Economist David Gulley, Ph.D., of Navigant Consulting, has authored an informative white paper entitled Recent Trends in Rule 23 Class Certification Expert Analysis.  Dr. Gulley’s article explores the expanding role of experts and increased scrutiny over expert opinion testimony in class certification proceedings in light of recent federal appellate decisions placing renewed emphasis on the rigorous analysis standard.  See the Second Circuit’s opinion in In re IPO Securities Litigation and the Third Circuit’s opinion in In re Hydrogen Peroxide Antitrust Litigation.  The paper is a great resource for both class action attorneys and experts who are asked to testify in class certification proceedings.

Wells Fargo Home Mortg. v. Wells Fargo Home Mortg.

The case was before the Court on Defendant’s interlocutory appeal, challenging the reasoning of the lower Court in granting class certification on Plaintiff’s California state law claims. The dispute centered around whether the lower court abused its discretion in finding that the predominance requirement of Federal Rule of Civil Procedure 23(b)(3) was satisfied, based-in large part-on an employer’s internal policy of treating its employees as exempt from overtime laws. The Ninth Circuit, remanded for further factual findings, holding that while such uniform exemption policies are relevant to the Rule 23(b)(3) analysis, it is an abuse of discretion to rely on such policies to the near exclusion of other relevant factors touching on predominance.

Analyzing the issue, the Court stated, “[u]nder Rule 23(b)(3), a class may be certified where “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.”Fed.R.Civ.P. 23(b)(3). The predominance inquiry of Rule 23(b)(3) asks “whether proposed classes are sufficiently cohesive to warrant adjudication by representation.” Local Joint Executive Bd. of Culinary/Bartender Trust Fund v. Las Vegas Sands, Inc., 244 F.3d 1152, 1162 (9th Cir.2001) (citation and internal quotation marks omitted). The focus is on “the relationship between the common and individual issues.” Hanlon v. Chrysler Corp., 150 F.3d 1011, 1022 (9th Cir.1998).

The question here is whether the district court abused its discretion in finding Rule 23(b)(3)’s predominance requirement was met based on Wells Fargo’s internal policy of treating all HMCs as exempt from state and federal overtime laws. To succeed under the abuse of discretion standard, Wells Fargo must demonstrate that the district court either (a) should not have relied on its exemption policy at all or (b) made a clear error of judgment in placing too much weight on that single factor vis-a-vis the individual issues.

The first line of attack, that Wells Fargo’s exemption policy was an impermissible factor, is a non-starter. An internal policy that treats all employees alike for exemption purposes suggests that the employer believes some degree of homogeneity exists among the employees. This undercuts later arguments that the employees are too diverse for uniform treatment. Therefore, an exemption policy is a permissible factor for consideration under Rule 23(b)(3).

Wells Fargo’s arguments are better construed as a challenge to the weight accorded to the internal exemption policies under the third abuse of discretion prong: mulling the proper factors but committing clear error in weighing them. To analyze this question, we first ask how much weight the district court gave to the exemption policy. Plaintiffs suggest the weight was minimal; Wells Fargo claims that the district court’s reliance was tantamount to estoppel.

A review of the California certification order lends substantial credence to Wells Fargo’s position. Although the court’s analysis of each exemption was careful and considered, its ultimate decision was clearly driven by Wells Fargo’s uniform exemption policy. Indeed, the court found “serious issues regarding individual variations among HMC job duties and experiences” but nevertheless concluded that common questions predominated because “it is manifestly disingenuous for a company to treat a class of employees as a homogenous group for the purposes of internal policies and compensation, and then assert that the same group is too diverse for class treatment in overtime litigation.”E.R. 17. As such, we must conclude that the district court’s reliance on Wells Fargo’s internal exemption policy was substantial.

This leads to the central question: whether such heavy reliance constituted a clear error of judgment in assaying the predominance factors. District courts within this circuit have split on the relevance of exemption policies. The district court relied primarily on Wang v. Chinese Daily News, Inc., 231 F.R.D. 602, 612-13 (C.D.Cal.2005), which found predominance of common issues based on an employer’s policy of treating all employees in a certain position as uniformly exempt from overtime compensation requirements. In contrast, another district court has expressed doubt about Wang, and found that uniform exemption policies are merely a minor factor in the predominance analysis. See Campbell v. PricewaterhouseCoopers, LLP, 253 F.R.D. 586, 603-04 (E.D.Cal.2008) (rejecting “estoppel” position of Wang ).

In determining which rule is appropriate, we begin by examining Rule 23 itself. A principal purpose behind Rule 23 class actions is to promote “efficiency and economy of litigation.” Am. Pipe & Constr. Co. v. Utah, 414 U.S. 538, 553 (1974). In particular, Rule 23(b)(3)’s predominance and superiority requirements were added “to cover cases’in which a class action would achieve economies of time, effort, and expense, and promote … uniformity of decision as to persons similarly situated, without sacrificing procedural fairness or bringing about other undesirable results.’” Anchem Prods., Inc. v. Windsor, 521 U.S. 591, 615 (1997) (quoting Fed.R.Civ.P. 23(b)(3) Adv. Comm. Notes to 1966 Amendment). Thus, the ” ‘notion that the adjudication of common issues will help achieve judicial economy’ ” is an integral part of the predominance test. Zinser v. Accufix Research Inst., Inc., 253 F.3d 1180, 1189 (9th Cir.2001) (quoting Valentino v. Carter-Wallace, Inc., 97 F.3d 1227, 1234 (9th Cir.1996)). Whether judicial economy will be served in a particular case turns on close scrutiny of “the relationship between the common and individual issues.” Hanlon, 150 F.3d at 1022.

Viewed in light of these principles, the rule espoused in Wang has little justification. Wang essentially creates a presumption that class certification is proper when an employer’s internal exemption policies are applied uniformly to the employees. Such an approach, however, disregards the existence of other potential individual issues that may make class treatment difficult if not impossible. Indeed, this case is a prime example, as the district court identified “serious issues regarding individual variations” that were not susceptible to common proof, but nevertheless felt compelled to certify the class.

