff will stress the low bar she has to meet to demonstrate typicality. If there are no material factual differences between the named plaintiff and other class members, she will point that out. If discovery has identified some potential factual differences, the plaintiff will argue that the circumstances of her individual claims do not have to be identical in all respects to those asserted by absent class members, so long as she can assert the same legal claims.33 The plaintiff may also tie her typicality argument back to the defendant’s alleged bad conduct, arguing that because the named plaintiff has encountered the same course of conduct as the rest of the class, she is typical of the class.34 Finally, the plaintiff may frame typicality in the negative, stressing what will not demonstrate a lack of typicality.35 That may allow her to address potential vulnerabilities while still making a strong argument that she has met the requirements of Rule 23(a)(3). § 5.1.2.4 Adequacy The plaintiff will once again stress the low bar she has to meet to demonstrate adequacy of representation. The most common formulation the plaintiff will

33. Deiter v. Microsoft Corp., 436 F.3d 461, 467 (4th Cir. 2006) (“That is not to say that typicality requires that the plaintiff ’s claim and the claims of class members be perfectly identical or perfectly aligned.”); Daffin, 458 F.3d at 553 (“The mere fact that Daffin’s throttle body assembly stuck, while other class members’ throttles have not stuck, does not render Daffin atypical.”). 34. Dukes v. Wal-Mart, Inc., 474 F.3d 1214, 1232 (9th Cir. 2007) (“even though individual employees in different stores with different managers may have received different levels of pay and were denied promotion or promoted at different rates, because the discrimination they allegedly suffered occurred through an alleged common practice—e.g., excessively subjective decision-making in a corporate culture of uniformity and gender stereotyping—their claims may be sufficiently typical to satisfy Rule 23(a)(3)”); Daffin, 458 F.3d at 552 (“Daffin’s claim is typical of the class because the class members’ theory is that Ford breached its express warranty by providing vehicles with defectively designed throttle body assemblies, causing Daffin and other class members to receive vehicles worth less than vehicles that conform to the promises allegedly contained in the warranty agreement.”); In re Enron Corp. Secs. Litig., 529 F. Supp. 2d 644, 674 (S.D. Tex. 2006) (“The Court agrees with Lead Plaintiff that the claims of the proposed class representatives are typical because they arise from the same alleged Ponzi scheme, material misrepresentations, and course of conduct to defraud investors and artificially inflate the price of Enron’s and Enron-related entities’ publicly traded securities while concealing Enron’s debt, all of which purportedly induced them and the putative class to invest in these securities; and they are grounded in the same legal theory, federal securities law.”); see also App. 5A at 14. 35. See Daffin, 458 F.3d at 553 (“The mere fact that Daffin’s throttle body assembly stuck, while other class members’ throttles have not stuck, does not render Daffin atypical.”).

Plaintiff ’s Certification Motion 143

use is that she should be deemed an adequate representative so long as she has no important identifiable conflicts of interest with the proposed class.36 A savvy plaintiff will also stress that differences in factual proof do not necessarily translate to a conflict of interest between herself and the rest of the proposed class.37 In some cases (usually if she has performed poorly in depositions), the plaintiff may seek to preempt attacks on her adequacy by pointing to cases holding that a class representative does not need to have extensive knowledge of the lawsuit,38 or that she is still adequate even if she delegates large portions of supervising the litigation to the attorneys.39 The general theme that plaintiffs’ counsel will emphasize is that the named plaintiff is a regular person—not a specialist in class actions—and should not be held to the same high standard as an attorney. § 5.1.2.5 Availability of Rule 23(b)(1) Unless there is a true attempt to change some institutional policy or an actual limited fund at stake, plaintiffs rarely invoke Rule 23(b)(1) as a basis for certifying a class. Rule 23(b)(1)(A), which seeks to protect the class defendant against being whipsawed by “inconsistent adjudications,” is arguably broad enough to apply to any class action, but courts have applied it in much more limited fashion.40 As a result, a plaintiff seeking to certify a Rule 23(b)(1)(A) class must show that there is an actual policy or right that would produce

36. Amchem Prods. Inc. v. Windsor, 521 U.S. 591, 625 (1997) (“The adequacy inquiry under Rule 23(a)(4) serves to uncover conflicts of interest between named parties and the class they seek to represent.”); see also Alba Conte & Herbert B. Newberg, Newberg on Class Actions §3.01 at 3–5 (4th ed. 2002) (defining adequacy requirement as “the named plaintiff have no conflicts of interest with class members and that he or she prosecute the action vigorously on behalf of the class”). 37. See Mullen v. Treasure Chest Casino, LLC, 186 F.3d 620, 626 (5th Cir. 1999); see also App. 5A at 15. 38. See Benway v. Res. Real Estate Servs., LLC, 239 F.RD. 419, 425–426 (D. Md. 2006) (“Rule 23 does not require the representative plaintiffs to have extensive knowledge of the intricacies of litigation, rather, the named plaintiffs must have a general knowledge of what the action involves and a desire to prosecute the action vigorously.”) 39. Kirkpatrick v. JC Bradford & Co., 827 F. 2d 718, 727 (11th Cir. 1987)) (“[A]dequate class representation generally does not require that the named plaintiffs demonstrate to any particular degree that individually they will pursue with vigor the legal claims of the class. Although the interests of the plaintiff class certainly would be better served if the named plaintiffs fully participate in the litigation, the economics of the class action suit often are such that counsel have a greater financial incentive for obtaining a successful resolution of a class suit than do the individual class members.”); Morris v. Transouth Fin. Corp., 175 F.R.D. 694, 698 (M.D. Ala. 1997) (adequacy does not require representatives to “play a personal role in the direction and management of the action”). 40. Petrolito v. Arrow Fin. Servs., LLC, 221 F.R.D. 303, 313 (D. Conn. 2004).

144

Chapter 5 The Class Certification Motion

different outcomes in different cases, rather than just a risk that some class members might receive relief while others might not.41 Similarly, while a plaintiff could theoretically argue that any class action should be certified under Rule 23(b)(1)(B) because the defendant has only a “limited fund” with which to pay the potential classwide damage award (because no defendant has infinite assets), a plaintiff generally can only seek Rule 23(b)(1)(B) certification when she can show that the defendant has very limited assets, or is at risk of insolvency.42 § 5.1.2.6 Availability of Rule 23(b)(2) Rule 23(b)(2) is usually available for a plaintiff who is seeking primarily injunctive relief.43 In general, the arguments in favor of certification under Rule 23(b)(2) are simple: the plaintiff will allege that the defendant is engaging in some conduct (or has implemented some policy) that harms the members of the class in a similar fashion, and an injunction will cure the harm.44 Recently, plaintiffs have begun to invoke Rule 23(b)(2) as a basis for seeking certification more frequently, even when they are also asserting claims for damages.45 The primary argument the plaintiff advances when doing so is that the relief she seeks is primarily injunctive in nature, and so there is no need to provide the class with notice or opportunities to opt out, and no need to show a predominance of common issues over claimant-specific ones.46 Courts have split over whether damages need to be “incidental” to

41. For more on the applicability of Rule 23(b)(1)(A), see § 2.5.1. 42. See, e.g., Doe v. Karadzic, 192 F.R.D. 133, 143 (S.D.N.Y. 2000) (declining to certify a 23(b)(1)(B) class against an individual defendant in a case with potential damages of $10 billion dollars because plaintiffs presented to the Court “no credible evidence whatsoever concerning the whereabouts or amount of defendant’s assets or the lack thereof ”); In re “Agent Orange” Prod. Liab. Litig., 506 F. Supp. 762, 789–90 (E.D.N.Y. 1980) (refusing to certify 23(b)(1)(B) class where plaintiffs offered no evidence of defendants’ insolvency, despite potentially large number of individual claimants with potentially large individual claims). 43. See § 2.6. 44. See Robinson v. Metro-N. Commuter R.R. Co., 267 F. 3d 147, 155 (2d Cir. 2001) (seeking injunctive relief to address “company-wide policy of delegating to department supervisors discretionary authority to make employment decisions related to discipline and promotion”). 45. While certification under Rule 23(b)(2) is itself difficult, several courts have ruled that its focus on injunctive relief means that “[c]lass certification centers on the defendants’ alleged unlawful conduct, not on individual injury.” In re Monumental Life Ins. Co., 365 F. 3d 408, 415 (5th Cir. 2004). Since the plaintiff prefers to keep the focus on the defendant’s conduct, this can work to her advantage. 46. See In re Monumental Life Ins. Co., 365 F. 3d at 415.

Plaintiff ’s Certification Motion 145

the injunctive relief,47 or merely need to be “appropriate” in addition to the injunctive relief.48 § 5.1.2.7 Availability of Rule 23(b)(3) Plaintiffs still invoke Rule 23(b)(3) most commonly when seeking to certify a class action, because it unambiguously allows for the recovery of monetary damages. When arguing for certification under Rule 23(b)(3), the plaintiff will often broadly focus on the efficiency of the class action device generally, as well as the lack of available alternatives. § 5.1.2.7.1 Predominance Predominance may be the most difficult criterion for the plaintiff to argue in a class-certification motion. First, the plaintiff’s burden is greater on predominance than it is on commonality; it is not sufficient merely to identify a common issue, the plaintiff must demonstrate that a class-wide determination of those common issues would resolve all important issues presented by the lawsuit.49 Second, determining whether class-wide issues would “predominate” in any trial does not involve a black-or-white mathematical test—instead the court must make an unavoidably subjective determination of how it believes the trial will proceed, and which issues will require the majority of its (and the jury’s) attention. Third, because the bar is higher (and because the defendant is likely to load a lot of argument into the predominance section), rhetorically, the plaintiff is in the position of proving a negative—she must argue that there are no individualized issues before she even knows what issues the defendant will identify as individualized. Finally, there is a fundamental tension in arguing that common issues predominate over individual issues: the more words the plaintiff spends discussing predominance, the more nuances may reveal themselves, any of which might convince the court that the litigation contains a predominant individual issue. These challenges do not mean that the plaintiff can never win a predominance argument. Several tactics that have proven effective over time at demonstrating compliance with the predominance requirement.

47. See Allison, 151 F.3d at 411 (“monetary relief may be obtained in a (b)(2) class action so long as the predominant relief sought is injunctive or declaratory”). 48. See Robinson, 267 F. 3d at 164 (“when presented with a motion for (b)(2) class certification of a claim seeking both injunctive relief and non-incidental monetary damages, a district court must consider the evidence presented at a class certification hearing and the arguments of counsel, and then assess whether (b)(2) certification is appropriate in light of the relative importance of the remedies sought, given all of the facts and circumstances of the case”). 49. For more on the predominance requirement of Rule 23(b)(3), see § 2.7.

146

Chapter 5 The Class Certification Motion

Arguing bad conduct. The plaintiff can argue predominance and commonality together, taking the opportunity to rehearse the account of defendants’ “bad conduct” she advanced in her complaint. The more she can cement that story with the court, the more likely it is that the court will eventually believe that the defendant’s common course of bad conduct will be the sole predominating issue at trial.50 (This also allows the plaintiff to spend the lion’s share of her brief discussing evidence that will not vary from class member to class member.) Presuming reliance. The plaintiff faces a large obstacle in fraud-based cases, because, to prove common law (and sometimes statutory) fraud, she must prove that she relied on the allegedly deceptive conduct. Since reliance is usually a claimant-specific question, courts often decline to certify fraud-based classes.51 One tactic the plaintiff may employ is to argue that, because of the nature of the defendant’s fraudulent conduct, the court should presume that the members of the class relied on that conduct in buying their product or otherwise falling victim to an alleged fraud.52 This tactic has been most effective in securities cases, where courts have frequently ruled that, given the right circumstances, a “fraud on the market” occurred because the defendant’s fraudulent conduct led to an artificially high price for the security, meaning that any investors who bought the security during the relevant period already “relied” on the defendant’s allegedly fraudulent conduct.53 However, plaintiffs have also argued that courts should presume reliance in other widespread fraud cases, with varying degrees of success.54

50. See Chip Heath & Dan Heath, Made to Stick: Why Some Ideas Survive and Others Die, 165–203 (2007) (explaining that emotional accounts have more “stickiness” than dry recitations of facts or ideas); Chaim Perelman & L. Orbechts-Tytecha, The New Rhetoric: A Treatise on Argumentation 174–75 (1969) (discussing how repetition adds weight to argument). 51. For more on reliance, see § 2.7.1. 52. See In re Neuotonin Mktg. Litig., — F.R.D. ——, 2009 WL 1323835, *14 (D. Mass. May 13, 2009) (plaintiffs “ask[ed] the Court to permit a statistical analysis to function as common proof of causation for millions of disparate and varied human interactions that resulted in off-label prescriptions for Neurontin”). 53. Basic Inc. v. Levinson, 485 U.S. 224, 246 (1988) (allowing rebuttable presumption of reliance in securities-fraud class action because “the market price of shares traded on well-developed markets reflects all publicly available information, and, hence, any material misrepresentations”). Even in these cases, however, presuming reliance is not automatic. Gariety v. Grant Thornton LLP, 368 F.3d 356, 364 (4th Cir. 2004) 54. See In re Mercedes-Benz Tele Aid Contract Litig., 257 F.R.D. 46, 74–75 (D.N.J. 2009) (allowing presumption of reliance under New Jersey Consumer Fraud Act); Stanich v. Travelers Indem. Co., 249 F.R.D. 506, 518 (S.D. Ohio 2008) (“Where there are uniform presentations of allegedly misleading information, or common omissions throughout the entire class, especially through form documents, courts have found that the element of reliance may be presumed class-wide, thereby obviating the need for an individualized inquiry of each class member’s reliance.”).

Plaintiff ’s Certification Motion 147

Framing state-law variations. If the plaintiff is aware of a particular argument that the defendant will definitely advance, she can spend time addressing that argument and setting the terms of the debate. To take one of the most common examples, in nationwide products-liability class actions based on state law-based tort or fraud claims, the defendant will (almost) always argue that variations in the laws of the fifty states will predominate over any other questions in the litigation.55 As a result, a number of plaintiffs have argued in their class certification motions either that (1) state laws do not conflict on the issue in front of the court,56 or (2) that there is some alternative (like applying the law of a single state) that the court may use to avoid any predominance problems the defendant will raise.57 § 5.1.2.7.2 Superiority The plaintiff will usually stress the following themes when arguing that a class action is superior to other methods of adjudicating the controversy. Efficiency. The plaintiff may argue that a class action offers an efficient outcome for wide-scale litigation.58 She can focus on the value of not having to present the same evidence about the defendant’s wrongful conduct multiple times.59 She can also point out the benefit of a consistent outcome in deciding common issues presented by each of the class members. Negative-value suits. The plaintiff will stress the presence of negative-value suits, in which the cost of pursuing an individual lawsuit would exceed any recovery an individual plaintiff might receive.60 The most common argument is that, if class certification is denied in cases like these, the class members will have no recourse for vindicating their claims. Or, in other words, a class

55. For more on defendant’s state-law variations arguments, see § 5.2.2.5. For more on state-law variations generally, see § 2.7.1. 56. See Klay v. Humana, Inc., 382 F.3d 1241, 1262 (11th Cir. 2004) (“if a claim is based on a principle of law that is uniform among the states, class certification is a realistic possibility”). 57. See In re Mercedes-Benz Tele Aid Contract Litig., 257 F.R.D. at 69 (applying New Jersey law to nationwide claims). 58. See Newton v. Merrill Lynch, Pierce, Fennel & Smith, Inc., 259 F.3d 154, 192 (3d Cir. 2001) (“One of the paramount values in class actions is efficiency.”) (internal quotations omitted). 59. See id. (“Class certification enables courts to treat common claims together, obviating the need for repeated adjudications on the same issue.”) (internal quotations omitted); Fisher v. Va. Elec. & Power Co., 217 F.R.D. 201, 227 (E.D. Va. 2003) (citing “efficiency gains that will result from a resolving the predominant common issues on a representative basis”). 60. See Hanlon v. Chrysler, 150 F.3d 1011, 1023 (9th Cir. 1998) (class action superior where “litigation costs would dwarf potential recovery” in individual cases); Coco v. Village of Belle Terre, 233 F.R.D. 109, 116 (E.D.N.Y. 2005) (finding class action superior to other forms of litigation where “the interest of members of the class in individually controlling the prosecution of separate actions is minimal, as the costs and expenses of bringing individual suits would far exceed any individual recoveries”); see also App. 5A at 22.

148

Chapter 5 The Class Certification Motion

action is the best (and possibly only) way to hold the defendant accountable for stealing $100 from 1 million different people. Lack of realistic alternatives. The plaintiff may also argue that there are no suitable alternatives to certifying a class. For example, if the defendant is likely to propose that the court rely on government action instead of private litigation to address the alleged wrongdoing, the plaintiff may argue that the government agency charged with overseeing the subject matter of the lawsuit is underfunded or simply not interested in regulating the problem at hand.61 Similarly, if there is a record of individual litigation on the issue, the plaintiff may seek to distinguish the class claims from the individual lawsuits that have already been prosecuted. Manageability. It is rare for a plaintiff to make a separate manageability argument. Instead, most plaintiffs choose to argue that, because common issues predominate, it is logical that a class trial would be manageable. A plaintiff who chooses to address manageability explicitly may do so by presenting a trial plan.62 § 5.1.2.8 Adequacy of Counsel To demonstrate adequacy of counsel under Rule 23(g), the plaintiff will often simply argue that at least one of the firms representing her has successfully prosecuted prior class actions.63 She may also attach the résumé of the firm or the attorney, listing the various other class actions in which they have been appointed as class counsel.64

§ 5.1.3 Packaging the Presentation The length of the class certification brief can vary greatly. As discussed above, some plaintiffs will file only minimal opening briefs, saving their substantive arguments for the reply briefing. Others may go into further depth, sometimes

61. See Amalgamated Workers Union of V.I. v. Hess Oil V.I. Corp., 478 F. 2d 540, 543 (3d Cir. 1973) (administrative action by Virgin Islands Department of Labor not superior to proposed class action); Stanich, 249 F.R.D.at 522 (action by Ohio Department of Insurance not superior to class action). 62. For more on trial plans, see § 5.1.3. 63. See App. 5A at 15. 64. Linda S. Mullinex, Taking Adequacy Seriously: The Inadequate Assessment of Adequacy in Litigation and Settlement Classes, 57 Vand. L. Rev. 1687, 1700 (2004) (evidentiary proffer of counsel’s adequacy “may come in the form of an affidavit from the proposed class counsel, or a photocopy of the class counsel’s entry in Martindale Hubbell or some similar law firm publication, typically attached as an exhibit to the motion for class certification.”).

Plaintiff ’s Certification Motion 149

producing voluminous initial briefing.65 However, most plaintiff’s briefs have at least the following elements. Rehearsal of facts against defendant. The background section is critically important to plaintiff’s class-certification brief.66 The plaintiff’s goal here is to frame the debate in terms of the defendant’s bad conduct, essentially providing a preview of what her opening argument will look like at trial. The background section will often focus on the defendant’s policies and practices, and on conduct that, while not linked to any individual plaintiff, shows that the defendant was acting in a uniformly shameful fashion.67 Discussion of class certification requirements. As discussed in greater detail above, the plaintiff will often keep her discussion of the class certification requirements perfunctory in the main brief. This is frequently consistent with the themes she seeks to stress: (1) certifying a class is not that difficult, and (2) the defendant’s bad conduct is a predominant common issue. Moreover, the more the plaintiff delves into nuance on the class certification brief, the more ammunition she provides the defendant when it argues that a close examination of the case reveals many individualized issues of fact or law. Use of experts. There are several different kinds of experts the plaintiff might invoke at class certification. Mostly, the plaintiff might proffer experts on the subject matter of the litigation, who can testify both to the merits, and to how to establish her case with common proof. For example, in an antitrust case, the plaintiff’s expert might testify that his statistical analysis will show that the defendant’s participation in a price-fixing conspiracy affected the entire class in the same way.68 Similarly, in a sex-discrimination class action,

65. See Labavue v. Olin Corp., 231 F.R.D. 632, 637 (S.D. Ala. 2005) (noting parties submitted “more than 200 pages of briefs and over 800 exhibits in support of their respective positions”). It is worth noting that the trial court in this case considered the volume—especially of exhibits—to be excessive. Id. at 642 & nn.16–18 (noting the parties’ exhibits “constitut[ed] an agglomeration of paper standing several inches taller than the 7’6” Houston Rockets center Yao Ming,” and calling the briefing “a vast time sinkhole, wasting unfathomed judicial resources and delaying other court business”). 66. Antonin Scalia & Bryan A. Garner, Making Your Case: The Art of Persuading Judges 7 (2008) (discussing importance of factual discussion at trial level). 67. See Heath & Heath, Made to Stick: Why Some Ideas Survive and Others Die 165–237 (discussing effect of emotional stories on persuasive content). For an extreme example, see Labavue, 231 F.R.D. at 638 n.3 (“Plaintiffs’ briefing of the history of events at the Olin facility frequently lapses into vituperative disparagement of defendants. For example, plaintiffs deride Olin’s ‘corporate greed’ and ‘arrogance,’ lambast its ‘profits over people corporate philosophy,’ accuse it of hiring a contractor ‘who enjoyed Olin’s brand of deceit,’ characterize Olin as an ‘unrepentant polluter,’ and lament that ‘[t]here is no end to Olin’s misconduct.’”) (internal citations omitted). See also App. 5A at 2–10. 68. See In re Hydrogen Peroxide Antitrust Litig., 552 F. 3d at 312 (“Plaintiffs’ expert . . . offered an opinion purporting to show that ‘there is common proof that can be used to demonstrate that the alleged conspiracy to raise prices, restrict output and allocate customers would have impacted all purchasers of hydrogen peroxide, sodium perborate, and sodium percarbonate.’

150 Chapter 5 The Class Certification Motion

the plaintiff might offer expert evidence that demonstrates the existence of company-wide patterns of discrimination against women.69 Depending on the subject matter of the litigation, the plaintiff might also offer a statistician to demonstrate that she can demonstrate causation and damages elements with common statistical proof, a tactic that has met with mixed success. (This tactic appears most successful when used to demonstrate the common impact of widespread discriminatory70 or anticompetitive71 conduct, less so when plaintiffs seek to use it to substitute for proof of causation in traditional tort actions.)72 Charts/visual evidence. Plaintiffs will often use charts to help keep straight variations in state laws, product models, or prices of goods in different markets. Ideally, the plaintiff will group like with like, allowing her to highlight similarities rather than differences. The plaintiff may also use other visual evidence to make her points.73 Trial plan. The plaintiff also must discuss how the case will be tried. Many courts have indicated that this goal is best served by submission of a trial plan.74 Nonetheless, a number of plaintiffs either forgo this requirement, or

69.

70.

71. 72.

73.

74.

[His] ‘market analysis’ suggested that conditions in the hydrogen peroxide industry favored a conspiracy that would have impacted the entire class.”). Dukes v. Wal-Mart, Inc., 474 F. 3d 1214, 1225 (9th Cir. 2007) (“Plaintiffs presented . . . expert opinions supporting the existence of company-wide policies and practices [and] expert statistical evidence of class-wide gender disparities attributable to discrimination”); see also Melissa Hart & Paul M. Secunda, A Matter of Context: Social Framework Evidence in Employment Discrimination Class Actions, 78 Fordham L. Rev. 37, 39 (2009) (“In the highstakes world of class action employment discrimination litigation, the battle over expert testimony often determines the fate of the case. If the district court accepts the plaintiffs’ social science expert testimony, chances are high that the proposed class will be certified. On the other hand, rejection of the expert evidence generally comes hand-in-hand with a denial of class certification.”). See Dukes, 474 F.3d at 1228 (“It is well-established that commonality may be established by raising an inference of class-wide discrimination through the use of statistical analysis.”); Caridad v. Metro-N. Commuter R.R., 191 F.3d 283, 292 (2d Cir. 1999) (plaintiff used statistical evidence relevant to showing class-wide impact of alleged discrimination). See In re Visa Check/MasterMoney Antitrust Litig., 280 F. 3d 124, 131 (“In support of their motion for class certification, plaintiffs submitted an expert report . . .”) See McLaughlin v. Am. Tobacco Co., 522 F.3d 215, 232 (2d Cir. 2008) (refusing to certify class where plaintiffs offered statistical evidence of effect of misrepresentation on price of cigarettes); In re Ford Motor Co. Ignition Switch Prods. Liab. Litig., 194 F.R.D. 484, 495 (D.N.J. 2000) (refusing to certify class where plaintiff offered statistical evidence of vehicle fires to create “rebuttable presumption” of causation). Dillon & Cannon, Circle of Greed 116 (describing Lerach’s preferred graph, which laid out a timeline of alleged misconduct compared to stock price); 151 (describing use of visual aids during trial); Posner, How Judges Think 248 (visual evidence underused by lawyers). Fed. R. Civ. P. 23, 2003 Advisory Committee Notes (“An increasing number of courts require a party requesting class certification to present a ‘trial plan’ that describes the issues likely to

Defendant’s Certification Opposition 151

treat it as perfunctory. (There are sound strategic reasons for doing so. Among them, a specific, detailed trial plan provides the defendant with a convenient target to raise doubts about the viability of class certification, or the thoroughness of plaintiff’s analysis of the trial.) However, the plaintiff should carefully consider providing a trial plan. While not all courts require a trial plan before certifying a class,75 if the plaintiff does not provide a trial plan that addresses real issues for the trial, the defendant may provide one of its own. And there is little doubt that the defendant’s trial plan will emphasize the problems with trying the class, without offering many solutions.

§ 5.2 Defendant’s Certification Opposition For many defendants, the class certification opposition is the single most important brief they will file in the case. (For some antitrust and securities cases, in which the class-certification standards may be easier to meet, the opposition brief may not be decisive, but will still have a large effect on the remainder of the litigation by shaping the contours of the class and setting the stage for favorable ground rules for trial.)

§ 5.2.1 Themes Divide and conquer. The primary theme in every opposition to class certification is the difficulty of proving so many class members’ claims in a single trial. While the plaintiff emphasizes commonalities among the class, the defendant will highlight differences, variations, and nuances.76 It will argue that unless the court improperly relaxes the plaintiff’s burden of proving all substantive elements of her claims, or deprives the defendant of its right to proffer all exonerating evidence (whether common or individualized), the trial will be so complicated as to be unmanageable. The defendant will usually advance this argument by focusing as much attention as possible on the potentially

be presented at trial and tests whether they are susceptible of class-wide proof.”); see also In re Hydrogen Peroxide Antitrust Litigation, 552 F. 3d at 319. 75. See Feder v. Elec. Sys. Data Corp., 429 F.3d 125, 139 (5th Cir. 2005) (“We did not hold in Robinson, however, that the submission of a trial plan was a prerequisite for a finding of superiority. Instead, we stated that a court must consider how a trial on the alleged causes of action would be tried.”) (internal quotation omitted). 76. In re Rhone-Poulenc Rorer, Inc., 51 F.3d 1293, 1300 (7th Cir. 1995) (Posner, J.) (“nuance can be important” in class actions).

152 Chapter 5 The Class Certification Motion

outcome-determinative differences in the facts, and legal issues, that would apply to different members of the proposed class. Class actions are procedural. The defendant will also stress that the class action is only a procedural device, and therefore, under the Rules Enabling Act, cannot change the parties’ substantive rights. In other words, the plaintiff cannot be excused from her burden of proving—and the defendant cannot be denied the right to challenge—each element of the claims asserted, simply because doing so is necessary to facilitate efficient class litigation.77 Class actions are extraordinary measures. The defendant may stress the unique nature of the class action. It will describe how a class action is a departure from the norm of individual litigation between a single plaintiff and a single defendant.78 It will also argue that, because of the due process implications of class litigation, the court should only consolidate the claims of large numbers of people if it is convinced it can do so both efficiently and without compromising the due process rights of all class members and the defendant. The court must engage in a “rigorous analysis.” The defendant will also stress the need for the court to conduct a “rigorous analysis” of the proposed class litigation to ensure it meets all Rule 23 requirements.79 In part, that means that the court cannot simply rely on the allegations in plaintiffs’ pleadings.80 It also means that the court can (and should) examine the merits of the case to the extent that inquiry will help it understand how the case will be tried.81 Plaintiff bears a heavy burden. The defendant will remind the court that, since she is asking the court to certify a class, the plaintiff—not the defendant—bears the burden of demonstrating that she has met all of the requirements of Rule 23.82 In fact, at this point, several federal courts have held that

77. Calagaz v. Calhoon, 309 F.2d 248, 253 (5th Cir. 1962) (“Rule 23(a) is a convenient procedural device that keeps a plaintiff from being disabled by the weight of numbers. It does not change jurisdictional requirements.”). 78. General Tel. Co. v. Falcon, 457 U.S. 147, 155 (1982) (class action device is “an exception to the usual rule that litigation is conducted by and on behalf of the individual named parties only.”); see also App. 5B at 6. 79. See Falcon, 457 U.S. at 161; see also App. 5B at 7. 80. See Gariety v. Grant Thorton LLP, 368 F.3d 356, 365 (4th Cir. 2004) (“If it were appropriate for a court simply to accept the allegations of a complaint at face value in making class action findings, every complaint asserting the requirements of Rule 23(a) and (b) would automatically lead to a certification order, . . .”). 81. See In re Hydrogen Peroxide, 552 F.3d at 308 (“Factual determinations supporting Rule 23 findings must be made by a preponderance of the evidence.”); In re Initial Pub. Offerings Sec. Litig., 471 F.3d 24, 27 (2d Cir. 2006) (“the fact that a Rule 23 requirement might overlap with an issue on the merits does not avoid the court’s obligation to make a ruling as to whether the requirement is met”). 82. Gariety, 368 F.3d at 363.

Defendant’s Certification Opposition 153

the plaintiff must prove, by a preponderance of the evidence, that she has met the requirements of Rule 23.83 As a result, the defendant can often profitably point to the ways in which plaintiff has not met her burden of persuasion, if only because her brief has not thoroughly analyzed the issues presented by the proposed class action. What will the trial look like? The defendant may also describe to the court what a class trial will look like if the parties paid attention to all of the potentially relevant issues.84 If there are individualized issues of fact or law, the defendant may point out exactly what kinds of inquiries the court will have to engage in, including issues specific to subclasses or to individual class members.85 The defendant may also point to specific jury instructions the court may have to administer.86 The defendant will stress that the court (and the jury) could not possibly keep all issues straight and render a sensible verdict based on the evidence presented.

§ 5.2.2 Arguments Against Certification § 5.2.2.1 Numerosity While the defendant may concede numerosity in many cases, there are circumstances in which challenging it is appropriate. First, the defendant can challenge numerosity when the class actually does not contain enough members to justify certification.87 Second, it can argue that argue that, despite the numbers, joinder is feasible because, for example, the class is not that geographically diverse.88 Third, the defendant may be able to challenge numerosity

83. See In re Hydrogen Peroxide Antitrust Litigation, 552 F.3d at 320; Alaska Elec. Pension Fund v. Flowserve Corp., 572 F. 3d 221, 228 (5th Cir. 2009). 84. See In re Ford Motor Co. Ignition Switch Prods. Liab. Litig., 194 F.R.D. 484, 496 & n.11 (D.N.J. 2000) (class trial including hearings for proposed “related claims” would “take approximately twelve years of judicial time”). 85. See Steering Comm. v. Exxon Mobil Corp., 461 F. 3d 598, 603 (5th Cir. 2006) (“While it is certainly true that the cause of the fire itself is an issue common to the class, each individual plaintiff must meet his or her own burden of medical causation, which in turn will depend on any number of the factors enumerated by the experts who testified at the class certification hearing.”). 86. See In re Rhone-Poulenc Rorer, 51 F.3d at 1300 (importance of nuance “is suggested by a comparison of differing state pattern instructions on negligence and differing judicial formulations of the meaning of negligence and the subordinate concepts”). 87. See Pruitt v. City of Chicago, 472 F. 3d 925, 926–27 (7th Cir. 2006) (in class with only 40 members from same city, joinder was practical) (Easterbrook, J.). Challenging numerosity is, admittedly, a rare event, since few lawyers will invest the substantial time and resources needed to pursue a class action on behalf of fewer than forty people. 88. See Andrews v. Bechtel Power Corp., 780 F.2d 124, 132 (1st Cir. 1985) (“Although the Bechtel subclass had a maximum number of forty-nine members, numbers alone do not

154 Chapter 5 The Class Certification Motion

based on the plaintiff’s failure to meet her burden of providing evidence of numerosity—that is, even if it were reasonable to assume there must be many class members, the plaintiff’s failure to present evidence supporting that finding precludes granting her motion.89 Finally, the defendant can challenge numerosity by challenging the definition of the class. As discussed in greater detail in Chapter 2, if the class definition is based on the merits of the case, then, technically, the class has no members until a verdict has been rendered in plaintiffs’ favor.90 § 5.2.2.2 Commonality At first blush, commonality appears difficult for a defendant to challenge. The bar is set relatively low.91 However, the defendant can often take the plaintiff’s list of “common questions” (identified in her complaint or her motion for class certification) and show why they are not really common because different claimant-specific packages of evidence may be relevant to the outcome of each question. Particular challenges that have worked in the past include: The class members’ conduct is not common. This approach will typically come with challenges to the adequacy and typicality of the named plaintiff.92 To begin, the defendant describes the plaintiff’s particular experience: how she came to invest in the defendant’s securities, buy its products, or become exposed to its chemicals. The defendant then highlights the non-common issues that the plaintiff’s conduct raises, and contrasts them with the conduct of other putative class members, showing why those differences are material. Proof of liability will not be common. The primary argument here tends to be over causation. The most glaring example is in fraud-based cases.93 A particular subset of this argument that is worth examining in closer detail involves securities-fraud class actions. Plaintiffs often argue that a class action is particularly appropriate in securities-fraud cases because there has been a “fraud on the market”: where efficient markets exist, a court may presume

89.

90. 91. 92. 93.

determine numerosity. Judge Mazzone correctly noted that the members of the subclass came from the same small geographic area—all living in southeastern Massachusetts—and, therefore, could join or be joined in a suit of named parties.”). See Golden v. City of Columbus, 404 F.3d 950, 966 (6th Cir. 2005) (no numerosity because “reference to the total number of tenants in Columbus is not probative of the number of tenants reasonably likely to face the harm for which Golden seeks redress”). For more on ascertainability, see § 2.1.2. See also App. 5B at 26. For more on commonality, see § 2.2. As a number of courts have noted, commonality, typicality and adequacy all “tend to merge” in the evaluation of whether a class should be certified. See Falcon, 457 U.S. at 157, n. 13. Oscar Paine Equity Invs. v. Allegiance Telecom, Inc., 487 F.3d 261, 265 (5th Cir. 2007) (“As a matter of practice, the oft-chosen defensive move is to make any showing that severs the link between the misrepresentation and the plaintiff ’s loss . . .”) (emphasis in original). For more on the intersection between fraud and predominance, see §§ 2.7.2.

Defendant’s Certification Opposition 155

that fraudulent statements are transmitted to all investors in the price of the stock.94 However, it is often possible to challenge whether the plaintiff bought those securities in an efficient market.95 Outside of publicly traded securities (or other demonstrably efficient markets), courts will rarely presume reliance in order to certify a class.96 Proof of defendant’s conduct will not be common. Often, despite plaintiffs’ intense focus on defendants’ “bad conduct,” the conduct at issue will not in fact be common to the entire class. If plaintiffs have alleged some form of fraudulent concealment of a problem, for example, knowledge of that problem (and with it, intentional concealment from the public) may have evolved over time.97 Proof of injury will not be common. A number of courts have held that mere variations in the proof of damages by themselves will not prevent class certification.98 However, if the damages to be proved might vary so much that some plaintiffs will have actually been harmed while others might not (such as when plaintiffs must prove diminution in value), then variations in the proof of damages may not be common at all.99 § 5.2.2.3 Typicality In arguing typicality, the defendant will focus on the various ways in which the named plaintiff’s individual claim differs from those of the proposed absent class members. Not all differences will render a named plaintiff atypical.100 However, differences that could change the outcome at trial will. The theme for the defendant to remember “is simply stated: as goes the claim of the

94. See Basic, Inc. v. Levinson, 485 U.S. 224, 241–42 (1988). 95. See Oscar Private Equity Invs., 487 F.3d at 269–70; see also Steven Serajeddini, Loss Causation and Class Certification, 108 Mich. L. Rev. 255, 263–67 (2009) (explaining types of evidence used to rebut fraud-on-market presumption in securities markets). 96. McLaughlin, 522 F.3d at 224 (“Basic involved an efficient market—the market in securities traded on the New York Stock Exchange—capable of rapidly assimilating public information into stock prices; the market for consumer goods, however, is anything but efficient.”). 97. See In re Ford Motor Co. Vehicle Paint Litig., 182 F.R.D. 214, 220 (E.D. La. 1998) (refusing to certify class where “there is evidence that Ford’s state of knowledge was not uniform over the period in issue and that certain of its alleged ‘concealing’ activities occurred in 1992, which could not have affected plaintiffs’ purchasing 1990 model-year vehicles”). 98. See McLaughlin, 522 F.3d at 231 (“the fact that damages may have to be ascertained on an individual basis is not, standing alone, sufficient to defeat class certification”). 99. Montgomery v. New Piper Aircraft, Inc., 209 F.R.D. 221, 230 (S.D. Fla. 2002) (refusing to certify class of aircraft purchasers because “[c]alculating damages under FDUTPA requires an in-depth analysis of market-value depletion due to the ‘deceptive’ trade practice. Such an inquiry automatically invokes an aircraft-by-aircraft inquiry into (1) when and where each plane was purchased, (2) when the plane was sold (if applicable), and (3) the current market value of each plane”). 100. See § 2.3.

156

Chapter 5 The Class Certification Motion

named plaintiff, so go the claims of the class.”101 As a result, there are several issues that the defendant should look for in deciding whether to challenge typicality. The named plaintiff has a particularly strong claim. Sometimes, the named plaintiff is an individual who has had such a bad experience with the defendant that she has become motivated to file a lawsuit—despite the fact that most class members’ experiences were satisfactory. Ironically, in cases like these, the better the particular named plaintiff’s story, the better the chances of defeating class certification, because the defendant can show that the class representative’s personal claim is so much stronger than that of most putative class members that she is “atypical” of the class.102 The named plaintiff is subject to unique defenses. If the named plaintiff’s situation is sufficiently unusual, then she may be subject to unique defenses.103 Some of the more potent unique defenses include: unclean hands,104 unique treatment from defendants,105 or conduct that undermines the cause of action.106

101. Sprague v. Gen. Motors Corp., 133 F.3d 388, 399 (6th Cir. 1998). 102. Broussard, 155 F.3d at 340 (plaintiff franchisees could not represent other franchisees because language in their franchise contracts differed, “mak[ing] plaintiffs’ case stronger”); see also App. 5B at 27–28. 103. See Beck v. Maximus, 457 F.3d 291, 297 (3d Cir. 2006) (“Other courts of appeals emphasize, as do we, the challenge presented by a defense unique to a class representative—the representative’s interests might not be aligned with those of the class, and the representative might devote time and effort to the defense at the expense of issues that are common and controlling for the class.”); Gary Plastic Packaging Corp. v. Merrill Lynch, Pierce, Fenner, & Smith, Inc., 903 F.2d 176, 180 (2d Cir. 1990) (“[C]lass certification is inappropriate where a putative class representative is subject to unique defenses which threaten to become the focus of the litigation”); Hanon v. Data Prods. Corp., 976 F.2d 497, 508 (9th Cir. 1992) (same). 104. See, e.g., Boca Raton Cmty. Hosp., Inc. v. Tenet Healthcare Corp., 238 F.R.D. 679, 694 (S.D. Fla. 2006) (refusing to certify class because named plaintiff ’s conduct was identical to defendant’s, rendering it vulnerable to defense of unclean hands). 105. See, e.g., Joseph L. v. Conn. Dep’t of Children and Families, 161 F. App’x 72, 75 (2d Cir. 2005) (in class action seeking right to hearing to contest conditions of treatment, fact that named plaintiff had been offered hearing rendered him atypical of class); Exelon v. Gaston, 247 F.R.D. 75, 84 (E.D. Pa. 2007) (named plaintiffs in employment-discrimination class action were not typical where they had been disciplined for legitimate reasons); Porter v. NationsCredit Consumer Disc. Co., 229 F.R.D. 497, 499 (E.D. Pa. 2005) (named plaintiffs in TILA class action were not typical where they had received disclosures from defendant). 106. See, e.g., Spann v. AOL Time Warner, Inc., 219 F.R.D. 307, 318 (S.D.N.Y. 2003) (no typicality in ERISA class where named plaintiffs did not exhaust administrative remedies before bringing lawsuit); Rocco v. Nam Tai Elecs., Inc., 245 F.R.D. 131, 136 (S.D.N.Y. 2007) (refusing to certify securities-fraud class action where named plaintiff bought more of defendant’s securities after alleged fraud was revealed).

Defendant’s Certification Opposition 157

§ 5.2.2.4 Adequacy In challenging plaintiff’s compliance with the adequacy of representation requirement, the defendant may focus on the following issues: The plaintiff has abdicated responsibility to her lawyers. As discussed above, courts have repeatedly held that not all professions of ignorance or deference to plaintiff’s counsel render a named plaintiff inadequate.107 However, evidence that the named plaintiff cannot exercise independent oversight over her attorneys may render her inadequate.108 As a result, the defendant may argue that certain facts about the named plaintiff show that she has abdicated responsibility to her lawyers. Those facts may include: • an ignorance of key facts in the litigation;109 • a willingness to speculate without foundation;110 • references to blind reliance on counsel.111 The plaintiff has conflicts with the class. Intra-class conflicts are a very real reason to find a named plaintiff inadequate.112 The defendant should look for, among other things, whether the conduct plaintiff challenges might actually benefit other members of the proposed class,113 or whether the named plaintiff would wind up in competition with the class members for any relief from the lawsuit.114

107. See §§ 2.4, 5.1.2.4. 108. See Berger v. Compaq Computer Corp., 257 F.3d 475, 482–83 (5th Cir. 2001) 109. See id. at 481 n.10 (defendant argued that the named plaintiffs’ “shortcomings include taking positions in conflict with the Complaint [and] basing allegations on misinformation”). 110. See id. (defendant argued that the named plaintiffs’ deposition testimony showed them “speculating without foundation about accusations of fraud against individuals”). 111. See id. (defendant argued that the named plaintiffs’ deposition testimony showed “blind reference on counsel”). 112. See § 2.4. 113. See Pickett v. Iowa Beef Processors, 209 F.3d 1276, 1280–81 (11th Cir. 2000) (while named plaintiffs lost money on forward contracts, other class members benefitted, rendering named plaintiffs inadequate representatives). 114. See Gen. Tel. Co. v. EEOC, 446 U.S. 318, 331 (1980) (“In employment discrimination litigation, conflicts might arise, for example, between employees and applicants who were denied employment and who will, if granted relief, compete with employees for fringe benefits or seniority. Under Rule 23, the same plaintiff could not represent these classes.”); Armstrong v. Powell, 230 F.R.D. 661, 678 (W.D. Okla. 2005) (noting “potential for conflict between the former employees and current employees, as the former employees may focus on the potential for monetary relief because they would not benefit from the injunctive relief sought by the current employees”).

