Remand Not Warranted in CAFA Case

Often defendants in proposed class actions think of an individual's playing a dual role as lead plaintiff and class counsel as a useful fact to defeat class certification under the adequacy prong. Credit a plaintiff for "creative" -- although ultimately unsuccessful -- use of this situation in a proposed class action. See Hoffman v. DSE Healthcare Solutions, LLC, No. 2:13-cv-07582-JLL-JAD (D.N.J. 3/21/14)(unpublished).

Plaintiff Harold M. Hoffman filed a consumer fraud class action complaint in state court under New Jersey's consumer fraud act. Plaintiff’s Complaint alleged that defendant made “false and misrepresented claims of product efficacy” about a dietary supplement known as Lipo-Flavonoid Plus.  Defendant removed the lawsuit to federal court pursuant to the diversity jurisdiction conferred by the Class Action Fairness Act ("CAFA"), codified at 28 U.S.C. § 1332(d). According to defendant, the court had original jurisdiction over this action because (1) the suit is a “class action” as defined in 28 U.S.C. § 1332(d)(1)(B); (2) there is "minimal diversity"; and (3) the "aggregate value of the amount in controversy based on Plaintiff's allegations exceeds $5 million."

Plaintiff' filed a motion to remand the case to the Superior Court of New Jersey.Specifically, plaintiff argued that class certification is impossible in federal court because his dual role as class representative and class counsel, which, he said, is per se impermissible in the Third Circuit. Without class certification, plaintiff asserted, defendant cannot establish that the amount in controversy exceeds $5 million, as required by CAFA. Defendant responded that plaintiff cannot unilaterally divest the court of  jurisdiction simply because he represents himself. 

When a class action complaint expressly disclaims the ability to recover the $5 million jurisdictional amount, the Third Circuit instructs that the burden is on defendant to prove "to a legal certainty that plaintiff can recover" that amount. See Frederico v. Home Depot, 507 F.3d 188, 197 (3d Cir. 2007). The concept of legal certainty is not well defined, but falls somewhere below "absolute certainty" and above "preponderance of the evidence." See Nelson v. Keefer, 451 F.2d 289, 293 n.6 (3d Cir. 1971)). A court examines both the dollar figure offered by the plaintiff and plaintiff's actual legal claims to determine whether the amount in controversy exceeds the statutory threshold.

The court's analysis here turned on a reading of Knowles, where the Supreme Court interpreted CAFA to hold that a named plaintiff cannot unilaterally circumvent CAFA by his own non-binding actions. Specifically, the Supreme Court rejected a plaintiff’s attempt to evade the scope of CAFA jurisdiction by stipulating that the class he sought to represent would not seek damages that exceed the $5 million jurisdictional threshold.  Here, the court agreed with defendant that just as a class representative could not bind a class with a stipulation to limit the class’ damages in order to avoid federal jurisdiction, a class representative, such as Hoffman, cannot bind the class by unilaterally deciding to select himself as counsel.

The primary issue was whether defendant could show “to a legal certainty” that the individual claims of all proposed class members aggregated to more than $5 million. If defendant satisfied this burden, remand would be inappropriate.  And the court found that defendant had made the requisite showing. Estimating the actual aggregate losses of the individuals in the proposed class was a relatively straightforward process, said the court, where plaintiff brings suit requesting treble damages under the CFA.

Motion denied.


Rare Class Decision Describing Adequacy Prong

The adequacy prong of Rule 23 as applied to named representatives probably does not garner as much attention in litigation as the other prerequisites.  A federal court decision reminds readers that there are proposed class actions where the adequacy prong can be vital.  See In re Kosmos Energy Ltd. Sec. Litig., No. 3:12-CV-3733-B (N.D. Tex. , 3/19/14).