Of course, uniform corporate policies will often bear heavily on questions of predominance and superiority. Indeed, courts have long found that comprehensive uniform policies detailing the job duties and responsibilities of employees carry great weight for certification purposes. Damassia v. Duane Reade, Inc., 250 F.R.D. 152, 160 (S.D.N.Y.2008) (“Where … there is evidence that the duties of the job are largely defined by comprehensive corporate procedures and policies, district courts have routinely certified classes of employees challenging their classification as exempt, despite arguments about ‘individualized’ differences in job responsibilities.”). Such centralized rules, to the extent they reflect the realities of the workplace, suggest a uniformity among employees that is susceptible to common proof.

But Wells Fargo’s blanket application of exemption status, whether right or wrong, is not such a rule. In contrast to centralized work policies, the blanket exemption policy does nothing to facilitate common proof on the otherwise individualized issues.

To illustrate, consider the federal outside salesperson exemption. This exemption applies where, among other things, the employee is “customarily and regularly away from the employer’s place of … business….”29 C.F.R. § 541.500(a). Often, this exemption will militate against certification because, as the district court noted, it requires “a fact-intensive inquiry into each potential plaintiff’s employment situation….” E.R. 11. A centralized policy requiring employees to be at their desks for 80% of their workday would change this individual issue into a common one. Therefore, such a corporate policy would be highly relevant to the predominance analysis. A uniform exemption policy, however, has no such transformative power. Whether such a policy is in place or not, courts must still ask where the individual employees actually spent their time. As one court succinctly explained, “[t]he fact that an employer classifies all or most of a particular class of employees as exempt does not eliminate the need to make a factual determination as to whether class members are actually performing similar duties.” Campbell, 253 F.R.D. at 603.

In short, Wells Fargo’s uniform exemption policy says little about the main concern in the predominance inquiry: the balance between individual and common issues. As such, we hold that the district court abused its discretion in relying on that policy to the near exclusion of other factors relevant to the predominance inquiry.”

Wright v. Linkus Enterprises, Inc.

Plaintiffs filed this action against Defendant for violation of various state and federal labor laws. Before the Court was Plaintiffs’ Unopposed Motion for Preliminary Approval of Settlement of their hybrid action, which consisted of both a Federal Rule of Civil Procedure 23(b)(3) class action and a Federal Fair Labor Standards Act (“FLSA”), 29 U.S.C. § 216(b), collective action. Though the Motion was essentially unopposed, the parties did disagree as to one issue pertaining to release of claims by currently absent parties, regarding notice required to the class members (Defendant proposed an opt-out Rule 23 notice alone). The Court resolved that dispute by ordering that the parties’ existing agreement and forms be modified to provide both “opt-out” procedures as allowed under Rule 23 and “opt-in” procedures as required by the FLSA.

Explaining that opt-in notice as well as opt-out notice must be provided to class members in such a hybrid action, the Court stated, “According to Defendants, the Rule 23 opt-out procedures, under which potential plaintiffs are bound by the terms of the settlement unless they affirmatively opt out, should apply to both the state law claims and to those claims arising under the FLSA. Plaintiffs disagree arguing that, while Rule 23 applies to their state law claims, the FLSA requires potential plaintiffs to opt-in to this action in order to release any claims they may have under the FLSA. The Court agrees with Plaintiffs.

In a collective action brought under the FLSA, “[n]o 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.”29 U.S.C. § 216(b). Congress enacted this provision for the purpose of “limiting private FLSA plaintiffs to employees who asserted claims in their own right and freeing employers of the burden of representative actions.” Hoffman-La Roche Inc. v. Sperling, 493 U.S. 165, 173 (1989).

Conversely, a class action brought pursuant to Rule 23(b)(3) mandates notice informing potential plaintiffs that they can avoid being bound by the terms of a settlement or judgment if they so inform the court. SeeFed.R.Civ.P. 23(c)(2)(B)(v). Thus, a plaintiff that does not affirmatively “opt-out” from the class may be bound by the disposition of the case, regardless of whether he received actual notice. Amchem Products, Inc. v. Windsor, 521 U.S. 591, 614-15 (1997).

In Kakani v. Oracle Corp., the Northern District examined the relationship between the two regimes and held that the use of “opt-out” notice would violate the FLSA.2007 WL 1793774, at *7 (N.D. Cal. June 19, 2007). That court stated that it would have been “unconscionable to try to take away the FLSA rights of all workers, whether or not they choose to join in affirmatively.”Id. (emphasis in original).

Defendants’ authority to the contrary is inapposite. First, Defendants cite Hoffman-La Roche Inc. for the proposition that district courts possess discretion over the procedural methods used to join multiple parties in a single case. However, Defendants interpret Hoffman-La Roche too broadly. That case merely established that district courts may authorize notification of potential plaintiffs regarding the opportunity to “opt-in” to a collective action. 493 U.S. at 169. Hoffman La Roche does not stand for the proposition that this Court may substitute Rule 23 “opt-out” notice for the “opt-in” notice expressly required by 29 U.S.C. § 216(b).

Defendants also cite two district court opinions, one in which the court stated without analysis that “opt-out” procedures would be used to settle both FLSA and state law claims, and one in which the federal court simply refused to enjoin a state court from releasing FLSA claims as part of a settlement that utilized “opt-out” notice. Frank v. Eastman Kodak Co., 228 F.R.D. 174, 179 (W.D.N.Y.2005); Dibel v. Jenny Craig, Inc., 2007 WL 2381237, at * 1 (S.D. Cal Aug. 10, 2007). This Court finds neither of these cases persuasive and now holds that “opt-in” procedures must be provided for the release of the instant FLSA claims.

Perry v. Freedom Mortg. Corp.