158 Chapter 5 The Class Certification Motion

The plaintiff is too close to her lawyers. If the named plaintiff has a close personal relationship with her lawyers, that may render her inadequate.115 Among other questions, the defendant may probe into whether the named plaintiffs are business partners,116 employees,117 blood relations,118 related by marriage,119 or longstanding friends.120 The plaintiff lacks the personal character to represent the class. The defendant should be careful about advancing this argument, since courts are understandably reluctant to pass judgment on the character of a plaintiff relatively early in the litigation. However, if evidence exists that clearly impeaches the plaintiffs’ personal integrity (for example, a previous criminal conviction), the defendant may consider challenging adequacy on this basis.121 § 5.2.2.5 Predominance Many of the arguments a defendant will advance about why individual issues will predominate over common issues will be similar to those described above in the commonality section. From a defendant’s viewpoint, the primary difference between commonality and predominance is the stringency of the standard. The defendant’s opposition will often attempt to paint the court a portrait of a class trial that (if the court respects all parties’ due process rights) would devolve into chaos. The defendant may walk the court through each element of each proposed class claim, identifying those elements that would require different packages of evidence for different class members.122 Having gone through that thorough analysis, the defendant may circle back and argue that resolution of any common issues will still leave many important claimant-specific issues that require individualized discovery, motions, and

115. See Susman v. Lincoln Am. Corp., 561 F.2d 86, 95 (7th Cir. 1977); London v. Wal-Mart Stores, Inc., 340 F.3d 1246, 1255 (11th Cir. 2003). 116. See London, 340 F.3d at 1255 (finding potential conflict of interest where named plaintiff was former business partner of class counsel). 117. See Shroder v. Suburban Coastal Corp., 729 F. 2d 1371, 1374–75 (11th Cir. 1984) (employee of counsel not adequate class representative). 118. See Susman, 561 F.2d at 95 (plaintiff whose brother was class counsel not adequate class representative). 119. See Petrovic v. Amoco Oil Co., 200 F. 3d 1140, 1155–56 (8th Cir. 1999) (named plaintiff who was sister-in-law of counsel not adequate class representative). 120. See London, 340 F.3d at 1255 (finding conflict of interest where named plaintiff was close personal friend of class counsel). 121. See, e.g., Davidson v. Citizens Gas & Coke Util., 238 F.R.D. 225, 229 (S.D. Ind. 2006) (“personal characteristics, such as the credibility and integrity of a putative class representative, have a direct bearing on their ability to adequately represent absent members of the class”). 122. See App. 5B at 7–25.

Defendant’s Certification Opposition 159

hearings—so many, in fact, that there is no way that single trial could resolve the putative class members’ claims. Here are some of the most common reasons a defendant may invoke to show how the predominance requirement has not been met: State law variations predominate. While, with the accumulation of federal cases refusing to certify multi-state classes, plaintiffs do not assert multi-state class actions as frequently, this is still one of the primary reasons to deny class certification in a given case.123 Individual issues of causation will predominate. In many tort class actions, such as those asserting fraud or negligence, class members may not be able to prove causation using general proof.124 For example, in product-defect class actions, plaintiffs will often seek to prove the existence of a “common defect.” Defendants may challenge the predominance of proof of that defect by pointing to variations in design, manufacturing, and owner use that would affect whether the defect manifested itself. Individual issues of damages will predominate. Courts do not always find variations in damages to be enough to defeat certification.125 However, if there are other problems establishing predominance, then courts may find variations in establishing damages to be one more reason not to certify a class.126 § 5.2.2.6 Superiority The defendant will usually stress several issues in arguing that class litigation is not the superior way to resolve the class members’ legal rights. Individual litigation is superior to class action litigation. There are three situations in which this argument is particularly persuasive. The first is when there has been a developed history of plaintiffs filing individual lawsuits over the issue presented by the class action.127 In those cases, the defendant has a persuasive empirical argument that plaintiffs who really need legal relief can seek—and, in fact, have sought—it on their own.

123. In re Bridgestone/Firestone, Inc. Tires Prods. Liab. Litig., 288 F.3d at 1015 (“No class action is proper unless all litigants are governed by the same legal rules.”); see also Samuel Issacharoff & Richard A. Nagareda, Class Settlements Under Attack, 156 U. Pa. L. Rev. 1649, 1682–83 (2008) (noting defendant’s strategic use of variations in state laws). 124. For more on how causation intersects with predominance, see § 2.7.1. 125. See McLaughlin, 522 F.3d at 231. 126. O’Sullivan v. Countrywide Home Loans, 319 F.3d 732, 744 (5th Cir. 2003); King’s Choice Neckwear, Inc. v. FedEx Corp., Civil Action No. 07-CV-275 (DMC), 2009 WL 689718, at *4 (Mar. 11, D.N.J. 2009) (declining to certify class where individual liability issues predominate and it “appears that the Court would be required to conduct a series of ‘mini-trials’ to determine damages”). 127. In re Stucco Litig., 175 F.R.D. 210, 218 (E.D.N.C. 1997) (“the number of independent actions already filed also raises some concern as to the potential size of the opt out class”).

160

Chapter 5 The Class Certification Motion

The second is when the value of individual damages claims are high on their own.128 In this case, the defendant may argue that there is no real obstacle to the plaintiff (or any individual class member) seeking relief if she really believes she was injured, and that a plaintiff who suffered significant damages probably would prefer to hire her own lawyer and sue the defendant in her local court. The third is when the statute under which plaintiff has brought her claim authorizes attorneys fees (like a state consumer-fraud act).129 In these cases, there are no structural impediments to an individual bringing his own lawsuit. In fact, a number of these statutes, in their legislative histories, will explicitly state that the reason for the attorneys’-fee provisions is to enable individuals to file their own lawsuits. Class litigation is not superior to government action. In some cases, plaintiffs’ lawsuit may cover the same ground as a government regulatory agency. In those cases, defendants may argue that the superior way of resolving the controversy is to allow the government agency to do its job.130 This argument is stronger if the agency has actually begun an investigation, or performed some other action.131 This argument does not always persuade, and, in certain instances, courts have split on whether a particular agency’s action is superior to class-action litigation. A class action will not be superior because it is not manageable. A number of courts also find that class actions are not superior to other forms of litigation

128. See Castano, 84 F.3d at 748 (no superiority where “individual damage claims are high, and punitive damages are available in most states”); County of Santa Clara v. Astra USA, Inc., 257 F.R.D. 207, 213 (N.D. Cal. 2009) (no superiority where “the sums at stake are likely large enough for the 340B entities to justify launching their own stand-alone suits. Each entity would be able to protect its own interests. Put differently, the 340B entities are not consumers with small claims that need a collective action to vindicate their rights. They are sophisticated and, more to the point, they have sufficiently large stakes involved to justify their own litigation catered to their own circumstances”); Blaine v. SmithKline Beecham Corp., 240 F.R.D. 179, 192 (E.D. Pa. 2007) (“because the potential value of each individual’s claim is high, each has a compelling interest in controlling strategic decisions throughout the litigation and having those decisions made by the attorney of his or her choice”). 129. See Castano, 84 F.3d at 748 (plaintiffs’ proposed class action not superior in part because statutory attorneys’ fees available for individual lawsuits). 130. In re Bridgestone/Firestone, Inc. Tires Prods. Liab. Litig., 288 F.3d at 1019 (“Regulation by the NHTSA, coupled with tort litigation by persons suffering physical injury, is far superior to a suit by millions of uninjured buyers for dealing with consumer products that are said to be failure-prone.”) (emphasis in original); In re Ford Motor Co. Ignition Switch Prods. Liab. Litig., 174 F.R.D.at 353 (where plaintiffs brought no-injury class action alleging defect in ignition switch system, “the administrative remedy provided by NHTSA, including recall of vehicle for inspection and/or repair, is more appropriate than civil litigation seeking money damages in a federal court”). 131. Kamm v. Cal. City Dev. Co., 509 F.2d 205, 211 (9th Cir. 1975) (state agency investigation into land fraud superior where “the court here is not simply considering ‘possible administrative relief ’, but rather a remedy which has already been instituted”).

Defendant’s Certification Opposition 161

because they are not manageable.132 From a doctrinal standpoint, this inquiry is very similar to the analysis of predominance. From a rhetorical standpoint, the defendant’s argument focuses on how the mechanics of making individualized inquiries that will render the litigation unmanageable. In particular, defendants will often focus on the amount of court time required to hear testimony from each individual witness,133 or the difficulties in instructing a jury on a number of varying claims that frequently involve conflicting state laws.134 In addition, a defendant may be able to make several rebuttal points to plaintiffs’ class-action arguments. For example, several courts have found that the presence of negative-value suits by themselves may not be enough to justify finding a class action superior to other forms of litigation.135 Certifying a class will create inordinate pressure to settle. While not yet a common argument, at least one court has held that the fact that certifying a class “would place hydraulic pressure on defendants to settle . . . weighs in the superiority analysis.”136 Other courts, however, have held that mere pressure to settle is not enough to render a class action inferior to other methods of resolving the litigation.137

§ 5.2.3 Packaging the Presentation Background section. Defendants often face a strong temptation to issue a point-by-point rebuttal of the bad conduct plaintiffs allege in their background section. While no defendant should allow false statements of fact to pass unchallenged, this usually is not as productive a strategy as other alternatives.

132. See Newton, 259 F.3d at 191 (“In terms of efficiency, a class of this magnitude and complexity could not be tried. There are simply too many uncommon issues, and the number of class members is surely too large. Considered as a litigation class, then, the difficulties likely to be encountered in the management of this action are insurmountable.”) (internal citations omitted). 133. See, e.g., In re Ford Motor Co. Ignition Switch Prods. Liab. Litig., 194 F.R.D. at 496 (“Even assuming that the number of contested claims could—as plaintiff suggests—through discovery be narrowed to 3,000, and that the individual ‘rebuttal trials’ were to average just four hours each (a conservative estimate), the second phase of the trial would take approximately twelve years of judicial time. This would not serve the public well, nor would it provide relatively prompt remediation of the valid claims that exist.”). 134. Lyon v. Caterpillar, Inc. 194 F.R.D. 206, 221 (E.D. Pa. 2000) (“If I find plaintiff ’s jury instructions confusing, how can I expect a lay jury to wade through these question[s]?”). 135. See Newton, 259 F.3d at 191 (presence of some negative-value suits “by itself is insufficient to overcome the hurdles of predominance and superiority and efficient and fair management of a trial, which Rule 23(b) requires”). 136. See, e.g., id. at 192. 137. See In re Visa Check/MasterMoney Antitrust Litig., 280 F.3d at 145 (“The effect of certification on parties’ leverage in settlement negotiations is a fact of life for class action litigants. While the sheer size of the class in this case may enhance this effect, this alone cannot defeat an otherwise proper certification.”).

162 Chapter 5 The Class Certification Motion

The most effective use of the background section is often to: (1) tell the defendant’s story in a way that highlights the various individualized issues that might arise during the course of the trial, and (2) focus on the plaintiffs’ conduct that will be necessary to prove the elements of each claim at trial. For example, if the defendant is accused of negligence, the brief may note that any trial of such claims will require a claimant-specific inquiry to determine if each class member participated in acts that could constitute contributory or comparative negligence.138 If the defendant is accused of fraud, the brief will likely note that litigating fraud claims requires proving, on a claimant-specific basis, what representations each class member heard, and whether she relied on those representations to her detriment.139 Argument section. The defendant faces a different challenge than the plaintiff in drafting the argument section. On the one hand, it will want to highlight as many variations, nuances, and complications as it can to show why a class-wide trial will not resolve the issue in front of the court. On the other hand, the defendant also needs to produce a readable, understandable brief that fits within any page-limits the court imposes. Expert reports. At the class-certification stage, the defendant uses expert reports for three purposes: to provide a preview of what the expert will say about the merits at trial, to explain what factual nuances may prevent certification of the class, and to rebut plaintiff’s experts. Defense expert reports can shore up a number of the defendant’s points, such as demonstrating that the class as defined is not ascertainable140 or that common factual issues will not predominate over individualized issues of causation.141 In addition, certain types of class actions may require specific expert reports. A defendant in a securities class action will often rely on an event study to rebut the applicability of the efficient-market hypothesis (which allows the court to presume reliance on any fraudulent statements).142

138. See § 2.7.1 (discussing role of affirmative defenses in predominance analysis). 139. See In re St. Jude Med., Inc., 522 F.3d 836, 838 (8th Cir. 2008) (“Because proof often varies among individuals concerning what representations were received, and the degree to which individual persons relied on the representations, fraud cases often are unsuitable for class treatment.”); Szabo, 249 F.3d at 674 (declining to certify class where “oral representations may vary substantially from one dealer (or occasion) to another, destroying the commonality of the claims”). 140. See Cook v. Rockwell Int’l Corp., 151 F.R.D. 378, 383 (D. Colo. 1993) (defense experts challenged plaintiffs’ estimates of exposure to hazardous materials given dispersion patterns). The trial court ultimately certified a medical monitoring class and property class for further proceedings. Id. at 384. 141. See Steering Comm., 461 F. 3d at 603 (defense experts explained individual factors required to establish causation in proposed class action regarding oil leak); Sanneman v. Chrysler Corp., 191 F.R.D. 441, 444 n.2 (E.D. Pa. 2000) (defense expert explained individualized causes of peeling paint). 142. See In re Enron Corp. Sec. & ERISA Litig., 529 F. Supp. 2d 644, 662 (S.D. Tex. 2006) (“Moreover, argue the Financial Defendants, the market for the Foreign. Debt Securities

Plaintiff ’s Certification Reply

Similarly, a defendant in an antitrust class action will often submit an expert report providing an econometric analysis of prices during the class period, to show that there is no common class-wide proof establishing the causes for higher or lower prices.143 State-law variations appendix. Throughout the 1990s and early 2000s, the state-law variations appendix was a mainstay for defense lawyers. As plaintiffs sought to certify nationwide classes asserting state-law claims, defendants would provide extensive analyses of the crippling variations in the laws of the various states. In cases where the defendant uses a state-law appendix, it will often provide a preview of the greatest conflicts in the argument section of the brief, with a more thorough discussion of all states in the appendix. If a defendant elects to use a state-law variations appendix, thoroughness is critical.

§ 5.3 Plaintiff ’s Certification Reply Plaintiff’s reply is often where she truly joins the argument. Once the plaintiff is aware of the specific critiques the defendant has raised, she will discuss those arguments in further depth.144 The plaintiff faces a real challenge with the class certification reply. If the defendant has raised a number of different arguments against certifying a class, the plaintiff must address each one without leaving the impression that the class trial will devolve into a series of disparate but necessary debates over various legal and factual issues. There are several ways the plaintiff can accomplish this balancing act: • Return to defendant’s alleged bad conduct.145 This tactic has two distinct advantages. First, it reminds the court that the defendant’s bad conduct is the central issue in the case, and that that issue is common to all of the class members. Second, many courts may be reluctant to allow defendants to benefit from individualized issues that may have arisen because of their own negligence or fraudulent conduct.

was inefficient. [The] data reflect that the Foreign Debt Securities were thinly traded in the secondary market, while . . . . Deutsche Bank’s expert on market efficiency[] shows they had small weekly turnover rates and low trading frequencies.”). 143. See In re Hydrogen Peroxide, 552 F.3d at 313 (“Defendants offered the opinion of their own expert economist . . . to ‘provide an independent expert assessment of whether certification of the proposed class of Plaintiffs is appropriate in this matter.’”). 144. See Winkler v. DTE, Inc., 205 F.R.D. 235, 238 (D. Ariz. 2001) (“in response to concerns raised in the Defendant’s Response, the Plaintiffs revised their proposals and presented the following classes and subclasses”). 145. See App. 5C at 2–17.

163

164

Chapter 5 The Class Certification Motion

• Show where variations are superficial or inconsequential. Sometimes, defendants will offer variations that, while superficially appealing, have little effect on the litigation’s central common issues. In these cases, showing why even just a few of these variations will not affect a class trial can persuade the court that the other variations are similarly inconsequential. • Show where variations or conflicts are speculative. Depending on the level of discovery the defendant conducted, it may argue that certain conflicts among class members or certain variations exist, even though it lacks hard evidence to back up its claims. In those cases, the plaintiff may to point out the speculative nature of the argument.146 • Suggest subclassing. If a limited number of issues will have an effect on the litigation, the plaintiff may also suggest creating a limited number of subclasses, which will allow for different proof without devolving into individual trials.147 The plaintiff should be careful to ensure that each subclass can still independently meet the requirements of Rule 23.148 • Offer a trial plan. If the plaintiff has not already, she may offer a trial plan to counteract the defendants’ criticisms.149 The plaintiff may suggest bifurcation of common issues from non-common issues, or the use of special jury instructions to avoid predominance problems.

§ 5.4 The Certification Hearing One issue both sides will need to decide is whether to have a class certification hearing, and, if so, whether it should be merely oral argument or be a fullfledged evidentiary hearing. While nothing in Rule 23 requires a court to hold oral argument, it is considered good practice to do so.150 Some courts will decide class certification on the basis of briefing only.151 However, many courts will afford the parties

146. See Gunnells, Inc., 348 F.3d at 430 (“To defeat the adequacy requirement of Rule 23, a conflict ‘must be more than merely speculative or hypothetical.’”) (quoting 5 Moore’s Federal Practice § 23.25[4][b][ii] (2002)). 147. See Miles v. Am. Online, Inc., 202 F.R.D. 297, 305 n.6 (M.D. Fla. 2001) (noting that variations in state law could be overcome by creation of subclasses). 148. Fed. R. Civ. P. 23(c)(5) (“When appropriate, a class may be divided into subclasses that are each treated as a class under this rule.”); see also In re Ins. Brokerage Antitrust Litigation, 579 F. 3d 241, 271 (3d Cir. 2009). 149. See App. 5C at Ex. A. 150. See Manual for Complex Litigation (Fourth), § 21.21 (2004). 151. See, e.g., In re Ford Motor Co. Bronco II Prod. Liab. Litig., 177 F.R.D. 360, 363 (E.D. La. 1997) (finding “no hearing necessary”).

The Certification Hearing

an opportunity for at least oral argument, and some will hold full evidentiary hearings, complete with testimony from witnesses.152 Oral argument provides each party with the chance to spotlight the themes important to the class certification debate, and to emphasize its strongest arguments. Oral argument also allows each side to address the concerns of the court. If budget or technology allows, each side might consider bringing visual aids, such as PowerPoint presentations or blowups of charts or photographs. While each side will have points it wants to make sure it raises or emphasizes, the hearing is for the court’s benefit, and it is usually wisest to allow the court to direct the proceedings as it wishes. For most class actions, the briefing of class certification represents the climax of both sides’ efforts. If the court refuses to certify a class, then little remains in the litigation but to resolve the plaintiff’s individual claims, a task that can usually be accomplished through an inexpensive settlement or a brief trial. If the court certifies a class, however, the parties face several options for resolving the class-wide claims, including a class trial or a class-wide settlement. However, before any of these events may occur, the losing party will likely appeal the certification ruling. And if a class has been certified, then the parties must notify the class of the claims asserted on its behalf. These postcertification steps are the subject of the next chapter.

152. See, e.g., Andrews v. Am. Tel. & Telegraph Co., 95 F.3d 1014, 1019–20 (11th Cir. 1996) (“Andrews, along with the other named plaintiffs in Harper, testified at the hearing.”); Labavue, 231 F.R.D. at 637 (“The parties also presented live testimony and argument in a two-day class certification hearing . . .”).

165

CHAP TER

6 Post-Certification Steps

§ 6.1 Interlocutory Appeal

168

§ 6.1.1 Rule 23(f) Standards for Obtaining Interlocutory Appeal

168

§ 6.1.2 Grounds for Appeal

169

§ 6.1.3 How Appellate Courts Review Certification Orders

175

§ 6.1.4 Stays

175

§ 6.1.5 Packaging the Rule 23(f) Petition

176

§ 6.1.6 Packaging the Rule 23(f) Petition Response

177

§ 6.2 Class Notice

177

§ 6.2.1 When/Why Notice Required

178

§ 6.2.2 Timing of Notice

179

§ 6.2.3 Form of Notice

180

§ 6.2.4 Content of Notice

185

§ 6.2.5 Cost of Notice

189

168

Chapter 6 Post-Certification Steps

While we have characterized the certification decision as the “main event” in class-action litigation, the litigation does not end with the certification decision. Given the tremendous effect the certification decision has on classaction litigation, it is virtually certain that the party that loses the motion will seek an interlocutory appeal. And if the court certifies a class, then it must also order notice to all of the class members.

§ 6.1 Interlocutory Appeal Once class certification has been decided, the losing party will usually wish to appeal immediately under Rule 23(f). For a losing defendant, the risk of trying the case as a class action and then appealing an adverse judgment is usually too high to accept; if that were the only path forward, the defendant would likely settle instead, even if it believes an appellate court likely would reverse the class certification order. For a losing plaintiff, it is often not economically viable to try her case as an individual lawsuit through to judgment and then appeal; instead, the plaintiff often will decide to dismiss the case in its entirety, even if she believes an appellate court would likely reverse the class certification denial.

§ 6.1.1 Rule 23(f) Standards for Obtaining Interlocutory Appeal Despite the fact that a class-certification decision is not a “final judgment” under 28 U.S.C. § 1291, Rule 23(f) allows the losing party to petition the Court of Appeals for an interlocutory appeal of the class-certification decision. Specifically, Rule 23(f) provides that a court of appeals may permit an appeal from an order granting or denying classaction certification under this rule if a petition for permission to appeal is filed with the circuit clerk within 10 days after the order is entered. An appeal does not stay proceedings in the district court unless the district court or the court of appeals so orders.1

This rule represents a departure from the “final judgment” rule, which holds that appellate courts should only review judgments that have been rendered final.2 Petitions for interlocutory appeal are reviewed at the sole discretion of

1. Fed. R. Civ. P. 23(f). 2. See, e.g., 28 U.S.C. § 1291 (“The courts of appeals . . . shall have jurisdiction of appeals from all final decisions of the district courts of the United States . . .”).

Interlocutory Appeal

the appellate court “on the basis of any consideration that the court of appeals finds persuasive,” an exercise of discretion similar to the Supreme Court’s grant of certiorari.3 The petition is due within ten days after the certification decision has issued.4 While a motion for reconsideration filed in the lower court within the ten-day period can toll the deadline,5 that ten-day deadline is otherwise not negotiable.6 If the appellate court grants the petition for review, it will order briefing on the merits of the appeal and oral argument. If it denies the petition, the appellate effort is over, at least until the case reaches a final judgment.

§ 6.1.2 Grounds for Appeal Given their unfettered discretion to allow (or decline) immediate appeals of class certification decisions, different circuits have adopted different standards for determining whether to allow interlocutory appeals. Several courts of appeal, including the Second Circuit, have expressed concern about interfering with the trial court’s discretion to decide whether a proposed class warrants certification.7 Over time, appellate courts have identified several categories of class certification rulings that they are more likely to review on appeal. These categories are not exclusive; several circuits have explicitly left “open the possibility that a petition failing to satisfy [the enumerated] requirements may nevertheless be granted where it presents special circumstances that militate in favor of an immediate appeal,”8 or to “deny leave to appeal in cases that seem superficially to fit into one of these . . . pigeonholes,”9 and a number of courts accept

3. 4. 5. 6.

Fed. R. Civ. P. 23(f), Advisory Committee Note, 1998. Id. Jenkins v. Bellsouth Corp., 491 F.3d 1288, 1290 (11th Cir. 2007). See, e.g., Jenkins, 491 F.3d at 1289 (denying district court’s attempt to allow appellants to file untimely appeal by vacating and then reinstating class certification order in order to toll deadline); Delta Airlines v. Butler, 383 F.3d 1143, 1145 (10th Cir. 2004) (court has no discretion to extend deadline for 23(f) appeals); McNamara v. Felderhof, 410 F.3d 277, 281 (5th Cir. 2005) (deadline may not be extended by motion to reconsider); Gary v. Sheahan, 188 F.3d 891, 892–93 (7th Cir. 1999) (“to ensure that there is only one window of potential disruption, and to permit the parties to proceed in confidence about the scope and stakes of the case thereafter, the window of review is deliberately small”). 7. Sumitomo Copper Litig. v. Credit Lyonnais Rouse, 262 F.3d 134, 139 (2d Cir. 2001) (“Our determination of whether the district court’s decision is sufficiently questionable to warrant interlocutory review will be tempered by our longstanding view that the district court is often in the best position to assess the propriety of the class”); Prado-Steiman v. Bush, 221 F.3d 1266, 1273 (11th Cir. 2000) (“Rule 23(f) should not be a vehicle for courts of appeals to micromanage complex action class litigation as it unfolds in the district court.”). 8. Sumitomo Copper, 262 F.3d at 140. 9. Waste Mgmt. Holdings, Inc. v. Mowbray, 208 F.3d 288, 294 (1st Cir. 2000).

169

170 Chapter 6 Post-Certification Steps

or deny petitions under Rule 23(f) without ever disclosing their reasons for doing so.10 Indeed, as Judge Diane Wood (of the Seventh Circuit Court of Appeals) once observed: The vast majority of our rulings on 23(f) motions are not published. It just happens quietly in the chambers of the judges and we normally don’t take them, so you’re going to have a distorted view of what’s going on if you’re looking only at the published opinions.11

However, published decisions granting or denying Rule 23(f) petitions do offer some guidance as to the circumstances in which courts will allow interlocutory review of class certification orders. The petitioner’s strongest strategy is to explain the special circumstances posed by the particular case. While the following discussion explores some of the factors appellate courts have expressly stated will guide their decision whether to review an order, given their wide discretion under Rule 23(f), the overriding justification will always be that the court is interested in the questions the case poses. So, above all else, a Rule 23(f) petition should make the case interesting to the court. What follows is a list of the various justifications federal appellate courts have invoked for hearing Rule 23(f) appeals, along with some general advice as to when and how to offer those justifications. Death knell. The most dramatic-sounding category is the “death-knell” case, in which the grant or denial of class certification will effectively end the litigation, either because the aggregate damages available to a certified class are so large the defendant will have no choice but to settle,12 or because the

10. See, e.g., Busby v. JRHBW Realty, Inc., 513 F.3d 1314, 1319 (11th Cir. 2008) (noting that it “accepted jurisdiction over this appeal pursuant to Federal Rule Civil Procedure 23(f),” but not citing reason for doing so). 11. Diane P. Wood, FTC Workshop—Protecting Consumer Interests In Class Actions, September 13–14, 2004: Workshop Transcript: Panel 2: Tools for Ensuring that Settlements Are “Fair, Reasonable, and Adequate,” 18 Geo. Legal Ethics 1197, 1213 (2005). 12. Blair v. Equifax Check Serv., 181 F.3d 832, 834 (7th Cir. 1999) (“just as a denial of class status can doom the plaintiff, so a grant of class status can put considerable pressure on the defendant to settle, even when the plaintiff ’s probability of success on the merits is slight”); In re New Vehicle Canadian Export Antitrust Litig., 522 F.3d 6, 8 (1st Cir. 2008) (“Interlocutory appeals from class certification under Rule 23(f) are especially appropriate . . . where a doubtful class certification results in financial exposure to defendants so great as to provide substantial incentives for defendants to settle non-meritorious cases in an effort to avoid both risk of liability and litigation expense.”); Carpenter v. Boeing Co., 456 F.3d 1183, 1189 (10th Cir. 2006) (“when class-action status is granted, the defendant may be facing such enormous potential liability that a significant settlement becomes the only prudent course”); In re James, 444 F.3d 643, 646 (D.C. Cir. 2006) (noting death-knell requirement); Chamberlan v. Ford Motor Co., 402 F.3d 952, 959 (9th Cir. 2005) (“[r]eview of class certification decisions will be most appropriate when . . . there is a death-knell situation for either the plaintiff or the defendant that is

Interlocutory Appeal

named plaintiff’s claim is so small it is not practical to pursue on an individual basis.13 The policy behind reviewing these cases is sound: if the litigation is voluntarily abandoned before a final judgment, the class certification decision becomes effectively unreviewable. However, this guideline does not provide much guidance: most named plaintiffs will argue that they cannot afford to prosecute their cases individually (this is, after all, the basis for many arguments that a class action is superior to individual litigation); and most defendants will argue that—meritorious or not—they will have little choice but to settle with a certified class rather than take the case to trial. As a result, some courts have refused to accept these claims at face value, examining “record evidence regarding the financial resources of the parties” and the “existence and potential impact of related litigation” when a plaintiff claims a death knell,14 and requiring a defendant to make a “showing that it lacks the resources to defend [the] case to a conclusion and appeal if necessary or that doing so would run the risk of ruinous liability.”15 Others have noted that a “death knell” on its own is not enough reason to grant an appeal if the petitioners cannot “make a substantial showing that the district court’s decision

independent of the merits of the underlying claims”); Newton v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 259 F.3d 154, 165 (3d Cir. 2001) (granting Rule 23(f) review where “certifying the class may place unwarranted or hydraulic pressure to settle on defendants”); PradoSteiman, 221 F.3d at 1274 (death knell justification may exist “where the grant of class status raises the cost and stakes of the litigation so substantially that a rational defendant would feel irresistible pressure to settle”); Waste Mgmt. Holdings, 208 F.3d at 293 (“an appeal ordinarily should be permitted when the grant of class status raises the stakes of the litigation so substantially that the defendant likely will feel irresistible pressure to settle”). 13. See, e.g., Blair, 181 F.3d at 834 (“For some cases the denial of class status sounds the death knell of the litigation, because the representative plaintiff ’s claim is too small to justify the expense of litigation.”); In re New Vehicle Canadian Export, 522 F.3d at 8 (“By the same token, an erroneous failure to certify a class where individual claims are small and may deprive plaintiffs of the only realistic mechanism to vindicate meritorious claims.”); Carpenter, 456 F.3d at 1189 (“When class-action status is denied, the plaintiffs may need to abandon the case, or settle for a pittance, because the cost of continuing will far outweigh any potential recovery in the individual actions remaining.”); Chamberlan, 402 F.3d at 959 (“[r]eview of class certification decisions will be most appropriate when . . . there is a death-knell situation for either the plaintiff or the defendant that is independent of the merits of the underlying claims”); Newton, 259 F.3d at 165 (granting Rule 23(f) review where “some of the securities claims pressed by the putative class members may be too small to survive as individual claims”); Prado-Steiman, 221 F.3d at 1274 (death knell justification may exist “where a denial of class status means that the stakes are too low for the named plaintiffs to continue the matter”); Waste Mgmt. Holdings, 208 F.3d at 293 (“an appeal ordinarily should be permitted when a denial of class status effectively ends the case”). 14. Prado-Steiman, 221 F.3d at 1274. 15. Chamberlan, 402 F.3d at 960 (refusing to grant 23(f) review where “Ford’s [death-knell] claims are conclusory and are not backed up by declarations, documents, or other evidence demonstrating potential liability or financial condition”); Tardiff v. Knox County, 365 F.3d 1, 3 (1st Cir. 2004) (finding “irresistible pressure to settle” based on “the financial and similar information provided by the two [defendants] counties in this case”).

171

172 Chapter 6 Post-Certification Steps

to grant certification is questionable.”16 It is unlikely that a court will find a “death knell” for defendants in cases where the plaintiff does not seek monetary relief.17 Of course, requiring a factual showing to support a “death knell” claim forces a balancing act for a defendant seeking appeal. The more evidence the defendant must put forward that losing a trial would cripple it financially, the more leverage the plaintiff has in any subsequent settlement negotiations, forcing the price of the eventual settlement up. Legal development. A second category of Rule 23(f) appeals concern cases in which the appellate review would “facilitate the development of the law” by deciding an important question of either class-action procedure or substantive law that would otherwise “escape effective disposition at the end of the case.”18 Truly novel questions of law are particularly attractive to appellate courts.19 The question of law should be specific to class actions, however: “a novel legal question will not compel immediate review unless it is of fundamental importance to the development of the law of class actions . . . .”20 Courts tend to be skeptical of parties who invoke legal development as a reason to accept an appeal. As the Court of Appeals for the Eleventh Circuit has noted, given the heightened stakes of class-action litigation, routine issues can take on greater significance, making it “relatively easy for a litigant to identify some question of law implicated by the class certification decision and in good faith characterize that question as novel or unsettled.”21 Its solution was to identify several circumstances in which legal development might prove particularly helpful, such as “when an issue is arising simultaneously in related actions involving the same or similarly-situated parties or is one that seems likely to arise repeatedly in the future,”22 or where “the unsettled issue relates specifically to the requirements of Rule 23 or the mechanics of certifying a class.”23

16. Sumitomo Copper, 262 F.3d at 140. 17. In re Veneman, 309 F.3d 789, 794 (D.C. Cir. 2002) (“As this case now stands, however, the farmers may not seek compensatory relief, so the Department faces no possibility of a massive damage judgment. A ‘death knell’ will come, if at all, when and if the district court authorizes the class to proceed with its monetary claims.”). 18. Blair, 181 F.3d at 835. 19. In re New Motor Vehicles Canadian Export, 522 F.3d at 7 (“Interlocutory appeals from class certification under Rule 23(f) are especially appropriate where the plaintiffs’ theory is novel . . .”); In re Hydrogen Peroxide Antitrust Litig., 552 F.3d 305, 322 (3d Cir. 2008) (“One important reason for granting interlocutory appeals under Fed. R.Civ.P. 23(f) is to address ‘novel or unsettled questions of law’ like those presented here.”). 20. Sumitomo Copper, 262 F.3d at 140. 21. Prado-Steiman, 221 F.3d at 1274. 22. Id. at 1275. 23. Id.; see also In re Hydrogen Peroxide, 552 F.3d at 322 (“Faced with complex, fact-intensive disputes, trial courts have expended considerable effort to interpret and apply faithfully the

Interlocutory Appeal

The Seventh Circuit Court of Appeals has taken a pragmatic approach that may assist appellants in crafting their 23(f) petitions. In Szabo v. Bridgeport Machines, Inc., it observed that “at critical junctures the district judge cited only decisions by other district judges,” which “implie[d] that important legal principles have evaded attention by appellate courts.”24 Bad decision. Some courts are more likely to accept a Rule 23(f) petition if the “petitioner has shown a substantial weakness in the class certification decision, such that the decision likely constitutes an abuse of discretion.”25 These courts will extend appellate review in these circumstances in order to “spare the parties and the district court the expense and burden of litigating the matter to final judgment only to have it inevitably reversed . . . on an appeal after final judgment.”26 This category of Rule 23(f) appeals is perhaps the loosest, because, by definition, any litigant who appeals a class certification decision will characterize it as substantively (and egregiously) incorrect. As a result, courts must expend a great deal of extra effort in determining whether a decision is actually weak enough to justify appellate review. Several courts have offered some concrete examples of what kind of errors they consider enough to justify Rule 23(f) review: • the district court expressly applies the wrong Rule 23 standard;27 • the district court overlooks controlling precedent;28 or • the district court incorrectly applies the substantive law of the claims at issue.29

24. 25.

26.

27. 28. 29.

requirements of Rule 23. One important reason for granting interlocutory appeals under Fed. R. Civ. P. 23 is to address novel or unsettled questions of law like those presented here.”) (internal citations omitted). Szabo v. Bridgeport Machines, Inc., 249 F.3d, 672, 675 (7th Cir. 2001). Prado-Steiman, 221 F.3d at 1274 (emphasis in original); see also Chamberlan, 402 F.3d at 959 (“we view interlocutory review as warranted when the district court’s decision is manifestly erroneous”). Prado-Steiman, 221 F.3d at 1274–75; see also Chamberlan, 402 F.3d at 959 (“We see no reason for a party to endure the costs of litigation when a certification decision is erroneous and inevitably will be overturned.”). Prado-Steiman, 221 F.3d at 1275 (manifest error “when the district court expressly applies the incorrect Rule 23 standard”). Id. (manifest error when the district court “overlooks directly controlling precedent”). Cf. Regents of Univ. of Cal. v. Credit Suisse First Boston (USA), Inc., 482 F.3d 372, 380 (5th Cir. 2007) (noting that case “gives rise to unsettled questions of law concerning . . . the district court’s theory of ‘deceptive act’ liability” and subsequently reversing district court’s application of law).

173

174 Chapter 6 Post-Certification Steps

Nonetheless, many litigants take the opportunity afforded by this category to provide a brief overview of the merits of their appeal in the Rule 23(f) petition. Public Interest. “The fact that the lawsuit involves a government entity, or has a strong public interest component, may also lend the issue particular importance and urgency.”30 In fact, in Prado-Steiman v. Bush, a class action that challenged the state’s administration of Medicaid-related services to the developmentally disabled, the Eleventh Circuit granted appellate review under Rule 23(f) specifically because of the public-interest component of the case: this lawsuit has tremendous importance to thousands of developmentallydisabled persons in the State of Florida, many of whom have a critical need for prompt delivery of the services and benefits they claim to have been denied by the State. There is also a broader but no less compelling public interest in determining promptly the scope of the State’s administrative and financial obligations under the Medicaid program with respect to such persons.31

Courts treat the invocation of public interest most seriously when a governmental entity is involved in the litigation. To date, the invocation of a “strong public interest component” without government involvement has not led to acceptance of a Rule 23(f) appeal. Rule 23(c)(1)(B). An emerging basis for seeking interlocutory review of certification orders is the District Court’s non-compliance with Rule 23(c)(1) (B), which requires that: “An order that certifies a class action must define the class and the class claims, issues, or defenses, and must appoint class counsel under Rule 23(g).”32 The Third Circuit (as of this writing, the only court of appeals to address the question) has held that the requirement of Rule 23(c)(1)(B) that a certification order “define the class and the class claims, issues, or defenses,” means that the text of the order or an incorporated opinion must include (1) a readily discernible, clear, and precise statement of the parameters defining the class or classes to be certified, and (2) a readily discernible, clear, and complete list of the claims, issues, or defenses to be treated on a class basis.33

While an order that does not conform to the requirements of Rule 23(c)(1) (B) may not, by itself, justify a review of the lower court’s certification

30. 31. 32. 33.

Prado-Steiman, 221 F.3d at 1275. Id. at 1278. Fed. R. Civ. P. 23(c)(1)(B). See Wachtel v. Guardian Life Ins. Co. of Am., 453 F.3d 179, 187–88 (3d Cir. 2006).

Interlocutory Appeal

decision,34 it may still attract the appellate court’s attention. Therefore, it makes sense to invoke this provision where possible.

§ 6.1.3 How Appellate Courts Review Certification Orders Because a class-certification decision is frequently fact-intensive and the product of a trial court’s in-the-trenches judgment, most appellate courts review it for abuse of discretion.35 (The Second Circuit exercises even greater deference if it is reviewing a decision to certify a class than if it is reviewing a decision to deny certification.)36 The one exception is when the appellate court reviews the legal standard on which the trial court has based its decision—the appellate court reviews that question de novo.37 In addition, appellate courts also now check to see whether a district court conducted a “rigorous analysis” of the class certification requirements.38

§ 6.1.4 Stays A party is not entitled to an automatic stay during the pendency of its Rule 23(f) petition. Instead, Rule 23(f) leaves the question of whether to stay proceedings while an appeal is pending to the discretion of either the district or the appellate court.39 Ordinarily, this means that the appealing party will have to move either the district court or the appellate court to stay proceedings while it appeals the class certification order. While some courts have expressed concern that parties will file Rule 23(f) petitions in order to delay proceedings in the trial court,40 they have granted stays where the class certification order

34. Cf. Chamberlan, 402 F.3d at 961–62 (dismissing argument that district court only spent one sentence discussing predominance requirement). 35. See Wachtel, 453 F.3d at 184 (“We review the District Court’s decisions on class certification for abuse of discretion. The District Court abuses its discretion only if its decision rests upon a clearly erroneous finding of fact, an errant conclusion of law, or an improper application of law to fact.”) (internal quotations omitted); Prado-Steiman, 221 F.3d at 1278. 36. McLaughlin v. Am. Tobacco Co., 522 F.3d 215, 221 (2d Cir. 2008) (“We will exercise even greater deference when the district court has certified a class than when it has declined to do so.”) (internal quotation omitted). 37. See Regents of the Univ. of Calif., 482 F.3d at 380. 38. Robinson v. Texas Automobile Dealers Ass’n, 387 F.3d 416, 421 (5th Cir. 2004) (“Although we review the certification decision using a deferential standard, a district court must conduct a rigorous analysis of the rule 23 prerequisites before certifying a class.”) (internal quotations omitted). 39. Fed. R. Civ. P 23(f) (“An appeal does not stay proceedings in the district court unless the district judge or the court of appeals so orders.”). 40. Sumitomo Copper, 262 F.3d at 140 (“parties should not view Rule 23(f) as a vehicle to delay proceedings in the district court”).

175

176 Chapter 6 Post-Certification Steps

has noted thorny problems in certifying (or denying certification to) a class,41 and where “the likelihood of error on the part of the district court tips the balance of hardships in favor of the party seeking the stay.”42 As a practical matter, the appealing party is more likely to obtain a stay of proceedings if the Court of Appeals grants the petition for review, thus launching a merits appellate process that likely will require many months to complete.

§ 6.1.5 Packaging the Rule 23(f) Petition Because appellate courts have absolute discretion about whether to accept a Rule 23(f) petition, the strategy for the petition differs from appeals of right at the end of the case. Instead, a Rule 23(f) petition is most effective when it resembles a certiorari petition to the Supreme Court. (For an exemplar Rule 23(f) petition, see Appendix 6A.) Argue Policy. Unlike trial courts, appellate courts are not as bound by legal precedent.43 Combined with the appellate court’s discretion to reject 23(f) petitions, this means that successful Rule 23(f) petitions will place the particular lawsuit (as well as the alleged legal error) in a larger context, explaining why an appellate decision correcting the error will help other practitioners and judges avoid the same kinds of errors.44 Do not assume the court knows all the issues. Appellate judges are generalists, and are not likely to know all the issues in the same detail as the lawyers or even the trial court.45 Therefore, it makes sense for the parties to explain any technical issues, and provide a precise accounting of any of the relevant facts of the case. Remember local rules. Finally, the petitioner must make sure to adapt the brief to the needs of the specific court. As discussed in greater detail above, each Circuit Court of Appeals has formulated its own test for granting Rule 23(f) petitions, and petitions that speak to the specific test adopted by the Circuit have a greater chance for success. In addition, some courts may

41. See, e.g., Wachtel, 453 F.3d at 183 (granting stay of litigation during pendency of Rule 23(f) appeal where lower court had denied stay). 42. Sumitomo Copper, 262 F.3d at 140. 43. Richard A. Posner, How Judges Think 220 (Harvard 2008). 44. See Antonin Scalia & Bryan A. Garner, Making Your Case: The Art of Persuading Judges 76–77 (Thompson/West 2008) (discussing use of policy arguments in obtaining certiorari). 45. Posner, How Judges Think at 205 (“No judge of [a federal court of appeals] can be an expert in more than a small fraction of the fields of law that generate the appeals he must decide, or can devote enough time to an individual case to make himself, if only for the moment (knowledge obtained by cramming is quickly forgotten), an expert in the field out of which the case arises.”).

Class Notice 177

have specific page limits for the Rule 23(f) petition—and those limits are likely to be more stringent than for an opening merits brief. Most courts also have specific contents and formatting requirements. And finally, as almost anyone who has ever submitted a 23(f) brief will know from experience, it is important not to forget the need for the Rule 26.1 corporate disclosure statement.46

§ 6.1.6 Packaging the Rule 23(f) Petition Response The prevailing party in the trial court does not want the underlying litigation interrupted, or the class certification ruling placed in doubt, by an interlocutory appeal. Hence, that party almost certainly will oppose the Rule 23(f) petition. That opposition typically will be due quickly (as few as ten days) after the petition is filed. (For an exemplar Rule 23(f) Response, see Appendix 6B.) The party opposing interlocutory appeal will use its opposition to argue that the appellant has not met Rule 23(f)’s criteria.47 This tactic may include arguing that there were no underlying errors in the certification ruling, or that any errors that may exist are not important enough to justify interlocutory review. The opponent of the appeal will also likely emphasize the court’s discretion to dismiss a petition even if it does meet one or more of the Rule 23(f) criteria for the jurisdiction. (If the defendant has filed the Rule 23(f) petition, the plaintiff may also argue that granting the petition would interrupt the underlying litigation; and that the trial court will have the opportunity to modify its certification order as the trial progresses.)