The issue before the court was whether to grant Lead Plaintiff’s motion to certify a class of investors who purchased or otherwise acquired common stock from Defendant Kosmos Energy Ltd. (“Kosmos”), through its May, 2011 initial public offering (“IPO”), and were allegedly damaged thereby. The court concluded that Lead Plaintiff fell short of the dictates of Wal-Mart Stores Inc. v. Dukes, 131 S. Ct. 2541 (2011), and Comcast Corp. v. Behrend, 133 S. Ct. 1426 (2013), as well as the Fifth Circuit’s standard for class certification in securities cases set out in Berger v. Compaq Computer Corp., 257 F.3d 475, 483 (5th Cir. 2001). Instead, and to its apparent detriment, plaintiff relied on pre-Comcast case authority. The prevailing current view  is that a plaintiff seeking class certification must affirmatively demonstrate his compliance with Rule 23(a) by showing that there are in fact sufficiently numerous parties, common questions of law or fact, typicality of claims or defenses, and adequacy of representation.

At the heart of defendants’ opposition to the pension plan’s request to be appointed as class
representative was their assertion that there was a fatal absence of evidentiary support for the Plan’s request. Defendants argued that a purported class representative must demonstrate that it possesses a sufficient level of knowledge and understanding to be able to control the litigation, that a potential representative must also establish that it—not the lawyers—is directing the litigation, and that it is not only sufficiently informed about the case to properly manage the effort, but that it must also be willing and able to take an active role and protect the interests of absentee class members. 

Defendants asserted that Lead Plaintiff fell far short of satisfying this stringent standard for  adequacy. They pointed out that the Plan offered little, if any, evidence to prove its adequacy to as
class representative. For their part, defendants submitted the deposition transcript of the Plan’s Board Chair Ms. Saville, which was taken in conjunction with the certification proceedings. Saville’s
deposition, Defendants claimed, established that the Plan had virtually no knowledge about the case, and in fact, did not understand their own allegations or the core themes permeating the complaint. Defendants pointed to portions of Saville’s deposition which they asserted showed that she had never seen, much less read, the Registration Statement, nor could she identify a single misstatement in it, was unable to recognize the names of certain defendants, and was either confused or did not know whether the Kosmos stock price dropped, or if it did, what might have caused the drop, after the Plan purchased the stock.

Adequacy is a constitutional prerequisite to class certification. In fact, it has been said that, due process issues are the single most important feature of class litigation, and adequacy looms
over the entire class debate.  There was no dominant, discernable standard of proof for the requirement. Some courts presumptively favored finding class representatives adequate, requiring little or no evidence to support the determination. Others employed a more robust review of the issue, incorporating the due process considerations inherent in the concept, making certain that the representative possessed the character traits necessary to guarantee his commitment to his fiduciary duties to the class.  The court concluded that the Supreme Court’s recent decisions in Wal-Mart and Comcast, leave no doubt that plaintiffs can no longer rely upon the lax adequacy standards employed at times in the past. Instead, plaintiffs seeking certification must produce actual, credible evidence that the proposed class representatives are informed, able individuals, themselves—not the lawyers––actually directing the litigation.

Applying this rigorous adequacy review—in practice—can involve consideration of a number
of factors, said the court. For example, courts often consider the proposed representative’s personal attributes, including evidence of the representative’s character, honesty, and conscientiousness.  The representative’s familiarity with the case is also important. Certification may be denied where the representative lacks knowledge or a basic understanding of what the suit is about. Likewise, evidence of the representative’s willingness or ability to participate in the litigation is relevant. When it appears that the potential representatives are simply lending their names to a suit controlled entirely by the class attorney, or where the representative is too closely affiliated with class counsel, courts may find them to be inadequate. Failing to appear at the class certification hearing has also been considered a negative factor in the adequacy assessment.  

In terms of evidence, deposition testimony of the proposed representative—where the party opposing certification was able to  question the individual in person—may trump a written, sworn statement by that representative. Here, the only evidence submitted by the Pension Plan in support of its claims of adequacy was the Declaration of its Board Chair, Suzanne Saville. The Declaration, however, contained little more than formulaic, boiler-plate assertions over two pages of substantive text. The court determined that the deposition taken carried more weight. Lead Plaintiff’s defense of the Saville deposition, in turn, fell short.  And without facts to support its position, the Plan failed the rigorous test posed by Berger, Wal-Mart and Comcast.