This case was before the Court on Defendant’s motion to dismiss or strike count II of Plaintiffs Complaint, which alleged overtime law violations pursuant to the New Jersey Wage Law (“NJWL”). The Court denied Defendant’s motion, explaining that it was premature at the pleading stage. This case is of note, because there is conflict of authority within the 3rd Circuit, as to whether Rule 23 “opt-out” classes and 216(b) “opt-in” classes can ever be brought together, or whether the Court should necessary deny its inherent supplemental authority necessarily in such cases.

“The underlying Complaint in this case is a putative class claim, filed by Plaintiff, contending that Freedom violated the Fair Labor Standards Act (“FLSA”), 29 U.S.C. § 201 et seq. and the New Jersey’s Wage Law (“NJWL”), N.J.S.A. 34:11-56a et seq. by improperly classifying mortgage loan officers to prevent them from receiving overtime pay for work in excess of 40 hours a week. In its motion to dismiss Plaintiff’s NJWL claim, Freedom argues that Plaintiff’s FLSA and NJWL claims are legally incompatible. This Court concurs with and adopts Judge Linares’ reasoning in Freeman v. Hoffman-Laroche, Inc. No. 07-1503, 2007 U.S. Dist. LEXIS 92589, at * 70*10 (N.J.D. Dec. 18, 2007), determining that dismissal of a cause of action under NJWL solely for “inherent incompatibility” with FLSA is not appropriate.

Freedom’s additional argument is that the Court should dismiss Count II because Plaintiff cannot establish the “superiority” test required for class certification under Federal Rule of Civil Procedure 23(b)(3). The Court holds that this argument is premature. The parties have conducted no discovery. No motions for class certification have been filed. The Court will be in a much better position to address this issue at the class certification stage.”

Cruz v. Dollar Tree Stores, Inc.

Pursuant to Federal Rule of Civil Procedure 23, Plaintiffs move for an order certifying the following class: “All persons who were employed by Dollar Tree Stores, Inc. as California retail Store Managers at any time on or after December 12, 2004.” Starting the class period from December 12, 2004, ensures that any eventual awards to Dollar Tree Store Managers (“SMs”) in this case will not overlap with the awards that resulted from a previous settlement. Plaintiffs alleged the class consists of at least 655 members. Defendant contended that the number is likely to be less, and that there are currently 273 SMs in California.

Of note, was the Court’s analysis of the Predominance and Superiority requirements under Rule 23. The Court stated:

“Because all of Dollar Tree’s California SMs are required to perform a common set of tasks, Dollar Tree’s reliance on Sepulveda v. Wal-Mart Stores, Inc., is misplaced. 237 F.R.D. 229 (C.D.Cal.2006) rev’d in part, aff’d in part, 275 Fed. Appx. 672 (9th Cir.2008). In that case, the court found that individual questions predominate over common issues because of the “voluminous evidence that there actually was a great deal of variance in AM [Assistant Manager] duties … AM duties varied based on the characteristics of the store, its workforce, and the surrounding community.” Sepulveda, 237 F.R.D. at 249. Here, by contrast, Dollar Tree requires its SMs to certify every week that they spend most of their time performing a finite number of duties. Also, the class size in this case is considerably smaller than in Sepulveda, where there were approximately 2750 putative class members. Id. at 242.

Dollar Tree presents evidence suggesting variations in how SMs go about performing those tasks. For example, Dollar Tree submits a detailed comparison of twenty-five California stores showing they vary considerably in size, number of different products available for SMs to order, sales, and average monthly payroll hours. Dollar Tree filed a document showing the differing roles and experiences of California SMs. Dollar Tree submitted twenty SM declarations to show that SMs have substantially different day-to-day experiences and duties. Dollar Tree contrasts the deposition testimony of the Plaintiffs with the testimony of other SMs to show they perform their jobs in different ways. Dollar Tree also submits deposition testimony of SMs to show they have considerable autonomy and discretion in fulfilling their tasks and responsibilities.

Despite this evidence of variation, Dollar Tree does not, and cannot, deny that all California SMs are required to spend a majority of their time performing a set of seventeen tasks. See Tierno v. Rite Aid Corp., No. 05-2520, 2006 WL 2535056, at *9 (N.D.Cal. Aug. 31, 2006) (noting that Rite Aid’s self-audits and study, which were designed to show variations in how store managers performed specified tasks, also counted as concession “that a single set of tasks is applicable to all Store Managers”). For example, while one SM declares that he spent only thirty minutes per week preparing employee schedules, and another SM declares he spent four hours per week preparing employee schedules, this comparison also shows that both SMs spent time every week engaged in one of the common duties on the Payroll Certification, namely, “[ s] chedul[ ing] and assign[ ing] work to store personnel.” While one SM declares that he spent five hours per week hiring new employees, and another SM spent only thirty minutes per week on hiring, hiring is also one of the common duties on the Payroll Certification. This Court can resolve the question of whether SMs who spend most of their time performing these seventeen duties are exempt from California’s overtime laws. This question is a common one for all California SMs. There is therefore a clear justification for handling this dispute on a representative rather than an individual basis.

The Court notes the irony of relying on Dollar Tree’s certification process to find that the case is suitable for class-wide treatment, when Dollar Tree implemented that process after its earlier settlement, and precisely in order to ensure that its SMs were properly classified. Those certifications certainly support Dollar Tree’s contention that it is not liable for improperly classifying SMs. SMs will have to explain why they consistently certified “yes” on the Payroll Certifications if in fact they were spending most of their time stocking shelves and cashiering. However, that liability question is not presently before the Court, and a class certification motion is not an occasion to “advance [to] a decision on the merits.” See Moore v. Hughes Helicopters, Inc., 708 F.2d 475, 480 (9th Cir.1983). Here, the question is whether common issues predominate, and the fact that all California SMs share the same job description, which requires them to spend most of their time performing tasks on a list consisting of seventeen duties, supports the conclusion that they do.