§ 6.2 Class Notice If the court has certified a class, the other issue that requires immediate attention is notice. (This is also an issue if the class is certified for settlement purposes.)48 Rule 23(c)(2) requires that, after a class is certified, the class be notified of the existence of the class action, as well as its effect on their legal rights and their options for protecting those rights. Members of Rule 23(b)(1) and (b)(2) classes (which do not allow members to opt out) need only receive “appropriate notice.”49 For Rule 23(b)(3) classes, class members must receive

46. 47. 48. 49.

Fed. R. App. P. 26.1. See Appendix 6B. For more on settlement notice, see § 8.3.4. Fed. R. Civ. P. 23(c)(2)(A).

178 Chapter 6 Post-Certification Steps

“the best notice that is practicable under the circumstances, including individual notice to all members who can be identified through reasonable effort.”50

§ 6.2.1 When/Why Notice Required Why require notice? Because the rules recognize that the vast majority of class members are likely unaware that a class action existed in the first place, and due process requires that they be informed of the action if it will affect their legal rights. The average class member will have had no contact with her class representative (the named plaintiff) or her counsel; therefore due process requires that she be given some chance to intervene or opt out of the lawsuit if possible.51 In Rule 23(b)(3) class actions, which formally allow for opt outs, this interest is particularly strong.52 Once a class has been certified, a judgment (whether for or against the defendant) will bind the entire class.53 In class actions under Rule 23(b)(1) or 23(b)(2), all class members will be bound by a judgment in either direction, and therefore due process requires that they be informed of their rights.54 In Rule 23(b)(3) class actions (also known as “opt-out” classes), each class member must receive the opportunity to opt out of the class before trial or settlement.55

50. Fed. R. Civ. P. 23(c)(2)(B). 51. See In re Auction Houses Antitrust Litig., No. 00 Civ. 0648(LAK), 2001 WL 170792, *5 (S.D.N.Y. Feb. 22, 2001) (class actions “subject absent class members, who typically have no role in supervising the litigation brought on their behalf, to the risk that their rights will be lost, prejudiced, or sold out too cheaply through inadequate representation. In consequence, Rule 23 provides that no class action may be dismissed or settled without court approval, typically after notice to the class and an opportunity for its members to object and often after affording class members the right to exclude themselves from the case.”). 52. Fed. R. Civ. P. 23(c)(2), Advisory Committee Notes, 1966 (“[T]he interests of the individuals in pursuing their own litigation may be so strong here as to warrant denial of a class action altogether. Even when a class action is maintained under subdivision (b)(3), this individual interest is respected.”). 53. Fed. R. Civ. P. 23(c)(3), Advisory Committee Notes, 1966 (“The judgment in a class action maintained as such to the end will embrace the class . . . The judgment has this scope whether it is favorable or unfavorable to the class.”). 54. Id. (judgment in a Rule 23(b)(1) or 23(b)(2) class binds “those found by the court to be class members . . . In a (b)(1) or (b)(2) action the judgment ‘describes’ the members of the class but need not specify the individual members”). 55. Id. (judgment in a Rule 23(b)(3) class binds “those to whom the notice prescribed by subdivision (c)(2) was directed, excepting those who requested exclusion or who are ultimately found by the court not to be members of the class. . . . [I]n a (b)(3) action the judgment ‘specifies’ the individual members. . . .”); see also Eisen v. Carlisle & Jacquelin, 417 U.S. 156, 173 (1974) (“Rule 23(c)(2) provides that, in any class action maintained under subdivision (b)(3), each class member shall be advised that he has the right to exclude himself from the

Class Notice 179

So long as due process has been observed, the parties (particularly the defendant) may rely on the preclusive effect of any judgment or settlement in subsequent litigation.56 The preclusive effect applies even to an individual class member who objects to the settlement,57 even if the individual class member did not actually receive notice.58

§ 6.2.2 Timing of Notice Rule 23(c)(2) does not take any stance on when notice should issue. Several courts have held that the plaintiff does not have to propose a proper notice in her motion for class certification.59 Instead, as Wright and Miller point out, notice “should be sent as soon as the court determines that a class action is proper . . . so as to provide the absentees with a full and meaningful opportunity to intervene to protect their rights or to opt out.”60 That said, if certification of the class induces the parties to negotiate a settlement, they may delay

56.

57.

58.

59.

60.

action on request or to enter an appearance through counsel, and further that the judgment, whether favorable or not, will bind all class members not requesting exclusion.”); 7A Charles Alan Wright, et al., Federal Practice and Procedure § 1786 at 492 (3d ed. 2005) (“Notice is crucial to the entire scheme of Rule 23(b)(3). . . . Without the notice requirement it would be constitutionally impermissible to give the judgment binding effect against the absent class members.”). Reppert v. Martin Lumber & Cedar Co., Inc., 359 F.3d 53, 56–57 (1st Cir. 2004) (“After such appropriate notice is given, if the absent class members fail to opt out of the class action, such members will be bound by the court’s actions, including settlement and judgment, even though those individuals never actually receive notice.”). For more on the preclusive effects of class actions, see Chapter 9. Reppert, 359 F.3d at 58 (“[A] court-approved settlement containing a release may be applied against a class member who is not a representative member, even if that member objects to the settlement, so long as acceptable procedural safeguards have been employed.”) (internal quotations omitted). DeJulius v. New Eng. Health Care Employees Pension Fund, 429 F.3d 935, 944 (10th Cir. 2005) (denying request to intervene where class member did not receive notice until after opt-out deadline); Silber v. Mabon, 18 F.3d 1449, 1451 (9th Cir. 1994) (“We hold that Argyris’s due process rights were not violated even though he did not actually receive notice of the settlement and opt out date in time to opt out before the deadline.”). See Butler-Jones v. Sterling Casino Lines, L.P., No. 6:08-cv-01186-Orl-35DAB, 2008 WL 5274384, at *1 (M.D. Fla. Dec. 18, 2008) (“Plaintiffs are not required to propose a proper notice in their Motion for Class Cert[ification]. The issue of proper notice may be addressed should it become necessary to the litigation and, at such time, be presented to the Court.”). 7A Wright, Federal Practice and Procedure § 1786 at 499; see also Manual for Complex Litigation (Fourth) § 21.311 at 288 (2004) (“Ordinarily, notice to class members should be given promptly after the certification order is issued.”).

180 Chapter 6 Post-Certification Steps

notice for a reasonable period in order to complete settlement talks.61 (Should this occur, both Rule 23(c) and 23(e) will govern the settlement notice.)62 In other words, notice should issue long enough before either the trial or the settlement fairness hearing that the absent class members can review the notice and make a reasonable decision whether or not to remain in the class. How long is that that period? As with anything in litigation, it depends on the individual facts of the case. However, Judge Friendly, writing for the Second Circuit Court of Appeals in 1983, found that six weeks appeared to be an adequate amount of time.63 Similarly, the Tenth Circuit Court of Appeals found a notice scheme sufficient even though some (but not all) notices were sent out only two weeks before a settlement hearing.64 Notice still may be timely even if some class members do not receive the notice in time to opt out of the class; in fact, some courts have found notice schemes to be sufficient even if a small portion of class members receive notice after the settlement hearing has taken place.65 Furthermore, the parties may have to issue notice again should the court amend the order certifying the class to modify the class definition, changing the number of class members.66

§ 6.2.3 Form of Notice One important issue is the form that the proposed notice should take. This debate will have a very real effect on both cost and—potentially—the size of the class.67

61. Manual for Complex Litigation (Fourth) § 21.311 at 288 (“When the parties are nearing settlement, however, a reasonable delay in notice might increase incentives to settle and avoid the need for separate class notices of certification and settlement.”). 62. In re Global Crossing Secs. & ERISA Litig., 225 F.R.D. 436, 448 (S.D.N.Y. 2004) (“Where, as here, the parties seek simultaneously to certify a settlement class and to settle a class action, the elements of Rule 23(c) notice (for class certification) are combined with the elements of Rule 23(e) notice (for settlement or dismissal).”); see also Manual for Complex Litigation (Fourth) § 21.633 at 321–22. 63. Weinberger v. Kendrick, 698 F.2d 61, 71 (2d Cir. 1982) (Friendly, J.) (six weeks not abuse of discretion); see also In re Bankamerica Corp. Secs. Litig., 210 F.R.D. 694, 707–08 (E.D. Mo. 2002) (six to seven weeks appropriate timing for notice). 64. DeJulius, 429 F.3d at 947 (finding notice sufficient where “it is undisputed that all of the notices were sent out nearly two weeks prior to the settlement hearing, and it is likely that a large number of the notices were sent out much earlier than that”). 65. Silber, 18 F.3d at 1451 (“We hold that Argyris’s due process rights were not violated even though he did not actually receive notice of the settlement and opt out date in time to opt out before the deadline.”). 66. Manual for Complex Litigation (Fourth) § 21.311. 67. Id. § 21.311 at 291 (“The mode and extent of notice implicates issues of cost and fairness to parties and class members, and raises the potential for prejudice to one side or the other.”).

Class Notice 181

“Appropriate notice.” Class notice disseminated in connection with Rule 23(b)(1) and 23(b)(2) class actions need only be “appropriate.”68 In general, this provision has allowed courts wide discretion in deciding what kind of notice to issue,69 although the Advisory Committee for the Federal Rules of Civil Procedure has expressed concern that formal notice of the kind required in 23(b)(3) class actions may “cripple” class actions that do not seek damages.70 While the question of what constitutes “appropriate notice” has not been tested much in the courts, the Advisory Committee has noted that: Notice calculated to reach a significant number of class members often will protect the interests of all. Informal methods may prove effective. A simple posting in a place visited by many class members, directing attention to a source of more detailed information, may suffice.

In general, then, “appropriate notice” tends to involve a balancing between containing costs and reaching as many class members as possible.71 “Best notice practicable.” For Rule 23(b)(3) classes (or “hybrid” 23(b)(2)/ 23(b)(3) classes),72 the plaintiff must provide the “best notice practicable.”73 The “best notice practicable” does not necessarily mean actual notice to every class member.74 However, it does require providing individual notice (most often by mail) where individual class members can be identified by reasonable effort.75 What does “reasonable effort” mean? As a practical matter, at

68. Fed. R. Civ. P. 23(c)(2)(A). 69. Manual for Complex Litigation (Fourth) § 21.311 at 287 (“Rule 23(c)(2)(a) recognizes the court’s authority to direct ‘appropriate’ notice in Rule 23(b)(1) and (b)(2) class actions, but contemplates different and more flexible standards for those cases than for Rule 23(b)(3) actions.”). 70. Fed. R. Civ. P. 23(c)(2), Advisory Committee Notes, 2003 (“The authority to direct notice to class members in a (b)(1) or (b)(2) class action should be exercised with care. . . . The characteristics of the class may reduce the need for formal notice. The cost of providing notice, moreover, could easily cripple actions that do not seek damages. The court may decide not to direct notice after balancing the risk that notice costs may deter the pursuit of class relief against the benefits of notice.”); see also Manual for Complex Litigation (Fourth) § 21.311 at 287. 71. Fed. R. Civ. P. 23(c)(2), Advisory Committee Notes 2003 (“The court should consider the costs of notice in relation to the probable reach of inexpensive methods.”). 72. Fed. R. Civ. P. 23(c)(2), Advisory Committee Notes 2003 (“If a Rule 23(b)(3) class is certified in conjunction with a (b)(2) class, the (c)(2)(B) notice requirements must be satisfied as to the (b)(3) class.”). 73. Fed. R. Civ. P. 23(c)(2)(B). 74. DeJulius, 429 F.3d at 944; Reppert, 359 F.3d at 56 (“Individual notice of class proceedings is not meant to guarantee that every member entitled to individual notice receives such notice, but it is the court’s duty to ensure that the notice ordered is reasonably calculated to reach the absent class members.”) (internal quotations omitted). 75. Eisen, 417 U.S. at 176 (“individual notice to identifiable class members is not a discretionary consideration to be waived in a particular case. It is, rather, an unambiguous requirement of

182 Chapter 6 Post-Certification Steps

least one court has held that it requires the parties to identify “the name and last known address of each class member known to the parties or capable of being identified from business or public records available to them.”76 More generally, it means that the plaintiff has some flexibility to omit search methods for which the costs of the search will outweigh the marginal benefit of the additional names and addresses generated.77 However, the fact that a method of finding notice costs a lot does not, by itself, make the method unreasonable.78 Overall, the plaintiff must provide individual notice where possible regardless of the cost.79 On occasion, plaintiffs have proposed reducing the cost of individual notice by sending it with routine mailings by the defendant (like credit card bills or stock prospectuses),80 a measure sometimes known as “piggyback notice.” Defendants have offered several arguments against piggyback notices: They are prejudicial (because they force the defendant to implicitly endorse a lawsuit against itself),81 and may violate a defendant’s First Amendment rights (since the court—a government entity—is forcing the defendant into an unwanted communication).82 As a result, the Manual for Complex Litigation recommends that “[b]efore requiring a defendant to use its own mailings to provide certification notice, the court should require class counsel to show the absence of feasible alternatives.”83

76. 77.

78.

79. 80.

81. 82. 83.

Rule 23. . . . [E]ach class member who can be identified through reasonable effort must be notified that he may request exclusion from the action and thereby preserve his opportunity to press his claim separately or that he may remain in the class and perhaps participate in the management of the action.”). Hitt v. Nissan Motor Co., 552 F.2d 1088, 1098 (5th Cir. 1977) (internal footnote omitted). Hitt, 552 F.2d at 1099 (“Obviously, the word ‘reasonable‘cannot be ignored. In every case, reasonableness is a function of anticipated results, costs, and amount involved. A burdensome search through records that may prove not to contain any of the information sought clearly should not be required. On the other hand, a search, even though calculated to reveal partial information or identification, may be omitted only if its cost will exceed the anticipated benefits.”). Id. at 1100 (“While the mechanical process of examining the cards may prove to be expensive and time-consuming, the individual right of absentee class members to due process makes the cost and effort reasonable.”). Eisen, 417 U.S. at 176 (“There is nothing in Rule 23 to suggest that the notice requirements can be tailored to fit the pocketbooks of particular plaintiffs.”). See Oppenheimer Fund, Inc. v. Sanders, 437 U.S. 340, 356 n.22 (1978) (“a number of courts have required defendants in Rule 23(b)(3) class actions to enclose class notices in their own periodic mailings to class members in order to reduce the expense of sending the notice”); In re NASDAQ Market-Makers Antitrust Litig., 169 F.R.D. 493, 515 n.19 (S.D.N.Y. 1996) (describing cost savings from “piggyback notice”). See Katz v. Carte Blanche Corp., 496 F.2d 747, 757 (3d Cir. 1974) (en banc) (referring to defendant’s “nonfrivolous claim” that it would be prejudiced by mailing class notice). See generally Pac. Gas & Elec. Co. v. Public Util. Comm’n, 475 U.S. 1 (1986) (forcing utility to place third-party newsletter in mailings violated its First Amendment rights). Manual for Complex Litigation (Fourth) § 21.311 at 293.

Class Notice 183

Publication notice alone usually does not meet the requirements of due process. Courts have long recognized that “[c]hance alone brings to the attention of even a local resident an advertisement in small type inserted in the back pages of a newspaper and if he makes his home outside the area of the newspaper’s normal circulation the odds that the information will never reach him are large indeed.”84 However, there are many class actions brought on behalf of persons whose name and address cannot readily be divined— retail purchasers of small-value consumer items are one notable example— and so mailed notice is not possible. Under these circumstances, a notice program that includes individual notice to those class members who can be identified, and reasonably targeted publication notice to the remainder of the class, is likely to meet with a court’s approval.85 Given the advances in technology in the last decade, several courts have considered electronic notice of some kind (such as publishing notice on a Web site the class members are likely to encounter) to be as good as, if not better than, publication in newspapers.86 Among other advantages, Internet notice is cheaper and easier to

84. Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306, 315 (1950). 85. See, e.g., DeJulius, 429 F.3d at 947 (notice program that included newspaper publication satisfied the notice requirement); Reppert, 359 F.3d at 57 (publication notice in thirty-three newspapers satisfied due process for class member who did not receive direct mail notice); Mirfasihi v. Fleet Mortgage Co., 356 F.3d 781, 786 (7th Cir. 2004) (Posner, J.) (“When individual notice is infeasible, notice by publication in a newspaper of national circulation (here USA Weekend, a magazine that is included in hundreds of Sunday newspapers) is an acceptable substitute.”); In re Prudential Ins. Co. Am. Sales Practice Litig. Agent Actions, 148 F.3d 283, 327 (3d Cir. 1998) (individual notice to 8 million class members, plus publication notice and unsolicited television news coverage, sufficient to meet due process); In re Global Crossing, 225 F.R.D. at 446 (notice scheme acceptable where, in addition to individual notice where possible, “Plaintiffs’ counsel also arranged to publish the Court-approved Summary Notice in The New York Times, The Wall Street Journal, USA Today, and 16 regional newspapers”); Mangone v. First USA Bank, 206 F.R.D. 222, 232 (S.D. Ill. 2001) (mailed notice to 18.5 million class members plus publication for three days in USA Today and on Web sufficient); Krangel v. Golden Rule Resources, Ltd., 194 F.R.D. 501, 505 (E.D. Pa. 2000) (“The mailing of the notice to identifiable class members and major financial institutions and publication of the summary notice in The Wall Street Journal and The Globe and Mail was the best means practicable to notify class members and, thus, satisfies Rule 23.”). 86. Mirfasihi, 356 F.3d at 786 (“But in this age of electronic communications, newspaper notice alone is not always an adequate alternative to individual notice. The World Wide Web is an increasingly important method of communication, and, of particular pertinence here, an increasingly important substitute for newspapers.”) (internal citation omitted); In re Global Crossing, 225 F.R.D. at 447, 449 (notice sufficient where, in addition to individual and newspaper notice, “Plaintiffs’ lead counsel published the full Notice (in English and Spanish), and the Summary Notice on their websites, as well as on a special website created for this settlement: www.globalcrossinglitigation.com.”) (internal citation omitted); see also Manual for Complex Litigation (Fourth) § 21.311 at 288 (“Posting notices on dedicated internet sites, likely to be visited by class members and linked to more detailed certification information, is a useful supplement to individual notice, might be provided at a relatively low cost,

184 Chapter 6 Post-Certification Steps

update quickly.87 Internet notice is only adequate, though, if the parties anticipate that the absent class members are likely to visit the website containing the notice.88 If class members are not readily identifiable, the more targeted the notice is to the class, the more likely a court will find the notice sufficient. For example, in In re Motorsports Merchandise Antitrust Litigation,89 plaintiffs brought a price-fixing class action against vendors of merchandise sold at various NASCAR-sanctioned stock-car races.90 The parties reached a settlement, but faced a problem: sales of NASCAR merchandise at races were usually cash transactions, neither merchant nor customer kept good records, and “many items themselves likely have been lost, consumed or destroyed,” making it difficult to determine who was in the class.91 In this case, plaintiffs spared little expense in designing notice: They hired a communications firm that developed a demographic profile of class members that included their likely media consumption.92 Relying on that profile, the plaintiffs published their notice in auto-racing and NASCAR publications, in local media serving areas with racetracks, and on the Internet.93 The court found this publication notice sufficient, and took particular note of the fact that it was targeted to media the class members would likely encounter.94

87.

88.

89. 90. 91. 92. 93. 94.

and will become increasingly useful as the percentage of the population that regularly relies on the internet for information increases.”). Manual for Complex Litigation (Fourth) § 21.311 at 288 (“An advantage of Internet notice is that follow-up information can easily be added, and lists can be created to notify class members of changes that may occur during the litigation. Similarly, referring class members to an Internet site for further information can provide complete access to a wide range of information about a class settlement.”); see generally, Brian Walters, Best Notice Practicable in the Twenty-First Century, 2003 U.C.L.A. J. L. & Tech. 4. Stoffel v. SBC Comm’ns, Inc., 254 F.R.D. 294, 300 (W.D. Tex. 2008) (“Plaintiffs’ proposal to provide notice via the Internet does not appear likely to provide notice to former employees, as former employees who never received Telephone Concession benefits are unlikely to visit AT&T’s internet websites or the websites of the Notice Administrator or Plaintiffs’ Lead Class Council.”). 112 F. Supp. 2d 1329 (N.D. Ga. 2000). In re Motorsports, 112 F. Supp. 2d at 1330. Id. at 1332. Id. Id. Id. (“Because class members cannot be identified personally, notice by publication is constitutionally sufficient. This is especially true where, as here, Plaintiffs’ counsel published the Summary Notice in newspapers in the areas where racetracks are located, in stockcar racing magazines, and also on the Internet for an extended period.”) (internal citations omitted); see also In re Lorazepam and Clorazepate Antitrust Litig., 205 F.R.D. 369, 382 (D.D.C. 2002) (approving costs for notice of settlement where “[t]he Plaintiff States, Rust Consulting, and Kinsella Communications made similar extensive efforts to notify settlement group members who could not be notified directly, by compiling relevant specific demographic statistics, and targeting accordingly the use of media including magazines, newspapers, television, an

Class Notice 185

How does notice actually work? In finding a notice scheme sufficient, the District Court for the Eastern District of Pennsylvania described, step by step, how one set of parties went about providing notice for a settlement class:95 Defendants are compiling the last known addresses and social security numbers for each of the members of the proposed settlement class. After preliminary approval of the Settlement, this information will be transferred to the Settlement Administrator (an accounting and class action administration firm located in Philadelphia, PA), which will confirm or update the postal addresses and send the final text of the notice (and claim form, when applicable) via first class mail to each member of the class. If any notices are returned as undeliverable, the Settlement Administrator will take further steps to correct known addresses and resend notices to those recipients. A copy of the settlement notice also will be posted on the settlement website, and within ten business days after the mailing of notices, a copy of the notice will be published in the National edition of USA Today for one weekday. Because class counsel believe that using the last known address information in conjunction with the Settlement Administrator’s efforts to update contact information will provide notice to virtually all members of the settlement class, the parties feel that one publication will suffice to apprise any remaining class members of the action.96

§ 6.2.4 Content of Notice Most adults who pay with a credit card, use a cell phone, or drive a car have seen at least one class notice in their lives. Class notices have a reputation for being long and opaque, reading much like the credit cards agreements, cellphone calling plans, or warranties that the plaintiff complained about in the first place.97 Some of this complexity is unavoidable: It is extremely difficult to balance accuracy and clarity, and the presence of lawyers likely tips the scale in the wrong direction.98 Nonetheless, the federal rules require that

95.

96. 97.

98.

Internet website, press releases, toll-free telephone lines, and pharmacy point-of-sale displays.”) (internal footnotes omitted). Settlement classes, as opposed to litigation classes, have a few different requirements that will be described in greater detail in Chapter 8. However, this is an adequate description of notice in both situations. Mehling v. N.Y. Life Ins. Co., 246 F.R.D. 467, 477–78 (E.D. Pa. 2007). See, e.g., Edward H. Cooper, The (Cloudy) Future of Class Actions, 40 Ariz. L. Rev. 923, 962 (1998) (“Despite conscientious efforts to draft plain-English class-action notices, examples abound of notices that even most lawyer class members discard unread.”). Fed. R. Civ. P. 23(c)(2), Advisory Committee Notes 2003 (“It is difficult to provide information about most class actions that is both accurate and easily understood by class members who are not, themselves, lawyers. Factual uncertainty, legal complexity, and the complications of class-action procedure raise the barriers high.”).

186 Chapter 6 Post-Certification Steps

class-certification notice be written in plain, easily understood language.99 The PSLRA in particular expresses a strong preference for “plain language statements.” In reality, there are only a few components to an effective notice. Notice must include: • a description of the nature of the action; • the definition of the class (or any subclasses) certified; • the class claims, issues, or defenses that were certified for class treatment; • notification that a class member may enter an appearance through an attorney; • notification that the court will exclude from the class anyone who requests exclusion; • a description of how to request exclusion, including the deadline for doing so; and • a description of the binding effect of any class-wide judgment.100 In addition, while not required, a class notice should include the position of each of the parties; the identity of each of the parties (including class representatives); the identity of counsel for each party; the relief sought in the class action; and the risks and benefits of membership in the class. The PSLRA makes some of these “best practices” formal requirements for securities class actions. In addition to the requirements of Rule 23(c)(2)(B), the PSLRA also requires that any notice contain: (A) Statement of recovery—the amount of the settlement determined in the aggregate and on an average per share basis; (B) Statement of potential outcome of case—amount of damages per share recoverable if plaintiffs were to prevail on every claim. If the parties are unable to agree on damages, a statement concerning the issues on which the parties disagree;

99. Id. (“The direction that class-certification notice be couched in plain, easily understood language is a reminder of the need to work unremittingly at the difficult task of communicating with class members.”); Hitt, 552 F.2d at 1104 (notice to the class “must also contain an adequate description of the proceedings written in objective, neutral terms, that, insofar as possible, may be understood by the average absentee class member. This does not mean that they must be made cognizant of every material fact that has taken place prior to the mailing of their individual notice, or that class members must be given notice which is perfectly correct in its form. For example, an overly detailed notice would not only be unduly expensive, but would also confuse class members and impermissibly encumber their rights to benefit from the action.”) (internal citations omitted). 100. See Fed. R. Civ. P. 23(c)(2)(B).

Class Notice 187 (C) Statement of attorneys’ fees—statement of fees and costs to be applied for in the aggregate and on a per share basis; (D) Identification of lawyers’ representatives—the name, telephone number, and address of counsel available to answer questions; and (E) Reasons for settlement—a brief statement explaining the reasons why the parties are proposing the settlement.101

In addition, some courts have expressed a strong preference that the notice also “include specific reference to [other] pending actions.”102 Given the need for plain-language notice, courts usually will approve general descriptions of any proposed class settlement.103 What does this mean in practical terms? To take one example, in In re Prudential Ins. Co. America Sales Practice Litigation Agent Actions, counsel represented a class that alleged a number of improper insurance practices. In the notice, counsel identified four categories of improper practices covered by the litigation.104 The court of appeals observed that three of the categories, involving sales claims-financed insurance, abbreviated payment, and investment plans, required “some understanding of insurance policies.”105 However, it pointed out that the fourth, a catch-all category for “other improper sales practices,” was “arguably easier for the uninformed layman to comprehend, and may in fact encourage class members to respond to the Class Notice.”106 This does not mean that class notice must sacrifice precision to simplicity: Courts have held that complexity that only reflects the complexity of a proposed settlement may still pass court scrutiny.107 In general, courts expect notice to contain information that class members (as opposed to lawyers) might find useful. As a result, courts have encouraged class counsel to include their contact information, so class members know

101. In re Global Crossing, 225 F.R.D. at 449; see also15 U.S.C. §§ 78u-4(a)(7), 77z-1(a)(7). 102. Wal-Mart Stores, Inc. v. Visa U.S.A., Inc., 396 F.3d 96, 116 n.22 (2d Cir. 2005) (“We note, however, that class notices do sometimes include specific reference to pending actions. Obviously, this information is helpful to class members. We strongly encourage the inclusion of such information in the future.”) (internal citation omitted). 103. Weinberger, 698 F.2d at 70 (2d Cir. 1982) (internal quotations omitted) (“Numerous decisions, no doubt recognizing that notices to class members can practicably contain only a limited amount of information, have approved very general descriptions of the proposed settlement. . . .”); Wal-Mart Stores, Inc., 396 F.3d at 116 (notice that quoted the release language “in its entirety” was sufficient to inform class members of scope of release). 104. 148 F.3d 283, 328 (3d Cir. 1998). 105. Id. 106. Id. (internal footnotes omitted). 107. In re Ind. Energy Holdings PLC Secs. Litig., 302 F.Supp.2d 180, 185 (S.D.N.Y. 2003) (approving settlement notice containing several pages of complex formulae for allocation of settlement because “[t]he resulting complexity is a necessary by-product of that plan”).

188 Chapter 6 Post-Certification Steps

who to ask for more information about the litigation.108 Courts have been less concerned with information that intervening counsel would find useful for challenging the settlement, such as the exact class size,109 or the method of calculating a class member’s exact damages.110 In addition to being accessible to the layman, the content of the class notice must be neutral.111 This is not to say there will be no debate over the content of the notice. The defendant will want to ensure that the description of the lawsuit in the notice does not shade over into an improper solicitation of claims. The plaintiff will want to be sure that the notice does not discourage class members with meritorious claims from participating.112 What is really at stake is the size of the class. From a cynical perspective, the plaintiff wants to craft the notice to ensure that as many people as possible participate in the class (or at least do not opt out), thus increasing the size of the class, and the amount of attorneys’ fees counsel can collect.113 (One other potentially cynical tactic: Securities plaintiffs may wish to minimize the number of responses to PSLRA notice in order to reduce competition for the position of lead counsel.)114 The defendant’s incentive depends on its assessment of liability: if it believes that class members do not have valid claims (or if the claims are so small that they are not worth bringing individually), then it will want to encourage as many opt-outs as possible to minimize payouts. If it believes that the class members have valid claims that are large enough to

108. Reppert, 359 F.3d at 55 (upholding notice that “included a toll-free number and the address of a web-site, established to provide potential class members with information about the class action and to make available appropriate forms for their active participation in the proceedings or to allow them to opt out of the suit”). 109. In re Lorazepam & Clorazepate, 205 F.R.D. at 379 (“there is no requirement that the class size be specified in the notice”). 110. In re PayneWebber Ltd. Partnerships Litig., 171 F.R.D. 104, 124 (S.D.N.Y. 1997) (“Nor does the adequacy of notice turn on the ability of an individual Class Member to calculate the amount of his or her actual recovery under the settlement.”). 111. Weinberger, 698 F.2d at 70; Hitt, 552 F.2d at 1104 (5th Cir. 1977) (notice to the class “must also contain an adequate description of the proceedings written in objective, neutral terms, that, insofar as possible, may be understood by the average absentee class member.”) (internal citations omitted). 112. Mirfasihi, 356 F.3d at 785 (“Notice of a pending suit that might offer only remote prospects of success might confuse class members and precipitate imprudent opting out.”). 113. See Brennan v. Midwestern United Life Ins. Co., 450 F.2d 999, 1001 (7th Cir. 1971) (“Approximately 600 persons received the notice; of these, 535 became class members by not executing and returning the form (included with the notice) indicating their desire to be excluded.”). Depending on how the settlement is structured, the number of participants in the class may not directly affect the fee, but in general, the larger the class, the easier it is to justify large fees. 114. In re Ind. Energy Holdings, 302 F.Supp.2d at 186–87 (plaintiffs’ firm accuses lead counsel of “publish[ing] notice in the Investor’s Business Daily ‘with the obvious intention of attracting the least attention legally possible so as to eliminate competition for the office of Lead Counsel’”).

Class Notice 189

vindicate, then it will want to discourage opt-outs to maximize the scope of release. If the notice is too confusing to understand, or downplays the possible success of the settlement, then it might encourage class members with otherwise valid claims to opt out.115 Conversely, if the notice is unduly optimistic, it might encourage class members to stay in and release their claims too cheaply.

§ 6.2.5 Cost of Notice As should be clear by now, disseminating notice to a class is not cheap. Mailing notice to individual class members can get expensive quickly. As a matter of doctrine, cost of notice is not a controversial issue: Courts have long held that plaintiffs must bear the cost of notice in class actions.116 However, as a practical matter, since the costs of notice can be significant, the plaintiff may (understandably) seek to shift as much of that cost onto the defendant as possible.117 In general, courts do not look kindly on attempts to shift the cost of notice to defendants,118 even the more inventive attempts.119 However, in certain limited instances, courts may be amenable to shifting some of the cost or burden of notice to the defendant. If the “defendant can perform one of the tasks necessary to send notice, such as identification, more efficiently than the representative plaintiff, the district court has discretion to order him to perform the task under Rule 23(d),” and may have some discretion to allocate the cost of complying with that order.120 If the cost of providing the information is so low as to be “insubstantial,” or if the defendant

115. Mirfasihi, 356 F.3d at 785 (“Notice of a pending suit that might offer only remote prospects of success might confuse class members and precipitate imprudent opting out.”). 116. See Eisen, 417 U.S. at 179 (“the plaintiff must pay for the cost of notice as part of the ordinary burden of financing his own suit”); Oppenheimer Fund, 437 U.S. at 356 (“The general rule must be that the representative plaintiff should perform the tasks [necessary to send class notice], for it is he who seeks to maintain the suit as a class action and to represent other members of his class.”). 117. See Oppenheimer Fund, 437 U.S. at 356; Hitt, 552 F.2d at 1100 (“plaintiffs argue that defendants should be required at their own expense to supply the names and addresses of the class members. . . . They contend somewhat obliquely that this requirement is necessary to comply with due process standards. . . . [and] they assert that since defendants are ‘intimately familiar’ with the information contained in the RDR cards, having used them in their daily operations, the class information is more readily ascertainable by defendants.”) (internal footnotes omitted). 118. See Oppenheimer Fund, 437 U.S. at 356 (“ordinarily there is no warrant for shifting the cost of the representative plaintiff ’s [notice-related] tasks to the defendant”). 119. See generally Larsen v. JBC Legal Group, P.C., 235 F.R.D. 191 (E.D.N.Y. 2006) (refusing plaintiff ’s request to have summary judgment and class certification decided simultaneously so defendant would be required to pay costs of notice). 120. See Oppenheimer Fund, 437 U.S. at 350.

190 Chapter 6 Post-Certification Steps

would have performed the notice-related task in its regular course of business, a court might decide not to make the plaintiffs pay the costs.121 In general, however, a district court “should be considerably more ready to place the cost of the defendant’s performing an ordered tasks on the representative plaintiff, who derives the benefit.”122 Both the interlocutory appeal process and the class notice process exist in part to ensure that any class-wide trial of a plaintiff’s claims has been thoroughly tested, and that the class is informed of—and prepared for—the possible outcomes of that trial. And it is the class trial itself that forms the focus of the next chapter.

121. See Id. at 359. A court might also decide to make the defendant bear some costs of notice if the defendant would receive equal benefit from the task performed. 122. Id. at 358.

CHAP TER

7 Trial Preparation

§ 7.1 Trial Structure

193

§ 7.1.1 Unitary Class Trial

193

§ 7.1.2 Bifurcated Trial

193

§ 7.2 Pre-Trial Discovery

196

§ 7.3 Jury vs. Bench Trial

196

§ 7.4 Post-Certification Summary Judgment

198

§ 7.5 Decertification Motion

200

§ 7.6 In Limine Motions

200

§ 7.7 Jury Instructions/Verdict Forms

201

§ 7.8 Press Issues

202

§ 7.9 The Trial

202

§ 7.10 Post-Trial Motions

206

192

Chapter 7 Trial Preparation

If the court has certified a class and either party is unwilling to settle, then trial is the next logical step in a class action. Despite the huge risk and expense associated with it, a class trial can make sense for either side under certain conditions. For a plaintiff with a strong case facing a recalcitrant defendant who refuses to settle, a class trial can vindicate the premise of the lawsuit. A victory can force important changes in how the defendant does business, or obtain monetary compensation for the defendant’s victims.1 Even if the plaintiff ultimately loses, the costs of defending a meritorious case through to a verdict may deter the defendant from similar wrongdoing in the future. As a further benefit for plaintiff’s counsel, the act of taking the case through trial adds to counsel’s experience (important for class-counsel appointments), and adds credibility to her commitments to litigate other class actions through to a verdict.2 Similarly, for a defendant who firmly believes in the propriety of its conduct, a class trial presents an opportunity to refute forcefully a baseless attack on its conduct. Further, the act of defending the class action all the way to trial may deter other plaintiffs’ lawyers from asserting class actions against the company in the hopes of obtaining a nuisance-value settlement.3 There have been few trials of class actions. As a result, there is not as much guidance from federal cases about how to conduct a class trial as opposed to other stages of class-action litigation. There are, however, many excellent books that discuss how to conduct trials in the U.S. court system, and we have no intention of rehashing them. Instead, we will focus on those portions of the trial where a class action forces different strategic choices. As a result, we will not cover certain issues—like voir dire, or certain evidentiary objections— that, while important in a trial, are not substantially different in a class trial. Strategically, the parties have several goals in a class trial. The plaintiff will seek a jury verdict; but, at the same time, she will try to make a complex case as easy to comprehend as possible. The defendant will also be seeking a jury verdict. But, assuming it believes the class was wrongly certified, it will also

1. See generally Clara Bingham & Laura Leedy Gansler, Class Action: The Landmark Case That Changed Sexual Harassment Law (2003) (describing 11-year litigation against recalcitrant defendant). The case described in the book, Jenson v. Eveleth Mines, ultimately settled on the courthouse steps, but provides a powerful example of the benefits a plaintiff may obtain for a class if she is unflinching about preparing for trial. 2. See Avinash K. Dixit & Barry J. Nalebuff, The Art of Strategy: A Game Theorist’s Guide to Success in Business and Life 211–212 (2008) (discussing importance of reputation in repeat-player strategic games); Douglas G. Baird, et al., Game Theory & the Law, 178-85 (1998) (discussing strategy of building reputation for credible aggression in repeatplayer games). Class-action plaintiffs’ counsel who earn reputations as credible trial threats are likely to settle cases more easily, and possibly at a premium over their colleagues. See Patrick Dillon & Carl M. Cannon, Circle of Greed: The Spectacular Rise and Fall of the Lawyer Who Brought Corporate America to Its Knees 82 (2010). 3. Dixit & Nalebuff, The Art of Strategy, 211–212; Baird, et al., Game Theory & the Law, 178–85.

Trial Structure

try to demonstrate the unmanageability of the class trial to the court. Its goal will be either (1) an order decertifying the class, or (2) a class trial that does no more than answer truly common issues while giving each individualized issue due consideration untainted by the common-issue phase. In addition, each side will also seek to preserve any issues necessary for appeal.

§ 7.1 Trial Structure Given the complexity of the issues involved in class trials, the structure can have a large effect on how the jury (or judge) understands the issues. There are, generally, two different structures for class trials: (1) a unitary, “frontto-back” trial of all class claims, and (2) a bifurcated trial, in which the court tries common issues first, and then allows for trial (or some other administrative resolution) of any individual claims or causes of action. Each of these structures poses specific strategic challenges.4

§ 7.1.1 Unitary Class Trial In a unitary class trial, the entire case is tried in front of a single jury in a single proceeding. This is what most people consider a “trial.” However, unitary trials are not the only—or even necessarily the best—option for class trials. There are some strategic advantages for the plaintiff in holding a unitary class trial. To the extent the plaintiff is trying to tell a complete, emotionally compelling story, she may want a single trial, so the jury may see the conduct that led to liability as well as the effect it had on the class. From the defendant’s standpoint, if the class was erroneously certified, a unitary trial may expose that error more vividly than a trial that is divided into stages. However, in a unitary trial the defendant also risks the court’s agreeing to streamline procedures at the cost of the defendant’s due process rights, which could lead to an adverse verdict.

§ 7.1.2 Bifurcated Trial In a bifurcated trial, the court severs the issues into two (or more) phases. The parties will generally present evidence on one discrete set of issues (such as the question of defect or liability) to the jury, and wait for a verdict on those

4. For a series of exemplar briefs that raise the issues discussed here, see Appendices 7A (defendant’s bifurcated litigation proposal), 7B (plaintiff ’s trial structure proposal), and 7C (defendant’s response to plaintiff ’s trial structure proposal).

193

194 Chapter 7 Trial Preparation

issues before proceeding with the next set.5 The idea underlying bifurcation of class trials is that the common issues can be severed from individual issues that might otherwise cause problems for a class trial. Generally, federal courts will allow bifurcation (or even finer distinctions) of trials into joint trials of issues common to the class, followed by individual trials of non-common issues.6 If the issues to be tried separately are sufficiently distinct, then bifurcation is possible.7 However, as the Seventh Circuit Court of Appeals has warned, bifurcation must “carve at the joint,” so that subsequent juries do not re-examine factual issues decided by the first jury.8 Conducted properly,9 bifurcation can help all parties. For the plaintiff, bifurcation can simplify the logistics of presenting a complex case. For the

5. Manual for Complex Litigation (Fourth) § 11.632 at 122 (2004) (“Severance may take the form of having evidence on discrete issues presented sequentially, with the jury returning a verdict on an issue before the trial moves on to the next issue.”). 6. Manual for Complex Litigation (Fourth) § 11.631 at 121–22 (“[T]he judge may consider severing for a joint trial those issues on which common evidence predominates, reserving noncommon issues for subsequent individual trials.”); see also In re Rhone-Poulenc Rorer, Inc., 51 F.3d 1293, 1302 (7th Cir. 1995) (Posner, C.J.) (“Bifurcation and even finer divisions of lawsuits into separate trials are authorized in federal district courts.”); Mullen v. Treasure Chest Casino, L.L.C., 186 F.3d 620, 623 (5th Cir. 1999) (describing bifurcation between common and individualized issues at trial); In re Bendectin Litig., 857 F.2d 290, 296 (6th Cir. 1988) (describing trifurcation of consolidated products-liability class actions); In re Estate of Marcos Human Rights Litig., 910 F. Supp. 1460, 1462 (D. Haw. 1995) (describing trifurcation of human-rights class action against deposed Filipino dictator); Watson v. Shell Oil Co., 979 F.2d 1014, 1017–18 (5th Cir. 1992) (affirming four-stage plan for class trial). 7. In re Plywood Antitrust Litig., 655 F.2d 627, 636 (5th Cir. 1981) (“in a bifurcated proceeding, the issue or issues to be tried separately in the second trial must be so distinct and separable from the others that a trial of it or them alone may be had without injustice”). 8. In re Rhone-Poulenc Rorer, 51 F.3d at 1302–03 (“However, as we have been at pains to stress recently, the district judge must carve at the joint. Of particular relevance here, the judge must not divide issues between separate trials in such a way that the same issue is reexamined by different juries.”) (internal citations omitted). To address this issue, the Manual for Complex Litigation (Fourth) has advised that, where possible, the court should retain the same jury for the second issue. § 11.632 at 122 (“Generally, when issues are severed for separate trials, they should be tried before the same jury unless they are entirely unrelated.”). 9. What does proper bifurcation look like? In Cimino v. Raymark Industries, 151 F.3d 297, 305–06 (5th Cir. 1998), while the Fifth Circuit reversed the trial court on other grounds, it noted that the trial court had properly bifurcated the case for trial: It was clear from the beginning of, and throughout, the phase III trials that the two juries were not to, and did not, determine whether exposure to any of defendants’ products was a cause of the sample plaintiffs’ complained-of condition. In phase III the court instructed the jury that they were to assume exposure was sufficient to be a producing cause of all the disease categories. As plaintiffs admit in their brief here, in the phase III trial “the juries were told to assume that the claimants had sufficient exposure.” Indeed, for the most part evidence of exposure and its likely or possible results was not allowed. Id. (internal footnotes omitted). See also Mullen, 186 F.3d at 623 (“Under the court’s plan, the liability issues common to all class members will be tried together in an initial trial phase.

Trial Structure

defendant, bifurcation may help reduce trial costs: if the jury decides the first issue in favor of the defendant, then there is no need to try any more of the case.10 If the issue is decided against the defendant, then the trial can proceed to the subsequent phases.11 However, bifurcation carries with it a number of risks. First, conducted improperly, bifurcation may violate the Seventh Amendment, which prohibits a jury from re-examining the findings of a previous jury.12 If the judge does not bifurcate the issues properly, then a second jury may wind up reexamining findings of liability.13 In addition, defendants may be concerned that, as some defendants have shown, bifurcation may increase the odds of the jury finding for the plaintiff.14 Finally, the plaintiff also has reason to be wary of bifurcation: depending on how the issues are divided, the plaintiff

10.