Moreover, when focusing on the factors listed above that courts have examined in assessing adequacy, (e.g. close affiliation with and dependence upon class counsel, knowledge of the basic facts of the case and defendants involved, desire to vigorously prosecute the case, among others), the court noted that here the plaintiff and counsel maintained the type of close affiliation that calls into question whether the Plan or its counsel was the one actually pursuing the case.  The court referred to the type of free securities monitoring service that counsel provided the Plan, which has been criticized by other courts as fostering tendencies toward lawyer-driven litigation.

Moreover, Saville did not attend the class certification hearing and sought permission to be excused from attending court-ordered mediation in person. These facts indicated that the Plan lacked the incentive needed to fulfill its fiduciary duties and vigorously prosecute the claims filed on behalf of “likely thousands” of potential class members who would not have the opportunity to represent themselves in court.

All in all, one of the more comprehensive recent discussions of the adequacy prong.

Federal Court Rejects Copycat Class Action

 A California federal court declined to certify a putative class of consumers in a suit accusing defendant of marketing defective dryers. See  Martin Murray v. Sears Roebuck and Co. et al., No. 4:09-cv-05744 (N.D. Cal.).

In 2009, Murray filed a putative class action on behalf of all California consumers who purchased the same Kenmore-brand dryer that he allegedly did. In his complaint, he alleged that Sears and Electrolux, the dryer’s manufacturer, had marketed the dryer to consumers by promoting its “stainless steel” drum without disclosing that the drum’s front -- the portion of the drum that allegedly rusted -- was actually made of a mild steel, which is allegedly more susceptible to corrosion and chipping. Based on this alleged omission, Murray asserted claims against defendants for unjust enrichment, breach of contract, and violations of California’s Consumer Legal Remedies Act (CLRA) and Unfair Competition Law (UCL). Defendants removed the action to federal court under the Class Action Fairness Act.

The original complaint was a "copycat" of allegations in a class action in the 7th Circuit, the infamous Thorogood matter. After amendment, the court concluded that the new allegations were sufficiently different from those in Thorogood, such that plaintiff was not collaterally estopped from
asserting his claims on a class-wide basis.

Plaintiffs sought certification under Rule 23 subsections (b)(2) and (b)(3). Rule 23(b)(2) applies 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.  Rule 23(b)(3) permits certification where common questions of
law and fact predominate over any questions affecting only individual members, and class resolution is superior to other available methods for the fair and efficient adjudication of the
controversy. In deciding the class issue, the court must conduct a rigorous analysis, which may require it to probe behind the pleadings before coming to rest on the certification question. Wal-Mart
Stores, Inc. v. Dukes, 131 S. Ct. 2541, 2551 (2011).  Frequently that rigorous analysis will entail some overlap with the merits of the plaintiff’s underlying claim. "That cannot be helped.” Dukes, 131 S. Ct. at  2551.

The court's analysis focused on the commonality and typicality requirements of Rule 23(a). The court concluded that Murray failed to present any evidence that defendants represented on a class-wide basis that the dryer’s drum front was made of stainless steel (rather than mild steel) and that this feature would prevent its user’s clothes from developing rust stains or tears. None of the sales managers testified that Sears marketed the drums as preventing rust stains or tearing. One
product manager testified that she believed the stainless steel was marketed as an aesthetic feature. A third Sears employee simply referred Murray to Sears’s marketing team when asked about the company’s advertising practices. None of this testimony supported Murray’s claim that California consumers, as a class, were likely to be confused by Sears’s marketing claims.