Plaintiffs’ evidence of Dollar Tree’s standardized practices and procedures provides further evidence in support of the contention that common issues predominate. Dollar Tree’s training program for SMs is standardized throughout California. Dollar Tree’s SM training program for new hires lasts eight weeks, and its SM training program for assistant managers who are being promoted lasts four weeks. The corporate office in Virginia develops the written materials for the training program. Dollar Tree does not formally retrain SMs when they are transferred to other stores. SMs are given the same training, irrespective of which store they might be assigned to down the road.

SMs use common tools in performing their duties at Dollar Tree. SMs have online access to “plan-o-guides” which recommend, but do not require, that a certain kind of merchandise be displayed in a particular location. SMs can also access information and bulletins online via “Dollar Tree Central.” Using Dollar Tree Central, SMs can access newsletters, merchandising suggestions, forms, policies, and information relating to benefits. All store managers in California use a computer application called “COMPASS” to create schedules for their staff. Dollar Tree maintains an auto replenishment system which automatically generates orders for some products. Store managers are also encouraged to use a playbook, which provides information on ordering, scheduling, and basic general information about Dollar Tree.

Dollar Tree relies on Jimenez v. Domino’s Pizza, 238 F.R.D. 241 (C.D.Cal.2006), but the Court finds that the case is distinguishable. In Jimenez, the Court was not confronted with evidence of standardized policies and practices. 238 at 251-53. Where, as here, there is evidence that the duties of the job are defined by standardized procedures and policies, district courts have routinely certified classes of employees challenging their classification as exempt, despite arguments about individualized differences in job performance. See, e.g., Krzesniak v. Cendant Corp., No. 05-05156, 2007 WL 1795703, at *3 (N.D.Cal. Jun. 20, 2007) (branch managers at car rental chain); Alba v. Papa John’s USA, Inc., No. 05-7487, 2007 WL 953849, at *1 (C.D.Cal. Feb. 7, 2007) (store managers at pizza delivery chain); Whiteway v. FedEx Kinko’s Office and Print Services, Inc., No. 05-2320, 2006 WL 2642528, at *1 (N.D.Cal. Sep. 14, 2006) (managers at shipping and print services retail chain); Tierno, 2006 WL 2535056, at *5-10 (N.D.Cal. Aug. 31, 2006) (store managers at drug store chain). The Court finds that Plaintiffs have satisfied the prerequisite of predominance.”

If my recent post about the upcoming January 20, 2009 Class Action Law Monitor/Strafford Publications CLE on Rule 23(f) appeals didn’t convince you to sign up, perhaps this preview of the speakers and topics will:

I.                   Key features of Rule 23(f) (Barry Sullivan, Partner, Jenner & Block, Chicago)

A.    No automatic right to appeal 

B.     No automatic stay of district court proceedings

C.     Appeal must be filed within 10 days of class certification order

II.                Case law addressing Rule 23(f) (Cindy D. Hanson, Partner, Kilpatrick Stockton, Atlanta)

A.    “Death knell” cases and “reverse death knell” cases

B.     Appeal raises fundamental and unsettled legal issue

C.     Clear error in district court ruling

D.    “Sliding scale” standard

III.             Strategies for pursuing appellate review of class certification decision (Paul G. Karlsgodt, Partner, Baker Hostetler, Denver).

IV.             Strategies for challenging motion for appellate review of class certification (Steve W. Berman, Managing Partner, Hagens Berman Sobol Shapiro, Seattle)

My handout materials are available here: rule-23f-presentation-final

For the other speakers’ handouts, see this link (and while you’re at it, why not sign up?)

If you’re looking for a fun-filled way to spend a Tuesday lunch hour and need CLE credits, check out Strafford Publications’ upcoming CLE Teleconference Rule 23(f) Class Certification Appeals: Strategies for Pursuing or Opposing Appellate Review in the Absence of Clear Standards.  The fun will begin on January 20, 2009 at 1PM Eastern.  For more information and to register, follow this link.

Shannon P. Duffy of The Legal Intelligencer has authored an article summarizing the Third Circuit Court of Appeals’ decision in In re Hydrogen Peroxide Antitrust Litigation, No. 07-1689 (3d Cir., Dec. 30, 2008), which the article calls a “ruling that is sure to be required reading for antitrust lawyers.”  The decision also addresses more general class certification issues that are sure to be of interest to lawyers to practice in other areas. 

In particular, the Court has an interesting analysis of how a trial court must weigh conflicting expert testimony on class certification issues in carrying out the “rigorous analysis” required of a federal court in evaluating whether a class should be certified under FRCP 23.  The trial court had considered only whether the plaintiff had offered expert testimony that could be considered admissible under a Daubert analysis in finding that the plaintiff had established that the issue of antitrust injury was susceptible to common, class wide proof.  The trial court refused to weigh this evidence against the conflicting expert testimony offered by the Defendant that the antitrust injury could not be determined on a class wide basis.  The Third Circuit reversed, holding that the trial court was required to also consider conflicting expert testimony and then make a decision whether the issue was truly susceptible to class wide proof.   The court was clear that on remand, the trial court did not have to accept the defendant’s expert’s view, it merely had to demonstrate that the expert’s testimony had been considered in making an actual determination.

The decision reaffirms the idea that in carrying out the “rigorous analysis”, a district court must not shy away from making an actual determination of each of the issues necessary for class certification, even if that determination involves weighing conflicting testimony or involves deciding an issue that also happens to be a disputed issue on the merits of the plaintiff’s claims.  A court must not simply give the plaintiff the benefit of the doubt or view the evidence in the light most favorable to the plaintiff, as in ruling a motion to dismiss under FRCP 12(b)(6).

As the new year approaches, everyone seems to be doing a “top ten” list for 2008, so of course, ClassActionBlawg has to have one too.  However, this “top ten” list has two improvements.  First, the rankings will be decided by reader vote.  Second, and even better, it goes to 11!