11.

12.

13.

14.

Those common issues include whether the employees of the Casino are seamen within the meaning of the Jones Act, whether the Casino is a vessel within the meaning of the Jones Act, whether the Casino was rendered unseaworthy by the air quality aboard, and whether Treasure Chest was negligent in relation to the Casino’s ventilation system. If the class prevails on the common liability issues in phase one, the issues affecting only individual class members will be tried in a second phase in waves of approximately five class members at a time. These limited issues include causation, damages, and comparative negligence.”). In re Bendectin Litig., 857 F.2d at 317 (“Many courts have in fact permitted separate issue trials when the issue first tried would be dispositive of the litigation. The courts do so because the efficiency of the trial proceedings is greatly enhanced when a small part of the case can be tried separately and resolve the case completely.”). In the Bendectin case, this is precisely what happened: the jury found for the defendants, and that resolved the litigation. Id. at 294. Stoffels v. SBC Commc’ns, Inc., 254 F.R.D. 294, 296 (W.D. Tex. 2008) (“The first phase of the trial in this case will address whether the ‘Telephone Concession’ is an ERISA plan. Should the Court hold that it is, the action will proceed to the second phase of the trial, addressing what relief, if any, is available under the Plan.”); In re Estate of Marcos, 910 F. Supp. at 1463–64 (“On September 22, 1992, in the liability phase of the trial, the jury found defendants liable to 10,059 plaintiffs, for the acts of torture, summary execution and disappearance. On February 23, 1994 the jury awarded plaintiffs $1.2 billion in exemplary damages.”). U.S. Const., amend. VII (“In Suits at common law, where the value in controversy shall exceed twenty dollars, the right of trial by jury shall be preserved, and no fact tried by a jury, shall be otherwise reexamined in any Court of the United States, than according to the rules of the common law.”). In re Rhone-Poulenc Rorer, Inc., 51 F.3d at 1303 (“The plan of the district judge in this case is inconsistent with the principle that the findings of one jury are not to be reexamined by a second, or third, or nth jury. The first jury will not determine liability. . . . Unless the defendants settle, a second (and third, and fourth, and hundredth, and conceivably thousandth) jury will have to decide, in individual follow-on litigation by class members . . . such issues as comparative negligence—did any class members knowingly continue to use unsafe blood solids after they learned or should have learned of the risk of contamination with HIV?—and proximate causation. Both issues overlap the issue of the defendants’ negligence.”). See Byron G. Stier, Jackpot Justice: Verdict Variability and the Mass Tort Class Action, 80 Temple L. Rev. 1013, 1020 (2007) (“In [a] study in which jurors heard the same toxic tort trial and the effect of separated trials was examined, 72% of juries in a bifurcated or trifurcated trial found for plaintiff.”).

195

196 Chapter 7 Trial Preparation

may find herself trying a case with “sterilized” facts, robbed of those atmospherics that give her case its emotional punch.15

§ 7.2 Pre-Trial Discovery Merits discovery. If pre-certification discovery was bifurcated into certification-related and merits-related discovery, then the parties will finish any discovery needed to try the case. For the most part, this discovery resembles pre-trial discovery in more conventional trials. Discovery of absent class members. After the class has been certified, the defendant may seek discovery of the absent class members, if necessary.16 “If necessary” is an important qualifier; courts frown on discovery that would confuse, mislead, or harass absent class members.17 So, what is necessary discovery? Information aimed at determining the merits of defendant’s affirmative defenses counts.18 Sometimes, discovery of absent class members will reveal new claimantspecific issues. If so, the defendant faces a tactical choice as to how best to address these new variations. The defendant could move to decertify the class, or seek a bifurcated trial at that point.

§ 7.3 Jury vs. Bench Trial Another strategic decision the parties must consider (if they have not already done so) is whether to demand a jury trial on some—or all—issues.19

15. In re Bendectin Litig., 857 F.2d at 315–16 (plaintiffs complained of trifurcation “as unfairly prejudicial in that trying the question alone prejudiced plaintiffs by creating a sterile trial atmosphere”). 16. Brennan v. Midwestern United Life Ins. Co., 450 F.2d 999, 1004 (7th Cir. 1971) (“absent class members may, under certain circumstances, be required to submit to discovery under Rules 33 and 34 and that the sanctions of Rule 37 are available to compel compliance with such discovery orders”). 17. See Hawkins v. Holiday Inns, Inc., No. C-72–217, 1977 WL 1379, at *2 (W.D. Tenn. Feb. 28, 1977) (court refused to allow discovery of absent class members because “The set of interrogatories Holiday Inns proposes to serve on class members is 24 pages long and contains 72 questions. A more complicated, obtuse, and vexatious set of interrogatories would be difficult to draw.”); cf. Brennan, 450 F.2d at 1005 (“there is nothing in the record to suggest that the discovery procedures were used as a tactic to take undue advantage of the class members or as a stratagem to reduce the number of claimants”). 18. Brennan, 450 F.2d at 1005 (allowing discovery “directed at obtaining information relating to certain defenses raised by Midwestern in the principal trial”). 19. The parties do not necessarily need to make this decision before the final pretrial conference. Manual for Complex Litigation (Fourth) § 11.62 at 120 (“Although a general demand

Jury vs. Bench Trial

The parties do not have to conduct a full jury trial on each issue: there are several alternatives, including deciding the issue by motion, submitting the issue to an advisory jury,20 a special master,21 or allowing the issue to be decided by bench trial. Each party should consider several variables when deciding whether to demand a jury trial. Quality of the jury pool. Assuming the case has not been transferred, it is likely that the plaintiff has selected a venue where she believes the jury pool is likely to provide a favorable verdict.22 However, if the case has been transferred for some reason, then each party should survey the demographics, average verdict size, and other relevant facts about the district to determine whether their case stands a better chance in front of a jury. Quality of the bench. It probably goes without saying that each side will determine whether they are likely to receive favorable rulings from the judge.23 However, there are other questions to consider. Among them: How thoughtful is the judge? How capable is he of handling either complex fact patterns or cutting-edge techniques for consolidating facts? How often has he been reversed? While immediately favorable rulings are, of course, of vital importance (among other reasons, they may influence settlement discussions), neither side will want to have a favorable verdict overturned on appeal. Requesting a bench trial may backfire, however. Courts have much more discretion in structuring a bench trial, and may place severe limits on each side’s ability to present evidence. For example, the court might limit the amount of time each party has to put on its case.24 Moreover, while most judges are extremely conscientious about their fact-finding duties, even they

20. 21. 22. 23.

24.

for a jury trial may have been made early in the litigation, the final pretrial conference is an appropriate time to consider whether the parties are entitled to a jury trial on particular issues and, if not, whether those issues should be decided in a separate trial (which may be concurrent with the jury trial), decided by motion, or submitted to an advisory jury.”) (internal footnotes omitted). See Manual for Complex Litigation (Fourth) § 11.62 at 120. In re Estate of Marcos, 910 F. Supp. at 1462 (noting that special master presented report on compensatory damages). See § 3.3. As we discussed in Methods and Assumptions, we are using party affiliation (in the form of appointing president) as a rough proxy for judicial ideology, and therefore pro-plaintiff or pro-defense leanings. McLain v. Lufkin Indus., Inc., 519 F.3d 264, 272, 282 (5th Cir. 2008) (“When the case finally went to bench trial, the court strictly limited each party to twenty hours for the presentation of its case.”). The Fifth Circuit does note that the bench trial followed “[p]rotracted pretrial proceedings . . . includ[ing] two class certification hearings, two interlocutory appeals to this court, and a two-year mediation effort.” Id. See also Pierce v. County of Orange, 526 F.3d 1190, 1200 (9th Cir. 2008) (trial court did not abuse discretion by limiting trial to 3 days per side).

197

198

Chapter 7 Trial Preparation

can have difficulty overcoming their personal preconceptions.25 And given the long gestation period for most class actions, the judge will have ample time to form preconceptions about the case. Complexity of the case. The more complex the lawsuit, the more likely the parties will request a bench trial. A judge is more likely to keep track of the facts in light of the various procedural and legal issues that will arise than a jury. In addition, a judge may issue a memorandum opinion with findings of fact,26 which will allow the parties to determine exactly what the preclusive effect of the verdict is, and which will facilitate any appeals. Timing. If the trial will contain both jury and non-jury issues, then the court will likely have to try the jury issues first.27 This may present complications for some bifurcation plans.

§ 7.4 Post-Certification Summary Judgment Assuming there are grounds to do so, either party can move for summary judgment after a class has been certified. The plaintiff’s post-certification summary judgment motions are usually aimed at reducing the issues to be tried by obtaining liability determinations against the defendant in advance of trial (thus limiting trial to the determination of damages). The defendant can file two different kinds of summary judgment motions: those directed against individual class members, and those directed against the entire class. At this point, while the effect of a defendant’s summary judgment motions may look similar (dismissal of some or all claims), there are subtle tactical differences, discussed below. Plaintiff class-wide summary judgment motions. Once a class has been certified, the plaintiff may wish to move for summary judgment on certain issues. Doing so accomplishes two goals: (1) victory on these motions

25. See Richard A. Posner, How Judges Think 68 (2008) (“Preconceptions matter even when the only thing the judge is doing is finding facts.”); Chris Guthrie, et al., Blinking on the Bench: How Judges Decide Cases, 93 Cornell L. Rev. 101, 105, 117 (2007) (discussing judges’ inability to completely override intuitive decisionmaking). 26. DeFelice v. US Airways, Inc., 497 F.3d 410, 417 (4th Cir. 2007) (“Approximately one month after conclusion of the trial, the district court issued a comprehensive 58-page memorandum opinion, granting judgment to U.S. Airways.”); Frederick L. v. Dep’t of Pub. Welfare of Pa., 364 F.3d 487, 491 (3d Cir. 2004) (“Following a three-day bench trial in May 2002, the District Court issued a memorandum opinion on September 5, 2002 in favor of DPW.”). 27. Manual for Complex Litigation (Fourth) § 11.62 at 120 (“If both jury and nonjury issues are to be tried, the judge should determine whether Beacon Theatres, Inc. v. Westover requires that the jury issues be decided first.”) (internal footnotes omitted).

Post-Certification Summary Judgment 199

increases pressure on the defendants to settle;28 (2) victory on these motions also simplifies the trial, requiring the jury to decide fewer issues. The primary risk for the plaintiff is that the court will rule against the motions based on the evidence rather than the lack of undisputed facts. The court might also deny the plaintiff’s motion by embracing a rigorous interpretation of the elements of her claims, making proof more difficult at trial. Class-wide summary judgment motions. There is little risk for the defendant in filing a class-wide summary judgment motion after a class has been certified. If the defendant wins, then it has either narrowed the class at trial, or obtained a judgment with preclusive effect against the entire class.29 If the defendant loses, then it faces the same risks it would have without the summary judgment motion. Further, the act of briefing summary judgment can force the plaintiff to be more specific about how she proposes to prove her claims on a class-wide basis, and prompt the court to establish more precise instructions to the parties regarding the legal elements of the claims. All of this allows the parties to better prepare for trial, and may provide the defendant an opportunity either to further educate the judge about the individualized nature of the certified claims, or raise the bar as to the standard of proof the plaintiff must meet in order to prevail at trial. Individualized summary judgment motions. Summary judgment motions directed against individual plaintiffs may still be possible after the class has been certified. If the defendant prevails, the entire case may be dismissed.30 In addition, an individualized summary judgment motion may provide a means of challenging the certification decision. Sometimes a court will certify a class because it had not thought through the implications of trying the elements of the plaintiff’s claims on a class-wide basis. Forcing the court to consider the law governing those claims as it rules on the plaintiff’s claims may cause it to acknowledge the role of claimant-specific issues in the litigation, which could lead to either decertification of the class or claimant-specific procedures for litigating individual issues. Finally, an individualized summary judgment motion may help the defendant to preserve the record of any erroneous interpretations of law for an eventual appeal. Both individual and class-wide summary judgment motions can provide strategic advantages to the defendant regardless of the outcome. If the defendant wins, it potentially wins against the entire class. But even if it loses, if the

28. Cf. Masters v. Wilhelmina Model Agency, Inc., 473 F.3d 423, 427 (2d Cir. 2007) (“Settlement negotiations began with certain defendants only after the court denied defendants’ motions for summary judgment”). 29. See Id. at 427 (trial court granted post-certification summary judgment motion for defendant Q Model Management because the agency had been founded after the alleged conspiracy had begun, and had never joined the trade association that allegedly served as conspiracy’s hub). 30. See Nelson v. Tennessee Gas Pipeline Co., 243 F.3d 244, 247 (6th Cir. 2001).

200

Chapter 7 Trial Preparation

denial turns on contested material facts, then the case may turn on individualized issues, laying the groundwork for a decertification motion.

§ 7.5 Decertification Motion Once post-certification discovery has been completed and any summary judgments have been resolved, the defendant may consider a motion to decertify the class.31 The defendant will likely focus on commonality or manageability: if the plaintiff cannot prove key elements of her claims without resorting to individualized evidence, there may be sufficient grounds for decertification.32 In response, the plaintiff’s strongest strategy is often to show why it is not necessary to establish individual elements of a given claim— either because the law does not require them, or because they have already been established with common evidence.33 The primary risk to a decertification motion is that it may tax the court’s patience—the court may view this as an improper attempt to re-litigate issues it has already considered and decided. (It may also create the impression that the court considered the propriety of the class a number of times, which the appellate court may conflate with a “rigorous analysis.”) However, even if the defendant loses the decertification motion, it may succeed in limiting the class somewhat, reducing its overall exposure to an adverse verdict.34

§ 7.6 In Limine Motions While motions in limine are a part of any trial, some motions are more likely to arise in class trials. For example, the defendant may wish to file motions in limine limiting the plaintiff’s use of summary evidence, or of statistical

31. In re Scrap Metal Antitrust Litig., 527 F.3d 517, 524 (6th Cir. 2008) (noting court denied defendant’s motion to decertify class). 32. See Pierce, 526 F.3d at 1200 (trial court did not abuse discretion by decertifying damages class “in light of expected difficulties identifying class members and determining appropriate damages”). 33. For more information on decertification motions, see Appendices 7D (exemplar decertification motion), 7E (exemplar decertification opposition), and 7F (exemplar decertification reply). 34. In re Plywood Antitrust Litig., 655 F.2d at 631 (“Thereafter, the actions were reassigned to Judge Pointer who, following defendants’ motions to decertify the classes, confirmed the prior certification but redefined the class to include only direct purchasers.”).

Jury Instructions/Verdict Forms 201

evidence that it believes papers over important variations.35 Similarly, the plaintiff may move to exclude defendant’s use of evidence that emphasizes the variations among the class, or to admit its own statistical or summary evidence. If the record supports it, each side should consider moving to exclude experts under Federal Rule of Evidence 702 and 703.36

§ 7.7 Jury Instructions/Verdict Forms Jury instructions and special verdict forms both have great strategic weight in class actions. Jury instructions tell the jury how to interpret the facts in light of the governing law. Depending on how the instructions are worded, the jury may make sweeping factual decisions, or more specific findings that depend on variations among the class members. Therefore, much like in individual trials, each side will press for jury instructions that favor its interpretation of the facts.37 The defendant may have a secondary strategic consideration. If it intends to appeal the certification of the class, the defendant will also want the jury instructions to reflect what it perceives as the full complexity of the case. Special verdict interrogatories are also extremely helpful for the jury in sifting through the various complex issues raised at a class trial.38 In fact, a number of class trials have involved the use of special verdict interrogatories.39 The plaintiff may resist the use of special interrogatories; the more

35. See Pierce, 526 F.3d at 1200 (trial court did not abuse discretion in excluding survey evidence). 36. In re Scrap Metal, 527 F.3d at 524 (noting court denied defendant’s motion to exclude expert). 37. See Otto v. Variable Annuity Life Ins. Co., 134 F.3d 841 (7th Cir. 1998) (class plaintiff appealed instructions giving jury discretion to decide terms of contract). 38. Manual for Complex Litigation (Fourth) § 11.633 at 123 (2004) (“Special verdict forms or interrogatories accompanying a general verdict form may help the jury focus on the issues, reduce the length and complexity of the instructions, and minimize the need for, or scope of, retrial in the event of reversible error.”). 39. See Pickett v. Tyson Fresh Meats, Inc., 420 F.3d 1272, 1277–78 (11th Cir. 2005) (“The jury’s ‘verdict’ consisted of answers to a number of interrogatories. Specifically, the jury was asked—‘yes’ or ‘no’—whether it found, by a preponderance of the evidence: 1. That there is a nationwide market for fed cattle? 2. That the defendant’s use of [marketing agreements] had an anti-competitive effect on the cash market for fed cattle? 3. That the defendant lacked a legitimate business reason or competitive justification for using [marketing agreements]? 4. That the defendant’s use of [marketing agreements] proximately caused the cash market price to be lower than it otherwise would have been? 5. That the defendant’s use of [marketing agreements] injured each and every member of the plaintiffs’ class? . . . The verdict form instructed the jury that, if it did answer “yes” to all of those questions, it should answer these additional questions: 6. What amount, if any, do you find that defendant’s use of [marketing

202 Chapter 7 Trial Preparation

questions the jury has to answer, the more likely it will answer some of those questions in the negative. Some courts are also resistant to jury instructions and verdict forms that depart from approved models, because any departures may increase the chance that a verdict will be reversed on appeal.

§ 7.8 Press Issues Because of their size and stakes, class trials may attract the notice of the press more frequently than smaller trials on the same issues. As a result, both sides may need to determine a media strategy.40 The plaintiff will likely have more freedom to work the press; as a private individual, she is unlikely to have a preexisting media-relations strategy, or business goals that conflict with any message she may want to send during trial. Moreover, the plaintiff’s media strategy will likely focus on publicizing the defendant’s alleged misconduct. Should the case proceed to trial, defense counsel should try to coordinate their efforts closely with their client’s press office. In particular, this may be the time to begin rehearsing some of the defendant’s merits story to counteract any negative press.

§ 7.9 The Trial At trial, the primary concern is how to turn voluminous discovery and numerous varied factual issues into a format that a jury can understand, retain, and digest back in the jury room. For each side, many of the strategic concerns are the same as for a trial in individual litigation: opening and closing statements and testimony of appearing witnesses, for example, operate much as they would in an individual trial.41 However, some concerns—which factual issues to stipulate, how to admit statistical or summary evidence,

agreements] damaged the cash market price of fed cattle sold to [the defendant] during the period from February 1, 1994, through October 31, 2002? 7. Did the defendant’s use of [marketing agreements] depress the cash market price for fed cattle purchased by [the defendant] by an equal percentage for each year of the class period? If your answer is yes, by what percent?”); Deadwyler v. Volkswagen of Am., Inc., 884 F.2d 779, 781 (4th Cir. 1989) (noting that the “jury retired to consider the evidence and to make findings on the nine issues submitted by way of special verdict interrogatories”). 40. For more on media relations, see § 4.1.1. 41. For discussions of the strategic concerns in a “standard” trial, see, e.g., Bruce L. Hay and Kathryn E. Spier, Burdens of Proof in Civil Litigation: An Economic Perspective, 26 J. Legal Studs. 413, 417 (1997).

The Trial

whether to use taped testimony or deposition excerpts—pose different challenges at a class trial than they do at an individual trial. Stipulations. One tool both parties can use is the stipulation, a mutual agreement about the existence of certain facts or the admissibility of certain evidence. Stipulations help to narrow the issues that will actually be tried, making them particularly helpful in class trials.42 Certain class-wide issues may lend themselves to stipulation, such as the appropriate amount of damages in an antitrust case.43 Stipulations also allow each side to engage in strategic bargaining, stipulating to the admission of certain evidence in exchange for the admission of other, more favorable evidence, or concessions on trial structuring. The plaintiff will often favor stipulations, since they reduce the amount of complex evidence she must present to a jury.44 However, much as at an individual trial, the plaintiff will also be careful not to stipulate to facts that might carry greater emotional weight if established before the jury. Stipulations can pose strategic risks for the defendant as well. A defendant trying a class action over objection (because it believes the class should not have been certified in the first place) will often take care not to concede issues that it has already argued are too complex to be tried on a class-wide basis.45 Statistics. Another way of condensing complex issues is to employ statistical techniques. Plaintiffs tend to favor this technique, as it tends to remove questions from individualized issues and present issues as if they were uniform (or at least manageable) along the continuum of the class. Statistics can work particularly well in certain class actions. For example, securities cases that try the question of fraud on the market may use statistics to show when the alleged fraud occurred, its effect on pricing, and the effect of any later corrective disclosures. The defendant may consider challenging the use of statistical techniques. Leaving aside the merits of a given technique, challenging the plaintiff’s ability to use random sampling will both (1) demonstrate to the court the difficulties

42. See Frederick L. v. Dep’t of Pub. Welfare, 364 F.3d 487, 490 (3d Cir. 2004) (“On May 6, 2002, the parties filed extensive joint stipulations regarding the facts underlying this case.”); Brennan v. Midwestern United Life Ins. Co., 286 F. Supp. 702, 704 (N.D. Ind. 1968) (“Prior to the trial of this case, the parties entered into extensive discovery and voluminous stipulations.”). 43. In re Plywood, 655 F.2d at 632 n.1 (“The damage figures set out below were stipulated to by the parties as the appropriate amounts prior to trebling if the jury’s verdict is permitted to stand.”). 44. In re Bendectin Litig., 857 F.2d at 295 (noting plaintiffs’ offers to stipulate on a number of issues). 45. In re Bendectin Litig., 857 F.2d at 295 (defendant “argued that substantive law differences among the various jurisdictions represented by plaintiffs prevented consolidation as to any other issue [than whether Bendectin was an unreasonably dangerous product], regardless of whether the cases had been originally filed in Ohio or had been subsequently transferred there.”).

203

204

Chapter 7 Trial Preparation

of presenting varied factual issues in a single trial, and (2) force the plaintiff into presenting repetitious evidence that may alienate the jury. To see how these debates might play out, consider the case of In re Estate of Marcos Human Rights Litigation,46 a class action that alleged that the late Filipino dictator Ferdinand Marcos had tortured a number of his citizens. In that case, the court allowed the use of statistical evidence in order to determine compensatory damages. The trial was divided into different phases. After the parties had tried liability, the plaintiffs tried the issue of compensatory damages by presenting the damages sustained by a random sample of the class as representative of the entire class.47 They began by having a Special Master review the depositions of 137 class members, as well as hearing live testimony from a few of them.48 The Special Master then presented a report to the jury recommending the damages for these class members, which (ideally) would provide a statistically valid basis for determining damages for the rest of the class.49 The defendants challenged the procedure, arguing (1) that they had not had the opportunity to cross-examine all of the class members because the testimony of only a sample was presented in the report in violation of the Seventh Amendment,50 and (2) that each claim should be individually tried.51 The trial court overruled them, holding that the defendants had had a chance to depose any of the class members they wanted,52 and that “[t]he use of aggregate procedures, with the help of an expert in the field of inferential statistics, for the purpose of determining class compensatory damages is proper.”53 Nonetheless, courts tend to remain cautious about the use of statistics in cases that might not ordinarily use statistical evidence.54 Studies. Both the plaintiff and defendant might also rely on the use of scientific studies. On one hand, studies may benefit the plaintiff by distilling large amounts of raw evidence down into a manageable number of facts and

46. 47. 48. 49. 50. 51. 52. 53. 54.

In re Estate of Marcos, 910 F. Supp. at 1462. Id. Id. Id. Id. Id. at 1464. Id. at 1464 n.5. Id. at 1464. In re Fibreboard Corp., 893 F.2d 706, 710 (5th Cir. 1990) (“We are pointed to our experience in the trial of Title VII cases and securities cases involving use of fraud on the market concepts and mathematical constructs for examples of workable trials of large numbers of claims. We find little comfort in such cases. It is true that there is considerable judicial experience with such techniques, but it is also true we have remained cautious in their use.”).

The Trial

documents. On the other, technical studies may rob the trial of some of its emotional impact.55 Summaries. The parties may also submit other summaries into evidence, so long as the underlying raw evidence is admissible.56 Summaries have several obvious benefits: they allow the parties to work through a large amount of complex evidence quickly while telling a coherent story, and any attempts to undermine them may appear nit-picking, which is more likely to alienate jurors. Summaries of this type also work well in bench trials.57 However, because the raw evidence itself must be admissible, the submitting party must remember to leave enough time for its opponent to review the underlying evidence.58 Testimony. As with other complex trials, both parties may rely more extensively on recorded—rather than live—testimony.59 Similarly, the parties may designate portions of depositions taken before trial.60 Expert testimony. Finally, expert testimony may summarize and shape the evidence. In addition to allowing an efficient summary, expert testimony places a human face (the expert’s) on the facts, and carries with it the stamp

55. In re Bendectin Litig., 857 F.2d at 313 n.18 (“At trial, the proof adduced by plaintiffs to prove causation consisted of highly technical scientific studies, including toxicity studies on laboratory animals, chemical studies of the biochemical properties of Bendectin, and epidemiological studies or case histories of persons exposed to the drug.”). 56. Manual for Complex Litigation (Fourth) § 11.492 at 101 (“Whenever possible, voluminous or complicated data at trial should be presented by counsel through summaries, including compilations, tabulations, charts, graphs, and extracts. Federal Rule of Evidence 1006 creates an exception to the ‘best evidence’ rule, allowing writings, recording, or photographs that cannot conveniently be examined in court to be presented in the form of ‘charts, summaries or calculations.’ The rule does not affect the requirement that the originals be admissible.”). 57. Id. § 11.492 at 101–02 (“While counsel in jury cases usually recognize the need for summaries, they may overlook their utility in nonjury cases; the trial judge should not be expected to ‘wad[e] through a sea of uninterpreted raw evidence.’”) (internal footnote omitted). 58. Id. at 102 (“Summaries may be offered under Federal Rule of Evidence 611(a) solely as an aid to understanding, with the underlying evidence separately admitted into the record. Whenever possible, however, summaries should be received as substantive evidence under Rule 1006, in lieu of the underlying data. When summaries are so used, opposing parties must be given an adequate opportunity to examine the underlying data in advance of trial and raise objections in time to enable the proponent of the summary to make necessary corrections.”). 59. See In re Bendectin Litig., 857 F.2d at 314–15 (referring to plaintiffs’ revision of deposition videotapes for trial); Broussard v. Meineke Discount Muffler Shops, Inc., 155 F.3d 331, 336 (4th Cir. 1999) (“plaintiffs’ tort and statutory unfair trade practices claims prominently featured 171 taped excerpts of statements made by Meineke representatives at so-called ‘final review sessions’ that preceded the execution of any franchise agreement—all but one of the sessions involving absent class members”). 60. See DeFelice, 497 F.3d 410, 417 (“The parties also designated portions of depositions of ten additional witnesses and submitted roughly two hundred documentary exhibits to the court.”).

205

206

Chapter 7 Trial Preparation

of authority. As a result, either or both parties may rely heavily on presenting expert testimony during the trial.61

§ 7.10 Post-Trial Motions The post-trial motion represents the last chance for each party to secure a ruling in its favor from the trial court. For the most part, the mechanics of post-trial motions are similar to those of single-plaintiff trials.62 However, there are a few instances in which the class character of the trial may affect the ways in which the post-trial motions are conducted. For example, defendants may move for a judgment not withstanding the verdict challenging the named plaintiffs’ ability to represent the class.63 Also, both the plaintiff and the defendant will submit proposed jury instructions and verdict forms. These, too, will reflect the class nature of the trial: the plaintiff will submit jury instructions and verdict forms that highlight common issues; the defendant will submit materials that pay close attention to the individualized issues of causation, injury, and damages that arose at trial.64 To some extent, a class trial represents a strategic failure for both sides. Given the stakes involved in a class action, neither side wants to risk an adverse jury verdict. Instead, the plaintiff is hoping to settle the class claims on favorable terms, and the defendant hoping for either an early disposition or early settlement of the case. Moreover, given the size of the stakes in most class actions, neither side will want to commit its fortunes to a jury trial if there is any way to avoid doing so. The most reliable method of avoiding a trial on class issues—the classwide settlement—is the subject of the next chapter.

61. DeFelice, 497 F.3d at 417 (“The court then held a six-day bench trial, at which eleven fact witnesses and five experts testified on behalf of the Employees and two experts testified on behalf of U.S. Airways.”); Broussard, 155 F.3d at 336 (“Plaintiffs’ expert outlined a damages formula, by which he purported to calculate the lost profits damages of all class members on a ‘global’ basis. He testified that every Meineke franchisee lost $8.16 in sales for each dollar of allegedly misallocated WAC funds and projected a 34% profit margin for all franchisees.”). 62. Pickett, 420 F.3d at 1277 (“Before the case was submitted to the jury, Tyson moved the district court for judgment as a matter of law under Fed. R. Civ. P. 50(a). The motion asserted, among other grounds, that Tyson had proven a number of competitive justifications for using marketing agreements, the factual existence of which were not disputed by any evidence.”). 63. Brown v. Pro Football, Inc., 821 F. Supp. 20, 23 (D.D.C. 1993) (after adverse verdict, defendants filed JNOV challenging “plaintiffs’ use of certain individuals as representative of the class claims”). 64. For examples of how these issues may arise in instructions or verdict forms, see Appendices 7G (plaintiffs’ proposed jury instructions) and 7H (defendant’s proposed jury instructions).

CHAP TER

8 Settling Class Actions

§ 8.1 Legal Background

209

§ 8.1.1 Rule 23(e)

210

§ 8.1.2 Class Action Fairness Act (CAFA)

214

§ 8.2 Types of Settlements

216

§ 8.2.1 Claims-made (“Reverter”) Settlements

216

§ 8.2.2 Cy Pres Funds

217

§ 8.2.3 Coupons

219

§ 8.2.4 Injunctions/Consent Decrees

222

§ 8.2.5 Therapeutic Relief

222

§ 8.2.6 Named Plaintiff Settlements

224

§ 8.3 Class-wide Settlement Steps

224

§ 8.3.1 Mediation

226

§ 8.3.2 Drafting the Settlement Agreement

227

§ 8.3.3 Preliminary Approval Order

230

§ 8.3.4 Class Settlement Notice

232

§ 8.3.5 Opt-Outs/Objections

233

§ 8.3.6 Final Approval Hearing

236

§ 8.3.7 Settlement Implementation

237

§ 8.4 Attorneys’ Fees § 8.4.1 Determining Reasonable Fee

237 238

§ 8.4.1.1 Lodestar

238

§ 8.4.1.2 Percentage of Common Fund

239

§ 8.4.1.3 Negotiation of Fees

240

§ 8.4.2 Court Approval of Fees

240

208

Chapter 8 Settling Class Actions

If a class action is not dismissed and does not go to trial, it must settle. Of the many class actions filed each year, very few are actually tried to a final judgment.1 Most are either dismissed or settled somewhere along the way. As a result, any attorney litigating a class action should be prepared for the possibility of settlement. For the plaintiff, the settlement is usually the desired endgame. For the defendant, settlement is often—though not always—a last resort. Certifying a class solely for settlement purposes was not always the norm; in fact, the first edition of the Manual for Complex Litigation “strongly disapproved of settlement classes.”2 However, settlement classes have proven an attractive mechanism for disposing of mass torts that threaten to overwhelm the federal judiciary—such as litigation related to Agent Orange, the Dalkon Shield, and allegedly defective silicone breast implants.3 With the obvious exception of the settlement amount (which the plaintiff will want to maximize, and the defendant minimize), settlement is one of the few times that most of the plaintiff’s and defendant’s interests can align.4 Neither side wants to bear the risk of a costly and time-consuming trial,5 neither side wants to spend further time and money litigating over discovery, and both sides want to ensure that any settlement is impervious to challenge from objectors. Each side receives specific benefits from a settlement as well. The defendant minimizes any adverse publicity that might result from a public trial of the facts underlying the plaintiff’s allegations. It may also avoid

1. In general, very few lawsuits are tried to final judgment. See, e.g., Andrew F. Daughety & Jennifer F. Reinganu, Endogenous Sequencing in Models of Settlement & Litigation, 9 J.L. Econ. & Org. 314, 314 (1993) (“Most lawsuits never go to trial.”); Gyu Ho Wang, et al., Litigation & Pre-Trial Negotiation under Incomplete Information, 10 J.L. Econ. & Org. 187, 187 (1994) (noting that “[o]nly a small proportion of cases will result in full litigation”). While there is no comprehensive empirical study, it appears that class trials are even rarer than individual trials. Moreover, securities class actions very rarely go to trial. Between 1995 and 2008, only 21 shareholder class actions went to trial; between 2000 and 2008, only four. Six of those 21 cases had at least a partial settlement before trial was completed. See Stephanie Planich, et al., NERA Economic Consulting, 2008 Trends: Subprime and Auction-Rate Cases Continue to Drive Filings, and Large Settlements Keep Averages High 11–12 (2008), http://www.nera.com/image/BRO_Recent_Trends_0708_final.pdf. 2. In re Gen. Motors Corp. Pick-Up Truck Fuel Tank Prods. Liab. Litig., 55 F.3d 768, 778 (3d Cir. 1995). 3. Id. at 778. 4. Most, not all. As discussed in more detail below, the plaintiff (or more accurately, her counsel) has a strong interest in closing the settlement quickly and getting paid. The defendant has an interest in minimizing any further discovery. 5. See Byron G. Stier, Jackpot Justice: Verdict Variability and the Mass Tory Class Action, 80 Temple L. Rev. 1013, 1015, 1019 (2007) (discussing empirical studies of “substantial variability of jury verdicts”).

Legal Background

the disruption to employees from extensive discovery and depositions.6 The plaintiff’s attorneys receive a potentially large payout with far less effort than would be required in trying the case and enduring appeals. Further, the named plaintiff may receive an “incentive award” for bringing the suit and obtaining a class-wide recovery.7 Even the trial court has a strong incentive to approve the settlement, since doing so will clear a lengthy and unwieldy case from its crowded docket.8 Indeed, this is one of the reasons why appellate courts express such strong fears that potential collusion could lead to cheap settlements of meritorious claims,9 or that misaligned incentives could lead to settlement of meritless claims.10 These concerns about the ill effects of collusive settlements serve as the backdrop for the law governing the class settlement process.

§ 8.1 Legal Background Unlike settlements of individual lawsuits, class-action settlements are heavily regulated. Much of this regulation stems from the concern over collusive settlements. However, the rules governing class settlements have very real effects on both their negotiation and their ultimate outcome.11

6. See Blue Chip Stamps v. Manor Drug Stores, 421 US 723, 741 (1975) (“The prospect of extensive deposition of the defendant’s officers and associates and the concomitant opportunity for extensive discovery of business documents, is a common occurrence in [class action] and similar types of litigation.”). 7. See Rodriguez v. West Publ’g Corp., 563 F.3d 948, 958–59 (9th Cir. 2009). 8. See Susan P. Koniak, How Like a Winter?: The Plight of Absent Class Members Denied Adequate Representation, 79 Notre Dame L. Rev. 1787, 1798 (2004) (“Judges, honest as they may be and diligently as most may work, have an interest in settling any and all cases, and an even bigger interest in seeing large and cumbersome class actions settle.”); see also Richard A. Posner, How Judges Think 141 (2008) (“backlog pressure keeps [the judge] working hard and reversal threat keeps him working carefully— though an alternative strategy is to push the parties to settle, since settlements reduce backlog without risk of reversal”). 9. In re Gen. Motors Corp. Pick-Up Truck Litig., 55 F.3d at 778 (settlement class “is a vehicle for collusive settlements that primarily serve the interests of defendants-by granting expansive protection from law suits—and of plaintiffs’ counsel—by generating large fees gladly paid by defendants as a quid pro quo for finally disposing of many troublesome claims”). 10. Mirfasihi v. Fleet Mortgage Corp., 551 F.3d 682, 687 (7th Cir. 2008) (Posner, J.) (“The lawyers for the class could not concede the utter worthlessness of their claim because they wanted an award of attorneys’ fees. The lawyers for Fleet were reluctant to argue the utter worthlessness of the claim because they were able to negotiate a settlement that cost their client virtually nothing—provided they did not take such a strong stand that it jeopardized the class lawyers’ shot at a generous award of attorneys’ fees, and hence the settlement.”). 11. Indeed, the heavily regulated nature of class settlements has led some scholars to question whether a class settlement should be considered a purely private settlement, or more similar to an “adjudication” like a trial. See Howard M. Erichson, Against Settlement: Twenty-Five

209

210

Chapter 8 Settling Class Actions

There are two primary sources of regulation: the provisions of Rule 23(e) and various provisions of the Class Action Fairness Act (CAFA).

§ 8.1.1 Rule 23(e) Rule 23(e) requires a court to determine whether the settlement is: (1) fair, (2) reasonable, and (3) adequate to the plaintiff class.12 Specifically, it provides: The claims, issues, or defenses of a certified class may be settled, voluntarily dismissed, or compromised only with the court’s approval. The following procedures apply to a proposed settlement, voluntary dismissal, or compromise: (1) The court must direct notice in a reasonable manner to all class members who would be bound by the proposal. (2) If the proposal would bind class members, the court may approve it only after a hearing and on finding that it is fair, reasonable, and adequate. (3) The parties seeking approval must file a statement identifying any agreement made in connection with the proposal. (4) If the class action was previously certified under Rule 23(b)(3), the court may refuse to approve a settlement unless it affords a new opportunity to request exclusion to individual class members who had an earlier opportunity to request exclusion but did not do so. (5) Any class member may object to the proposal if it requires court approval under this subdivision (e); the objection may be withdrawn only with the court’s approval.13

While Rule 23(e)(2) only requires that the court find the settlement to be “fair, reasonable, and adequate,” the circumstances of particular settlements have prompted various courts to consider additional factors in evaluating a proposed settlement.14 Nonetheless, most of these additional factors link

Years Later, Foreword: Reflections on the Adjudication-Settlement Divide, 78 Fordham L. Rev. 1117, 1123–24 (2009). 12. Fed. R. Civ. P. 23(e)(2). 13. Id. 14. See Nat’l Ass’n of Chain Drug Stores v. New England Carpenters Health Benefits Fund, 582 F.3d 30, 44 (1st Cir. 2009) (“Rule 23’s reasonableness standard has been given substance by case law offering laundry lists of factors, most of them intuitively obvious and dependent largely on variables that are hard to quantify”); Manual for Complex Litigation (Fourth) § 21.62 at 315 (2004) (“A number of factors are used to apply those criteria and evaluate a proposed settlement. Deciding which factors apply and what weight to give them depends on a number of variables: (1) the merits of the substantive class claims, issues, or defenses; (2) whether the class is mandatory or opt-out; and (3) the mix of claims that can support individual litigation, such as personal injury claims, and claims that are only viable within a class action, such as small economic loss claims.”); see also City of Detroit v. Grinnell Corp.,

Legal Background

back—even if only loosely—to the explicit requirements of fairness, reasonability, and adequacy. “Fair.” Many courts use “fairness” as a loose synonym for all three Rule 23(e)(2) factors.15 The Manual for Complex Litigation is more precise: “Fairness calls for a comparative analysis of the treatment of class members vis-à-vis each other and vis-à-vis similar individuals with similar claims who are not in the class.”16 This is one reason why both the Second and Ninth Circuit Courts of Appeals, for example, looks at the class members’ reactions to the settlement.17 “Reasonable.” To determine whether a settlement is “reasonable,” the court looks at whether the proposed settlement actually responds to the allegations in the complaint.18 If the settlement does not provide the kind of relief requested in the complaint, there may be reason to question its reasonableness.19 That said, if the settling parties convince the court that the plaintiff was unlikely to obtain the relief she originally sought, the court may accept a plausible argument that the relief provided in the settlement is still fair. The court’s primary concern when determining reasonableness is whether the class will receive a comparatively good value in exchange for releasing its claims.20

15.

16. 17. 18.

19.

20.

495 F.2d 448, 463 (2d Cir. 1974) (listing factors); In re Gen. Motors Corp. Pick-Up Truck Litig., 55 F.3d at 806–07 (same); Rodriguez v. West Publ’g Corp., 563 F.3d 948, 963 (9th Cir. 2009) (same); In re CP Ships Ltd. Sec. Litig., 578 F.3d 1306, 1318 (11th Cir. 2009) (same). See Synfuel Techs., Inc. v. DHL Express (USA), Inc., 463 F.3d 646, 653 (7th Cir. 2006) (“In order to evaluate the fairness of a settlement, a district court must consider the strength of plaintiffs’ case compared to the amount of defendants’ settlement offer, an assessment of the likely complexity, length and expense of the litigation, an evaluation of the amount of opposition to settlement among affected parties, the opinion of competent counsel, and the stage of the proceedings and the amount of discovery completed at the time of settlement.”) (Wood, J.) (internal citations and quotations omitted); Krell v. Prudential Ins. Co. of Am., 148 F.3d 283, 316-17 (3d Cir. 1998). Manual for Complex Litigation (Fourth) § 21.62 at 315 (2004). Grinnell Corp., 495 F.2d at 463 (requiring examination of, among other factors, “the reaction of the class to the settlement”); Rodriguez, 563 F.3d at 963 (same). Manual for Complex Litigation (Fourth) § 21.62 at 315 (2004) (“Reasonableness depends on an analysis of the class allegations and claims and the responsiveness of the settlement to those claims.”); In re Gen. Motors Corp. Pick-Up Truck Litig., 55 F.3d at 810 (“In the class action context, “the relief sought in the complaint” serves as a useful benchmark in deciding the reasonableness of a settlement.”) (quoting Cotton v. Hinton, 559 F.2d 1326, 1330 (5th Cir. 1977)). Id. at 810 (settlement not reasonable where “[t]he coupons offered by GM simply do not address the safety defect that formed the central basis of the amended complaint filed barely four months before the settlement.”). Even here, the Third Circuit conflates reasonableness and adequacy. Id. Id. at 807 (“This inquiry measures the value of the settlement itself to determine whether the decision to settle represents a good value for a relatively weak case or a sell-out of an otherwise strong case.”).

211

212

Chapter 8 Settling Class Actions

“Adequate.” According to the Manual for Complex Litigation, the adequacy requirement determines whether the settlement provides enough relief to the proposed class: “Adequacy of the settlement involves a comparison of the relief granted relative to what class members might have obtained without using the class action process.”21 At least one court has considered this to be “[t]he most important factor relevant to the fairness of a class action.”22 To determine whether the settlement is adequate, the trial court must establish a “ballpark valuation” of the case, given both the value of the alleged claims and the risk of plaintiff’s losing.23 Appellate courts have also warned against demanding too large a settlement, given that “settlement is a compromise,”24 and have noted that even settlements representing only a fraction of the relief the plaintiff demanded in the complaint may still be adequate.25 Regardless, if a majority of the class members accept the settlement offer, the court will presume that the settlement was adequate.26 In addition to showing the settlement is fair, reasonable, and adequate, the parties must also establish that the settlement class meets the other requirements of Rule 23.27 In fact, since there will be no additional discovery into the propriety of class treatment, courts may pay “heightened[] attention” to

21. Manual for Complex Litigation (Fourth) § 21.62 at 315 (2004). 22. Synfuel Techs, 463 F.3d at 653 (internal citations and quotations omitted). Judge Wood actually discussed this factor under the rubric of “fairness.” 23. Id. (“In conducting this analysis, the district court should begin by quantifying the net expected value of continued litigation to the class. To do so, the court should estimate the range of possible outcomes and ascribe a probability to each point on the range. Although we have recognized that a high degree of precision cannot be expected in valuing a litigation, the court should nevertheless insist that the parties present evidence that would enable possible outcomes to be estimated, so that the court can at least come up with a ballpark valuation.”) (internal citations and quotations omitted). 24. Krell, 148 F.3d at 316–17 (“In deciding the fairness of a proposed settlement, we have said that the evaluating court must, of course, guard against demanding too large a settlement based on its view of the merits of the litigation; after all, settlement is a compromise, a yielding of the highest hopes in exchange for certainty and resolution.”) (internal quotations omitted). 25. Grinnell Corp., 495 F.2d at 455 (“The fact that a proposed settlement may only amount to a fraction of the potential recovery does not, in and of itself, mean that the proposed settlement is grossly inadequate and should be disapproved.”). 26. Id. at 462 (“Any claim by appellants that the settlement offer is grossly and unreasonably inadequate is belied by the fact that, from all appearances, the vast preponderance of the class members willingly approved the offer.”). 27. Amchem Prods. v. Windsor, 521 U.S. 591, 620–21 (1997) (“Rule 23(e) . . . was designed to function as an additional requirement, not a superseding direction, for the ‘class action’ to which Rule 23(e) refers is one qualified for certification under Rule 23(a) and (b).”) (internal citations omitted).