While some of Sears’s promotional materials stated that the Kenmore-brand dryers feature an “exclusive, all stainless-steel drum that provides lasting durability,” this, said the court, hardly qualified as a material misrepresentation.  And Murray’s account of his personal experience at a single Sears store did not suggest that Sears made any representation about the Kenmore-brand dryers on a class-wide basis. Nor did it suggest that Sears ever made such a representation about the Frigidaire-brand dryers nor that Electrolux ever made similar  representations about either brand of dryers. If anything, his individual isolated (and uncorroborated) incident of allegedly deceptive marketing suggests that Murray’s claims, were highly “idiosyncratic” and, thus, not amenable to class-wide proof.  In addition, Murray’s failure to identify any other class  member whose clothes were stained by rust only reaffirmed that his claimed injury here was unique. He also had not offered any evidence to suggest that other California consumers’ clothes were ever damaged by Kenmore or Frigidaire dryers. 

Accordingly, because he had not identified any common questions of fact or law that pertain to every class member, Murray failed to meet the commonality prerequisite.

Rule 23(a)(3) requires that the claims or defenses of the representative parties be typical of the claims or defenses of the class. Murray failed to satisfy the typicality requirement here for the same reasons he failed to satisfy the commonality requirement: specifically, he had not presented evidence of any class-wide misrepresentations or class-wide injury. As explained above, the only evidence here that defendants ever specifically represented that their dryers’ stainless steel drums protect clothes from rust stains came from Murray’s own isolated experience at one Sears store. Murray did not present any evidence to suggest that either defendant ever made the same
representations to other California consumers. Nor did he present any evidence to suggest that other California consumers suffered the same problems,

Also, he testified that the loose drum was most likely what caused his clothes to become exposed to the rust in the first place because the rust had only developed on the exterior portion of the drum front -- a part of the dryer that would not normally come into contact with any clothes. This admission -- that other problems with Murray’s dryer may have contributed to the rust stains he experienced -- left the named plaintiff vulnerable to fact-based defenses that could not be raised against other class members.  Similarly, because Murray purchased his dryer in September 2001, and did not file until November 2009, the potential statute of limitations issue made his claim not typical (as well as affecting adequacy). 

Class Certification Denied in Plant Explosion Case

A Massachusetts federal court last week declined to certify a class in a suit against chemical company Ashland Inc., in a dispute over a factory explosion. Riva et al. v. Ashland Inc., No. 1:09-cv-12074 (D. Mass.).

Plaintiffs alleged that the defendant negligently maintained certain highly explosive chemicals at a Danvers, MA, facility in such a way that caused an explosion in 2006. At the time of the explosion, Ashland was the primary provider of chemicals to C.A.I., a manufacturer of commercial printing inks, and Arnel Co., Inc. a manufacturer of paint products. C.A.I. and Arnel both operated from the Danvers facility.  There was an incident that destroyed the Danvers facility and caused property damage to the surrounding Danversport community. The named plaintiffs claimed that Ashland, among other things: did not inquire or determine whether C.A.I. or Arnel had a license or permit to maintain the quantities and types of chemicals Ashland provided; failed to warn about the scope and magnitude of the explosive risks and hazards of the chemicals and chemical mixtures that it was providing; delivered chemicals into inappropriate containers and vessels. Ashland prepared a vigorous defense. Plaintiffs sued under theories of strict liability, negligence, nuisance, and breach of implied warranty of merchantability.

As is typical with mass disasters, multiple law suits were filed, including a Borelli matter.  Ashland was not named as a defendant in Borelli or in any of the additional suits brought against C.A.I., Arnel and its insurers.   In connection with the Borelli action, certain households and businesses in the Danversport area in close proximity to the site of the explosion created the Danversport Trust for the benefit of those whose real estate Property was directly impacted by the explosion and fire at the Danvers facility.  The state court eventually certified the Borelli class and approved a comprehensive settlement agreement.  It gets a little complicated because not  all Borelli class members were Trust beneficiaries, and the settlement agreement also contained an indemnification provision which applied to Trust beneficiaries and certain other settling parties, but not all of them. Specifically, this indemnification provision did not require Borelli class members who were not in the Trust or in a "Subrogated Group" of claimants to indemnify the released defendants from future claims. Rather, the settlement agreement provided that the remaining Borelli class members expressly reserved the right to initiate individual, class, or collective actions against any or all non-released parties. 