So, here are some key class action decisions and trends from the year that was, in no particular order.  See the poll below to vote for the one you like best.  Feel free to submit comments with other suggestions, and maybe together we can make a top ten list so good that it will go higher than 11.  Best wishes to all in 2009.

• RICO fraud class actions show promise after Supreme Court’s decision in Bridge v. Phoenix Bond & Indemnity Co., 553 U.S.. —. , 128 S.Ct. 2131 (U.S. June 9, 2008) (holding that a plaintiff need not show first-party reliance in order to assert a claim under the federal RICO statute).
• “Foreign Cubed” class actions show promise, then sputter a bit.  See Morrison v. National Australia Bank Ltd., 2008 WL 4660742 (2d Cir. Oct. 23, 2008) (discussing federal jurisdiction over “foreign cubed” securities class actions).
• Fraud on the market theories are tested in consumer fraud cases.  See McLaughlin v. Philip Morris USA, Inc., 522 F.3d 215 (2d Cir. 2008) (rejecting class certification on various consumer fraud theories, including the “fraud on the market theory”).
• Courts reject certification of FACTA Class Actions on superiority grounds based on reasoning that class exposure would be grossly disproportionate to the alleged harm to consumers.  See, e.g., this recent California federal court decision summarized at Class Action Defense Blog.
• California courts address certification of wage and hour class actions involving unpaid wages for time worked during meal and rest breaks.  See Brinker Restaurant Corp. v. Superior Court (2008), 165 Cal. App. 4th 25, review granted (Oct. 22, 2008).
• Truth in Lending Act (TILA) actions seeking rescission of mortgages due to alleged predatory lending deemed unsuitable for class treatment.  See Andrews v. Chevy Chase Bank, No. 07-1327 (7th Cir., Sept. 24, 2008)
• Class actions for damages caused by pollution where defendant has complied with applicable regulations see mixed results in the U.S. and Canada.
• The Second Circuit Court of Appeals holds that a preponderance of the evidence standard of proof applies in determining whether the elements of class certification have been satisfied in Teamsters Local 445 Freight Division Pension Fund v. Bombardier, Inc., Case No. 06-3794-cv (2d Cir. Oct. 14, 2008).
• Italy’s new class action law takes effect, while other European countries consider class action reforms.
• Class action scandals involving illegal kickback and bribery schemes result in prison sentences for class action lawyers Melvin Weiss, William Lerach, Dickie Scruggs and others.
• The Supreme Court rejects “scheme liability” in securities fraud cases in Stoneridge Inv. Partners, LLC v. Scientific-Atlanta, Inc., 128 S. Ct. 761 (2008)

As someone who reads a lot of news articles about class action lawsuits, I see a lot of technical misstatements by the media in reporting on the mechanics of class action procedure.  To most casual readers, these errors may not be that important to the overall story about a particular lawsuit, so the distinctions that I will discuss below may seem a bit hyper-technical.  But, if you’re still reading this entry, you’re probably at least a little curious, so here goes…

One common mistake addressed in a previous entry is the identification of some cases as ”class actions” when they are in fact mass tort cases or other types of representative actions.

Recently, I have come across quite a few articles and TV reports that describe a class action lawsuit or settlement and then discuss how affected people can “join” in the case.  That statement can be technically correct in describing certain employment actions, such as those filed under the Fair Labor Standards Act, that expressly require affected persons to affirmatively opt in to the suit.  It might also be correct in describing group lawsuits in many other parts of the world that have an ”opt in” collective action procedure.  However, in reference to most consumer class actions filed in the US, the word “join” is a misnomer.  This is because a class certified under Rule 23, Federal Rules of Civil Procedure (and the similar rules of many states) automatically includes all members of the defined class unless they “opt out”.  So, to discuss how a person might ”join” a class action is actually more than a technical error, it’s actually the polar opposite of what really happens in a class action.  What’s more, the right to opt out may not exist at all if the claim is not one for damages under Rule 23(b)(3).

So what do journalists mean when they talk about “joining” a class action?  It depends on the context, but there are a couple of possibilities.  First, they might be referring to the steps necessary to file a claim for benefits under a class action settlement.  In that situation, a person might be a class member but not be entitled to any settlement benefits unless he “joins” by filing a claim form.  Second and less likely, the word “join” could be in reference to a plaintiffs’ firm soliciting potential class representatives for a yet-to-be filed class action lawsuit or soliciting additional representatives or witnesses in an existing class action.  In that case, the word “join” would denote a much more active role than just taking part in the benefits of a potential windfall.

Here are some blog entries from the week that was that might be of interest to class action practitioners:

Class Action Decisions

The Complex Litigator and The UCL Practitioner offer analysis of a recent California class certification decision addressing a variety of issues, including ascertainability of the class, evaluation of the merits in ruling on class certification, commonality and predominance:

http://www.thecomplexlitigator.com/2008/08/certification-d.html

http://www.uclpractitioner.com/2008/08/new-class-cer-1.html

Class Action Defense Blog provides a synopsis of a Second Circuit Court of Appeals decision upholding the district court’s order reducing a negotiated fee award from 8.5% to 3% in a securities class action settlement:

http://classactiondefense.jmbm.com/2008/08/class_action_defense_casesin_r_115.html

CAFA Law Blog summarizes a Massachusetts state court decision that looked to provisions of the federal Class Action Fairness Act (CAFA) in rejecting a coupon settlement, recognizing that while CAFA did not apply expressly in the state court proceeding, its provisions reflected “mainstream” concerns with coupon settlements:

http://www.cafalawblog.com/-case-summaries-judge-says-chew-on-this-in-disapproving-settlement-in-smokeless-tobacco-class-action.html

Mass Tort Defense reviews a recent decision by the United States District Court for the Eastern District of Missouri denying certification of a class of rice farmers claiming damages resulting from genetically modified rice contamination (synopsis also provided by Class Action Defense Blog, cited in last week’s CABWR):

http://www.masstortdefense.com/2008/08/articles/mdl-court-rejects-class-action-in-genetically-modified-rice-litigation/