Legal Background

the class definition28 and the adequacy of the proposed class representatives.29 As a result, the plaintiff should ensure that she has provided the court with adequate evidence demonstrating that the class meets each of the requirements of Rule 23(a) and (b); failure to do so may result in the court’s refusing to approve the settlement on even a preliminary basis.30 The only Rule 23 requirement that the settling parties do not have to prove is manageability of class litigation (one of the superiority inquiries under Rule 23(b)(3)): since the settlement class is specifically certified not to be tried, there is no concern whether a trial will pose “intractable management problems.”31 As a result, the defendant in particular should be certain that it is comfortable conceding that the proposed settlement class is certifiable on every issue but manageability. If the settlement falls through, for whatever reason, the defendant will be on record saying the settlement class is certifiable;32 and if a settlement is reversed on appeal, it may be judicially estopped from arguing otherwise.33

28. Id. at 620 (“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.”). 29. In re Gen. Motors Corp. Pick-Up Truck Litig., 55 F.3d at 797 (“Without determining that the class actually was adequately represented, the district judge has no real basis for assuming that the negotiations satisfactorily vindicated the interests of all the absentees. The focus on the negotiation process also cannot address the part of the adequacy of representation inquiry intended to detect situations where the named plaintiffs are unsuitable representatives of the absentees’ claims.”). 30. See, True v. Am. Honda Motor Co., No. EDCV07-287-VAP, 2009 WL 838284, at *4 (C.D. Cal. Mar. 25, 2009) (denying motion for preliminary approval without prejudice because plaintiffs had not provided evidence that named plaintiffs’ claims were typical of proposed class or that named plaintiffs were adequate class representatives). 31. Amchem, 521 U.S. at 620 (“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. P. 23(b)(3)(D), for the proposal is that there be no trial.”); see also Carnegie v. Household Int’l, Inc., 376 F.3d 656, 660 (7th Cir. 2004) (“The defendants are correct, however, that a class might be suitable for settlement but not for litigation. The class might be unmanageable if the case were actually tried yet manageable as a settlement class because the settlement might eliminate all the thorny issues that the court would have to resolve if the parties fought out the case.”) (Posner, J.). 32. Id. at 662 (“Remember that the defendants themselves had argued that the class was appropriate for settlement purposes. That did not conclude the question whether it was appropriate for litigation if the settlement fell through, as we have explained and as the district judge recognized. But it was some indication that there were issues appropriate for determination on a class basis.”). 33. Id. at 662 (“In the previous round of this protracted litigation the defendants had urged the district court to accept the giant class as appropriate for a global settlement, had prevailed in their urging, and so are now precluded by the doctrine of judicial estoppel from challenging

213

214

Chapter 8 Settling Class Actions

§ 8.1.2 Class Action Fairness Act (CAFA) In addition to the requirements of Rule 23, the parties must also comply with the provisions of the Class Action Fairness Act (“CAFA”). When CAFA was passed in 2005, Congress, concerned about the collusive nature of some settlements, added several provisions governing class settlements. Those provisions require: § 1712. Coupon settlements (a) CONTINGENT FEES IN COUPON SETTLEMENTS. If a proposed settlement in a class action provides for a recovery of coupons to a class member, the portion of any attorney’s fee award to class counsel that is attributable to the award of the coupons shall be based on the value to class members of the coupons that are redeemed. (b) OTHER ATTORNEY’S FEE AWARDS IN COUPON SETTLEMENTS. (1) IN GENERAL. If a proposed settlement in a class action provides for a recovery of coupons to class members, and a portion of the recovery of the coupons is not used to determine the attorney’s fee to be paid to class counsel, any attorney’s fee award shall be based upon the amount of time class counsel reasonably expended working on the action. (2) COURT APPROVAL. Any attorney’s fee under this subsection shall be subject to approval by the court and shall include an appropriate attorney’s fee, if any, for obtaining equitable relief, including an injunction, if applicable. Nothing in this subsection shall be construed to prohibit application of a lodestar with a multiplier method of determining attorney’s fees. (c) ATTORNEY’S FEE AWARDS CALCULATED ON A MIXED BASIS IN COUPON SETTLEMENTS. If a proposed settlement in a class action provides for an award of coupons to class members and also provides for equitable relief, including injunctive relief (1) that portion of the attorney’s fee to be paid to class counsel that is based upon a portion of the recovery of the coupons shall be calculated in accordance with subsection (a); and (2) that portion of the attorney’s fee to be paid to class counsel that is not based upon a portion of the recovery of the coupons shall be calculated in accordance with subsection (b). (d) SETTLEMENT VALUATION EXPERTISE. In a class action involving the awarding of coupons, the court may, in its discretion upon the motion of a party, receive expert testimony from a witness qualified to provide information on the actual value to the class members of the coupons that are redeemed.

CAFA also requires the court to make written findings for each of the factors used to evaluate the fairness of the settlement.34 (These written findings

its adequacy, at least as a settlement class (the significance of this qualification will appear in due course).”) (internal citation omitted). 34. 28 U.S.C. § 1712(e).

Legal Background

apply to all class actions in federal court, not just those removed under CAFA’s expansion of diversity jurisdiction.) Notice to “appropriate” authorities. Within ten days of filing the proposed settlement with the court, each defendant must serve notice on the “appropriate” state and federal officials.35 That notice must include: • • • • • •

any complaints the plaintiff has filed, including attachments or exhibits; notice of any scheduled hearings; any notice to class members, whether proposed or finalized; any settlement agreement, whether proposed or finalized; any final judgment or notice of dismissal; a “reasonable estimate” of the number of class members in each state (and, if feasible, their names), as well as their estimated share of settlement claims; • any written judicial opinion on the settlement.36 The “appropriate federal official” is either the Attorney General of the United States, or, for banks, the primary federal regulator.37 The “appropriate State official” is the person with the primary regulatory, supervisory, or licensing authority over the defendant or, if no one like that exists, the state Attorney General.38 If the defendant does not provide this notice, then the settlement will not release any claims; any class member may choose not to be bound by its terms.39 Under CAFA, the court may not approve a proposed class action settlement until after the proposal has been filed with the appropriate regulators for 90 days. To date, regulatory officials have usually refrained from offering any objections or comments on proposed settlements.40 However, in highprofile settlements or in settlements that appear to be the product of collusion or inadequate representation by the plaintiff, state attorneys have been known to object,41 and the reviewing court usually takes these objections seriously.

35. Id. § 1715(b). 36. Id. § 1715(b)(1)-(8). Since many of these documents could not exist at the time the proposed settlement is first filed, it stands to reason that CAFA contemplates serving additional notices on the appropriate government officials should the proposed settlement be revised and re-filed with the court. 37. Id. § 1715(a)(1). 38. Id. § 1715(a)(2). 39. Id. § 1715(e). 40. Farinella v. PayPal, Inc., 611 F. Supp. 2d 250, 255 (E.D.N.Y. 2009) (“After minor changes were made in response to concerns by state Attorneys General relating to their ability to bring suits in the future, the proposed settlement was resubmitted on March 9, 2007”). 41. See Figueroa v. Sharper Image Corp., 517 F. Supp. 2d 1292, 1301 (S.D. Fla. 2007) (37 state attorneys general objected to coupon settlement).

215

216

Chapter 8 Settling Class Actions

§ 8.2 Types of Settlements So long as it can meet the requirements of Rule 23(e) and CAFA, a class-wide settlement can take any number of forms, limited only by the creativity of the parties and the open-mindedness of the court.42 That said, most class-wide settlements fall into a few basic categories, some of which have received more approval from courts, and some less. The descriptions below offer a basic overview of the most common settlement types, as well as the features that make them more or less attractive to the plaintiff, the defendant, the court, objectors, and other interested third parties.43

§ 8.2.1 Claims-made (“Reverter”) Settlements Conceptually, the simplest form of class-wide settlement is the “claimsmade,” or reverter, settlement. In a claims-made settlement, the defendant establishes an escrow fund for the settlement, and class members make claims against the fund. Any money left in escrow at the end of the claims period reverts to the defendant. (Alternatively, the defendant can guarantee a “floor” of payments without setting aside a separate fund, eliminating the need for any reversion at the end of the process.) The claims-made settlement has obvious benefits for the defendant: it faces a known maximum payout, and it may recover any unclaimed funds.44 The plaintiff may also find a claims-made settlement attractive. Rhetoric about deterrence and retribution aside, a claims-made settlement may encourage the defendant to make more generous settlement offer,45 which increases the plaintiff’s recovery and with it her attorneys’ fees. Moreover, since claims-made settlements are often paid into escrow accounts, the class members’ money is secure.46

42. See Michael Moffitt, Three Things To Be Against (“Settlement Not Included”), 78 Fordham L. Rev. 1203, 1235 (2009) (“Settlement is an eclectic practice, with perhaps almost as many forms as there are disputants. No simple characterization would accurately capture the full range of things going on today under the umbrella of ‘settlement.’”). 43. While we believe this functional description of different settlements is the most useful for the practitioner, it is hardly the only method of analyzing aggregate settlements. See Howard M. Erichson, A Typology of Aggregate Settlements, 80 Notre Dame L. Rev. 1769 (2005) (categorizing aggregated settlements according to “allocation” and “conditionality”). 44. Geoffrey P. Miller & Lori S. Singer, Nonpecuniary Class Action Settlements, 60 L. & Contemporary Problems 97, 106 (1997). 45. Mirfasihi v. Fleet Mortgage Corp., 356 F.3d 781, 785 (7th Cir. 2004) (Posner, J.) (“A reversion provision might encourage a more generous settlement offer.”). 46. Miller & Singer, Nonpecuniary Class Action Settlements, 60 L. & Contemporary Problems at 106.

Types of Settlements 217

Despite the obvious benefits to each party in the litigation, several commentators have registered objections to this kind of settlement. Specifically, they express concern that the ultimate value of the settlement to the class is difficult to ascertain,47 and the relief the class ultimately receives may be disproportionately small compared to the attorneys’ fees awarded.48 As discussed in greater detail below, courts are especially sensitive to the possibility of excessive fee attorneys’ fees.49 In addition, courts are often hesitant to approve any settlements that appear to involve self-dealing by either the plaintiff’s attorneys or the defendant.

§ 8.2.2 Cy Pres Funds Cy pres settlements are similar to claims-made settlements, except that, instead of reverting to the defendant, any leftover funds are paid to an alternate recipient (like a nonprofit registered under § 503(b)) that has some connection to the gravamen of the litigation.50 Courts also employ cy pres relief when the parties can show either that the class members are difficult to identify, or that they change constantly.51 In theory, the fund will be distributed for a purpose as near as possible to the legitimate objectives underlying the lawsuit, the interests of class members, and the interests of those similarly situated.52 These settlements take their name from an old Norman French expression, cy pres comme possible, which means “as near as possible,” (or, more colloquially, “close enough”).53 The cy pres doctrine originally saved charitable bequests that otherwise could no longer succeed: since the original recipient no longer existed, the court would look for an alternate recipient that would best serve the gift’s original purpose.54

47. Id. at 109. 48. As a result, some courts have limited the attorneys’ fees in claims-made settlements to an amount based on those claims actually made by class members. Compare Manual for Complex Litigation (Fourth) § 21.71 (2004); Strong v. BellSouth Telecommc’ns, Inc., 137 F.3d 844, 852–53 (5th Cir. 1998); and Wise v. Popoff, 835 F. Supp. 977, 982 (E.D. Mich. 1993) with Masters v. Wilhelmina Model Agency, Inc., 473 F.3d 423 (2d Cir. 2007) and Williams v. MGM-Pathe Commc’ns Co., 129 F.3d 1026 (9th Cir. 1997). See also Fed. R. Civ. P. 23 advisory committee’s notes to the 2003 amendments, subd. h; 15 U.S.C. §§ 77z-1(a)(6), 78u-4(a) (6) (PSLRA). 49. See § 8.4. 50. Masters, 473 F.3d at 435. 51. In re Airline Ticket Comm’n Antitrust Litig., 268 F.3d 624, 625 (8th Cir. 2001); Masters, 473 F.3d at 436. 52. In re Airline Ticket Comm’n, 307 F.3d at 682-83; see also Masters, 473 F.3d at 436. 53. In re Airline Ticket Comm’n, 307 F.3d at 682-83; Democratic Cent. Comm. v. Wash. Metro. Area Transit Comm’n, 84 F.3d 451, 455 n.1 (D.C. Cir. 1996). 54. See Masters, 473 F.3d at 436; In re Airline Ticket Comm’n, 268 F.3d at 625.

218

Chapter 8 Settling Class Actions

There are several concerns surrounding cy pres settlements. First, as several courts have pointed out, cy pres relief is susceptible to abuse: the plaintiff may suggest the relief to inflate the amount paid “to the class” (justifying greater attorneys’ fees)55 while the defendant will agree in order to reduce administrative costs and (potentially) steer the distribution to causes that will rebuild its reputation.56 The plaintiff may argue that cy pres relief has a deterrent effect: the defendant, hurt by the money it has to pay out, will reconsider engaging in the same behavior.57 Some courts have accepted this argument;58 others have held that it does not address the doctrinal requirement of indirect benefit to the class because it is “purely punitive.”59 Second, the parties must decide who may claim the remainder of the fund after all the class members have made their claims, leading to a surprising number of court battles.60 Finally, several courts have taken issue with parties’ failure to match the recipient of the cy pres award to the subject matter of the lawsuit.61 In practice, the parties often donate cy pres funds to local charities with little connection

55. See, e.g., SEC v. Bear, Stearns & Co., 626 F. Supp. 2d 402, 415 (S.D.N.Y. 2009) (“To the extent attorney’s fee awards are determined using the percentage of recovery method, the recovery and, therefore, the attorney’s fee award is exaggerated by cy pres distributions that do not truly benefit the plaintiff class.”). 56. Id. at 415 (“In general, defendants reap goodwill from the donation of monies to a good cause. However, defendants may also channel money into causes and organizations in which they already have an interest.”); see also Geoffrey P. Miller & Lori S. Singer, Nonpecuniary Class Action Settlements, 60 L. & Contemporary Problems 97, 109 (1997) (“The valuation of a fluid recovery fund can be exceedingly complicated because some or all payments in a fluid recovery go to persons other than class members who have suffered harm. If others get part of the fund, the value of the settlement may not be the value to the class members only, since the defendant is paying out additional sums. Should sums received by others receive full credit in the valuation process? What about moneys that are paid for ostensibly eleemosynary purposes, such as charities or public education campaigns?”). 57. Mirfasihi v. Fleet Mortgage Corp., 356 F.3d 781, 784 (7th Cir. 2004). 58. Simer v. Rios, 661 F.2d 655, 676 (7th Cir. 1981) (cy pres relief may be appropriate where underlying “statute embodies policies of deterrence, disgorgement, and compensation”). 59. Mirfasihi, 356 F.3d at 784. The Seventh Circuit did eventually sign off on that settlement, even though it still contained a cy pres element. Mirfasihi v. Fleet Mortgage Corp., 551 F.3d 682, 687 (7th Cir. 2008). 60. See In re Lease Oil Antitrust Litig., 570 F.3d 244, 244 (5th Cir. 2009) (state of Texas intervenes to contest distribution of cy pres funds); In re Airline Ticket Comm’n Antitrust Litig., 268 F.3d 624 625 (8th Cir. 2001) (“cy pres distributions of unclaimed funds have been controversial in the courts of appeals”); Bear, Stearns & Co., 626 F. Supp. 2d at 412 (“[T]he question of what to do with $79 million in unclaimed funds is unprecedented. It has stimulated a cy pres feeding-frenzy of competing interests.”). 61. In re Airline Ticket Comm’n, 307 F.3d at 683 (“The last time this case was before us, we . . . emphasize[d] the importance of tailoring a cy pres distribution to the nature of the underlying lawsuit. In reversing the district court’s initial distribution of funds to local charities, we suggested that the court failed to consider the full geographic scope of the case.”); Six Mexican Workers v. Ariz. Citrus Growers, 904 F.2d 1301, 1312 (9th Cir. 1990); Bear, Stearns & Co., 626 F. Supp. 2d at 414 (“cy pres remedies often stray far from the ‘next best use’ for the undistributed

Types of Settlements 219

to the issue addressed by the class action,62 or even to law schools.63 (The problem is particularly acute if the cy pres distribution goes to a local charity but the class has national scope.) None of these issues are insurmountable, but they do advise caution in using cy pres relief as part of a settlement.

§ 8.2.3 Coupons In a coupon settlement, in addition to any monetary relief the class members receive coupons or discounts for the defendant’s products or services.64 Coupon settlements are attractive to the defendant because they do not require the same cash outlay as other forms of settlement, and they may encourage class members to do more business with it.65 They are attractive to the plaintiff because the defendant will agree to them more quickly, and their estimated value can help increase the amount of fees plaintiff’s attorneys may seek.66 Coupon settlements are less attractive to absent class members. They come with various restrictions (like expiration dates), and most discounts are not transferable—meaning the class members will only receive relief if they buy something else from the defendant.67 And, if there really were a problem with

62.

63.

64. 65.

66.

67.

funds and turn courts into a grant giving institution doling out funds to hospitals, legal services organizations, law schools, and other charities”). Bear, Stearns & Co., 626 F. Supp. 2d at 415 (“cy pres remedies often stray far from the “next best use” for the undistributed funds and turn courts into a grant giving institution doling out funds to hospitals, legal services organizations, law schools, and other charities”). See, U.C. Davis School of Law, Reynoso Scholarship Receives $263,000 Cy Pres Award, http:// www.law.ucdavis.edu/news/news.aspx?id=2297 (cy pres fund for subscription overcharges donated to law school scholarship) (last viewed Feb. 28, 2010); U. Colo. School of Law, Clinic Receives Cy Pres Award from Alumnus, http://lawweb.colorado.edu/news/showArticle. jsp?id=483 (portion of cy pres fund for insurance coverage case donated to law school) (last viewed Feb. 28, 2010). In re Mex. Money Transfer Litig., 267 F.3d 743, 748 (7th Cir. 2001). Id. at 748 (“coupons serve as a form of advertising for the defendants”). There may be legitimate impulses at play here as well. For example, in a products-liability case, if the source of complaints was relatively harmless and could be fixed easily, a coupon settlement might be a low-cost way of implementing a recall for those customers who wanted one. Miller & Singer, Nonpecuniary Class Action Settlements, 60 L. & Contemporary Problems at 111 (“When nonpecuniary settlements are being negotiated instead of cash awards, there is an added level of complexity because the defendant and class counsel have an opportunity to manipulate the valuation of the settlement in order to serve their individual purposes. The problem of sacrificing class recovery for the attorneys’ fee becomes exacerbated. Because the fee is typically in cash, the ratio of the fee to the class recovery can be manipulated by exaggerating the value of the nonpecuniary class settlement.”). Id. at 108 (“For [consumers], the right to receive a discount will be worthless, unless they can transfer the coupon for value to someone who does want the item. Even if transfer of coupons is permitted, the process is likely to be costly and inefficient, and the original holders of

220

Chapter 8 Settling Class Actions

a defendant’s product or practices, one might reasonably ask why the absent class members would want to do business with that company again.68 Finally, coupon settlements undermine deterrence (a frequently-offered rationale for class damage awards). If the settlement simply drives more business to the defendants, why would it refrain from similar allegedly wrongful behavior?69 These drawbacks have made coupon settlements controversial,70 and, as a result, coupon settlements are now subject to heightened scrutiny under CAFA. CAFA requires judges to issue a written finding as to whether a coupon settlement is fair, reasonable, and adequate.71 It also grants courts the authority to require testimony from an independent expert on the value of the coupons to the proposed class.72 And it allows courts to treat a coupon settlement like a cy pres settlement, requiring the defendant to give the value of any leftover coupons to a designated charity or government organization.73 CAFA also limits the fees that plaintiffs’ attorneys can collect in coupon settlements: any contingency fee claimed must be based on the value of the coupons actually redeemed.74 And it prescribes methods of calculating

68.

69.

70.

71.

72.

73.

74.

the coupons will surely receive less—often drastically less—than the amount of the discount upon sale.”). Id. (“In coupon settlements, class members receive the right to a discount on the purchase of a product or service. If all class members intended to purchase the given product or service already, and proceeded to do so using their coupons, valuation would be easy. In the real world, however, many consumers do not want to purchase the item in question.”). See In re Gen. Motors Corp. Pick-Up Truck Fuel Tank Prods. Liab. Litig., 55 F.3d 768, 803 (3d Cir. 1995) (“although the degree to which a settlement hurts a defendant is not ordinarily a measure of the settlement’s adequacy, the fact that this settlement might actually benefit GM by motivating current owners to buy new trucks from the company (the settlement may arguably be viewed as a GM sales promotion device) certainly does little to allay the concern that the settlement did not advance the interests of the class as much as it might have”). See, e.g., Christopher R. Leslie, A Market-Based Approach to Coupon Settlements in Antitrust and Consumer Class Action Litigation, 49 U.C.L.A. L. Rev. 991, 1041–67 (2002) (discussing drawbacks to coupon settlements); Note, In-Kind Class Action Settlements, 109 Harv. L. Rev. 810, 821-23 (1996) (discussing dilemmas posed by coupon settlements). 28 U.S.C. § 1712(e) (“In a proposed settlement under which class members would be awarded coupons, the court may approve the proposed settlement only after a hearing to determine whether, and making a written finding that, the settlement is fair, reasonable, and adequate for class members.”). Id. § 1712(d) (“In a class action involving the awarding of coupons, the court may, in its discretion upon the motion of a party, receive expert testimony from a witness qualified to provide information on the actual value to the class members of the coupons that are redeemed.”). Id. § 1712(e) (“The court, in its discretion, may also require that a proposed settlement agreement provide for the distribution of a portion of the value of unclaimed coupons to 1 or more charitable or governmental organizations, as agreed to by the parties.”). Id. § 1712(a) (“If a proposed settlement in a class action provides for a recovery of coupons to a class member, the portion of any attorney’s fee award to class counsel that is attributable

Types of Settlements 221

attorneys’ fees on a non-contingency basis in coupon settlements.75 Courts have extended this level of scrutiny to other “in-kind” settlements, even if they do not technically qualify as coupon settlements under CAFA.76 In addition, CAFA’s notice requirement has led to intervention by state attorneysgeneral in cases where coupon settlements appear to provide little value to the class.77 So why use coupon settlements at all? Because they still have some use in limited circumstances. In some cases, the fact that the coupon may be worth more to the consumer than the defendant may provide a benefit to all parties.78 For a defendant in financial distress, a coupon settlement may represent its best chance of offering a high-value settlement to the class.79 In other cases, a coupon settlement may be the only way that a settlement will occur at all.80 Finally, in certain circumstances, coupons are attractive even to class members. In a class action in which the alleged harm is comparatively minor and class members have repeat-business relationships with the defendant, a coupon may in fact be almost as good as cash.81 In those cases, however, the parties are well advised to reduce the objectionable aspects of coupon settlements. Such measures may include making the coupons fully transferable and providing a reversion provision should coupon usage fall below a certain threshold.

75. 76.

77. 78.

79.

80. 81.

to the award of the coupons shall be based on the value to class members of the coupons that are redeemed.”). Id. § 1712(b)-(c). Synfuel Techs., Inc. v. DHL Express (USA), Inc., 463 F.3d 646, 654 (7th Cir. 2006) (“CAFA required heightened judicial scrutiny of coupon-based settlements based on its concern that in many cases ‘counsel are awarded large fees, while leaving class members with coupons or other awards of little or no value.’ We recognize that the pre-paid envelopes are not identical to coupons, since they represent an entire product, not just a discount on a proposed purchase. Nonetheless, they are a form of in-kind compensation that shares some characteristics of coupons, including forced future business with the defendant and, especially for heavier users, the likelihood that the full amount of Airborne’s gains will not be disgorged.”) (internal citations omitted) (Wood, J.). See Figueroa, 517 F. Supp. 2d at 1301 (37 state attorneys general objected to coupon settlement). Note, In-Kind Class Action Settlements, 109 Harv. L. Rev. 810, 821 (1996) (“Without scrip there may be no zone of possible agreement between the defendants and the plaintiffs because the defendants cannot offer enough to make settlement worthwhile for the plaintiffs, and vice versa.”). Lisa M. Mizzeti & Whitney R. Case, The Coupon Can Be the Ticket: The Use of “Coupon” and Other Non-Monetary Redress in Class Action Settlements, 18 Geo. J. Legal Ethics 1431, 1433-34 (2005). Of course, if the defendant is in financial distress, it is less likely that the coupon will be worth much to the class members. Id. at 1434. Id. at 1436.

222

Chapter 8 Settling Class Actions

§ 8.2.4 Injunctions/ Consent Decrees Not all relief to class members must be monetary. The defendant may also agree to cease some behavior or provide some other non-monetary relief. The most common form of injunctive relief is for the defendant to agree to cease its allegedly illegal behavior. For example, if the defendant is accused of discrimination, it may cease making discriminatory hiring decisions.82 But the defendant can also offer affirmative actions that have value to the class. For example, a defendant that owned a number of non-handicap-accessible minimarts might agree to make all of its stores handicap-accessible within a certain time frame.83 Purely injunctive settlements may be problematic, however. Promises to change conduct are easy, but compliance is not.84 And the court may be reluctant to assume the task of enforcing injunctive relief over a period of years.85 Under certain circumstances, injunctive relief may also signal possible collusion between the parties.86

8.2.5 Therapeutic Relief In general, therapeutic relief means that the corporate defendant agrees to some kind of restructuring or policy change in order to address the alleged problems that formed the basis of the lawsuit.87 Therapeutic relief can include

82. See DeHoyos v. Allstate Corp., 240 F.R.D. 269, 284 (W.D. Tex. 2007) (“Additionally, injunctive relief requiring Allstate to end its discriminatory practices is the appropriate and predominant form of relief sought and obtained by plaintiffs.”). 83. See Molski v. Gleich, 318 F.3d 937, 943 (9th Cir. 2002) (“ARCO is required to complete certain accessibility enhancements (i.e., structural modifications to improve accessibility for mobility-impaired individuals) within six years of the District Court’s final approval of the decree”). The Molski settlement was overturned on appeal for reasons unrelated to the accessibility enhancements. 84. See Voss v. Rolland, No. 08-1874, 2010 U.S. App. LEXIS 1017, at *2 (1st Cir. Jan. 19, 2010) (noting “state’s inability to comply fully with an earlier settlement” that provided injunctive relief to class). 85. See id., at *12 (noting trial court found noncompliance with settlement “four times between 2000 and 2007”). 86. In re Gen. Motors Corp. Pick-Up Truck, 55 F.3d at 803 (absence of monetary relief is “a prime indicator of suspect settlements, [and] increases our sense that the class’s interests were not adequately vindicated”); see also In re Mex. Money Transfer Litig., 267 F.3d 743, 748 (7th Cir. 2001) (“This is one of many class actions in which everyone other than the plaintiffs has been paid in cash . . . That’s enough to raise suspicions . . .”). 87. Jayne W. Barnard, Corporate Therapeutics at the Securities and Exchange Commission, 2008 Colum. Bus. L. Rev. 793, 794 (2008).

Types of Settlements 223

corporate restructuring (including reconfiguring a board of directors), hiring compliance staff, or other improvements to legal compliance programs, such as setting up ethics committees or employee training programs.88 “Corporate therapy” allows for a wide range of innovative solutions to behavior that may have affected an entire class. Therapeutic relief is not common in class actions; it is more often invoked by the SEC, or by plaintiffs in shareholder-derivative suits.89 However, a growing number of securities class-action lawyers have begun to suggest therapeutic relief in shareholder class actions.90 Therapeutic relief is difficult to value for purposes of determining attorneys’ fees in settlement.91 Courts evaluating therapeutic relief have found that attorneys-fee awards must be valued within the context of the settlement as a whole.92 Some courts have also found that therapeutic relief may enhance an award of attorneys’ fees.93 However, these findings depend on the lawsuit; while the kinds of structural changes deemed “corporate therapeutics” may benefit shareholders, for example, they are worth less to consumers who might not wish to do business with the company again.94

88. Id. at 794, 806–08. 89. Id. at 794. 90. Id. (“Class counsel have resolved many derivative suits and shareholder class actions in recent years with what are known as ‘therapeutic’ settlements.”). 91. A number of courts have held that, in cases where therapeutic relief is part of the settlement, the relief does not have to be monetary to justify an award of costs, or even fees. See Ramey v. Cincinnati Enquirer, Inc., 508 F.2d 1188, 1194–95 (6th Cir. 1974); Cohn v. Nelson, 375 F. Supp. 2d 844, 861 (E.D. Mo. 2005). 92. Id. at 847 (“The value of the Settlement must be considered in the context of the global resolution of all of the securities-related actions that embroiled Charter and its officers and directors. The Settlement attempts to balance the interests of Charter as a going concern while at the same time contributing to the resolution of complex litigation.”). 93. Id. (because Delaware law values “significant value upon non-monetary benefits obtained for shareholders,” fee award for settlement including changes in corporate governance was justified). 94. Synfuel Techs., Inc., 463 F.3d at 654 (“Finally, we are not persuaded by Synfuel’s contention that the operational changes required by the settlement ‘will result in over $30 million in savings that will flow directly into the pockets of Class members.’ These changes will benefit only those class members who continue to purchase services from Airborne. The value of these operational changes must also be discounted to account for the fact that at least some, if not most, class members will not fail to record the weight of their packages in the future. It is future customers who are not plaintiffs in this suit who will reap most of the benefit from these changes.”).

224

Chapter 8 Settling Class Actions

§ 8.2.6 Named Plaintiff Settlements It is possible to settle a class action on a named-plaintiff-only basis. In these cases, the defendant provides a benefit to the named plaintiff (and generally pays her lawyer as well), but the remainder of the class receives nothing. The claims of the absent class members are dismissed without prejudice to their bringing them again. Settlement on a named-plaintiff-only basis generally does not require notice to the class, because they do not yet know about (and therefore are not relying) on the class action.95 Since the named-plaintiff settlement provides no benefits to the class, yields much less in attorneys’ fees, and does not provide a complete release of claims, it is an option only when both sides have decided that certification of a class is unlikely. At that point, the plaintiff will be happier with some relief (and her counsel with some fees) than none. And, if there is little danger of additional plaintiffs bringing the same claim, the defendant will be satisfied with less than a complete release.

§ 8.3 Class-wide Settlement Steps There are a number of steps in reaching a class-wide settlement, some of which are the same as in regular litigation. For example, one party will have to make an initial approach to the other side. Frequently, the plaintiff will make a settlement overture early in the case, stressing the advantages to forgoing costly discovery and litigation in favor of a relatively simple solution that can be provided to the class. In these instances, the plaintiff needs to be careful that the settlement overture does not look too much like a naked grab for cash. And the defendant needs to be careful that an early agreement to settle does not convey a sense of desperation, thus driving up the cost of settlement. Settlement discussions may occur at any time during the litigation. They may commence as early as the filing of the complaint,96 and as late as the eve

95. See Sikes v. Am. Tel. & Tel. Co., 841 F. Supp. 1572, 1579-80 (S.D. Ga. 1993) (given lack of publicity “any absent unnotified proposed class members are not likely to have developed a ‘reliance interest’ in the proposed class action,” and therefore, notice to absent class members was not necessary). 96. Denney v. Deutsche Bank AG, 443 F.3d 253, 261 (2d Cir. 2006) (“Class counsel opened settlement negotiations with the Jenkens & Gilchrist Defendants in November 2003, soon after the complaint was filed. . . . Given the uncertainty of insurance and the precarious position of Jenkens & Gilchrist, lead counsel for the class ‘believed it was in the best interest of all Class Members to immediately attempt to negotiate a global settlement.’”).

Class-wide Settlement Steps

of trial.97 Frequently, the parties will begin settlement discussions after a dispositive moment in the litigation, such as the denial of a defendant’s motion to dismiss,98 or the granting of a plaintiff’s motion for class certification. The decision when to begin settlement talks is in one sense simple. As lawand-economics scholars would say, one should consider settling when the benefits to be gained from a settlement (relief for the plaintiff, release for the defendant) outweigh the costs (including the costs of negotiation itself).99 From a strategic standpoint, however, the timing of settlement affects how each party values any settlement, and so may affect the ultimate outcome of the negotiation. Early in the case, the defendant may have more information about the merits of plaintiff’s case than the plaintiff does, allowing it to minimize the amount of any settlement proposal.100 At the same time, engaging in early settlement talks may signal to the plaintiff that the defendant is worried about the merits, implying there is some merit to the plaintiff’s claims and increasing the perception of any settlement’s value.101 Finally, the timing of the settlement may affect the level of scrutiny any class-wide settlement receives from the court that must approve it.102

97. Masters, 473 F.3d at 427 (settlement reached after jury was empanelled); Wal-Mart Stores, Inc. v. Visa U.S.A. Inc., 396 F.3d 96, 118 (2d Cir. 2005) (noting parties “struck a deal at the courthouse steps”). 98. See, e.g., Masters, 473 F.3d at 427 (“Settlement negotiations began with certain defendants only after the court denied defendants’ motions for summary judgment and were heavily influenced by the real prospect of the defendants’ bankruptcy.”); Synfuel Techs., Inc., 463 F.3d at 648 (“After the district court denied Airborne’s motion to dismiss, the company decided to come to the table.”). 99. See Richard A. Posner, Economic Analysis of Law 68–69 (5th ed. 1998). 100. See In re Gen. Motors Corp. Pick-Up Truck, 55 F.3d at 789 (“With early settlement, both parties have less information on the merits. That is, they have less information on the membership of the class, on the size of potential claims, on whether the settlement purports to resolve class or individual claims, on the strengths and weaknesses of the case, and on how class members will benefit from the settlement.”) (internal citation omitted); see also Jonathan R. Macey & Geoffrey P. Miller, Judicial Review of Class Action Settlements, 1 J. of Legal Analysis 167, 192 (2009) (“early settlements present substantial risks: The class attorneys are vulnerable to settling cheap with a better-informed defendant, and early reasonableness in settlement behavior may impair plaintiffs’ bargaining position.”); Andrew F. Daughety & Jennifer F. Reinganu, Endogenous Sequencing in Models of Settlement & Litigation, 9 J.L. Econ. & Org. 314, 315 (1993) (noting that in settings where one side has more information than the other, timing of settlement offers may affect settlement outcomes). 101. See Avinash K. Dixit & Barry J. Nalebuff, The Art of Strategy 241–62 (2008) (discussing information-signaling effects in strategy). 102. See Dunleavy v. Nadler, 213 F.3d 454, 458 (9th Cir. 2000) (“Settlements that take place prior to formal class certification require a higher standard of fairness.”).

225

226 Chapter 8 Settling Class Actions

As this analysis implies, the plaintiff is usually ready to settle (for the right price) from day one.103 Indeed, while a nontrivial number of class-action plaintiffs file complaints with the intention of trying them to verdict if they have to, very few actually hope for a trial as opposed to a settlement.104 The defendant, on the other hand, must weigh the advantages of a settlement against the cost of continuing the litigation, and the likelihood that it will succeed in opposing the plaintiff’s claims through verdict and appeal. As a result, the defendant is often willing to settle colorable claims, even if it believes it has a strong chance of prevailing at trial, simply because the cost of reaching trial is high, and even a small risk of losing at trial may result in large monetary losses.105 As a result, a defendant often will only negotiate a settlement if it can deny any wrongdoing.106

§ 8.3.1 Mediation While there is no requirement that parties in a class action engage in mediation, it is a commonly used method of beginning settlement talks.107 Mediation offers several distinct advantages to the class-action litigant. First, as in any hard-fought lawsuit, a mediator can help the parties reach a mutually agreeable settlement. But mediation may also serve as evidence that the parties reached their settlement only after extensive arms-length negotiations, and therefore provide the court some comfort that the settlement did not result from collusion between plaintiff’s and defendant’s counsel.108 In some cases,

103. There are some countervailing forces at work for the plaintiff. To the extent the court may decide fees based on a lodestar or lodestar cross-check (see §§ 8.4.1.1, 8.4.2), her counsel may resist early settlement before they have completed enough billable work. 104. See Richard A. Posner, Economic Analysis of Law 627 (5th ed. 1998). 105. See Mirfasihi v. Fleet Mortgage Corp., 356 F.3d at 783 (7th Cir. 2004) (“A colorable claim may have considerable settlement value (and not merely nuisance settlement value) because the defendant may no more want to assume a nontrivial risk of losing than the plaintiff does.”). 106. Grinnell Corp., 495 F.2d at 459 (“One of the underlying premises on which such negotiations are based, however, is that defendants never have to concede their guilt. They can protest their innocence of any wrongdoing and assert that they are settling for purely pragmatic business reasons.”). 107. See Wal-Mart Stores, Inc., 396 F.3d at 118 (noting parties engaged in mediation); Denney v. Deutsche Bank AG, 443 F.3d 253, 261 (2d Cir. 2006) (noting parties engaged in three mediation sessions before retired judge). 108. See Rodriguez v. West Publ’g Corp., 563 F.3d 948, 961 (9th Cir. 2009) (“Judge Weinstein, who mediated the settlement, attested that the negotiations were conducted at arm’s length; there was no evidence of collusion”); Farinella v. PayPal, Inc., 611 F. Supp. 2d 250, 274 (E.D.N.Y. 2009) (“This Circuit has recognized that the involvement of a mediator in pre-certification settlement negotiations helps to ensure that the proceedings are free of collusion and undue pressure.”).

Class-wide Settlement Steps

the mediator may even provide the court with an “expert” opinion on whether the settlement is “fair, reasonable, and adequate.”109

§ 8.3.2 Drafting the Settlement Agreement Often, parties will begin with a “term sheet,” which is essentially an “agreement to agree.” While many parties do draft a separate “Term Sheet” document,110 the term sheet can take any number of alternate forms, such as letters outlining the settlement terms.111 The parties will often disclose the initial term sheet to the court at the preliminary fairness hearing.112 As a practical matter, the term sheet usually reflects the parties’ agreement that the plaintiff will release her claims in exchange for specified consideration from the defendant; and that both sides believe that the lawsuit is appropriate for settlement on a class-wide basis. Beyond that, the parties should work out any other terms that they believe need to be addressed before negotiations begin in earnest. What follows is a brief survey of some of the most common (or most controversial) terms in class-action settlements.113 Compensation of non-settling parties. If only a few defendants in a multidefendant class action settle, the parties may agree to a method of reducing judgment for the remaining parties in order to compensate them for any potential loss of indemnification or contribution.114 Discovery. The parties may also focus on the amount of discovery to be conducted. If settlement discussions begin at an early stage of the litigation, the plaintiff may need to conduct due-diligence discovery so she can credibly represent to the court that that the settlement is fair, reasonable, and adequate.115 While it is in the defendant’s interest to allow enough discovery to

109. Rodriguez, 563 F.3d at 957 (noting that “[i]n [mediator] Judge Weinstein’s opinion, the settlement ‘was arrived at through arm’s length negotiations by counsel who were skilled and knowledgeable about the facts and law of this case,’ and it was ‘fair, reasonable and adequate in light of the strengths and weaknesses of the claims and defenses and the risks of establishing liability and damages.’”). 110. See In re Syncor ERISA Litig., 516 F.3d 1095, 1099 (9th Cir. 2008). 111. Masters, 473 F.3d at 427 (parties used letter agreements that “outlined the settlement terms, including the amount of each defendant’s contribution and the manner of payment”). 112. Manual for Complex Litigation (Fourth) § 21.632 at 320. 113. For an exemplar settlement agreement, see Appendix 8A. 114. See, e.g., Denney, 443 F.3d at 262 (remanding settlement agreement “because the settlement agreement fails to specify the judgment-reduction method that will be used to compensate nonsettling defendants and third parties for the loss of their contribution and indemnity claims, and thereby unfairly jeopardizes the rights of nonsettling parties”). 115. See In re Synthroid Mktg. Litig., 264 F.3d 712, 714–15 (7th Cir. 2001) (noting district judge had rejected original settlement proposal because “too little discovery had been completed”); Reynolds v. Beneficial Nat’l Bank, 260 F. Supp. 2d 680, 694-95 (N.D. Ill. 2003) (same).

227

228

Chapter 8 Settling Class Actions

insulate the proposed settlement from accusations of collusion or reverse auction, it will likely balk at allowing the plaintiff unfettered access to its records; after all, avoidance of the cost, burden, and public embarrassment of discovery is one of the benefits to defendant of settling the case. Therefore, the defendant may negotiate limits to the scope of discovery. Walk-away rights. The defendant’s “walk-away” right allows it to reject the settlement if too many class members opt out of the settlement (meaning that the defendant will not receive the peace it was negotiating for).116 The plaintiff may also negotiate for walk-away rights in the event that too many claimants come forward, depleting the settlement fund,117 although a walk-away term like this risks signaling to the court that the plaintiff is less interested in protecting the interests of the class than inflating her attorneys’ fees. Effect of settlement talks. The parties may also negotiate about the evidentiary or estoppel effects of the settlement talks. Federal Rule of Evidence 408 governs class-settlement negotiations the same way it does individual settlement negotiations.118 However, it is still prudent for both parties to ensure that their discussions do not undermine them should the settlement discussions fall through. In particular, the defendant may wish to make clear that, while a class might be certified for settlement purposes, it has not conceded the difficulties in certifying a class for litigation purposes.119 Scope of Release. The parties may also focus on the scope of the release. The defendant will want to draft the release as broadly as possible: from its perspective, it is purchasing freedom from liability, and it wants as much value for its money as it can get.120 In addition, while the plaintiff is limited by the

116. See, e.g., Denney, 443 F.3d at 261 (settling defendants “Jenkens & Gilchrist reserved the right, however, to terminate the settlement if anyone opted out”); In re Cmty. Bank of N. Va., 418 F.3d 277, 286 (3d Cir. 2005) (“The proposed settlement states that if more that .5% of the class members opt out of the settlement class, the settling defendants may terminate the settlement.”); see also Richard Arsenault, et al., Settlement Strategies for Complex Global Litigation, 43 Trial 40, 45 (Dec. 2007). 117. Id. at 45. 118. Petruzzi’s IGA Supermarkets v. Darling-Delaware Co., 998 F.2d 1224, 1247 (3d Cir. 1993). 119. See, e.g., In re Gen. Motors Corp. Pick-Up Truck, 55 F.3d at 780 (“For purposes of settlement only and without prejudice to GM’s substantial opposition to class certification, the named parties agreed to the certification of a settlement class of C/K pickup owners, described below.”). 120. Carnegie v. Household Int’l, Inc., 376 F.3d 656, 663 (7th Cir. 2004) (noting that “[u]ntil [the settlement was reversed on appeal, defendants] desperately wanted the RICO claim included in the class settlement so that they wouldn’t have to face it in any other RAL suits”); Wal-Mart Stores, Inc., 396 F.3d at 106 (“Broad class action settlements are common, since defendants and their cohorts would otherwise face nearly limitless liability from related lawsuits in jurisdictions throughout the country. Practically speaking, class action settlements simply will not occur if the parties cannot set definitive limits on defendants’ liability.”) (internal citations omitted); In re Gen. Am. Life Ins. Co. Sales Practices Litig., 357 F.3d 800, 805 (8th Cir. 2004) (“There is no impropriety in including in a settlement a description of claims that

Class-wide Settlement Steps

“identical factual predicate” doctrine from making the release too broad,121 she has little incentive to limit the scope of the release; she has received the relief she bargained for, and will try to ensure that the settlement goes through. Allocation of settlement funds. Sometimes, different members of the class have been injured differently. The parties may wish to allocate a specific amount of the settlement to certain subgroups to reflect these variations. A risk of this approach, however, is that allocation clauses can raise fairness concerns, drawing objections from groups who believe their share was not large enough. Clear-sailing provisions. The defendant may agree not to oppose plaintiff’s motion for attorneys’ fees, nor to dispute the amount of fees the plaintiff requests, no matter how large. (Indeed, if the fees are coming from a common fund, the defendant has little incentive to care how much the attorneys get.) Some courts treat clear-sailing provisions as a red flag, signaling there may be other fairness-based concerns about the settlement.122 Quick-pay provisions. The plaintiff may propose a “quick-pay” provision which provide her counsel with their fee immediately. The logic behind the “quick-pay” provision is that it may reduce the risk of sabotage by opportunistic objectors. If objectors see that counsel has already been paid, they are less likely to file meritless objections simply to extort fees of their own.123 Quick-pay provisions are risky, however. First, the defendant may balk at paying plaintiff’s counsel first. Even if it does not, either the judge or a publicinterest objector may object to paying the plaintiff’s attorneys before the class as either unreasonable or as evidence the class is not adequately represented.124 Incentive payments for named plaintiffs. Settlement agreements often include some form of additional payment to the named plaintiffs,125 to

121.