And that is how this case came to be filed against Ashland. Borelli class members, including the
named plaintiffs in the present action, received compensation resolving their claims in that matter.  Named plaintiff  Riva alleged that her residence and personal property in Danvers were destroyed by the explosion. Although Riva was not a Trust beneficiary, she was a member of the
Borelli class and received money from the Claims Review Committee to resolve her claims in that
matter.  Named plaintiff Corrieri alleged that his uninsured boat was damaged in the explosion while it was stored at Liberty Marina in Danvers. Corrieri was neither a Trust beneficiary nor was
he asserting individual claims for damages to real property. He received a settlement payment in the prior class action for damage to the same boat for which he now asserted claims against Ashland.

The plaintiffs moved for class certification, and the court's analysis focused on the typicality and adequacy prongs, particularly in light of the prior class settlement.

The requirements of typicality and adequacy focus on the class representatives, Fed. R. Civ.
P. 23(a)(3) & 23(a)(4), and in the eyes of some courts “ tend to merge.” In re Credit Suisse-AOL Sec. Litig., 253 F.R.D. 17, 22 (D. Mass. 2008). Rule 23(a)(3) requires that “the claims or defenses of the representative parties [be] typical of the claims or defenses of the class.” The class representatives’ claims are “typical” when their claims arise from the same event or practice or course of conduct that gives rise to the claims of other class members, and are based on the same legal theory.  The class members' claims here did appear to arise from the same event (the accident), but despite these similarities, the court found that the named plaintiffs had not shown that their interests in proving liability were aligned with those of the class to meet the typicality requirement.

The indemnification provision of the prior settlement required the "Subrogated Group" and Trust beneficiaries to individually defend, hold harmless, and indemnify C.A.I. for any and all claims in the nature of third-party claims for indemnity or contribution which might be brought by Ashland. Since Ashland, a non-released party, had indeed brought a third-party claim for indemnification and contribution against C.A.I., a released party in Borelli, the impact of this indemnification provision on class members who were Indemnitors (i.e., Trust beneficiaries or members of the Subrogated
Group), was in the eyes of the court a "live issue in this case." The indemnification provision did not apply to the other class members who are neither Trust beneficiaries nor members of the Subrogated Group. So the indemnification provision could affect the Indemnitor and non-Indemnitor class members differently,  i.e., if the case was certified as a class action and the class prevailed, the Indemnitors in the class could become obligated to indemnify C.A.I., but other class members would not.

The court predicted that a substantial number of putative class members would be Indemnitors.  But the named plaintiffs were all non-Indemnitors and therefore would not be bound by the
indemnification provision. As non-Indemnitors, the named plaintiffs had a clear interest in proving
Ashland’s liability and maximizing damages. The majority of the class, the Indemnitors, on the
other hand, would not have the same goal since, according to the indemnification provision, they might be required to pay certain damages over to C.A.I.  Thus, it could not be said that the interests of the class representatives were typical of the class in this respect.

The adequacy requirement demands a similar inquiry into whether the putative representative plaintiff’s interests are aligned with other class members and whether the plaintiff is in a position to vigorously protect the class' interests.  Adequacy requires that the representative parties will fairly and adequately protect the interests of the class. To be adequate class representatives, plaintiffs must show that: (1) the interests of the representative party will not conflict with the interests of the class members; and (2) counsel chosen by the representative party is qualified, experienced and able to vigorously conduct the proposed litigation.  Here, an apparent conflict of interest exists between the non-Indemnitors (i.e., the named plaintiffs) and the Indemnitors (i.e., most of the class). The Indemnitors’ interest in shielding themselves from liability over indicated they would pursue tactics contrary to the named plaintiffs’ objectives in both proving liability and maximizing all kinds of damages against Ashland.