Consumer Advertising Law Blog discusses a Fifth Circuit decision reversing class certification in a case involving allegations of unsolicited faxes in violation of the Telephone Consumer Protection Act (TCPA):

http://www.consumeradvertisinglawblog.com/2008/08/the-fax-of-the-matter-court-holds-that-consumer-protection-case-not-proper-for-class-certification.html

Florida Appellate Blog discusses a recent Florida state court decision addressing the practice of “picking off” a class representative by offering to settle for the full amount of his or her claim in an effort to moot the class action:

http://www.floridaappellateblog.com/2008/08/ucc-notice-requirements-and-picking-off-a-class-representative-is-not-condoned.html

Dispatch Monthly Magazine reports on a federal court’s decision to grant class certification to a class of police dispatchers in a case challenging department regulations for returning to work after sick or injury leave:

http://www.911dispatch.com/db/index.php?option=com_content&task=view&id=1996

HousingBath.com discusses the denial of class certification in a lawsuit filed against a condominium developer by purchasers seeking to void their contracts due to alleged defects in the building:

http://housingbath.com/2008/08/daily-soak-august-25.html

TortsProf Blog comments on an article from the Legal Intelligencer (reprinted at www.Law.com) discussing a ruling by the Third Circuit Court of Appeals reversing the dismissal, on preemption grounds, of a consumer class action against a manufacturer for alleged failure to warn about the dangers of mercury in tuna:

http://lawprofessors.typepad.com/tortsprof/2008/08/mercury-in-tuna.html

Class Action News

More from American Thinker, Death by 1000 Paper Cuts, National Review Online’s The Corner, Libertyville, Under the Dome, Spencer Blog, and LukeFord.net on Warren Buffett’s recent suggestion that contributors file a class action against John Edwards for concealing his extramarital affair (See ClassActionBlawg.com entry here)…

http://www.americanthinker.com/blog/2008/08/buffett_suggests_edwards_suppo.html

http://deathby1000papercuts.blogspot.com/2008/08/john-edwards-campaign-refunds-more.html

http://libertyville.wordpress.com/2008/08/25/buffet-calls-for-class-action-on-edwards/

http://corner.nationalreview.com/post/?q=YTIyMDI3ZGUzZmNkZGI0ZWE2ZWUzOGNlMDc4ZmMzNzg=

http://projects.newsobserver.com/under_the_dome/buffett_says_donors_should_sue_edwards

http://www3.allaroundphilly.com/blogs/delcotimes/gils/2008/08/buffett-on-edwards-sue-em.html

http://lukeford.net/blog/?p=3966

… with follow up from NewsBusters.org and Perfunction regarding efforts by Edwards to refund contributions to just one of his “Two Americas” (Spoiler: it’s the one with the class action lawyers in it, not the one with Buffett’s proposed class action plaintiffs):

http://www.newsbusters.org/blogs/p-j-gladnick/2008/08/25/web-scoops-msm-edwards-refunds-contributions-one-his-americas

http://perfunction.typepad.com/perfunction/2008/08/coda-john-edwar.html

Class Action Commentary

Legal Theory Blog summarizes an article by Vanderbilt Law Professor Richard A. Nagareda with the fairly self-explanatory title, “Class Certification in the Age of Aggregate Proof”:

http://lsolum.typepad.com/legaltheory/2008/08/nagareda-on-cla.html

Mass Tort Litigation Blog provides an abstract and link to an article by Michigan law student Patrick Luff criticizing the weighing of the costs and benefits that could result from certifying a class in making a class certification decision:

http://lawprofessors.typepad.com/mass_tort_litigation/2008/08/new-scholarship.html

Overlawyered comments on a curious case of forum shopping where plaintiffs’ counsel was successful in pursuing a nationwide class action filed in Oklahoma seeking to apply Texas law after a Texas court had previously rejected the same claims, holding that Texas law did not permit the type of nationwide class that the plaintiffs sought to pursue:

http://overlawyered.com/2008/08/the-inverted-federalism-of-grider-v-compaq/

Nonlawyer Commentary

See this www.eHow.com article for a non-lawyer’s perspective on the practical aspects of starting a personal injury class action lawsuit:

http://www.ehow.com/how_4491550_personal-injury-class-action-lawsuit.html

And if you are looking for one consumer’s viewpoints on participating in a class action settlement, see this entry from Queercents:

http://www.queercents.com/2008/08/22/are-class-action-lawsuits-worth-your-time-and-money/

Legal Ethics

Wage Law has posted a request from the California State Bar for public comment on a proposed ethics rule regarding “Offers of Settlement Conditioned on Client’s Waiver of Statutory Right to Seek Attorney’s Fees”:

http://wagelaw.typepad.com/wage_law/2008/08/public-comment-sought-on-proposed-ethics-rule.html

Class Action Trends

Apparently www.SueEasy.com is still alive and going strong, according to these entries from WebWare and MakeUseOf.com:

http://news.cnet.com/8301-17939_109-10020627-2.html?part=rss&subj=Webware

http://www.makeuseof.com/dir/sueeasy-file-complaint-class-action-lawsuit/

Class Action News

Sagwatch Blog reports on the setting of a trial date in a class action filed by former NFL players against the NFL Players Association seeking payments under a group licensing agreement:

http://blog.sagwatch.net/2008/08/25/sept-22-trial-date-set-in-players-inc-lawsuit/

International Class Action Law

Point of Law comments on a unique feature of British law that allows investors to purchase an ownership interest in litigation and examines the challenges of allowing a similar mechanism in the United States:

http://www.pointoflaw.com/archives/2008/08/beyond-continge.php

The D&O Diary comments on what NERA has called “the largest settlement in a class action securities case in Canadian history,” the relationship between the Canadian case and the U.S. subprime crisis, and its potential impact on trends in subprime litigation in the U.S.:

http://www.dandodiary.com/2008/08/articles/subprime-litigation/subprime-litigation-a-glimpse-of-the-end-game/

Certification

of a class requires proof of

numerosity.