122.

123. 124.

125.

is somewhat broader than those that have been specifically pleaded. In fact, most settling defendants insist on this.”). Wal-Mart Stores, Inc., 396 F.3d at 106 (“Plaintiffs’ authority to release claims is limited by the ‘identical factual predicate’ and ‘adequacy of representation’ doctrines. Together, these legal constructs allow plaintiffs to release claims that share the same integral facts as settled claims, provided that the released claims are adequately represented prior to settlement.”). See Weinberger v. Great N. Nekoosa Corp., 925 F.2d 518, 525 (1st Cir. 1991) (scrutiny of class settlement “particularly necessary where a clear sailing agreement strips any true marketbased check upon the scope and costs of counsel’s efforts”). Brian T. Fitzpatrick, The End of Objector Blackmail?, 62 Vand. L. Rev. 1623, 1624 (2009). Id. at 1626 (“one might object to quick-pay provisions on the ground that they are utterly selfserving—they have, after all, transformed class action lawyers into something that had been previously unknown in the law: contingency-fee lawyers that get paid before their clients . . .”). Theodore Eisenberg & Geoffrey P. Miller, Incentive Awards to Class Action Plaintiffs: An Empirical Study, 53 U.C.L.A. L. Rev. 1303, 1307 (2006) (finding 28% of settled class actions between 1993 and 2002 included an incentive award to class representatives); see also Rodriguez, 563 F.3d at 958 (“Incentive awards are fairly typical in class action cases.”) (emphasis in original).

229

230

Chapter 8 Settling Class Actions

compensate them for their time complying with discovery, testifying at depositions, and generally acting as private attorneys general.126 Courts often allow these payments, although several courts have not when the payments sought appeared excessive.127 In fact, the Ninth Circuit Court of Appeals recently criticized one settlement agreement in which several named plaintiffs received incentive awards pursuant to an agreement that had existed since the beginning of the litigation.128

§ 8.3.3 Preliminary Approval Order Once the parties have reached an agreement, they submit the proposed settlement to the court for preliminary approval.129 This triggers the 10-day deadline (imposed by CAFA) for the defendant to notify the appropriate state and federal officials of the proposed settlement.130 The preliminary approval process is not necessarily complicated. Depending on the court’s familiarity with the case, the parties may simply offer briefs and an informal presentation on the basic terms of the settlement.131 The parties can present experts if they believe they will be persuasive, but this typically is not done at this early juncture.132 While the process can be informal, the parties should still prepare for an active bench; the more questions they can answer at a preliminary stage,133 the less likely they will

126. Rodriguez, 563 F.3d at 958–59 (incentive awards “are intended to compensate class representatives for work done on behalf of the class, to make up for financial or reputational risk undertaken in bringing the action, and, sometimes, to recognize their willingness to act as a private attorney general”). 127. See In re Synthroid Mktg. Litig., 264 F.3d at 723 (affirming rejection of incentive awards for third-party payor plaintiffs because they did not require “additional compensation” to serve as class representatives). 128. Rodriguez, 563 F.3d at 955 (“We agree that the ex ante incentive agreements created conflicts among the five contracting class representatives, their counsel, and the rest of the class. We disapprove of them.”). 129. Manual for Complex Litigation (Fourth) § 21.632 at 320 (“First, counsel submit the proposed terms of the settlement and the judge makes a preliminary fairness evaluation.”). 130. 28 U.S.C. § 1715(b). 131. Manual for Complex Litigation (Fourth) § 21.632 at 320–21 (“In some cases, this initial evaluation can be made on the basis of information already known, supplemented as necessary by briefs, motions, or informal presentations by parties.”). For an exemplar preliminary approval brief, see Appendix 8B. 132. Id. § 21.632 at 321 (“Individuals sometimes provide expert testimony regarding the valuation of the settlement or even of its legal validity.”). 133. Id. (“The judge should raise questions at the preliminary hearing and perhaps seek an independent review if there are reservations about the settlement, such as unduly preferential treatment of class representatives or segments of the class, inadequate compensation or harms to the classes, the need for subclasses, or excessive compensation for attorneys. The

Class-wide Settlement Steps

have to pursue further court-ordered negotiations.134 If the parties seek class certification at the same time as preliminary approval, then they should prepare for a full class-certification hearing,135 albeit one in which the defendant does not contest certification. Where a class has not yet been certified, the court will often preliminarily scrutinize the settlement to ensure that it appears sufficiently fair, reasonable, and adequate to justify disseminating class notice.136 Once it is satisfied the requirements of Rule 23(a) and CAFA have been met, it may issue a preliminary approval order. The preliminary approval order should do four things: • tentatively certify the settlement class; • preliminarily approve settlement based on (a) an arms-length negotiation, and (b) a settlement within the range of possible outcomes; • address necessary logistical concerns (authorize notice, set the date for the fairness hearing, and set deadlines for opt-outs and objections); and • stay the litigation pending a fairness hearing.137

134.

135.

136.

137.

parties then have an opportunity to resume negotiations in an effort to remove potential obstacles to court approval.”). See Mirfasihi v. Fleet Mortgage Corp., 450 F.3d 745, 751 (7th Cir. 2006) (“It is understood that mathematical certainty and precision is not possible in valuing claims, particularly at this early stage in the litigation, but more is needed here to ensure that the informationsharing class’s interests are properly considered.”). Manual for Complex Litigation (Fourth) § 21.632 at 321 (“If the case is presented for both class certification and settlement approval, the certification hearing and preliminary fairness evaluation can usually be combined. The judge should make a preliminary determination that the proposed class satisfies the criteria set out in Rule 23(a) and at least one of the subsections of Rule 23(b).”); see, e.g., Amchem Prods. v. Windsor, 521 U.S. 591, 620 (1997) (“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”). For more on full class certification hearings, see § 5.4. See Weinberger v. Kendrick, 698 F.2d 61, 73 (2d Cir. 1982); Ace Heating & Plumbing Co. v. Crane Co., 453 F.2d 30 (3d Cir. 1971); Lewis v. Starbucks Corp., No. 2:07-cv-00490-MCEDAD, 2008 WL 4196690, at *6 (E.D. Cal. Sept. 11, 2008) (“Preliminary investigation into the instant case shows that the parties engaged in relevant discovery, negotiated the settlement at arm’s-length in front of an impartial mediator, and obtained a compromise which should provide class members with reasonable relief considering the likely damages incurred and the difficulties inherent in establishing liability at trial. While the parties did not fully complete discovery prior to settlement negotiations, approval of a class action settlement is proper as long as discovery allowed the parties to form a clear view of the strengths and weaknesses of their cases.”). Manual for Complex Litigation (Fourth) § 21.632 at 321. This may involve enjoining any competing class actions from proceeding. See, e.g., Figueroa, 517 F. Supp. 2d at 1298 (preliminary approval order enjoined four competing class actions).

231

232

Chapter 8 Settling Class Actions

§ 8.3.4 Class Settlement Notice Once the court has made a preliminary finding of fairness, reasonableness, and adequacy (and, if the class has not yet been certified, that it can be), then it is time to issue notice of the proposed settlement.138 If the class has already been certified for litigation purposes, then the parties may disseminate notice of certification and notice of the settlement at the same time.139 The notice should inform the class members that the fairness hearing will allow them to present arguments either for or against the settlement.140 It should also inform class members of the date by when they must submit any written statements to the clerk of the court.141 Given the need for plainlanguage notice, the court will usually approve a general description of the settlement.142 While the PSLRA expresses a strong preference for “plain language statements,” complexity that simply reflects the complexity of a proposed settlement may still pass court scrutiny.143 It is wise to include in the notice that the terms of the settlement may be subject to change, and that parties that remain in the class will be bound by those changes; this warning will not protect parties that engage in a true “baitand-switch,” but may insulate against the need for a second notice for comparatively minor changes.144 In addition, the defendant must also notify the “appropriate” state and federal officials of the settlement.145 Notice under CAFA must issue within 10

138. Manual for Complex Litigation (Fourth) § 21.633 at 321. For more on notice generally, see § 6.2. 139. See In re Global Crossing Sec. & ERISA Litig., 225 F.R.D. 436, 448 (S.D.N.Y. 2004) (“Where, as here, the parties seek simultaneously to certify a settlement class and to settle a class action, the elements of Rule 23(c) notice (for class certification) are combined with the elements of Rule 23(e) notice (for settlement or dismissal).”); see also Manual for Complex Litigation (Fourth) § 21.633 at 321. 140. Id. § 21.633 at 322. 141. Id. 142. Weinberger, 698 F.2d at 70 (“Numerous decisions, no doubt recognizing that notices to class members can practicably contain only a limited amount of information, have approved very general descriptions of the proposed settlement . . .”); Wal-Mart Stores, Inc. v. Visa U.S.A. Inc., 396 F.3d 96, 114 (2d Cir. 2005). 143. In re Indep. Energy Holdings PLC Sec. Litig., 302 F. Supp. 2d 180, 185 (S.D.N.Y. 2003) (approving settlement notice containing several pages of complex formulae for allocation of settlement because “[t]he resulting complexity is a necessary by-product of that plan.”). 144. See, e.g., Denney v. Deutche Bank AG, 443 F.3d 253, 271 (2d Cir. 2006) (“As the district court observed, there is no basis for claiming bait-and-switch tactics. The original notice made clear that the terms of the final settlement could change and that those who remained in the class would be bound by these changes.”). 145. 28 U.S.C. § 1715(b) (“Not later than 10 days after a proposed settlement of a class action is filed in court, each defendant that is participating in the proposed settlement shall serve

Class-wide Settlement Steps

days of the preliminary settlement papers being filed with the court.146 If a defendant does not comply with CAFA’s notice provision, the settlement loses its binding effect on absent class members.147

§ 8.3.5 Opt-Outs/Objections Rule 23(e)(3) permits courts to withhold approval from a settlement unless it affords class members an opportunity to make an informed decision, based on the proposed settlement terms, to opt out of the settlement.148 Overall, very few class members will opt out of class settlements.149 (This makes sense: why refuse a recovery one did not have to work—or spend— for?) While some class members have opted out of almost any kind of case, certain kinds of class actions appear to encourage opting out more than others (mass tort cases attract the most opt-outs, consumer class actions the fewest).150 In addition, the parties must also allow class members the opportunity to object to the class settlement.151 Formal intervention is not necessary.152

146.

147. 148.

149.

150.

151.

152.

upon the appropriate State official of each State in which a class member resides and the appropriate Federal official, a notice of the proposed settlement”). Id.; see also Gates v. Rohm & Haas Co., 248 F.R.D. 434 (E.D. Pa. 2008) (noting during preliminary approval of settlement that defendant had sent notice to regulatory authorities “[w]ithin ten days of the filing with the Court of the proposed Settlement Agreement”). 28 U.S.C. § 1715(e)(i). Fed. R. Civ. P. 23(e)(3). See also Fed. R. Civ. P. 23(h)(1) (“A claim for an award must be made by motion under Rule 54(d)(2), subject to the provisions of this subdivision (h), at a time the court sets. Notice of the motion must be served on all parties and, for motions by class counsel, directed to class members in a reasonable manner.”). Theodore Eisenberg & Geoffrey Miller, The Role of Opt-Outs and Objectors in Class Action Litigation: Theoretical and Empirical Issues, 57 Vand. L. Rev. 1529, 1532 (2004) (“Opt-outs from class participation and objections to class action resolutions are rare: on average, less than 1 percent of class members opt-out and about 1 percent of class members object to class-wide settlements.”). Id. at 1532 (“Opt-out rates vary by case type. Even in case categories in which the opt-out rates are highest, however, the percentage of class members who exclude themselves is quite low. The highest mean opt-out rate is 4.6 percent for the four mass tort cases for which data were available. Employment discrimination cases rank second with an opt-out rate of 2.2 percent for the three cases in our sample with the necessary data. The opt-out rate for thirtynine consumer class action cases is less than 0.2 percent.”). The court may also allow third parties who may be affected by the proposed settlement to object. Technically, because they are not members of the class, these objectors are classified as “intervenors.” See, e.g., Nat’l Ass’n of Chain Drug Stores v. New England Carpenters Health Benefits Fund, 582 F.3d 30, 44 (1st Cir. 2009). Devlin v. Scardelletti, 536 US 1, 14 (2002).

233

234

Chapter 8 Settling Class Actions

Objectors tend to have an adverse relationship to both plaintiffs and defendants.153 Like opt-outs, while the chance of attracting objectors is low overall, it also varies by type of case: civil rights and employment discrimination cases appear to attract the most objectors, consumer class actions the fewest.154 Settlements with non-pecuniary relief attract more objectors than cash settlements, probably because (as discussed above) their value to the class is harder to pin down.155 Objectors may have varying motives for contesting the settlement. Some objectors may be class members who, either out of a distaste for litigation or loyalty to the defendant, wish to register their dissatisfaction with the fact that a settlement is occurring at all.156 Some objectors may be plaintiffs from competing class actions,157 or be represented by counsel who are seeking a larger share of the settlement than their colleagues were willing to grant them.158 Some objectors may be government officials (granted status to object by CAFA’s notice provisions) seeking to reduce the overall counsel fees or settlement terms they believe not to be in the public interest.159 Some objectors

153. Girsh v. Jepson, 521 F.2d 153, 157 (3d Cir. 1975) (“As an objector, Frackman was in an adversary relationship with both plaintiffs and defendants and was entitled to at least a reasonable opportunity to discovery against both.”). 154. Eisenberg & Miller, The Role of Opt-Outs and Objectors in Class Action Litigation, 57 Vand. L. Rev. at 1532–33 (“Like the rate of opt-outs, the rate of objections varies depending on the type of case. Civil rights and employment discrimination cases have (relatively speaking) high objector rates, though their average rates are both less than 5 percent. Securities and antitrust cases have lower objection rates. Consumer cases tend to have the lowest objection rates of any case type with more than ten cases in our sample.”). 155. Geoffrey P. Miller and Lori S. Singer, Nonpecuniary Class Action Settlements, 60 L. & Contemporary Problems 97, 120 (1997) (“Objectors are particularly likely to appear when the litigating parties propose nonpecuniary settlements, because the settlement will nearly always be vulnerable to the objector challenging the valuation of the settlement.”). 156. Id. at 120–21 n.64 (1997) (“Some objectors are simply uninformed class members who write to the court, or, less commonly, appear during the settlement hearing, to voice opinions having little relevance to the matters under consideration. For example, it is not uncommon for class members to object to the settlement on the ground that they believe the defendant has done nothing wrong-a commendably loyal opinion, but one with no relevance in a settlement hearing.”). 157. See, e.g., Figueroa v. Sharper Image Corp., 517 F. Supp. 2d 1292, 1298, 1302 (S.D. Fla. 2007) (objectors included named plaintiffs from competing class actions); In re Bankamerica Corp. Sec. Litig., 210 F.R.D. 694, 705 (E.D. Mo. 2002) (same). 158. Miller & Singer, Nonpecuniary Class Action Settlements, 60 L. & Contemporary Problems at 120–21 n.64 (“A second class of objectors includes dissident plaintiffs’ attorneys who have fallen out with lead counsel. The threat to object to the settlement is always a factor in the negotiations among the attorneys in the plaintiffs’ consortium. If these negotiations break down, the loser sometimes carries through with the threat. The true basis of the objection is nearly always the fact that the objecting attorney believes that he or she is not receiving sufficient compensation from lead counsel on the plaintiffs’ side.”). 159. See, e.g., Figueroa, 517 F. Supp. 2d at 1304 (state attorneys-general objected to proposed coupon settlement); see also Miller & Singer, Nonpecuniary Class Action Settlements, 60 L. &

Class-wide Settlement Steps

may have ideological objections to certain types of settlements, particularly those that include large counsel fees compared to the compensation for the class.160 Finally, some objectors are opportunistic, and seek to hold up the settlement until they are paid to go away, or they collect attorneys’ fees on behalf of counsel who recruited them.161 Objectors will also make varied arguments. Some objectors will argue that the class settlement does not provide adequate relief to all of the class members.162 In particular, some objectors will challenge the size of the attorneys’ fees,163 or other

160.

161.

162.

163.

Contemporary Problems at 120–21 n.64 (“These days, professional objectors can include, not only private attorneys, but also, in some cases, state Attorneys General who see the political and economic benefits in claiming public credit for reducing counsel fees or enhancing class settlements.”). See Robert C. Fellmuth, et al., Taking the Offensive: Court Strategy, 40 San Diego L. Rev. 115, 141 (2003) (Alan Morrison of Public Citizen Litigation Group: “We have managed to anger our private partners in these lawsuits by coming in and objecting; pointing out that fees have been excessive, which does not make us any more popular. But we’ve got to use Rule 23(e) to protect the class members if the courts and the parties will not do it.”). Mirfasihi v. Fleet Mortgage Corp., 551 F.3d 682, 687 (7th Cir. 2008) (Posner, J.) (“the objectors were motivated to exaggerate the value of the [worthless] claim of the informationsharing class so that they could get a generous award of attorneys’ fees”); In re Cmty. Bank of N. Va., 418 F.3d 277, 311 (3d Cir. 2005) (“Simply put, those law firms have a pecuniary interest in soliciting opt-outs or objectors; the greater number of opt-outs or objectors, the less likely the proposed settlement will survive, and the more likely that the law firms will have the opportunity to bring their own suits in search of lucrative attorney fees.”); In re UnitedHealth Group Inc. PSLRA Litig., 643 F. Supp. 2d 1107, 1108-09 (D. Minn. 2009) (comparing objectors to “remoras” (bloodsucking, parasitic fish) and noting that “[t]heir goal was, and is, to hijack as many dollars for themselves as they can wrest from a negotiated settlement.”); see also Miller & Singer, Nonpecuniary Class Action Settlements, 60 L. & Contemporary Problems at 120–21 n.64 (“Class action practice in the United States has developed its own cohort of professional objectors: attorneys who enter a case after a settlement is announced, manage not only to object to the settlement but to intervene as counsel on behalf of a class member, and then threaten to disrupt the settlement unless they are given a hefty reward. Their threat is not an idle one. As long as they can intervene, they can appeal the settlement as of right, and during the appeal process, the settlement will be in limbo. Class counsel will not be paid and class members will not receive their benefits. The prospect of delaying a settlement for months or years by taking an appeal is the realistic threat that objectors hold over the heads of the settling parties.”). In re Gen. Motors Corp. Pick-Up Truck Fuel Tank Prods. Liab. Litig., 55 F.3d 768, 781 (3d Cir. 1995) (objectors were owners of vehicle fleets who would not receive adequate relief under proposed settlement). Ironically, while this is a common argument, objection does not have any visible effect on the fees awarded in settlements. Theodore Eisenberg & Geoffrey Miller, The Role of OptOuts and Objectors in Class Action Litigation: Theoretical and Empirical Issues, 57 Vand. L. Rev. 1529, 1533 (2004) (“We do not find robust evidence that the rate of opt-out or objection is statistically associated with the level of attorney fee or the fee’s proportion of the client’s recovery. Class dissent does not appear to increase when the fee is high, nor does dissent appear to exert a notable moderating effect on fees. The class’s recovery is the overwhelmingly dominant feature in shaping the fee level.”)

235

236

Chapter 8 Settling Class Actions

provisions that may reduce the recovery to class representatives.164 Some objectors, ironically, may object to having a class settlement at all.165 (For the most part, these objectors will not be heard from at the final approval hearing.)

§ 8.3.6 Final Approval Hearing The goal of the final approval hearing is to determine whether the settlement is fair, reasonable, and adequate. Unlike the preliminary approval hearing, at the final approval hearing, the judge is likely to exercise special vigilance on behalf of the proposed class.166 In particular, the judge will look at the probability the plaintiff would prevail on her claims at trial, the expected costs of any further litigation, and any evidence that the parties have colluded in formulating the settlement agreement.167 The structure of the hearing is up to the court’s discretion. The court will almost certainly hear oral argument.168 The parties will likely present further briefing prior to the hearing.169 The parties can present witnesses, experts, affidavits, and declarations at the final approval hearing.170 In addition, objectors may appear and testify.171 Since the judge’s goal is to build a robust record supporting its decision to certify a settlement class,172 the parties will likely get the opportunity to present as much evidence as they wish.

164. Rodriguez v. West Publ’g Co., 563 F.3d 948, 963 (9th Cir. 2009) (objectors challenged incentive awards to named plaintiffs). 165. See, e.g., Krell v. Prudential Ins. Co. of Am., 148 F.3d 283, 318 n.62 (3d Cir. 1998) (“The court found that approximately 700 of those who opted out wrote; ‘to indicate they do not feel they were misled in the purchase of their insurance, are satisfied with their policies, and do not want to participate in the action against Prudential.’”). 166. Mirfasihi v. Fleet Mortgage Corp., 450 F.3d 745, 748 (7th Cir. 2006) (“District judges must therefore exercise the highest degree of vigilance in scrutinizing proposed settlements of class actions to consider whether the settlement is fair, adequate, and reasonable, and not a product of collusion.”) (internal quotations omitted). 167. Id. at 748 (“Indeed, the district court judge functions as a fiduciary of the class, who is subject therefore to the high duty of care that the law requires of fiduciaries. As a general principle, a district court should evaluate, among other things, the probability of plaintiff prevailing on its various claims, the expected costs of future litigation, and hints of collusion.”) (internal quotations omitted). 168. Farinella v. PayPal, Inc., 611 F. Supp. 2d 250, 257 (E.D.N.Y. 2009) (“Arguments were heard on the motion for approval of the settlement and approval of attorneys’ fees and expenses.”). 169. For exemplar final-approval briefing, see Appendices 8C-D. 170. Manual for Complex Litigation (Fourth) § 21.634 at 322. 171. Id. 172. Id. § 21.635 at 322–23 (“Even if there are no or few objections or adverse appearances before or at the fairness hearing, the judge must ensure that there is a sufficient record as to the basis and justification for the settlement. Rule 23 and good practice both require specific

Attorneys’ Fees

§ 8.3.7 Settlement Implementation Most often, the parties will delegate the implementation of the settlement to a settlement administration company. Most settlement administration companies will serve as the primary point of contact for the class members, will take in any claims forms, and will issue checks.173 The settlement administrator reports back to the attorneys (and the court, if necessary) about the progress of the settlement, including response rates from class members and amounts paid out. If there is some non-monetary form of relief (such as corporate therapeutics or injunctive relief) then the court may stay involved long enough to ensure that the injunctive relief is provided.

§ 8.4 Attorneys’ Fees Attorneys’ fees present one of the larger—and more controversial—issues for class settlements: namely, how much may the plaintiff’s attorneys collect? This issue is of obvious importance to the plaintiff. But it is also important to the defendant: after protracted litigation, few defendants want to pay over a large sum to their chief adversary. More importantly, large attorneys’ fees can be an indication that the settlement is the product of collusion,174 or is otherwise unfair. On the other hand, not agreeing to sufficient fees may drive the plaintiff away from the bargaining table. The default rule in litigation is what is often known as the “American rule”: each side pays its own lawyers’ fees.175 (This is in contrast to the “English Rule,” in which the losing party must pay all lawyers’ fees.)176 Since most individual plaintiffs lack the resources to pay large attorneys’ bills, plaintiffs’

173.

174. 175.

176.

findings as to how the settlement meets or fails to meet the statutory requirements. The record and findings must demonstrate to a reviewing court that the judge has made the requisite inquiry and has considered the diverse interests and the requisite factors in determining the settlement’s fairness, reasonableness, and adequacy.”). See Staton v. Boeing Co., 327 F.3d 938, 948 (9th Cir. 2003) (“To receive an award, unnamed class members must submit a claim form to an independent claims arbitrator (hired by class counsel and approved by the district court), who will verify the validity of the claims against Boeing’s records.”). Manual for Complex Litigation (Fourth) § 21.62 at 317. Goldberger v. Integrated Res., Inc., 209 F.3d 43, 47 (2d Cir. 2000) (“From time immemorial it has been the rule in this country that litigants are expected to pay their own expenses, including their own attorneys’ fees, to prosecute or defend a lawsuit.”). See, e.g., Richard A. Posner, Law and Legal Theory in the UK and USA 83–93 (1996) (discussing effect of “loser-pays” rule on tort filings in the United Kingdom).

237

238

Chapter 8 Settling Class Actions

counsel often must collect fees in one of two ways: either by bringing a statutory cause of action that allows them to collect fees (such as violation of a consumer-fraud statute), or through a provision in settlement agreement that the defendant will pay the plaintiff’s attorneys’ fees as part of a “common fund.”177 Regardless of how plaintiff’s attorneys collect, the fee will be subjected to intense scrutiny by the court, and by third parties like objectors and the press.

§ 8.4.1 Determining Reasonable Fee There are two commonly accepted ways of determining reasonable attorneys’ fees: either by reference to actual billed time (the “lodestar” method), or by setting the fees as a percentage of the common fund available to the class.178 Deciding which approach to request is a major strategic decision for the plaintiff. Lodestar fees may result in lower fee awards, and require plaintiffs’ counsel to keep good records of the work they actually performed. Percentage fees are often more attractive to plaintiffs’ counsel179—they require less accounting, and are often higher—but they are also more likely to draw objections. The decision will depend on a number of factors, including the nature of the underlying claims (common-law claims tend to require a commonfund approach, statutory claims may specifically authorize an award of reasonable attorneys’ fees), jurisdiction, and counsel’s tolerance for risk. § 8.4.1.1 Lodestar Generally, a lodestar fee is measured by multiplying the reasonable amount of time expended on the case by a reasonable hourly rate.180 The lodestar method is used most often when the plaintiff files for attorneys’ fees under a feeshifting statute. The court, may, at its discretion, adjust the base lodestar up or down depending on various factors (e.g., the value of benefit the attorneys conferred upon the class; the difficulty of the work involved; the degree of skill required, etc.).181

177. Boeing Co. v. Van Gemert, 444 U.S. 472, 478 (1980) (“Under the ‘common fund’ doctrine, ‘a litigant or a lawyer who recovers a common fund for the benefit of persons other than himself or his client is entitled to a reasonable attorney’s fee from the fund as a whole.’”) (internal quotations omitted). 178. Wal-Mart Stores, Inc., 396 F.3d at 121 (“Courts may award attorneys’ fees in common fund cases under either the ‘lodestar’ method or the ‘percentage of the fund’ method.”). 179. Goldberger, 209 F.3d at 46 (“Throughout the fee proceedings before Judge Kram, [plaintifffs’] counsel maintained they should be awarded a simple percentage of the recovery as a fee, rather than having to submit to a review of their billed hours under the so-called lodestar method.”). 180. Id. 181. Id. (“Courts in their discretion may increase the lodestar by applying a multiplier based on factors such as the riskiness of the litigation and the quality of the attorneys.”).

Attorneys’ Fees

Overall, there are benefits and costs to determining attorneys’ fees by the lodestar method. Since calculating lodestar recovery requires the attorneys to submit bills for actual work performed, this method is particularly useful where the value of the recovery may be subject to multiple interpretations. The defendant generally prefers the lodestar method if it is negotiating fees separately from the rest of the settlement. (Otherwise, if the defendant is just paying out a single number, it tends to focus on the bottom line, with less concern about how the money gets distributed.) However, lodestar recoveries may also provide an incentive for plaintiffs’ attorneys to inflate their bills, and engage in needless legal work.182 And, because the court must review the bills to make sure they are reasonable, they also take the court’s time. § 8.4.1.2 Percentage of Common Fund If there is a common fund, the plaintiff may seek a percentage, much as her counsel ordinarily would be awarded a contingency fee. For the plaintiff, a common fund will yield more fees than the lodestar method if there is a comparatively large recovery and her counsel have invested comparatively limited time on the case. In addition, there will be less scrutiny of plaintiffs’ lawyers’ work: the lodestar method requires an analysis of time sheet and expenses, simply awarding a percentage of the common fund does not. Courts may also be careful about awarding fees under a common fund because common funds can create a conflict of interest between the plaintiff’s attorney and the class. Because the attorney and the class are all paid out of the same fund, any money that goes to the attorney necessarily comes from the class.183 Occasionally, even when awarding fees as part of a common fund, a court will use the lodestar method as a point of comparison to ensure that the percentage calculation has not yielded an excessive award.184 This “lodestar crosscheck” can be an important tool, as it will frequently reduce the amount of a common fund that goes to the plaintiff’s attorneys instead of the class itself.185

182. Id. (“In contrast, the “lodestar create[s] an unanticipated disincentive to early settlements, tempt[s] lawyers to run up their hours, and compel[s] district courts to engage in a gimleteyed review of line-item fee audits.”) (internal quotations omitted). 183. Martha Pacold, Attorneys’ Fees in Class Actions Governed by Fee-Shifting Statutes, 68 U. Chi. L. Rev. 1007, 1015–16 (2001) (“the plaintiffs’ attorney and the plaintiffs are left to fight over the division of the fund. This necessitates special care on the part of courts allocating common funds”). 184. See Masters v. Wilhelmina Model Agency, Inc., 473 F.3d 423, 436 (2d Cir. 2007) (“The District Court properly utilized the ‘percentage of the fund’ method in calculating counsel fees, applying the lodestar method as a ‘cross check’ on the reasonableness of the requested percentage.”). 185. Vaughn R. Walker & Ben Horwich, The Ethical Imperative of a Lodestar Cross-Check: Judicial Misgivings About “Reasonable Percentage” Fees in Common Fund Cases, 18 Geo. J. Legal

239

240

Chapter 8 Settling Class Actions

§ 8.4.1.3 Negotiation of Fees One issue that arises when negotiating a common fund is when to include the fees. Most defendants want to pay a single lump sum and be done with the litigation, which means that they want to negotiate the fees and the fund at the same time. By contrast, most plaintiffs want to maximize the size of their recovery, so they will try to negotiate the fund first, and their fee later.

§ 8.4.2 Court Approval of Fees Regardless of the method the parties select for calculating fees, the court must still approve the final fee amount, which ordinarily requires the plaintiff to submit a fee request with accompanying briefing.186 Ordinarily, the court will focus on several factors, including the time and labor counsel invested, the complexity and magnitude of the litigation, and the relationship of the fee to the settlement.187 Often, the court may use an alternative method of evaluating fees to “cross-check” the amount it awards: If the original calculation was performed according to a lodestar, the court may compare the final fee amount to a percentage of the common fund (and vice versa). Leaving aside the court’s fiduciary duty to the class, the reason for all this scrutiny of the settlement process is that it is the means by which the defendant buys peace from further litigation. Of course, as we discussed earlier, plaintiffs exist in a state of intense competition with each other.188 The mere fact of a valid settlement reached with one plaintiff and her counsel will not necessarily deter other plaintiffs from raising similar claims that are arguably barred by the settlement. As a result, the defendant may have to return to court to enforce the preclusive effect of the court’s class-action judgment. That process is the subject of the next chapter.

Ethics 1453, 1466 (2005) (regression analysis indicated that lodestar cross-check tended to reduce attorneys’ fees by approximately 20% in common-fund cases). 186. For an exemplar fee request, see Appendix 8E. 187. Masters, 473 F.3d at 436 (“Whatever method is used, the reasonableness of a common fund fee award is governed by the so-called Goldberger factors: (1) counsel’s time and labor; (2) the litigation’s complexities and magnitude; (3) the litigation risks; (4) quality of representation; (5) the relationship of the requested fee to the settlement; and (6) considerations of public policy. We recognize that courts have traditionally awarded fees for common fund cases in the lower range of what is reasonable.”) (internal quotations omitted). 188. For more on this competition, see §§ 3.3, 3.5, 4.4.4.

CHAP TER

9 Class Action Judgments

§ 9.1 Enforcing Preclusion

243

§ 9.1.1 Res Judicata

244

§ 9.1.2 Collateral Estoppel

244

§ 9.1.3 The All-Writs Act and Anti-Injunction Act

246

§ 9.2 Challenging Preclusion

247

§ 9.2.1 Due Process

247

§ 9.2.2 Adequacy of Representation

248

§ 9.3 Limiting Collateral Exposure

249

§ 9.3.1 Government Actions

250

§ 9.3.2 Opt-Out Suits

250

242

Chapter 9 Class Action Judgments

For the defendant, one unfortunate risk of class action litigation is that the case may not be over even after the judgment is final. Since a class action is brought by a representative instead of by all class members themselves, and since plaintiffs’ attorneys are entrepreneurs in constant competition with each other for viable cases, it is possible that a new plaintiff will bring a claim against the defendant involving the same issue, even though she may have belonged to a class that previously tried or settled a largely similar lawsuit. At that point, the defendant may find itself litigating the preclusive effect of the previous class action. The basic principle behind preclusion is simple: “under elementary principles of prior adjudication a judgment in a properly entertained class action is binding on class members in any subsequent litigation.”1 (This, of course, assumes a class was certified.)2 Similarly, class actions are entitled to full consideration under the Full Faith and Credit Act.3 What complicates the issue is a practical problem. The court that presided over the original class action does not determine the preclusive effect of its own judgment.4 Instead, a second court—in which the new plaintiff has filed her complaint—must decide whether the prior class judgment has any preclusive effect.5 And that court will not know as much about (or feel as attached to) the previous judgment. (In fact, if the plaintiff has conscientiously chosen a forum likely to favor her,6 the new court may even be actively suspicious of the previous judgment.) This situation poses a very real strategic problem for the defendant, the new plaintiff, and the court. The primary benefit of class litigation is that it takes a legal controversy affecting large numbers of people and conclusively resolves it (either through a litigation judgment or settlement) on behalf of all those affected. If the final judgment in a class action does not apply to all class

1. Cooper v. Fed. Reserve Bank of Richmond, 467 U.S. 867, 874 (1984); see also Supreme Tribe of Ben-Hur v. Cauble, 255 US 356, 367 (1921) (“If the federal courts are to have the jurisdiction in class suits to which they are obviously entitled, the decree when rendered must bind all of the class properly represented.”). 2. See Mendez v. Radec Corp., 260 F.R.D 38, 47 (W.D. N.Y Aug. 20, 2009) (“[A]n individual’s claims will not be barred by a judgment in favor of the defendant in an action brought under Rule 23, if no class was ever certified. . . .”). 3. Matsushita Elec. Indus. Co. Ltd. v. Epstein, 516 U.S. 367, 374 (1996). 4. The certifying court can try to establish that effect by complying with Rule 23(c)(3)’s requirement to identify those persons in the class and those claims addressed in the litigation that should be bound by any judgment. 5. Fed. R. Civ. P. 23, Advisory Comm. Note, 1966; In re U.S. Fin. Secs. Litig., 69 F.R.D. 24, 53 (S.D. Cal. 1975) (“there is no case that holds this Court, on a motion to certify a class action under Rule 23(c), must determine that its judgment, if rendered in favor of a defendant, will be res judicata to all members of the class who do not ‘opt out’”). 6. See § 3.3.

Enforcing Preclusion

members, the substantial effort involved in prosecuting the class action has been for naught. On the other hand, the new plaintiff (and possibly the new court) is likely to resist the argument that a court can issue orders that strip away the legal rights of large numbers of people to sue a wrongdoer, especially when those people did not participate in (and may not even have known about) the previous litigation. Such orders comport with due process only if the absent class members’ rights were adequately represented.

§ 9.1 Enforcing Preclusion The defendant has a strong interest in enforcing the preclusive effect of previous class-action judgments. For the defendant, the value of the previous judgment is the finality that it brings to a contested claim.7 Therefore the court and the parties must balance between the parties’ desire that a litigated (or settled) class action foreclose future litigation of the same claims, and the court’s concern about any unfairness that might result from preventing absent class members from relitigating similar claims at a later date. This issue is also of concern to subsequent plaintiffs. For example, a class plaintiff who files a new complaint whose subject matter overlaps previous litigation may have to determine (or minimize) the preclusive effect of that litigation. If the previous litigation was settled, and the defendant savvy enough to obtain a broad release, the plaintiff will have to determine if there is some way to either plead around the release or collaterally attack the settlement.8 There are several different methods of enforcing class-action judgments.

7. See In re Baycol Prods. Litig., 593 F.3d 716, 726 (8th Cir. 2010) (emphasizing that “public policy concerns of finality and repose . . . are particularly compelling concerns in MDL [class] proceedings. . . .”) (internal quotes omitted)). Samuel Issacharoff & Richard A. Nagareda, Class Settlements Under Attack, 156 U. Pa. L. Rev. 1649, 1651 (2008) (“At the end of the day, all litigation is ultimately about repose. The value of a claim, whether litigated or settled, is a function of the price of peace on the disputed issue. That price may be as low as zero for meritless claims, but for claims that have at least some viability, the value corresponds directly to the finality that resolution offers the defendant. The purpose of a judgment, whether litigated or settled, is precisely the certainty that finality offers the parties.”). 8. Why didn’t this hypothetical subsequent plaintiff object at the settlement? She might not have thought she had a claim yet. She might not have even read the settlement documents.

243

244

Chapter 9 Class Action Judgments

§ 9.1.1 Res Judicata Like other lawsuits, class actions are bound by the principle of res judicata, which operates as a complete bar to a new, repetitive lawsuit.9 In general, the elements of res judicata are: (1) there is a final judgment on the merits of an earlier action, and (2) there is identity of the parties and (3) identity of the claims in both suits.10

In theory, this means that a final judgment in one class action bars the parties from bringing all claims that were (or could have been) asserted there in any subsequent litigation.11 Those claims may include any claims described in a settlement release.12 (Courts may, however, hesitate to enforce the release of claims the settling plaintiff did not possess.)13 Because res judicata is an affirmative defense, the defendant must assert it as early as possible in the follow-on action.14

§ 9.1.2 Collateral Estoppel Even if a subsequent action is not barred by res judicata, specific issues that have already been litigated may be subject to collateral estoppel (also known as issue preclusion). Collateral estoppel has a wider reach than res judicata because it does not necessarily require a final judgment.15 Generally, collateral estoppel requires: (1) [T]he issue sought to be precluded must be the same as that involved in the prior action; (2) that issue must have been actually litigated; (3) it must have

9. See Reppert v. Marvin Lumber & Cedar Co., 359 F.3d 53, 56 (1st Cir. 2004). 10. Id. (internal citation omitted). 11. Cooper, 467 U.S. at 874 (“Basic principles of res judicata (merger and bar or claim preclusion) and collateral estoppel (issue preclusion) apply. A judgment in favor of the plaintiff class extinguishes their claim, which merges into the judgment granting relief. A judgment in favor of the defendant extinguishes the claim, barring a subsequent action on that claim. A judgment in favor of either side is conclusive in a subsequent action between them on any issue actually litigated and determined, if its determination was essential to that judgment.”); cf. Thompson v. Am. Tobacco Co., 189 F.R.D. 544, 550 (D. Minn. 1999) (finding named plaintiffs inadequate where they tried to “reserve” personal injury and damages claims); Feinstein v. Firestone Tire & Rubber Co., 535 F. Supp. 595, 607 & n.16 (S.D.N.Y. 1982). 12. See Adams v. S. Farm Bureau Life Ins. Co., 417 F. Supp 2d 1373, 1381-82 (M.D. Ga. 2006) (dismissing tort claims that had been released in prior class settlement). 13. See Hesse v. Sprint Corp., 598 F.3d 581; 2010 U.S. App. LEXIS 5017, *16 (9th Cir. Mar. 10, 2010) (refusing to enforce “broad release of claims [the plaintiff ] did not possess”). 14. Lawrence v. Household Bank (SB), NA, 505 F. Supp. 2d 1279, 1282 (M.D. Ala. 2007) (“Res judicata, also known as claim preclusion, is an affirmative defense.”). 15. See In re Bridgestone/Firestone, Inc. Tires Prods. Liab. Litig., 333 F.3d 763, 767 (7th Cir. 2003) (“Although claim preclusion (res judicata) depends on a final judgment, issue preclusion (collateral estoppel) does not.”).

Enforcing Preclusion been determined by a valid and final judgment; and (4) the determination must have been essential to the prior judgment.16

A judgment does not necessarily bar all issues in subsequent litigation. For example, if a defendant in an employment class action proved that it did not engage in a “pattern and practice” of discrimination, that would not bar a class member from later alleging that the defendant individually discriminated against her.17 (That said, the prior judgment would still be useful as evidence that the defendant’s reason for firing the class member was not pretextual.)18 The defendant does not have to limit its invocation of collateral estoppel solely to substantive issues. Given the number of separate class actions that can be filed over a single high-profile issue, the defendant may consider invoking collateral estoppel to preclude any further class actions.19 As the Seventh Circuit has held, [U]nnamed class members have the status of parties for many purposes and are bound by the decision whether or not the court otherwise would have had personal jurisdiction over them. Just as they receive the fruits of victory, so an adverse decision is conclusive against them. Devlin v. Scardelletti holds that unnamed class members are entitled to appeal or seek certiorari without intervening; any would-be member of the class could have sought certiorari from our adverse decision. The premise of allowing class members to seek review by a higher court is that otherwise they would be bound by defeat.20

As a result—assuming the previous class representative was found to be adequate—the decision not to certify a class has collateral estoppel effect.21

16. In re Piper Aircraft Dist. Sys. Antitrust Litig., 551 F. 2d 213, 218-19 (8th Cir. 1977) (internal citations omitted). 17. Cooper, 467 U.S. at 880 (“The judgment is not, however, dispositive of the individual claims the Baxter petitioners have alleged in their separate action. Assuming they establish a prima facie case of discrimination under McDonnell Douglas, the Bank will be required to articulate a legitimate reason for each of the challenged decisions, and if it meets that burden, the ultimate questions regarding motivation in their individual cases will be resolved by the District Court.”). 18. Id. at 880. 19. There is a split in jurisdictions over whether a denial of class certification can estop further attempts to certify a class. Compare In re Bridgestone/Firestone, 333 F.3d at 769 (“Our prior judgment is binding in personam with respect to the unnamed class members. The district judge must enforce that judgment by issuing an injunction that prevents all members of the putative national classes, and their lawyers, from again attempting to have nationwide classes certified over defendants’ opposition with respect to the same claims.”) with Clearwater v. Ashland Chem. Co., 93 F.3d 176, 180 (5th Cir. 1996) (affirming district court order refusing to enjoin re-litigation of class certification in state court under Anti-Injunction Act). 20. In re Bridgestone/Firestone, 333 F.3d at 768. 21. Id. at 768-69; see also In re Baycol, 593 F.3d at 724.

245

246

Chapter 9 Class Action Judgments

§ 9.1.3 The All-Writs Act and Anti-Injunction Act Finally, if a plaintiff seeks to usurp a federal class judgment in state court (and the federal judgment was in a multi-district proceeding), the defendant may be able to enjoin the subsequent lawsuit under the Anti-Injunction Act and the All Writs Act.22 True to its name, the Anti-Injunction Act generally prohibits federal courts from interfering in state proceedings.23 But it also allows a federal court to issue injunctions that are necessary to “protect or effectuate its judgments.”24 Similarly, the All Writs Act authorizes federal courts to “issue all writs necessary or appropriate in aid of their respective jurisdictions and agreeable to the usages and principles of law.”25 (The phrase “in aid” is particularly important; the All Writs Act does not apply if the injunction was not “in aid” of federal jurisdiction.)26 Each of these statutes has the potential to help defendants forestall relitigation of class actions that have already been resolved. In fact, because of the potential the All Writs Act has to usurp the proper functioning of state courts, its power is strictly circumscribed. In part, it is limited by the AntiInjunction Act.27 And, as the Supreme Court has held, “[a]ny doubts as to the propriety of a federal injunction against state court proceedings should be resolved in favor of permitting the state courts to proceed in an orderly fashion to finally determine the controversy.”28 There are some limits on what the All Writs Act can accomplish. For example, a defendant cannot remove an action to federal court based primarily on the All Writs Act.29 And to enforce an injunction under the All Writs Act or Anti-Injunction Act, the defendant must still—as it would with any other injunction—show that the injunction is equitable.30 Generally, federal courts will find injunctive relief appropriate after evaluating: (1) the threat of irreparable harm to the movant[,] (2) the balance between this harm and the injury caused by granting the injunction, (3) the probability of succeeding on the merits, and (4) the public interest.31

22. 23. 24. 25. 26. 27. 28.

28 U.S.C. § 1651. 28 U.S.C. § 2283. Id.; see also In re Baycol, 593 F.3d at 721. 28 U.S.C. § 1651. Retirement Sys. of Ala. v. J.P. Morgan Chase & Co., 386 F.3d 419, 425 (2d Cir. 2004). 28 U.S.C. § 2283. Atl. Coast Line R.R. Co. v. Bhd. of Locomotive Eng’rs, 398 U.S. 281, 297 (1970); see also Retirement Sys. of Ala., 386 F.3d at 425–26. 29. Syngenta Crop Protection, Inc. v. Henson, 537 U.S. 28, 34 (2002). 30. In re Baycol, 593 F.3d at 726. 31. Id.

Challenging Preclusion

At least one federal court has also held that “relitigating in state court an issue previously decided in federal court constitutes irreparable harm,” but the inability to get a state court to address the same issue is “not a legitimate harm which must be balanced . . . .”32

§ 9.2 Challenging Preclusion Much as the defendant wishes to enforce any previous class-action judgment, the plaintiff in the newly filed action will try to avoid the preclusive effect of any previous lawsuits. Putting aside the class members who either objected to or opted out of the certified class,33 the plaintiff has two primary arguments against the preclusive effect of a class action: (1) the class did not receive due process, or (2) the class was not adequately represented during certification.

§ 9.2.1 Due Process The most common inquiry into whether or not the class received due process is whether its members received adequate notice of the class action. In Epstein v. MCA, Inc., the Ninth Circuit held that so long as the court that reviewed the settlement held a fairness hearing, provided notice, and enforced the optout rights of any absent class members, then a reviewing court should not engage in “collateral second-guessing of those determinations and that review.”34 However, if monetary damages were at stake, and a class member was not afforded her right to opt out, then the class judgment is not binding on her.35 Similarly, if the absent class member could not have received notice of the class action (because, for example, it was disposed of before certification36 or the notice did not inform the claimant that her cause of action was being litigated),37 then due process requires that the absent class member get her day in court through the prosecution of a new action. And if the notice were deficient in other ways (for example, it did not inform the class members of

32. 33. 34. 35.

Id. (internal quotes omitted). Wolfert v. Transamerica Home First, Inc., 439 F.3d 165, 169 (2d Cir. 2006). Epstein v. MCA, Inc., 179 F.3d 641, 648 (9th Cir. 1999). Brown v. Ticor Title Ins. Co., 982 F.2d 386, 392 (9th Cir. 1992) (“Because Brown had no opportunity to opt out of the [previous] litigation, we hold there would be a violation of minimal due process if Brown’s damage claims were held barred by res judicata.”). 36. Mendez, 260 F.R.D at 47. 37. Twigg v. Sears, Roebuck & Co., 153 F.3d 1222, 1227 (11th Cir. 1998).

247

248

Chapter 9 Class Action Judgments

the real effect of the class settlement or judgment), then it would not be adequate to bind absent class members.38

§ 9.2.2 Adequacy of Representation In order to determine whether a class judgment is binding, the court must also determine whether the class representative adequately represented the class. The adequacy inquiry at this stage is different than it was when the class was certified. When judging the preclusive effect of a class judgment, the court must engage in a two-pronged inquiry: (1) Did the trial court in the first suit correctly determine, initially, that the representative would adequately represent the class? and (2) Does it appear, after the termination of the suit, that the class representative adequately protected the interest of the class?39

The first prong is largely identical to the adequacy inquiry at class certification.40 However, the subsequent court has the discretion to evaluate the adequacy of the representatives with the benefit of hindsight.41 As a result, a subsequent plaintiff may argue that she was somehow overlooked in the previous litigation. For example, she may argue that previous named plaintiff settled claims that—as a class representative—she did not personally possess.42 The second prong, however, requires the court to examine the previous class representative’s actual conduct during the litigation.43 So, for example, a plaintiff might argue she was not adequately represented if the law governing the previous class action afforded less protection than the law governing

38. State v. Homeside Lending, Inc. 826 A.2d 997, 255–56 (Vt. 2003) (“we emphasize the one essential fact that, in our judgment, the notice had to convey to comport with due process— that is, that some, many, or all of the absent class members were actually in a defendant class because their attorney’s fee exposure, under the fee requested by class counsel, exceeded their economic benefit”). 39. Gonzales v. Cassidy, 474 F.2d 67, 72 (5th Cir. 1973). 40. See In re Baycol, 2010 U.S. App. LEXIS 176 at *19. 41. Stephenson v. Dow Chem. Co., 273 F.3d 249, 257–58 (2d Cir. 2001) (allowing plaintiffs whose claims arose after depletion of settlement fund to proceed, because no court had “addressed specifically the adequacy of representation” for their particular situation). 42. See Hesse, 598 F.3d 581, 2010 U.S. App. LEXIS 5017 at 16. 43. Gonzales, 474 F.2d at 75 (“We hold that the primary criterion for determining whether the class representative has adequately represented his class for purposes of res judicata is whether the representative, through qualified counsel, vigorously and tenaciously protected the interests of the class. A court must view the representative’s conduct of the entire litigation with this criterion as its guidepost.”).

Limiting Collateral Exposure 249

the current lawsuit.44 A plaintiff can also argue that the use of incentive payments to the named plaintiffs in the previous action compromised their adequacy to represent the class.45 This after-the-fact finding does not require that the first plaintiff have engaged in every conceivable tactic, however.46 While some plaintiffs have argued that a finding of adequacy may not be valid if it was simply “assumed without deciding,” at least one circuit has found that, so long as the issue was “actually presented” in the briefs and “vigorously argued” by counsel, a ruling on class certification can still have preclusive effect.47 The Ninth Circuit has held that, in most circumstances, the certifying court’s determination of adequacy is not subject to collateral attack.48 To date, no court has ruled on what effect Rule 23(c)(1)(B)’s requirement that the court issue findings related to each Rule 23(a) and (b) factor would have on the preclusive effect of any class certification ruling.

§ 9.3 Limiting Collateral Exposure Class actions that proceed to trial are big, public events. Even if the underlying subject matter did not receive extensive publicity, the plaintiff will often keep the press informed herself.49 As a result, once a given class action has run its course, there may still be other parties—either government bodies, non-profits, or just individuals who opted out of the original class—who wish to bring claims based on the same subject matter. These parties will not be subject to either res judicata or collateral estoppel, which means the defendant will have to adopt different strategies to limit its exposure.

44. Wolfert, 439 F.3d at 173. 45. Homeside Lending, 826 A.2d at 1013 (since incentive payments in previous settlement had defrayed negative effects of settlement, named plaintiffs were inadequate because “they no longer protected the interests of the class, and particularly, they no longer protected the interest of the class against the attorneys for the class”). 46. See In re Baycol, 593 F.3d at 725 (“adequacy of representation does not depend on whether the putative representative appealed”). 47. Id. 48. Epstein, 179 F.3d at 648 (“Due process requires that an absent class member’s right to adequate representation be protected by the adoption of the appropriate procedures by the certifying court and by the courts that review its determinations; due process does not require collateral second-guessing of those determinations and that review.”); but see Hesse, 598 F.3d 581; 2010 U.S. App. LEXIS 5017 at *10–*11 (allowing collateral review of class action settlement approved by Kansas state court). 49. See § 4.1.1.

250 Chapter 9 Class Action Judgments

§ 9.3.1 Government Actions Just as class actions will sometimes follow government investigations, sometimes government action may follow litigation of a class action. Governments have different goals and different tools at their disposal than class-action plaintiffs. For example, a government agency may be able to exercise compulsory subpoena power. In certain situations, a government agency may also bring criminal charges to address unlawful conduct that a class-action plaintiff could only address with civil charges. The defendant does have some options for limiting government action, but they are largely informal. The defendant’s most common option for limiting government attack on a class judgment is to negotiate for a mutually agreeable resolution. For example, it can agree to some relief that is similar to the relief it is affording to the class.

§ 9.3.2 Opt-Out Suits In class actions for money damages, class members who exercise their right to opt out of the litigation (usually known as “opt outs”) may also present a strategic problem for defendants.50 Because an absent class member may have a significant stake in the litigation, she might choose to opt out, wait until the case has been tried, and then take a favorable verdict into court and demand damages, arguing that she is entitled either to the same factual findings because of collateral estoppel, or the same legal rulings because of stare decisis. An absent class member who opts out of the class will not necessarily receive the benefit of collateral estoppel against the defendant should the class prevail at trial.51 However, she can usually argue that the original case constitutes stare decisis for the next case.52 A court will likely treat the case as (extremely) persuasive, but not binding as collateral estoppel. This will change the character of the subsequent litigation. Under these circumstances, both the plaintiff and the defendant are free to try to distinguish rulings in the previous case that are not favorable to them, and to liken the current case to the previous case where the rulings are favorable. However, if the second case is brought in the same court as the first case, the stare decisis effect of the original case is likely to be much stronger.

50. Generally, Rule 23(b)(1) and 23(b)(2) class actions do not allow for opt-outs. See §§ 2.5–6. 51. See Premier Elec. Constr. Co. v. Nat’l Elec. Contractors Ass’n, 814 F.2d 358, 367 (7th Cir. 1987) (“class members who opt out may not claim the benefits of the class’s victory”). 52. Id.

Limiting Collateral Exposure 251

In the introduction, we spoke of how the legal rules governing a lawsuit form part of the “terrain” on which it is fought. To this point, we have assumed that that the parties were fighting on United States soil, and that the preclusive effect of any judgments would be enforced there. However, with the advent of globalization of trade in goods and services, that is not always a safe assumption. Therefore, in the next chapter, we address class actions that cross international borders.

CHAP TER

10 International Class Action Practice

§ 10.1 Multi-National Class Actions Litigation Teams

255

§ 10.1.1 Types of Multi-National Class Actions

255

§ 10.1.1.1 Alien Tort Claims Act

256

§ 10.1.1.2 “Foreign-Cubed” Class Actions

257

§ 10.1.2 Prudential Challenges

257

§ 10.1.2.1 Political Question Doctrine

258

§ 10.1.2.2 Act of State Doctrine

259

§ 10.1.2.3 Comity

260

§ 10.1.3 Procedural Challenges

261

§ 10.1.3.1 Jurisdiction

261

§ 10.1.3.2 Service of Process

261

§ 10.1.3.3 Forum non conveniens

262

§ 10.1.4 Certifying a Multi-National Class

264

§ 10.1.5 Enforcing Foreign Judgments

264

§ 10.2 Aggregated Litigation Devices in Other Countries

265

§ 10.2.1 The Canadian Model

267

§ 10.2.2 The Australian Model

270

§ 10.2.3 The Opt-In Model

271

§ 10.2.4 The Ombudsman/Consumer Association Model

273

§ 10.2.5 Mass Joinder Proceedings/Quasi-Class Actions

274

§ 10.2.6 The “Test Case” Model

275

254

Chapter 10 International Class Action Practice

As the world grows more interconnected, it is no longer accurate (or productive) to think of class actions as exclusively an American phenomenon. Goods and services cross international borders with ease; so do various communications such as advertisements, customer-service contacts, investment solicitations, stock advice, and intra-company emails.1 And as the legal and business worlds grow more globalized, so does class-action practice. Class actions brought in U.S. courts increasingly seek to represent claimants who live in other countries, or target companies or individuals who live in other countries. Legal controversies that trigger class actions in the United States— product safety recalls, antitrust conspiracies, environmental incidents, stock drops—increasingly spawn related litigation in other countries where people may have been similarly affected. For legal scholars, the rise of international class actions is a great source for research. Foreign class actions show how complex litigation strategy develops under a different set of constraints: Different legal rules, different law firm practices, and different social institutions combine to form litigation that looks like American class-action litigation in some ways, but is remarkably dissimilar in others. And class-action practice in U.S. courts that implicates international law highlights important issues in foreign relations and raises cutting-edge procedural questions.2 For class-action lawyers, the globalization of class-action practice presents a new potential market for plaintiffs’ firms, and a new front for defense counsel. The events that give rise to class actions in the United States often know no borders—a defective product sold in Canada, a fraudulently marketed public stock sold to investors in the U.K., antitrust misconduct that raises the price of a product for purchasers in the EU all may end up the subject of litigation in American courts. Therefore, it seems logical for a plaintiff to pursue class actions in other countries that recognize class action litigation and, indeed, to urge other countries to adopt class action procedures to allow en masse litigation of such controversies. For example, the plaintiffs’ firm Hausfeld LLC has a London office, and advertises itself as a “global claimants firm founded on a very simple yet largely unmet premise: global wrongs must be accountable to global rights.”3 And many firms that engage in class-action defense are already globalized—they have litigation departments in other countries that can either help foreign companies defend themselves in U.S.

1. For an excellent overview of the effects of globalization, see generally Thomas L. Friedman, The World Is Flat: A Brief History of the Twenty-First Century (2005). 2. See generally George A. Bermann, U.S. Class Actions and the “Global Class,” 19 Kan. J. L. & Pub. Pol’y 91, 93 (2009) (calling global class actions “a vast middle ground of challenging inter-jurisdictional problems for which resolution is still a real possibility and for which the comparative civil procedure work exemplified by Robert Casad holds great promise”). 3. See http://hausfeldllp.com/pages/offices, last viewed Apr. 26, 2010.

Multi-National Class Actions Litigation Teams

proceedings, or participate in the defense of aggregated lawsuits in other countries’ courts.

§ 10.1 Multi-National Class Actions Litigation Teams Multi-national class action teams have become more common as some forms of multi-national class actions—primarily claims under the Alien Tort Claims Act,4 and Rule 10b-5 of the Securities Exchange Act5—have become more frequent. In addition, with the advent of class-action decisions from other countries that have foreign reach, it is now possible that American firms will also have to contend with enforcing foreign judgments in the United States.

§ 10.1.1 Types of Multi-National Class Actions An increasingly common kind of multi-national class action is one that arises from litigation that spills from one country (like the United States) into another (like Canada). For example, a number of U.S. plaintiffs’ firms have begun partnering with foreign clients and firms,6 serving as “consultants” in foreign class actions, and providing financing and advice to law firms in other countries.7 Defendants have responded accordingly, often hiring American class-action defense lawyers to assist in implementing a consistent, robust international defense. (American lawyers take care how much control they exercise, however. Foreign courts do not always take kindly to U.S. firms that appear to be directing litigation in other countries.)8 In fact, a growing number of class actions with an international component appear to be part of a coordinated litigation strategy, where a plaintiff joins with other interest groups in an attempt to change the behavior of multinational corporations through political activity and targeted litigation in several countries.9

4. 28 U.S.C. § 1350. 5. 15 U.S.C. § 78a. 6. See Hannah L. Buxbaum, Multinational Class Actions Under Federal Securities Law: Managing Jurisdictional Conflict, 46 Colum. J. Transnat’l L. 14, 62 n.199 (2007) (noting alliance formed between United States firm Labaton Sucharow & Rudoff and German firm TILP). 7. See Poulin v. Ford Motor Co. of Canada, 242 O.A.C. 209 ¶ 64 (Ont. S.C. Div. 2008) (noting involvement of U.S. firm Motley Rice LLC as consultant on products-liability class action). 8. Id. at ¶ 64–69 (holding motion judge correctly considered role of U.S. firm in bringing litigation, plaintiff was “an unwitting pawn in this action, which was contrived and commenced by plaintiff ’s counsel and his U.S. colleagues”) (internal quotation omitted). 9. See Patrickson v. Dole Food Co., Inc., 251 F.3d 795, 798 (9th Cir. 2001) (“In our case, banana workers from Costa Rica, Ecuador, Guatemala and Panama brought a class action against

255

256

Chapter 10 International Class Action Practice

§ 10.1.1.1 Alien Tort Claims Act The Alien Tort Claims Act (“ATCA”) provides standing to foreign nationals to sue for torts in United States courts. ATCA provides, in its entirety: “The district courts shall have original jurisdiction of any civil action by an alien for a tort only, committed in violation of the law of nations or a treaty of the United States.”10 The Second Circuit has held that “ATS claims may sometimes be brought against private actors, and not only state officials, when the tortious activities violate norms of ‘universal concern’ that are recognized to extend to the conduct of private parties—for example, slavery, genocide, and war crimes.”11 As a result, under specific circumstances, ATCA has provided grounds to sue companies headquartered anywhere in the world in U.S. courts for conduct occurring on foreign soil.12 Plaintiffs have used this statutory grant of jurisdiction to challenge pharmaceutical companies’ use of untested drugs on foreign nationals,13 the use of forced labor in building a gas pipeline,14 and other instances where the defendant has allegedly violated internationally recognized human rights.15 ATCA has also been used to assert claims for aiding and abetting violations of customary international law.16 To plead an aiding-and-abetting claim, the plaintiff must plead that the defendant (1) provided practical assistance to the principal that had a substantial effect on the commission of the crime, and (2) did so in order to aid the commission of the crime.17 Aiding-and-abetting theories have been used as the basis for suing private companies that sold goods or services to government regimes with poor human rights practices, arguing that the companies should be held liable to the victims of the government’s misconduct because the companies

10. 11. 12. 13. 14. 15.

16. 17.

Dole Food Company, other major fruit companies and chemical companies . . . for injuries allegedly sustained from exposure to DBCP in their home countries. This case represents one front in a broad litigation war between these plaintiffs’ lawyers and these defendants. In some of the cases, plaintiffs have reportedly won multimillion dollar settlements.”) (internal citations omitted); see also Phillip I. Blumberg, Asserting Human Rights Against Multinational Corporations under United States Law: Conceptual and Procedural Problems, 50 Am. J. Comp. L. 493, 516 (2002). 28 U.S.C. § 1350. See Abdullahi v. Pfizer, Inc., 562 F. 3d 163, 173 (2d Cir. 2009). See generally Sosa v. Alvarez-Machain, 542 U.S. 692 (2004). See generally Abdullahi, 562 F. 3d 163. Doe v. Unocal Corp., 248 F. 3d 915, 920–21 (9th Cir. 2001). Hilao v. Estate of Marcos, 103 F.3d 767 (9th Cir. 1996) (affirming final judgment in class action against estate of Ferdinand Marcos seeking damages for victims of human rights violations imposed by Marcos government). In re South African Apartheid, 617 F. Supp. 2d 228 (S.D.N.Y. 2009). See In re Presbyterian Church of Sudan v. Talisman Energy, 582 F.3d 244, 259 (2d Cir. 2009) (affirming dismissal of plaintiffs’ claims because plaintiffs had not pled purposeful action).

Multi-National Class Actions Litigation Teams

knew the goods or services would help the government carry out its human rights abuses. 18 These cases may prove difficult to certify, however. The broad international problems they address (including war crimes, slavery, and genocide) tend to implicate individualized issues that may predominate at any trial.19Also, debate has persisted over whether a plaintiff can fairly invoke ATCA to provide U.S. jurisdiction over human rights complaints that involve events occurring in other countries, or that are brought against persons or companies that did not directly violate any international law norms. § 10.1.1.2 “Foreign-Cubed” Class Actions Another type of class action that might require a multinational team is the “foreign-cubed” class action: one that involves “a set of (1) foreign plaintiffs . . . suing (2) a foreign issuer in an American court for violations of American securities laws based on securities transactions in (3) foreign countries.”20 In these cases, the plaintiff must prove that the conduct central to the securities fraud occurred on American soil21 or face dismissal.22

§ 10.1.2 Prudential Challenges Unlike purely domestic class actions, international class actions raise a set of issues involving foreign relations. As a result, the court must make a separate

18. In re South African Apartheid Litig., 617 F. Supp. 2d at 262 (alleging that defendants’ sale of motor vehicles and provision of computer and banking services to apartheid government knowingly facilitated its torture and killing of South Africans). 19. See Presbyterian Church of Sudan v. Talisman Energy, Inc., 226 F.R.D. 456, 482–85 (S.D.N.Y. 2005) (declining to certify ATCA class under Rule 23(b)(3) because individual issues as to harms each class member suffered from genocidal campaign would predominate over common issues). 20. Morrison v. Nat’l Australian Bank Ltd, 547 F.3d 167, 172 (2d Cir. 2008) (emphasis in original); see also Blechner v. DaimlerChrysler AG, 410 F. Supp. 2d 366, 369 (D. Del. 2006) (class of foreign investors sued German automotive manufacturer for not paying “control premium” on shares bought outside U.S.). 21. In re CP Ships Ltd. Secs. Litig., 578 F.3d 1306, 1316–17 (11th Cir. 2009) (“[T]he alleged activity in Tampa represents substantial acts in furtherance of the fraud which directly caused the claimed losses. We conclude that the district court properly exercised subject matter jurisdiction over the claims of foreign purchasers.”) (internal footnotes omitted). 22. See Morrison, 547 F.3d at 176 (dismissing case for lack of subject-matter jurisdiction because “[t]he actions taken and the actions not taken by the NAB in Australia were, in our view, significantly more central to the fraud and more directly responsible for the harm to investors than the manipulation of numbers in Florida”); Blechner, 410 F. Supp. 2d at 369 (dismissing case where “[t]he outcome in this case will not affect American investors or markets”). Morrison is currently under review by the United States Supreme Court. As of the time of this writing, the Court had heard oral argument, but had not handed down a decision.

257

258 Chapter 10 International Class Action Practice

set of inquiries at the beginning of the litigation to insure the international dimensions of the lawsuit do not raise issues that are better resolved by some entity other than an American court. § 10.1.2.1 Political Question Doctrine Some of the international claims a plaintiff might file (such as ATCA claims) may rest in part on the actions of a foreign state. As a result, while U.S. law may grant jurisdiction over those claims, the claims themselves may not be justiciable. Determining whether a case is nonjusticiable under the political question doctrine requires an inquiry into “six independent tests,” any one of which can support dismissal: (1) a textually demonstrable constitutional commitment of the issue to a coordinate political department; or (2) a lack of judicially discoverable and manageable standards for resolving it; or (3) the impossibility of deciding without an initial policy determination of a kind clearly for nonjudicial discretion; or (4) the impossibility of a court’s undertaking independent resolution without expressing a lack of the respect due coordinate branches of government; or (5) an unusual need for unquestioning adherence to a political decision already made; or (6) the potentiality of embarrassment from multifarious pronouncements by various departments on one question.23 To the extent that this inquiry may overlap with considerations involving the act of state doctrine, courts will likely find a political question.24 The court will also likely find a class action nonjusticiable if it seeks to revisit agreements negotiated by the United States at some point in the past.25

23. Baker v. Carr, 369 U.S. 186, 217 (1962). 24. See Alperin v. Vatican Bank, 410 F.3d 532, 560–61 (9th Cir. 2005) (dismissing claims based on use of slave labor during WWII because “[c]ondemning—for its wartime actions—a foreign government with which the United States was at war would require us to review an exercise of foreign policy judgment by the coordinate political branch to which authority to make that judgment has been ‘constitutionally committed.’”) (internal quotations omitted). 25. See Burger-Fischer v. DeGussa Ag., 65 F. Supp. 2d 248, 284–85 (D.N.J. 1999) (class action invoked nonjusticiable political question because it essentially sought a judicial restructuring of reparations under post-WWII Potsdam accords); Iwanowa v. Ford Motor Co., 67 F. Supp. 2d 424, 485 (D.N.J. 1999) (dismissing class action seeking reparations for forced labor in German concentration camps as political question because “[t]he executive branch has always addressed claims for reparations as claims between governments.”).

Multi-National Class Actions Litigation Teams

Similarly, statements of interest from the executive branch of the United States government are given “serious weight” in this analysis.26 Where the U.S. government states that it has a foreign-policy interest in the immediate case before the court, the court will generally find the issue nonjusticiable because of the political question doctrine.27 However, a statement of interest may not be dispositive.28 § 10.1 2.2 Act of State Doctrine The act of state doctrine prohibits American courts from adjudicating lawsuits challenging any public acts that a recognized sovereign power (a state) commits in its own territory.29 The doctrine has two elements: (1) the action is an official act by a foreign sovereign within its own territory; and (2) the relief sought would require a judicial declaration of the invalidity of that sovereign act.30 The defendant may invoke this doctrine if one of the entities named in an international class action is a state actor, or if the allegations in the complaint require a judgment about the validity of official acts of a foreign government (for example, if the defendant is accused of conspiring with the government to do something unlawful).31 As a result, the plaintiff may allege that the entity she has sued is distinct from the foreign sovereign.32 The plaintiff may argue against applying the act of state doctrine in particular cases on the grounds that the state’s conduct violates recognized international norms (occasionally referred to as jus cogen norms).33

26. See Sarei v. Rio Tinto, PLC, 487 F. 3d 1193, 1205 (9th Cir. 2007). 27. See Whiteman v. Dorotheum GmbH & Co., KG, 431 F.3d 57, 70–72 (2d Cir. 2005) (deferring to executive branch’s statement of interest where executive sought to obtain compensation for Holocaust victims through negotiation with Austria rather than class action). 28. See Sarei, 487 F. 3d at 1205 (“Guided by separation of powers principles, as well as the cases discussed above, we conclude that although we will give the view in the [statement of interest] ‘serious weight,’ it is not controlling on our determination of whether the fourth through sixth Baker factors are present.”) (internal quotation omitted). 29. Banco Nacional de Cuba v. Sabbatino, 376 U.S. 398, 401 (1964); see also Sarei, 487 F. 3d at 1208. 30. Sabbatino, 376 U.S. at 405. 31. See Sarei, 487 F. 3d at 1210 (dismissing claims for violation of United Nations Convention Law of the Sea because Papua New Guinea’s exploitation of its own natural resources constituted a sovereign act). 32. See Alperin, 410 F.3d at 542 (noting that complaint distinguished between the Vatican as sovereign entity and the Vatican Bank). 33. See Sarei 487 F. 3d at 1209–10 (allowing racial discrimination claims to proceed because underlying acts violated jus cogen norms and therefore could not constitute official sovereign acts).

259

260 Chapter 10 International Class Action Practice

§ 10.1 2.3 Comity Another potential ground for dismissal of a class action involving events in other countries is the doctrine of comity. International comity has been defined as “the recognition which one nation allows within its territory to the legislative, executive or judicial acts of another nation.”34 When courts follow the doctrine of comity, they may decline to exercise their jurisdiction to hear disputes involving events occurring abroad or foreign parties in deference to the laws or interests of a foreign sovereign.35 Comity is a discretionary doctrine for the court.36 Most courts require a showing of an actual conflict between foreign law and U.S. law relevant to the pending dispute before the defendant may invoke the doctrine of comity.37 A clear statement by a foreign government is a sufficient indicator of foreign law.38 The Second Circuit has warned that class actions involving international issues may raise concerns not present in individual securities cases or government enforcement because “a very small tail may be wagging an elephant and . . . there is doubt that a judgment of an American court would protect the defendants elsewhere.”39 While at least one federal appellate court has reversed a lower court’s dismissal on comity grounds, it did leave open the possibility that a class action might be dismissed should the foreign jurisdiction actively object to United States jurisdiction.40 (This holding leaves open the possibility of an extra-judicial strategy for defendants: convincing the foreign government to actively object to jurisdiction over the litigation.)41

34. Hilton v. Guyot, 159 U.S. 113 (1895). 35. Societe Nationale Industrielle Aerospatiale v. U.S. Dist. Ct. for S.D. Iowa, 482 U.S. 522, 544 n.27 (1987) (“Comity refers to the spirit of cooperation in which a domestic tribunal approaches the resolution of cases touching the laws and interests of other sovereign states.”). 36. See Bodner v. Banque Paribas, 114 F. Supp. 2d 117, 129 (E.D.N.Y. 2000) (“The doctrine of international comity neither impels nor obliges the United States district court to decline jurisdiction in a particular case.”). 37. See Sarei, 487 F. 3d at 1211. 38. See Iwanowa, 67 F. Supp. 2d at 490 (“Although courts are not bound by a foreign government’s pronouncement of which claims are cognizable, the principles of international comity dictate that a court not interfere with a foreign sovereign’s pronouncement of its law.”). 39. IIT v. Vencap, Ltd., 519 F.2d 1001, 1017–18 n.31 (2d Cir.1975) (Friendly, J.); see also In re Bayer AG Securities Litig., 423 F. Supp. 2d 105, 110 (S.D.N.Y. 2005) (quoting IIT). 40. Jota v. Texaco, 157 F.3d 153, 160 (2d Cir. 1998) (“When a court dismisses on the ground of comity, it should normally consider whether an adequate forum exists in the objecting nation and whether the defendant sought to be sued in the United States forum is subject to or has consented to the assertion of jurisdiction against it in the foreign forum.”). 41. See Aguinda v. Texaco, Inc., 303 F.3d 470, 474 (2d Cir. 2002) (“Along with this motion, Texaco submitted a letter from Ecuador’s ambassador to the United States addressed to the U.S. Department of State, asserting that the Government of Ecuador considered the suit an affront to Ecuador’s national sovereignty.”); but see In re South African Apartheid, 617 F. Supp. 2d at 286 (South African government’s objections to ATCA class action regarding apartheid-era corporate conduct did not sway court to dismiss suit on political question grounds).

Multi-National Class Actions Litigation Teams

§ 10.1 3 Procedural Challenges The plaintiff bringing a class action on behalf of, or against, non-U.S. parties faces a number of special procedural hurdles—such as establishing jurisdiction, showing that she served process in a proper manner, that the lawsuit is proceeding in the proper forum, that comity will be observed, and that all parties have been joined—that do not arise as frequently in purely domestic class actions. These additional hurdles require different strategies from both the plaintiff and the defendant.42 For one thing, the motion to dismiss becomes even more important to the defendant in multi-national class actions, and there are more grounds on which the defendant can seek dismissal. For another, discovery is more difficult to conduct across international borders. § 10.1.3.1 Jurisdiction While jurisdiction-based motions to dismiss are less common in “domestic” class actions, they are one means by which defendants in multinational class actions may challenge the propriety of class-action litigation in the United States. Particularly if any of the plaintiff, the conduct, or the defendant is foreign, there is a very real question about whether or not United States courts will have jurisdiction to hear the dispute.43 § 10.1 3.2 Service of Process Suing foreign defendants in U.S. courts also raises service-of-process issues. The plaintiff must make sure that she has served the foreign corporation properly. Rule 4(h) provides that “a foreign corporation . . . must be served in a judicial district of the United States . . . or at a place not within any judicial district of the United States, in any manner prescribed by Rule 4(f) for serving an individual, except personal delivery. . .”44 Depending on where that corporation resides, service of process may be governed by either the Hague Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters (the “Hague Service Convention”)45 or by local rules. Local rules will vary by country, and in some

42. For a plaintiff-oriented discussion of these strategies, see generally Seth A. Northrop, Exporting Environmental Justice by Importing Claimants: The Suitability and Feasibility of the Globalization of Mass Tort Class Actions, 18 Geo. Int’l Envtl. L. Rev. 779 (2006). 43. Blechner, 410 F. Supp. 2d at 367 (dismissing securities class action for lack of subject-matter jurisdiction). 44. Fed. R. Civ. P. 4(h). 45. Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters, Nov. 15, 1965, 20 U.S.T. 361, 658 U.N.T.S. 163 (1969).

261

262

Chapter 10 International Class Action Practice

cases may be less onerous than the Federal Rules of Civil Procedure.46 Under the Hague Service Convention, the plaintiff submits a request to the foreign state’s Central Authority, which then effects service on the defendant.47 § 10.1 3.3 Forum non conveniens A United States court may dismiss a class action on forum non conveniens grounds.48 The doctrine of forum non conveniens holds that where there is an adequate forum to hear the dispute in the plaintiff’s home country, and public and private interests would favor litigation there, bringing a lawsuit in a United States court is not “convenient.”49 Among the “private interests” that would favor litigation in the plaintiff’s home country are the ease of access to evidence, the availability of compulsory process for witnesses, the cost for witnesses to attend a trial, and any other factors that might enhance the speedy and inexpensive administration of justice.50 As the moving party, the defendant bears the burden of demonstrating the adequacy of the alternative forum, as well as the balance of public and private interests.51 That said, if the plaintiff alleges that the foreign forum is inadequate, she bears the initial burden of “producing evidence of corruption, delay or lack of due process,” and the defendant bears the ultimate burden of persuasion.52 In general, courts are more reluctant to find U.S. courts to be convenient to a foreign plaintiff.53

46. Volkswagenwerk Aktiengesellschaft v. Schlunk, 486 U.S. 694, 703 (1988) (“Notification au parquet permits service of process on a foreign defendant by the deposit of documents with a designated local official.”). 47. See In re S. African Apartheid Litig., 643 F. Supp. 2d 423, 432 (S.D.N.Y. 2009). 48. See Aguinda, 303 F.3d at 473 (affirming dismissal of complaint on forum non conveniens grounds); In re Union Carbide Corp. Gas Plant Disaster, 809 F.2d 195, 206 (2d Cir. 1987) (affirming forum non conveniens dismissal). 49. Piper Aircraft v. Reyno, 454 U.S. 235, 241 (1981); see also Dirienzo v. Philip Servs. Corp., 294 F.3d 21, 29 (2d Cir. 2002) (“A forum non conveniens motion cannot be granted absent an adequate alternative forum.”). 50. Dirienzo, 294 F.3d at 29–30. 51. Abdullahi, 562 F. 3d at 189 (2d Cir. 2009); see also Eastman Kodak Co. v. Kavlin, 978 F. Supp. 1078, 1087 (S.D. Fla. 1997) (denying motions to dismiss based on forum non conveniens because “defendants have not met their burden of proving the existence of an adequate alternative forum to hear plaintiffs’ claims”). 52. Abdullahi, 562 F. 3d at 189. 53. Piper Aircraft Co., 454 U.S. at 256 (“When the home forum has been chosen, it is reasonable to assume that this choice is convenient. When the plaintiff is foreign, however, this assumption is much less reasonable. Because the central purpose of any forum non conveniens inquiry is to ensure that the trial is convenient, a foreign plaintiff ’s choice deserves less deference.”).

Multi-National Class Actions Litigation Teams

A defendant asserting a forum non conveniens argument may argue that the alternate forum is adequate for trying the case,54 or that discovery will be difficult—if not impossible—to conduct in the United States.55 The plaintiff will most frequently oppose that outcome by arguing that there is no way for her to receive a fair trial in the foreign jurisdiction.56 She may argue that the alternative jurisdiction is inadequate because it does not allow for class actions, although so far that argument has met with limited success.57 (As more countries adopt aggregated litigation procedures, this argument may gradually lose force.) Recently, some national governments have tried to influence this debate by implementing “blocking statutes” that prohibit local courts in their countries from exercising jurisdiction over cases originally brought in the United States, essentially “blocking” the transfer of a case on forum non conveniens grounds.58 The primary tool the court has for sifting through this morass of conflicting strategies is to look at the stated reasons for filing the action in the United States. To the extent that a foreign plaintiff can state a plausible, legally valid reason for filing the case in a U.S. court, the court will likely defer to her judgment about the appropriate forum.59 The plaintiff can justify her choice of forum on policy grounds: for example, foreign plaintiffs filing securities class actions involving conduct connected to the United States can invoke the federal court’s interest in enforcing this country’s securities laws.60 Similarly, if

54. Aguinda, 303 F.3d at 478 (defendants argued that Ecuador was adequate forum for trying case); Sarei v. Rio Tinto, PLC, 221 F. Supp. 2d 1116, 1118 (C.D. Cal. 2002) (defendants argued that either Papua New Guinea or Australia was superior forum for trying ATCA case involving mining practices in Papua New Guinea). 55. See Bodner, 114 F. Supp. 2d at 132–33. In Bodner, the court ultimately found that, even with any discovery difficulties, the United States was an adequate forum for the proposed class action. 56. Aguinda, 303 F.3d at 478 (noting “Plaintiffs contend that Ecuadorian Courts are subject to corrupt influences and are incapable of acting impartially”). 57. See id. (“Plaintiffs’ third objection is that Ecuadorian courts do not recognize class actions. On the other hand, Ecuador permits litigants with similar causes of action arising out of the same facts to join together in a single lawsuit. While the need for thousands of individual plaintiffs to authorize the action in their names is more burdensome than having them represented by a representative in a class action, it is not so burdensome as to deprive the plaintiffs of an effective alternative forum.”). 58. See M. Ryan Casey & Barrett Ristroph, Boomerang Litigation: How Convenient is Forum Non Conveniens in Transational Litigation?, 4 B.Y.U. Int’l L. & Mgmt. Rev. 21 (2007). 59. Dirienzo, 294 F.3d at 28 (“To determine what amount of deference should have been given, Iragorri instructs that the more it appears that a domestic or foreign plaintiff ’s choice of forum has been dictated by reasons that the law recognizes as valid, the greater the deference that will be given to the plaintiff ’s forum choice.”) (internal quotations omitted). 60. Id. at 28 (“In fact, plaintiffs offered a quite valid reason for litigating in federal court: this country’s interest in having United States courts enforce United States securities laws.”).

263

264 Chapter 10 International Class Action Practice

a plaintiff’s—or defendant’s—arguments for choosing a forum seem primarily strategic, that is reason to give the choice less deference.61

§ 10.1.4 Certifying a Multi-National Class Several strategic issues arise when a plaintiff seeks to certify a multinational class action in a United States court. The named plaintiff (if foreign) may face problems demonstrating that she is a typical or adequate class representative. For example, a foreign plaintiff in a securities class action may not be typical or adequate if she bought her securities in a non-U.S. market where legal duties differ from those imposed by U.S. securities laws. In addition, a plaintiff may have difficulty demonstrating that a multinational class action is superior to other forms of litigation, particularly litigation in the foreign claimants’ home country. A plaintiff may also have difficulty demonstrating that a class action is superior—or even appropriate—if the class action will not have any preclusive effect in the foreign jurisdiction, robbing defendants of their due process rights.62 Some courts have held that the presence of other litigation in foreign jurisdictions does not mean that an American class action is not superior, even for foreign claimants.63

§ 10.1.5 Enforcing Foreign Judgments Given the imbalance between the number of class actions filed in the United States and the number filed in other countries, enforcing foreign class-action judgments in the U.S. is not yet a pressing issue.64 However, courts must also

61. See Id. at 29 (“[D]efendants’ current claims of inconvenience raise questions as to their underlying motives. The way in which they have used procedural tactics ultimately to obtain dismissal of plaintiffs’ suit in district court in favor of Canada counsels caution in evaluating their forum non conveniens motion.”). 62. See In re Royal Ahold N.V. Securities and ERISA Litig., 219 F.R.D. 343, 352(D. Md. 2003) (disqualifying foreign named plaintiffs from serving as lead plaintiff in securities action in part because the possibility that “[f]oreign courts might not recognize or enforce such a decision from an American court, which would allow foreign plaintiffs in the class to file suit against the defendant again in those foreign courts . . . must be considered in determining whether a class action is the superior”). 63. In re Vivendi Universal, S.A. Securities Litig., 242 F.R.D. 76, 92 (S.D.N.Y. 2007) (“The actions by putative class members currently pending before French courts against Vivendi do not, in the Court’s view, change this calculus.”). 64. See Todd J. Burke, Canadian Class Actions and Federal Judgments: Recognition of Foreign Class Actions in Canada, 17-OCT Bus. L. Today 49, 49 (2007) (“Given their relatively small numbers, it is not surprising that the issue of enforcing Canadian class action judgments has yet to produce a significant body of case law in the United States.”). However, given Canada’s

Aggregated Litigation Devices in Other Countries

consider the problem of enforcing American judgments in foreign courts. A number of countries refuse to enforce formal judgments entered by American courts in the absence of a formal, bilateral agreement with the United States.65 Many countries will refuse to enforce judgments that violate their local public policy, and, because U.S. securities and class-action rules are more aggressive than most other countries’, settlements and judgments in the U.S. may violate public policy in other countries.66 However, the fact that foreign jurisdictions may not recognize an American class-action judgment does not automatically preclude certifying a class in the U.S. that includes foreign claimants.67 One final concern is whether the court will be able to provide notice in foreign jurisdictions, since a class action cannot be binding without notice to all absent class members. A number of courts, however, have either found that this is not a fatal objection,68 or have implemented creative procedures (usually involving publication notice) to provide notice to absent class members in other countries.69 (It is arguable whether these publication schemes protect a defendant’s due process rights in the same way as publication notice in the United States, where the class-action judgment is certain to have preclusive effect.)

§ 10.2 Aggregated Litigation Devices in Other Countries Any overview of complex litigation devices in other countries will necessarily oversimplify a number of issues. Countries do not have static legal systems; as a result, a number of countries may be in the process of adopting laws that

65.

66.

67.

68. 69.

recent foray into certifying multinational securities class actions, see Silver v. IMAX Corp., 2009 O.J. No. 5585 (On. S.C.), that moment may arrive sooner rather than later. See In re Vivendi Universal, 242 F.R.D. at 105 ((excluding putative Austrian class members because “[t]he United States and Austria are not party to a reciprocity treaty, nor has an Austrian decree been published that would provided for the enforcement of a U.S. judgment”). See Id. at 96–105 (analyzing effect of enforcing class-action judgment in France, United Kingdom, Germany, Austria, and the Netherlands, and concluding that Germany’s public policy would not allow enforcement of class-action judgments). See id. at 106–07 (“in considering whether the threat of nonrecognition defeats the superiority of the proposed class, the Court should not ignore practical realities that reduce the risk that defendants would in fact be prejudiced by any potential nonrecognition in the form of duplication of effort or inconsistent results”). See id. at 107–08 (“As long as the Court is persuaded that ‘class counsel acted reasonably in selecting means likely to inform persons affected,’ notice will be considered adequate”). See id. (provisionally approving notice that includes publication in multinational media and creation of multilingual website).