A few sources, including Slate and American Thinker, have reported on a CNBC interview of bajillionaire Warren Buffet yesterday in which he suggested that donors to John Edwards’ presidential campaign file a class action against him for solicing contributions, knowing that reports of his extramarital affair with videographer Rielle Hunter would eventually come to light:

it might be kind of interesting if somebody, some contributor, would bring a class-action suit on behalf of all these people who essentially were led to send money to a man under totally false circumstances, false pretenses, and where he knew it and didn’t tell them the truth.

The expression on Buffett’s face suggests the proposal was at best half serious, and his comments appear to have been motivated mostly by a desire to illustrate the irony in a successful trial attorney doing something that could open himself up to a class action lawsuit.  (See interview transcript: “QUICK: Hm, that’d be ironic for a trial lawyer…  BUFFETT: Yeah.  QUICK: …to have a class-action lawsuit brought against him.”).  But even a comment made in jest from a man who could sink a Fortune 500 company with his words may be enough to make Edwards nervous.  Buffett himself won’t be serving as a class representative, though.  He threw his weight behind Barack Obama early on in the campaign.

Buffett may be the best investor of our time, but a class action expert he is not.  Even with his endorsement, a class action against Edwards by those who donated to his Presidential campaign would be an uphill battle.  Fraud cases are fraught with the potential for the kinds of individualized fact questions that make a case unsuitable for class treatment.  Usually, at least one of the elements necessary to prove liability for fraud is inherently individualized.  In Edwards’ case, donors likely made contributions for all sorts of reasons, and many no doubt would have donated despite earlier revelations of his infidelity, making it unlikely that common elements of fraud, like the materiality of the nondisclosure, reliance on the nondisclosure, or the causaton of injury, could be proven by common, classwide evidence.  Even setting aside the procedural hurdles, perhaps an even bigger challenge is a practical one.  How many members of the trial lawyer’s bar would be willing to pursue a class action against one of its most respected and high profile members?

Buffett’s statements reflect a common misconception about what makes a good class action lawsuit.  Many nonlawyers, even very sophisticated ones, tend to assume that any case where a misrepresentation or omission of fact has occurred that has the potential of harming a large group of people makes a strong candidate for a class action.  Of course, the same misconception often holds true with lawyers and judges who are not familiar with Rule 23.  So, it may not make any difference whether Buffett’s proposed class action could ever technically satisfy all of the requirements for certifying a class action.  As he observed during the interview, “I’ve seen a lot of class-action suits with less to it than this particular case.”

The American Bar Association compiles a survey of all 50 states’ laws on class actions. I write the article on Mississippi. I used to be able to write that while Mississippi does not have Rule 23 class actions, we do have liberal joinder under Rule 20 that acts as sort of a surrogate for Rule 23. Although imperfect, it did allow for small claims to be joined together and litigated in an economical fashion. Those days are gone.

So, now Mississippi has no Rule 23 or joinder device. Mississippi is the only state in the country to not have class actions in some form or fashion. It’s time for that to change.

As it now stands, when I write the Mississippi article for the ABA’s class action survey, I feel like a policeman at an accident scene waving people away stating, “Move along. There’s nothing to see here.” Except for injustice, that is.

A trial plan provides the judge with a road map for how the trial is expected to proceed.  Trial plans can be an effective pre-certification tool for both plaintiffs and defendants in class action lawsuits.  They can be as detailed or as generalized as the court requires and can cover a variety of issues, including bifurcation, the order of proceedings, which issues are to be resolved on a class-wide basis and which must be resolved individually, and what evidence will be presented at each stage of proceedings.

For defense counsel, asking the court to require the plaintiff to provide a trial plan illustrating the expected course of proceedings if the class is certified can help the defendant to persuade the court of practical manageability problems.  It may be one thing for the plaintiff to argue as an abstract matter that common issues predominate and that trial on a class-wide basis will be manageable, but having to provide a detailed description of how the case will proceed as a practical matter if the class is certified can expose weaknesses in these arguments.

On the other hand, voluntarily providing a specific trial plan can be also be an effective tool for plaintiffs in seeking class certification.  Provide a trial plan illustrating a reasonable and efficient process for resolving both common issues and any individualized issues can give even a skeptical court a level of comfort in certifying a class in the face of more abstract manageability arguments being raised by the defendant.

Trial plans have been used extensively in tobacco class action litigation both in decisions whether to certify a class and in decisions to decertify a class previously certified.  For examples, see here and here.

At least one state’s courts have held “that a trial plan is part of the rigorous analysis ‘[c]ourts must perform . . . before ruling on class certification.’” North American Mortgage Co. v. Lee, No. 02-1050 (Tex. Dec. 17, 2004) (quoting Southwestern Refining Co. v. Bernal, 22 S.W.3d 425, 435 (Tex. 2000) (emphasis added)).  However, many state and federal courts will not by rule or on their own initiative ask for the submission of a trial plan as a matter of course in evaluating class certification.  Trial plans are not required under FRCP 23 or the similar rules of many states.

Even if a court does not require a trial plan in connection with class certification proceedings, it cannot hurt to suggest that the plaintiff be required to submit one in order to test manageability and predominance of common issues.  Ordering a trial plan is certainly something within a court’s inherent supervisory powers and its discretionary authority in managing class action proceedings under Rule 23(d).  Where manageability is suspect, forcing the issue by requiring a trial plan can help to illustrate manageability problems in a way that more generalized arguments in briefs may not make clear.

Does a United States Circuit Court of Appeals decision not to review an order granting or denying class certification mean that the appellate court agreed with the class certification order?  Not necessarily.