265

266

Chapter 10 International Class Action Practice

either enhance or restrict litigants’ rights to bring aggregated litigation, and the political debates surrounding those efforts will vary from country to country based on each nation’s experience with complex litigation.70 Countries may also enforce group-litigation laws differently, even if those laws have similar texts. There are several other structural factors that can influence the strategic choices in quasi class-action litigation outside the U.S.: Cost-shifting. Since many countries do not follow the American rule (which allows one-way fee shifting), determining who bears the costs of a lawsuit has a large impact on whether aggregated litigation goes forward. For example, scholars have noted that, in a number of European countries, rules governing recovery of costs have limited the practicality of mass litigation of one kind or another.71 And in Australia, one of the more important classaction decisions to date has been Campbells Cash and Carry Pty Ltd v. Fostif Pty Limited,72 which approved the use of third-party litigation funding in representative actions (including class actions).73 Judiciary. In the United States, the (federal) judiciary is politically appointed and provided lifetime tenure. The result is judges who have specific political outlooks even as they aspire toward only “calling balls and strikes.”74 Other common-law countries (like Canada, the UK, and Australia) have judiciaries that are more inquisitorial, and continental legal systems (like France and Germany) have more bureaucratic, fully inquisitorial judges; in other words, it is common for such judges to question witnesses at length themselves, or even bring expert witnesses retained by the opposing sides together to debate each other face to face. Each of these nuances affects the process of aggregating litigation differently. There are a number of different class-action or aggregated-litigation devices available in other countries, each of which interacts in unique ways with the legal system surrounding it. Rather than exhaustively catalogue each of these systems (which others have attempted with varying degrees of

70. See Samuel P. Baumgartner, Class Actions and Group Litigation in Switzerland, 27 Nw. J. Int’l L. & Bus. 301, 303–04 (2007) (describing debates in Switzerland over adoption of classaction legislation). 71. See Deborah R. Hensler, The Globalization of Class Actions: An Overview, 622 Annals of the Am. Academy of Pol. & Soc. Sci. 7, 9 (2009); Ken Daly, Cartels & Deterrence—Creeping Criminalisation & the Class Action Boom, 1 Bloomberg European Bus. L. J. 315, 324. (2007). 72. Campbells Cash and Carry Pty Ltd v. Fostif Pty Limited, (2006) 229 C.L.R. 386. 73. Id. at ¶ 425. Since the Campbells Cash & Carry decision, one litigation funder in Australia described the class-action environment in Australia as “spectacular.” Adele Ferguson, “Shareholder class actions have tripled,” The Australian, Jan. 2, 2009. 74. Richard A. Posner, How Judges Think, 73 (2008).

Aggregated Litigation Devices in Other Countries

success), we will briefly describe seven different kinds of aggregated-litigation systems, and the strategic considerations raised by each. This overview brings our strategic discussion full circle. In Chapter 1, we discussed the strategic issues raised by various methods of aggregating litigation that do not invoke Rule 23. Some of those issues will recur as we look at the challenges involved in litigating aggregated cases in countries that have not enacted the American model of opt-out class litigation.

§ 10.2.1 The Canadian Model Currently, seven of Canada’s thirteen provinces and territories have rules allowing for class actions, and Canada’s Supreme Court has allowed classaction approaches in the other jurisdictions as well.75 Most Canadian provinces have enacted some form of the Class Proceedings Act. Under the Act, a class action may proceed if: (a) the pleadings or the notice of application discloses a cause of action; (b) there is an identifiable class of two or more persons that would be represented by the representative plaintiff or defendant; (c) the claims or defenses of the class members raise common issues; (d) a class proceeding would be the preferable procedure for the resolution of the common issues; and (e) there is a representative plaintiff or defendant who: (i) would fairly and adequately represent the interests of the class; (ii) has produced a plan for the proceeding that sets out a workable method of advancing the proceeding on behalf of the class and of notifying class members of the proceeding; and (iii) does not have, on the common issues for the class an interest that is in conflict with the interests of other class members.76

Canadian class-action requirements are generally similar to Rule 23, but do contain some important differences. Section 5(1)(a) requires the court to conduct a brief inquiry into the merits of the claim (similar to a motion-todismiss inquiry under the Federal Rules of Civil Procedure) as part of its class certification determination; in the U.S., by contrast, judges are instructed not to base their certification ruling on the perceived strength or weakness of the claim on the merits. The numerosity requirement is easier to meet because two class members suffices; in the U.S., this would not be enough for a class action. And the Class Proceedings Act requires the plaintiff to submit a trial

75. Burke, Canadian Class Actions and Federal Judgment, 17-OCT Bus. L. Today 49, 49 (2007). 76. Class Proceedings Act, 1992, S.O. 1992, c. 6, § 5.

267

268 Chapter 10 International Class Action Practice

plan, where the U.S. caselaw only strongly encourages it.77 But the most consequential distinction between the Canadian Class Proceedings Act and U.S. requirements for certifying damages class actions is that Canada has no “predominance” requirement: the plaintiff need not show that the “common” issues in the litigation predominate over individual issues. This makes Canadian courts more willing to authorize class trials to resolve common issues that U.S. courts would not consider important enough to justify certifying a class. In Canada, it is commonplace to certify a class action proceeding for the sole purpose of resolving “common” issues (such as whether a drug was defective), fully recognizing that, if a pro-plaintiff judgment is reached on the common issues, follow-on individualized trials will be required to determine which (if any) class members are entitled to receive monetary damages based on the outcome of claimant-specific elements of their claims. As in the United States, the plaintiff in a Canadian class action bears the burden of demonstrating that a class action deserves certification.78 Also as in the United States, the focus at certification is not on the merits of plaintiff’s claims, but on the procedural question of whether a class action is the appropriate vehicle for litigating those claims (although this assertion is at some tension with the Section 5(1)(a) requirement that the pleading disclose a cause of action).79 Canada also has a “loser pays” system for most lawsuits.80 However, several provinces do not apply the loser-pays rule to certain class actions in which the plaintiff filed a test case, raised a novel point of law, or even simply filed a non-frivolous case.81 Canadian firms also do not employ contingency

77. Compare Feder v. Elec. Data Sys., 429 F.3d 125, 139 (5th Cir. 2005) (trial plan not prerequisite for class action). 78. Hollick v. City of Toronto [2001] 3 S.C.R. 158, ¶ 25 (“the class representative must show some basis in fact for each of the certification requirements set out in s. 5 of the Act, other than the requirement that the pleadings disclose a cause of action.”); see also Holmes v. Jastek Master Builder 2004 Inc., [2009] SKQB 421, ¶ 3 (“The onus is on the plaintiffs to satisfy the court that the conditions have been met and all conditions must be met in order for the action to be certified.”). 79. Hollick, [2001] 3 S.C.R. 158, ¶ 16 (“The question at the certification stage is not whether the claim is likely to succeed, but whether the suit is appropriately prosecuted as a class action.”); see also Allen v. Aspen Group Resources Corp., [2009] CanLII 67668, ¶ 38 (S.C.J.) (“A certification motion does not embark on an assessment of the merits of the action. I am not required to determine whether the plaintiff ’s claims are likely to succeed. The issue before me at this stage is simply whether the action can be appropriately prosecuted as a class action.”). 80. Burke, Canadian Class Actions and Federal Judgments, 17-OCT Bus. L. Today 49, 49 (2007). 81. See Jacob Ziegel, Class Actions to Remedy Mass Consumer Wrongs: Repugnant Solution or Controllable Genie? The Canadian Experience, 27 Penn. St. Int’l L. Rev. 879, 888 (2009) (“The Ontario Act provides that the court may relieve the unsuccessful plaintiff from having to pay costs if the class action was a test case, raised a novel point of law, or involved a matter of public interest. The British Columbia, Saskatchewan and Manitoba Acts are more

Aggregated Litigation Devices in Other Countries

fees as often as American firms, which may deter some Canadian plaintiffs from launching class actions.82 (This is not to say that Canada does not allow class-action litigants to find ways to fund costs in advance; the Superior Court of Ontario recently approved an indemnity agreement allowing for thirdparty funding of securities class actions.83) However, on the whole there are still greater financial barriers to bringing a class action in Canada than there are in the United States.84 In recent years, the Canadian class-action system has become more attractive to plaintiffs, and more active in general: class action filings increased from only two in 1996 to 107 in 2008.85 Some of the attraction stems from the lack of a predominance requirement, making it easier for plaintiffs to obtain certification of a class.86 Indeed, one study found that as of September 2008, Ontario courts had certified 176 out of 236 class actions brought before them, a certification rate of almost 75 percent.87 In addition, a number of prominent Canadian judges have gone on record promoting the class-action device as a method of increasing Canadians’ access to justice.88 Recent rulings from the Superior Court of Ontario have made Canada a more attractive forum for securities and antitrust plaintiffs. The Superior Court of Ontario has held that securities plaintiffs do not have to prove reliance on any misrepresentation to recover for their losses.89 It also recently certified a class action involving investors from other countries, based on the theory that misrepresentations in secondary (non-Canadian) markets justified

82.

83.

84. 85.

86. 87. 88. 89.

plaintiff-friendly and provide that costs may only be awarded against the plaintiff if the action was frivolous, and even then the award is discretionary.”) (internal footnotes omitted). See Alle, [2009] CanLII 67668, ¶ 34 (noting plaintiff “eventually retained counsel in 2003 but was unable to come to a satisfactory fee arrangement with the lawyer. He had to borrow money, which he has since repaid, from another member of the proposed class in order to pay the lawyer.”). See Metzler Inv. GMBH v. Gildan Activewear Inc., [2009] CanLII 41540, ¶¶ 62–63 (On. S.C.) (holding third-party indemnity agreement was neither inherently champertous nor against public policy). The court did require modifications to the agreement to reduce the amount of direct control the third-party investor had over the litigation. Id. ¶¶ 59–60. See Ziegel, Class Actions to Remedy Mass Consumer Wrongs, 27 Penn. St. Int’l L. Rev. at 880 (“Litigation in Canada is, for the most part, enormously expensive and time consuming.”). Julie Triedman, “New Players at the Table: How Canadian plaintiffs lawyers have joined the class action game,” The American Lawyer, Aug. 1, 2009, http://www.law.com/jsp/tal/PubArticleTAL. jsp?id=1202432561786&pCANADA_REPORTp__New_Players_at_the_Table. Id. Id. Id. Silver, 2009 O.J. No. 5585 ¶ 12; Allen, 2009 CanLII 67668 ¶ 122. This ground is different than the U.S. “fraud on the market” theory. Instead of presuming reliance, the Superior Court of Ontario ruled that the Ontario securities laws require the defendant to prove some form of alternate loss causation.

269

270

Chapter 10 International Class Action Practice

including the claims of investors from other countries.90 And, in another recent case, it relaxed the certification standard that the Court of Appeal had previously applied to antitrust claims.91 Canadian plaintiffs have also pursued class actions in cases of consumer loss, environmental damage, and medical product negligence.92 These developments do not mean that Canadian class actions are evolving parallel to those in the United States, or in a uniformly pro-certification direction. First, Canadian class actions are mostly based in specific provinces, which have not implemented class-action rules in the same ways. Moreover, various Canadian courts have held that certain kinds of lawsuits are not amenable to class-action treatment. For example, to date, Canadian courts have not been as welcoming to wage-and-hour (or “off-the-clock”) class actions.93 Also, in recent years, some Canadian appellate courts have reversed certification orders in cases in which there appear to be few important common issues, and many individualized issues.94

§ 10.2.2 The Australian Model Australia has a unique class-action regime that resembles the United States’s, with a few very important differences. The most important difference is that in Australia, a lawsuit filed as a class action is presumed to be a class action unless and until the judge orders it decertified.95 Australia also has a more

90. Silver, 2009 O.J. No. 5585 (On. S.C.) ¶ 16. 91. See Irving Paper Ltd. v. Atofina Chems. Inc. (On. S.C. 2008) (published opinion not available); see also Chadha v. Bayer Inc., Docket C38651 (On. C.A. 2003). 92. Rachael Mulheron, The Class Action in Common Law Legal Systems: A Comparative Approach, 13 (2004). 93. See Fresco v. Canadian Imperial Bank of Commerce, [2009] CanLII 31177, ¶ 4 (On. S.C.) (“it is my conclusion that this is not a proper case for certification and that a class proceeding is not the preferable procedure for resolving the claims of class members for unpaid overtime”). The opinion did leave open the possibility that misclassification wage-and-hour claims (where employees are erroneously classified as management and therefore not paid overtime) may still be appropriate for class-action treatment. 94. See Merck Frosst Canada, Ltd. v. Wuttunee, [2009] SKCA 43, ¶ 52 (Sasketchewan Ct. App.) (“the most intractable difficulty with this action lies in the diversity of the claims sought to be advanced on a common basis, and in the related question of whether such an action is manageable as a class action”); Poulin, 242 O.A.C. 209 at ¶49 (motion judge did not err in finding insufficient common issues to merit certification in door-latch products-liability case). 95. Mulheron, The Class Action in Common Law Legal Systems, at 23–24 (“The Australian schema operates entirely differently, in that an action commenced as a class action under Pt IVA proceeds unless a judge orders otherwise.”) (internal footnotes omitted).

Aggregated Litigation Devices in Other Countries

stringent version of the superiority requirement, sometimes referred to as the “no-need” requirement.96 In addition, Australia has a loser-pays system, and does not allow for contingency fees.97 (It does, however, allow lawyers to take cases on a “no win, no fee” basis, which would limit some of the downside risk to prosecuting a class action.)98 However, Australia has recently approved the use of third-party litigation funding in representative actions—essentially allowing venture capitalists to “invest” in a class action by financing its prosecution in return for a share of any winnings.99 Indeed, one leading Australian plaintiffs’ class action firm (Slater & Gordon) is the first law firm in the world to become a public corporation, in which stockholders share in any profits and losses emanating from the firm’s portfolio of lawsuits. Given the availability of third-party funding and the presumptive certification, the plaintiff’s primary strategic goals will be recruiting an adequate class representative, securing funding, and asserting causes of action that can withstand dispositive motions. The defendant, on the other hand, is likely to concentrate its attention on any dispositive motions. Secondarily, it may seek to establish a record for decertifying the class, particularly by establishing that there is not a need for the class action. But at the end of the day, defendants in Australian class actions should be prepared to try cases on a classwide basis that would not proceed as class actions in U.S. courts.100

§ 10.2.3 The Opt-In Model Many European states have considered (or implemented) some form of opt-in—rather than opt-out—class action.101 Whereas in an opt-out class

96. Id. at 238 (“The Australian schema expressly requires the court to ask, under § 33N(1)(b), whether the relief sought could be obtained by means other than a class action. It is apparent that this ‘no-need’ argument has been postulated elsewhere by judiciaries . . .”) (internal footnotes omitted). 97. See Bernard Murphy & Camille Cameron, Access to Justice and the Evolution of Class Action Litigation in Australia, 30 Melbourne Univ. L. Rev. 399, 423–24 (2006) (discussing cost structure). 98. See Murphy & Cameron, Evolution of Class Action Litigation in Australia, 30 Melbourne Univ. L. Rev. at 423–24. 99. See Campbells Cash and Carry, (2006) 229 C.L.R. at 441–442, 467–468. 100. For example, a class action trial recently occurred in Australia concerning whether the prescription drug Vioxx was defectively designed and fraudulently marketed. Peterson v. Merck Sharpe & Dohme (Aust) Pty Ltd. [2010] FCA 180. By contrast, all putative class actions in the U.S. involving Vioxx-related personal injury claims have, as of this writing, been denied either at the trial or appellate stages. 101. See generally Rachael Mulheron, The Case for an Opt-Out Class Action for European Member States: A Legal and Empirical Analysis, 15 Colum. J. Eur. L. 409 (2009) (surveying opt-in regimes in Europe).

271

272 Chapter 10 International Class Action Practice

action, a person fitting within the class definition is a class member unless she affirmatively requests exclusion from the class, in an opt-in class action, a person fitting within the class definition must affirmatively request inclusion to be included in the final judgment. As an example of this kind of class action, we focus on England’s Group Litigation Order (GLO), primarily because it is more likely that an English-speaking reader will find herself litigating in England than in, say, Germany or Denmark. While, as of the time of this writing England continues to debate whether to adopt an opt-out class action regime, it adopted a “Group Litigation Order” (GLO) in 2000.102 The GLO is an “opt-in regime (in contrast to the opt-out regimes of countries like the United States), in which litigants must affirmatively choose to litigate by entering their names on the group register, or having their claims adjoined by judicial consolidation to the group action” in order to litigate.103 There are five criteria the court must consider before certifying a GLO proceeding: (1) there must be a “number of claims”104 (numerosity); (2) that give rise to “common or related issues of fact or law”105 (commonality); (3) managing the litigation must allow the court “to deal with cases justly”106 (suitability); (4) the GLO must have the consent of either the Lord Chief Justice, the Vice Chancellor, or the Head of Civil Justice107 (screening); and (5) the GLO must be more appropriate than consolidation of claims or a representative proceeding108 (superiority). While British Courts have certified a number of GLOs for personal injury and negligence cases, they have been reluctant to certify other negative-value suits, such as mass overcharges, anti-competitive behavior, or shareholder actions.109 Once the GLO has been certified, the court specifies a “management court” that oversees the claims, and establishes the register for the individual claimants.110 At that point, any order or judgment that issues in the case is binding on all individuals in the register.111 The management court has the discretion to alter the issues in the order, to order claims to proceed as test cases, and to

102. Mulheron, The Class Action in Common Law Legal Systems at 94. As in the United States, there are other methods of aggregating claims under certain circumstances. Id., 87–88 (describing use of declaratory and injunctive relief to aggregate claims of similarly situated individuals for litigation). 103. Id. at 99 (internal footnotes omitted). 104. English Civ. Pro. R. 19.11(1). 105. English Civ. Pro. R. 19.10, 19.11(1). 106. English Civ. Pro. R. 1.1(1). 107. PD 19B ¶ 3.3. 108. PD 19B ¶ 2.3. 109. Mulheron, The Class Action in Common Law Legal Systems at 12–15. 110. Id. at 97–98 (Hart Publishing 2004). 111. Id.

Aggregated Litigation Devices in Other Countries

establish the binding effect of any orders on parties that may join the action later.112 England is not the only country to have established an opt-in scheme for aggregated litigation. Germany also allows for opt-in “Model Case Proceedings” for certain securities cases.113 And Denmark has recently enacted a new class-action provision that allows for opt-in class actions.114 As Rachael Mulheron has pointed out, the primary strategic difference between opt-in GLO litigation and U.S.-style opt-out class-action litigation is that the GLO system “inevitably entail[s] ‘individualized’ litigation en masse.”115 While opting in only requires a claim form, amendment may be very costly if the defendant alleges any pleading deficiencies.116 As a result, the litigation becomes “front-loaded,” making early dispositive motions more important.117 On the plaintiff’s side, the GLO requires aggressive recruiting and rigorous screening of potential class members to ensure an effective GLO, requiring a larger up-front expenditure of resources.118 On the defendant’s side, conduct of en masse individualized litigation also suggests that discovery of the claimants may be more important than it is in a Rule 23 class action. Finally, since the GLO regime is essentially an opt-in mass joinder device, courts may very well inquire into the relative costs and benefits of issuing a GLO in a given case, an inquiry that may spur similar tactics to a debate over the superiority of class actions under Rule 23.

§ 10.2.4 The Ombudsman/Consumer Association Model A number of European countries (such as Belgium, Bulgaria, Cyprus, the Czech Republic, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Malta, the Netherlands, Norway, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, and Switzerland) allow consumer ombudsmen or consumer associations to bring a representative

112. Id. 113. Christopher Hodges, The Reform of Class and Representative Actions in European Legal Systems: A New Framework for Collective Redress in Europe, 11 (Hart Publishing 2008); Mulheron, The Case for an Opt-Out Class Action for European Member States 15 Colum. J. Eur. L. at 419. 114. For a description, see Erik Werlauff, Class Actions in Denmark, 622 Annals of the Am. Academy of Pol. & Soc. Sci. 202 (2009). 115. Mulheron, The Case for an Opt-Out Class Action for European Member States, 15 Colum. J. Eur. L. at 428. 116. Id. 117. Id. 118. Id. at 428–29.

273

274

Chapter 10 International Class Action Practice

proceeding seeking either injunctions or damages,119 a device that enables some of the same public-policy goals as class actions. Consumer association litigation fills a similar niche to consumer class actions in the United States. It is unlikely that, at least in the near future, most European countries will adopt an opt-out regime like Rule 23’s. Most European countries still abide by a loser-pays rule that is likely to discourage the more frequent filings one sees in the United States.120 The European practice of using judges to determine damage awards also discourages entrepreneurial class actions, reducing the number filed relative to the United States.121 Given these institutional constraints, most European litigators expect to see collective litigation driven by consumer groups rather than plaintiffs’ lawyers.122

§ 10.2.5 Mass Joinder Proceedings/Quasi-Class Actions A number of countries have quasi-class action procedures that allow for mass joinder or aggregation of similar claims. These include Austria (which has a mass-joinder provision),123 Estonia (which allows for joint claims),124 Finland,125 Germany,126 Hungary (which allows for joint claims),127 Japan,128 Lithuania (which allows for merging of cases),129 and Switzerland (which allows for cumulate claims).130 Mass-joinder claims will raise similar strategic issues to those in U.S. lawsuits brought under Federal Rules of Civil Procedure 20 and 42.131 For the plaintiffs, the joinder of a large number of claimants in a single proceeding

119. See Hodges, The Reform of Class and Representative Actions in European Legal Systems at 11–12. 120. See Richard A. Posner, Law and Legal Theory in the UK and USA, 83–93 (1996) (discussing the effect of, among other things, the “loser-pays” rule on tort filings in the United Kingdom). 121. See Collective litigation in Europe: A survey from the Economist Intelligence Unit (2007) at 5. 122. Id. at 3. 123. See Hodges, The Reform of Class and Representative Actions in European Legal Systems, at 10–11. 124. See Id. at 10–11. 125. See Hensler, The Globalization of Class Actions: An Overview, 622 Annals of the Am. Academy of Pol. & Soc. Sci. at 13. 126. See Id. 127. See Hodges, The Reform of Class and Representative Actions in European Legal Systems at 11. 128. See Hensler, The Globalization of Class Actions: An Overview, 622 Annals of the Am. Academy of Pol. & Soc. Sci. at 13. 129. See Hodges, The Reform of Class and Representative Actions in European Legal Systems at 12. 130. See id. 131. For more discussion of these rules, see §§ 1.2.1, 1.2.3.

Aggregated Litigation Devices in Other Countries

will likely lead to coordination problems in implementing strategy. In addition, there may be conflicts of interest among plaintiffs—for example, several individual plaintiffs may see benefits from having their individual claims heard first, while the group as a whole may benefit from someone else presenting the first claims at a trial. The defendant is likely to have a strong incentive to litigate rather than settle, since it is unlikely that settling a massjoinder proceeding will provide any global resolution of the issues underlying the litigation.

§ 10.2.6 The “Test Case” Model Several countries, such as Austria,132 Germany,133 and Greece,134 have adopted a formal “test case” model. On its face, the test case model is similar to the use of bellwether trials in the United States in certain mass torts, in which a single plaintiff asserts claims in a single trial, and the verdict is used as the basis of determining other plaintiffs’ similar claims. As in U.S. mass-tort cases using bellwether trials, it is reasonable to project that one of the strongest disputes will be over the selection of the plaintiff for the “test case.” To the extent party discovery is allowed in these regimes, it would likely focus on the suitability of the test plaintiff. These are hardly the only countries to have adopted class-action procedures. A number of Asian countries have adopted representative actions of one kind or another, and China specifically allows for class actions,135 which are governed by Articles 54 and 55 of the Chinese Civil Procedure Law.136 (According to one commentator, in the 1990s, Chinese class actions focused primarily on “disputes over low quality products, consumer fraud, environmental pollution, economic contracts, and local government actions.”)137

132. Mulheron, The Case for an Opt-Out Class Action for European Member States, 15 Colum. J. Eur. L. at 416. 133. Id. at 418. 134. Id. at 419. 135. Note, Class Action Litigation in China, 111 Harv. L. Rev. 1523, 1524 (1998). 136. Id. at 1526–27. 137. Id. at 1528.

275

Index

A Absent class members, 27n36 binding effect of settlement on, 233 coupon settlements and, 219–20 discovery of, 196 due process and, 247–48 notice to, 265 right to adequate representation, 249 right to opt out, 247, 251 Access to justice, 269 Act of state doctrine, 259 Adequacy of counsel, 84 plaintiff’s certification motion, 148 Adequacy of representation, 30–33, 248–49 and class-action settlement, 212–13 defendant’s certification opposition, 157–58 named-plaintiff deposition, 127–28 plaintiff’s certification motion, 142–43 Advertising, for class representatives, 76 Aggregating parties, methods of, 3–9 consolidation, 7–8 intervention, 6–7 joinder, 4–6 multi-district litigation, 8–9 Aggregation, 9–11 collective actions, 10 informal, 11 private attorney-general actions, 10–11 Alien Tort Claims Act (ATCA), 256–57 All-Writs Act, 246–47 Answer, 106–8 Anti-Injunction Act, 245n19, 246–47 Antitrust class action, 60–61 Apex depositions, 121, 124–25. See also Depositions Appeal, 97–98 interlocutory, 168–77 Appellate court, 61, 138

discretion to reject petitions, 176 examining expert’s opinions at class certification stage, recognition of, 129 review of certification orders, 168–69, 170, 175 to stay proceedings, 175 warning against proposed settlement, 212 Appropriate notice, 177, 181. See also Class notice Ascertainability, 23–25 Assumption of risk, 42n128, 44n150, 107n130 ATCA. See Alien Tort Claims Act (ATCA) Attorney’s fees, for class-action settlement, 237–40 court approval of, 240 reasonable fees, determining, 238–49 Australia aggregated-litigation devices in, 270–271 Austria mass joinder proceedings/quasi-class actions in, 274 test case model in, 275

B Best notice practicable, 181–82. See also Class notice Bifurcated trial, 193–96. See also Trial Breach of contract, 44n144, 60, 79 Breach of warranty, 43n141, 60

C CAFA. See Class Action Fairness Act (CAFA) Canada aggregated-litigation devices in, 267–70 Class Proceedings Act, 267–68 Case management orders discovery procedures, 112–13 lead counsel, appointment of, 114–15

278

Index Case management orders (cont.) motion practice, 113–14 timing of, 111–12 Certification hearing, 164–65 motion. See Class certification motion motion to strike/early challenges to, 104–6 orders, appellate court’s review of, 168–69, 170, 175 post-certification, 167–90, 198–200 pre-certification, 85, 115–28 -related discovery, 112–13 requirements. See Class certification requirements rulings for abuse of discretion, 69–70 Charts/visual evidence. See also Evidence plaintiff’s certification motion, 150 China test case model in, 275 Civil rights class action, 62–63 Claims preclusion. See Res judicata selecting, 78–79 Claims-made (reverter) settlements, 216–17 Class-action device, 11–18 benefits of, 12–15 costs of, 15–18 Class Action Fairness Act (CAFA), 68, 79, 83, 94–96, 98, 214–15, 220–221, 230, 231, 232–33 Class action lawsuit, constructing, 53–84 antitrust, 60–61 civil rights, 62–63 class representatives, identifying, 75–77 complaint, drafting, 77–83 consumer fraud, 59–60 environmental, 61–62 forum considerations, 67–73 labor/employment, 57–59 potential class action, identifying, 64–67 product liability, 59 securities, 55–57 selecting appropriate defendants, 73–74 statutory violations, 63–64 working with other plaintiff’s counsel, 83–84 Class certification motion, 133 defendant’s certification opposition, 151–63 hearing, 164–65 plaintiff’s certification motion, 136–51 plaintiff’s certification reply, 163–64

Class certification requirements, 19 adequacy of representation, 30–33 class counsel, 50–52 commonality, 25–27 damage classes, 38–50 hybrid classes, 38 incompatible result classes, 33–34 injunction classes, 35–38 limited fund classes, 35 numerosity, 21–25 plaintiff’s certification motion, 141–48, 149 typicality, 27–30 Class counsel adequacy of, 51–52 appointing, 50–51 Class notice, 177–90 content of, 185–89 cost of, 189–90 form of, 180–185 reasons for, 178–79 of removal, filing, 93–94 for settlement, 232–33 timing of, 179–80 to appropriate authorities, 215 Class Proceedings Act (Canada), 267–68 Class representatives, 2 adequacy of representation by, 29–31, 33, 127n206, 143, 213, 248 duty to the class, failure to inform, 52 identifying, 75–77 personal claim, 156 unique defenses against, 29n46, 156n103 Class settlement notice, 232–33 Class-wide settlement, 224–37 class settlement notice, 232–33 drafting the agreement, 227–30 final approval hearing, 236 implementation of, 237 mediation, 226–27 opt-outs/objections, 233–36 preliminary approval order, 230–231 Collateral estoppel, 106, 244–45 Collateral exposure, limiting, 249–51 government actions, 250 opt-out suits, 250–251 Collective actions, 10 Comity, 101n94, 260 Commonality, 25–27 defendant’s certification opposition, 154–55 plaintiff’s certification motion, 141

Index 279 Common fund negotiating, 240 percentage of, 239 Comparative negligence, 42n129, 107n129, 162, 195. See also Negligence Complaint amending, 110–111 defendant’s response to, 91–110 drafting, 78–83 Conflicts of interest, 6, 30n58, 143, 275 Consolidation, 7–8, 98 Consumer-fraud class action, 59–60 Contention interrogatories, 120. See also Interrogatories Contingency fees, 11n41, 12n46, 220, 239, 271 Cost-shifting, 266 Costs of class action, 15–18 Coupon settlements, 214, 219–22. See also Settlement of class actions Court approval of attorney’s fees, 240 Cy pres funds, 217–19. See also Settlement of class actions

D Damage classes, 38–50 defendant’s certification opposition, 158–61 plaintiff’s certification motion, 145–48 predominance, 39–44 superiority, 45–50 Death-knell claim, 170–172 Decertification motion, 200. See also Motion Defendant(s) depositions of corporate representatives of, 122–23 plaintiff’s external pressure on, 89–91 selecting, 73–74 Defendant’s certification opposition, 151–63. See also Motion arguments against certification, 153–61 packaging the presentation, 161–63 themes, 151–53 Defendant’s discovery depositions, 126–28 document requests, 125–26 interrogatories, 125 requests for admission, 126 Defendant’s response to complaint answer, 106–8 consolidation, 98

invoking arbitration, 91–93 motion for sanctions, 109–10 motion-to-dismiss, 98–104 motion to strike/early challenges to class certification, 104–6 offer of judgment, 108–9 removal, 93–98 Denmark opt-in class actions, 273 Depositions apex, 121, 124–25 of corporate representatives of defendants, 122–23 defendant’s discovery, 126–28 expert, 125 individual, 124 plaintiff’s discovery, 121–25 Discovery of absent class members, 196 class certification-related, 112–13 e-discovery, 120–121 merits-related, 112–13 pre-certification. See Pre-certification discovery pre-trial, 196 Diversity jurisdiction, 94–96. See also Jurisdiction Document requests defendant’s discovery, 125–26 plaintiff’s discovery, 120–121 Drafting the complaint, 77–83 pleading, 82–83 proposed class, defining, 81–82 selecting claims, 78–79 selecting remedies, 79–81 Drafting the settlement agreement, 227–30 Due process, 247–48

E Electronically stored information (ESI), 120–121 Employee Retirement Income Security Act (ERISA), 56–57 England Group Litigation Order, 272–73 En masse litigation, 134, 254, 273 Environmental class action, 61–62 Equitable relief, 80, 81 See also Relief ERISA. See Employee Retirement Income Security Act (ERISA) ESI. See Electronically stored information (ESI)

280 Index Estonia mass joinder proceedings/quasi-class actions in, 274 Evidence charts/visual, 150 statistical, 203–4 Existing client relationships and class representatives identification, 76–77 Expert depositions, 125. See also Depositions Experts rebuttal, 129 reports, for defendant’s certification opposition, 162–63 role in plaintiff’s certification motion, 149–50 Expert testimony during trial, 205–6. See also Testimony Expert witnesses, 128–29. See also Witness(es)

F FAA. See Federal Arbitration Act (FAA) FACTA. See Fair and Accurate Credit Transaction Act of 2003 (FACTA) Factual predominance, 39–42. See also Predominance Fair and Accurate Credit Transaction Act of 2003 (FACTA), 50, 63 Fair Labor Standards Act (FLSA), 10, 57–58, 126 Fairness, 138–39 and class-action settlement, 211 Fatal defect, in class definition, 105 Federal Arbitration Act (FAA), 91–93 Federal-question jurisdiction, 96–97. See also Jurisdiction Final approval hearing, 236. See also Hearing Finland mass joinder proceedings/quasi-class actions in, 274 FLSA. See Fair Labor Standards Act (FLSA) Foreign class-action judgments, enforcing, 264–65 Foreign-cubed class actions, 257 Forum, 67–73 demographics of jurisdiction, 71–72 desirability of concentrating litigation in, 47–48 judges, appointment of, 70–71 local politics, 72

multiple jurisdictions, 72 substantive law, 69–70 Forum non conveniens, 101n94, 262–64 Fraud, 23, 43n141 consumer, 50, 59–60, 160 securities, 74, 146n53, 154 Fraud-on-the-market theory, 55n5, 127n205, 146, 154–55, 203, 269n89 Full Faith and Credit Act, 242 Funding class actions common, 239–40 cy pres, 217–19 limited, 35 third-party litigation, 271

G Geographic diversity, 22 Germany mass joinder proceedings/quasi-class actions in, 274 test case model in, 275 GLO. See Group Litigation Order (GLO) Greece test case model in, 275 Group Litigation Order (GLO), 272–73

H Hearing, 16, 170 certification, 164–65 final approval, 236 preliminary fairness, 227 settlement fairness, 180 Hungary mass joinder proceedings/quasi-class actions in, 274 Hybrid classes, 38

I Impropriety, 10 Incompatible result classes, 33–34 Individual depositions, 124. See also Depositions Individual interest inquiry, 45–46 Informal aggregation, 11. See also Aggregation Initial disclosures, pre-certification discovery, 116 Injunction classes, 35–38 plaintiff’s certification motion, 144–45 Injunctions/consent decrees, 222. See also Settlement of class actions Injunctive relief, 35–38, 79–80, 144–45. See also Relief

Index 281 In limine motions, 200–201. See also Motion Interlocutory appeal, 168–77 appellate court’s review of certification orders, 175 bad decision, 173–74 death-knell claim, 170–172 legal development, 172–73 packaging the petition, 176–77 packaging the petition response, 177 public interest, 174 review of certification orders, 174–75 standards for, 168–69 stays, 175–76 Internet notice, 184. See also Class notice Interrogatories contention, 120 defendant’s discovery, 125 plaintiff’s discovery, 118–20 Intervention permissive, 7 of right, 6–7 Issue preclusion. See Collateral estoppel

J Japan mass joinder proceedings/quasi-class actions in, 274 Joinder, 4–6 feasibility of, 21–23 impracticability of, 22 JPML. See Judicial Panel on Multi-district Litigation (JPML) Judges, appointment of, 70–71 Judgment foreign class-action, 264–65 motion for summary, 129–31, 198–200 offer of, 108–9 preclusive effect of, 241–51 Judicial Panel on Multi-district Litigation (JPML), 98, 100 Judiciary, 266 Jurisdiction demographics of, 71–72 dismissing securities class action for, 261 diversity, 94–96 federal-question, 96–97 multiple, 72 personal, 101–2 subject-matter. See Subject-matter jurisdiction Jury vs. bench trial, 196–98. See also Trial

complexity of the case, 198 quality of the bench, 197–98 quality of the jury pool, 197 timing of, 198 Jury instructions during trial preparation, 201–2 Jus cogen norms, 259

L Labor/employment class action, 57–59 Lead counsel, appointment of, 114–15 Legal predominance, 42–44. See also Predominance Liability no-injury theories of, 104 product, 59 proof of, 154–55 Limited fund classes, 35 plaintiff’s certification motion, 143–44 Lithuania mass joinder proceedings/quasi-class actions in, 274 Lodestar fee, 238–39 Loser-pays system, 237 Australia, 271 Canada, 268–69 Louisiana Products Liability Act, 99

M Manageability of class actions, 48–49, 148, 200, 213 Mass joinder proceedings/quasi-class actions, 274–75 MDL. See Multi-district litigation (MDL) Media coverage, 88–89 Mediation, 226–27 Monetary relief, 81 See also Relief Motion case management orders, 113–14 class certification. See Class certification motion decertification, 200 in limine, 200–201 post-trial, 206 for sanctions, 109–10 to strike/early challenges to class certification, 104–6 Motion for summary judgment class-wide, 199 individualized, 199–200 plaintiff class-wide, 198–99 pre-certification, 129–31

282

Index Motion-to-dismiss defendant’s response to complaint, 98–104 forum non conveniens, denying, 262–64 jurisdiction-based, 261 personal jurisdiction, 101–2 pleading deficiencies, 102–3 standing, 101 substantive legal problems, 103–4 Multi-district litigation (MDL), 8–9 Multinational class, certifying, 264 Multi-national class action litigation teams, 255–65 class actions, types of, 255–57 foreign judgments, enforcing, 264–65 multinational class, certifying, 264 procedural challenges, 261–64 prudential challenges, 257–61

N Named-plaintiff settlements, 224. See also Settlement of class actions Negligence, 43n139 comparative, 42n129, 107n129, 195 misrepresentation of, 43n140 Numerosity, 120, 267 ascertainability, 23–25 defendant’s certification opposition, 153–54 feasibility of joinder, 21–23 plaintiff’s certification motion, 141

O Offer of judgment, 108–9. See also Judgment Ombudsman/consumer association model, 273–74 Opting-in, 7, 10, 58, 271–73 under Group Litigation Order, 272–73 Opting-out, 178 in damage classes, 38, 45 class-action settlement, 233–36 class action judgments, 250–251

P Pay-to-play practices, 75, 77 Personal jurisdiction. See also Jurisdiction motion-to-dismiss, 101–2 Piggyback notice, 182 Plaintiff, 87–91 ability to identify class members, 23

generating external pressure on defendants, 89–91 is not a member of the class, 105–6 media coverage, 88–89 Plaintiff ’s certification motion, 136–51. See also Motion arguments in support of certification, 141–48 defendant’s bad conduct, 139–40 ease of certifying a class, 137–38 fairness, 138–39 need for class action, 140 packaging the presentation, 148–51 Plaintiff ’s certification reply, 163–64 Plaintiff ’s discovery, 117–25 depositions, 121–25 document requests, 120–121 interrogatories, 118–20 requests for admission, 121 Pleading, 109, 152 class-action complaint, 82–83 deficiencies, 102–3, 273 Political question doctrine, 258–59 Post-certification, 167–90 class notice, 177–90 interlocutory appeal, 168–77 summary judgment, 198–200 Post-trial motions, 206. See also Motion Potential class action, identifying, 64–67 Pre-certification, 85. See also Certification amending the complaint, 110–111 case management orders, 111–15 defendant’s response to complaint, 91–110 discovery. See Pre-certification discovery expert witnesses, 128–29 motion for summary judgment, 129–31 plaintiff’s opening moves, 87–91 Pre-certification discovery, 115–28 defendant’s discovery, 125–28 initial disclosures, 116 plaintiff’s discovery, 117–25 protective orders, 116–17 Preclusive effect, of class action judgments, 241–51 challenging, 247–49 collateral exposure, limiting, 249–51 enforcing, 243–47 Predominance defendant’s certification opposition, 158–59 factual, 39–42

Index 283 legal, 42–44 named-plaintiff deposition, 127–28 plaintiff’s certification motion, 145–47 Preliminary approval order, 230–231 Press issues and trial preparation, 202 Pre-trial discovery, 196. See also Discovery Private Attorney Contracting Act, 11n41 Private attorney-general actions, 10–11 Private Securities Litigation Reform Act (PSLRA), 55–56, 65, 84, 103, 111, 114, 186–87, 188 Product-liability class action, 59 Proposed class, defining, 81–82 Protective orders, pre-certification discovery, 116–17 confidential information, definition of, 117 provisions for challenging designations, 117 sharing provisions, 117 PSLRA. See Private Securities Litigation Reform Act (PSLRA) Publication notice, 183. See also Class notice

R Reasonableness, 182n77 and class-action settlement, 211 Rebuttal experts, 129. See also Experts Referrals/extended network, 77 Relief equitable, 80, 81 injunctive, 35–38, 79–80, 144–45 monetary, 81 Remedies, selecting, 79–81 Removal of case to federal court, 93–98 appeals, 97–98 diversity jurisdiction, 94–96 federal-question jurisdiction, 96–97 Requests for admission defendant’s discovery, 126 plaintiff’s discovery, 121 Res judicata, 20, 30, 107–8, 244, 248n43 Reverter settlements. See Claims-made settlements

S Securities class action, 55–57 Securities Litigation Uniform Standards Act (SLUSA), 96–97 Settlement of class actions, 207

attorney’s fees, 237–40 claims-made (“reverter”) settlements, 216–17 class settlement notice, 232–33 coupons, 214, 219–22 cy pres funds, 217–19 drafting the agreement, 227–30 final approval hearing, 236 implementation of, 237 injunctions/ consent decrees, 222 legal background, 209–15 mediation, 226–27 named-plaintiff settlements, 224 opt-outs/objections, 233–36 preliminary approval order, 230–231 therapeutic relief, 222–23 Single-plaintiff lawsuits, 2–3 limitations of, 3 SLUSA. See Securities Litigation Uniform Standards Act (SLUSA) Standing, 101 Stare decisis effect, 250 Statute of limitations, 42n130, 44n149, 107n128 Statutory violations class action and, 63–64 Stays, 175–76 Subject-matter jurisdiction. See also Jurisdiction dismissing securities class action for, 261 Substantive law, 54, 56, 69–70 Substantive legal problems motion-to-dismiss, 103–4 Summary judgment. See also Judgment pre-certification motion for, 129–31 post-certification, 198–200 Superiority, 45–50, 106 defendant’s certification opposition, 159–61 named-plaintiff deposition, 127 plaintiff’s certification motion, 147–48 Switzerland mass joinder proceedings/quasi-class actions in, 274

T Telecommunications Protection Act (TCPA), 24, 50, 63 Test case model, 275 Testimony of appearing witnesses, 205 expert, 205–6

284 Index Therapeutic relief, 222–23. See also Settlement of class actions Third-party litigation funding, 271 TILA. See Truth in Lending Act (TILA) Trial, 202–6 bifurcated, 193–96 expert testimony during, 205–6 jury vs. bench, 196–98 plaintiff’s certification motion, 150–151 preparation for. See Trial preparation scientific studies, use of, 204–5 statistical evidence, use of, 203–4 stipulations, 203 summaries, 205 testimony of appearing witnesses, 205 unitary class, 193 Trial preparation, 191 decertification motion, 200 in limine motions, 200–201 jury vs. bench trial, 196–98 jury instructions/verdict forms, 201–2

post-certification summary judgment, 198–200 post-trial motions, 206 press issues, 202 pre-trial discovery, 196 structure of trial, 193–96 Truth in Lending Act (TILA), 65 Typicality, 27–30 defendant’s certification opposition, 155–56 named-plaintiff deposition, 126–27 plaintiff’s certification motion, 142

U Unitary class trial, 193. See also Trial United States test case model in, 275 Unjust enrichment, 43n141

V Verdict forms during trial preparation, 201–2 Vigorous prosecution of class action, 143n38