Since 1998, Rule 23(f) of the Federal Rules of Civil Procedure has provided a way to seek appellate review of a federal district court’s grant or denial of class certification.  However, appellate review is completely discretionary.  The rule states that a “court of appeals may permit an appeal” of a class certification order if filed within 10 days.  FRCP 23(f) (emphasis added).  This means that before considering any of the issues raised on appeal, the court of appeals first considers whether to allow the appeal to go forward at all.  The court of appeals has “unfettered discretion whether to permit the appeal” and “[p]ermission to appeal may be granted or denied on the basis of any consideration that the court of appeals finds persuasive.”  Rule 23, comment to 1998 amendments. 

Thus, when a U.S. Circuit Court of Appeals denies permission to appeal a class certification order, the denial has no obvious meaning in terms of the ultimate resolution of the issues sought to be raised by the appeal.  Denial could mean that the court agrees with the underlying decision regarding class certification, but more likely it means that the court simply did not believe that it was necessary to resolve the issues on interlocutory (before trial and/or final judgment) review.   Normally, interlocutory issues may not be appealed at all, the exception to this rule being where interlocutory appeal is allowed by a specific statute or rule.  See 28 U.S.C. 1292.  As the 1998 comments to Rule 23 note, a Federal Judicial Center study “supports the view that many suits with class-action allegations present familiar and almost routine issues that are no more worthy of appellate review than many other interlocutory rulings.”  So, the fact of denial of a request under Rule 23 for review of a class certification order doesn’t mean that the court of appeals agrees with the substance of the order.

Any number of things can happen to a class certification order even if interlocutory review is denied.  The trial court can exercise its discretion under Rule 23(c)(1)(C) to alter or amend the order at any time.  Later proceedings at the trial court level, especially the development of key facts, can change the court’s decision on certification.  Alternatively, the parties may reach a settlement in which they agree to alter the class definition for settlement purposes, subject to the trial court’s approval.  Still another possibility is that the court of appeals may review a court’s pretrial class certification decision as part of an appeal after a final judgment is entered by the trial court, either as a result of a trial or as a result of other rulings on the merits of the claims.  The fact that a court of appeals denied permission to appeal a class certification decision before a final judgment does not bar it from considering those issues in an appeal taken as of right after the final judgment.  As a result, it is possible–although rarely do proceedings ever get this far in practice–for a trial court to grant certification, have a trial on the claims for which the class was certified, and enter judgment for or against the class, only to have the court of appeals later reverse the initial order granting class certification.

As the European Union and individual EU countries consider potential reforms for dealing with mass and class action lawsuits (see my previous entries here and here), Canadian class actions are becoming more similar to those in the United States, according to an April 18 report in Canadian Underwriter.ca. The article remarks that significant increases in contingent fee awards in recent Canadian class actions have led to an increase in lawyer-driven lawsuits as opposed to those that are consumer-driven or driven purely by altruistic motives. 

Fair or not, it is clear that many outside the U.S. view the U.S.-style class action system as being driven exclusively by lawyers and greed.  Combating this perception should be an important goal as we consider potential reforms in our own state and federal courts.  Our class action system shares with those being developed considered in other countries the noble objectives of discouraging corporate or government abuse and adequate compensation of consumers.  However, those of us who practice in the U.S. realize that our system is a complex one that has developed over many decades.  Procedures intended to discourage widespread abuse and promote compensation of victims have to be accompanied by incentives for championing those intrests, and they must also be tempered by due process protections of the rights of potential defendants.  Attempts at reform may not always have their desired result.  (See this entry on the latest FJC report on CAFA).  It will be interesting to track new procedures and reforms that are chosen in other countries who have far less experience and history with mass or class actions.  On the one hand, they may have the advantage of being able to start from scratch without having to face pushback from entrenched governmental, institutional, and private interests in maintaining an existing system.  On the other hand, they lack the decades of analysis, testing, and tweaking that our system has undergone.

As defense lawyers, our instincts tell us to take our shot at a dispositive ruling on the merits if it might allow us to avoid a class certification hearing.  We know that the material facts aren’t in dispute and that we should win on the law, if we can just get the judge to ignore the plaintiffs’ attorneys constant spin and obfuscation and focus on the real legal issues.  The named plaintiff has no case, and consequently, the class has no case either.  We hardly ever answer until our motion to dismiss is denied.  If the motion to dismiss doesn’t work (which is almost always because the judge is overwhelmed and doesn’t want to take a chance at possible reversal by dismissing the case too early) we look for the first opportunity to file a motion to strike, a motion for judgment on the pleadings, a motion for ruling as a matter of law, or if all else fails, a motion for summary judgment.

But contrary to those instincts, filing a summary judgment motion before certification proceedings in a class action can be a lose-lose proposition.  If the defendant loses the motion, there is a good chance that the court won’t look seriously at the issue in another pretrial motion filed after certification, when the facts are likely to be more fully developed.  On the other hand, if the defendant wins, the victory may be a hollow one because the judgment is not likely to be given any preclusive res judicata or collateral estoppel effect as to absent class members.  Thus, winning a pre-certification summary judgment does not guarantee an end to the exposure.  Any other member of the putative class can simply file a class action under the same legal theory in a new case.

Some may consider the mere suggestion heresy, but there are situations where a defense lawyer might even consider counseling a client to stipulate to class certification in order to get a final resolution on the merits of a claim that is binding on all potential plaintiffs.  

Of course, it’s a rare case where the potential reward of guaranteed claim or issue preclusion justifies the risk of a classwide adverse judgment.  Usually, winning a dispositive motion against the named plaintiff promises to mark the end of the litigation for all practical purposes, either because the ruling is likely to dissuade the same or other plaintiffs’ attorneys from spending the time and effort pursuing a similar theory of liability, because the plaintiff is one of very few individuals willing an able to serve as class representative, or because a subsequent class action would be time-barred (this raises the issue of piggybacking of successive class actions, which is a subject for another day).

But even if it is likely in many cases that the potential benefits of filing a dispositive motion before pre-certification will ultimately carry the day, it is always a good idea to first consider the preclusive effect–or lack thereof–of a pre-certification judgment.