The court noted that the fact that the class representatives have suffered the same injury as the Indemnitors and non-Indemnitors in the class was insufficient to show that the adequacy requirement was met. Class representatives must also “possess the same interests” as other class members.

Class certification denied. 

Reconsideration Denied in Rejected "All Natural" Class Action

Here is an update on an interesting case we posted on before. A federal court last week denied a motion for reconsideration of its ruling that denied class certification to a consumer alleging that Arizona Beverages deceptively marketed its drinks as “all natural.”  See Coyle v. Hornell Brewing Co. et al., No.1:08-cv-02797 (D.N.J. 8/30/11). 

Plaintiff alleged that she was misled by labels on bottles of Arizona brand beverages touting “All Natural” ingredients, and thereby induced into buying bottles of Arizona beverages that contained High Fructose Corn Syrup (“HFCS”), which she claimed is not “natural”. Plaintiff sought to certify, under Fed. R. Civ. P. 23(b)(2), a class of consumers who purchased similarly labeled Arizona beverages that contained HFCS, seeking only declaratory and injunctive relief.

During the course of discovery in this case, plaintiff produced a retainer agreement she signed in anticipation of this lawsuit. But, the agreement was signed on August 9, 2007, more than seven months before plaintiff alleged that she was first misled by defendants’ “all natural” labeling in her product purchase on March 30, 2008. Indeed, plaintiff repeated the 3/08 purchase date in her deposition. She later changed her story.

The court originally observed that it need not find plaintiff to have intentionally lied to hold that she did not meet the adequacy element of Rule 23(a)(4). The issue was not simply whether plaintiff in fact lied, but whether her inconsistent testimony made her vulnerable to a unique factual or legal defense not faced by other class members, thereby rendering her interests potentially too antagonistic to the interests of the other class members. And that is exactly the case; the court found that plaintiff’s factual inconsistencies raised sufficiently grave credibility problems as to prevent her from serving as an adequate class representative.

Plaintiff filed a reconsideration motion. The court did reconsider its finding as to the adequacy of plaintiff’s counsel as a result of plaintiff’s repeated pleadings and certified discovery responses including the March 30, 2008 allegation. This "serious error" did not necessarily disqualify counsel.

But the court re-affirmed its decision as to the adequacy of plaintiff as class representative. Plaintiff argued that any defenses that she would face as a result of the credibility problems identified by the court could not become the focus of the entire litigation.  But the controlling rule does not hold that the only defenses that will disqualify a proposed named plaintiff on adequacy grounds are those which could become the focus of the entire litigation.  Indeed, to deny certification, a court need not conclude that credibility problems would ultimately defeat the class representative’s claim; rather, the court may deny class treatment if that unique defense is even arguably present. 

In any event, the court disagreed with plaintiff’s contention that the unique credibility-related defenses could not become the focus of the litigation in this matter. The court noted that plaintiff would have real trouble surviving summary judgment on the issue of "ascertainable loss" with a record  showing no dispute of fact that plaintiff’s only qualifying purchase of defendants’ product took place after plaintiff herself had concluded that the product was not “all natural.”  Plaintiff’s entire action would be vulnerable to a motion for summary judgment on the issue of ascertainable loss, which would prevent plaintiff (and the class she would seek to represent) from pursuing even injunctive relief.

Determining whether this plaintiff made her purchase of defendants’ product on the date she repeatedly claimed, after she had retained a lawyer to file the suit, would become a major focus and quite probably a show-stopper for this class. Reconsideration denied.

Court of Appeals Breathes New Life Into Class Action Prerequisite

The Seventh Circuit last week affirmed the trial court's decision not to certify a class of consumers making product liability claims against the makers of Aqua Dots toys. In Re: Aqua Dots Products Liability Litig., No. 10-3847 (7th Cir. Aug. 17, 2011). A tip of the cap to Ted Frank at PointofLaw who wanted to make sure we didn't miss this one, because of the potentially very useful analysis of Rule 23(a)(4).

Defendants made, distributed, or sold, AquaDots, a toy consisting of small, brightly colored beads
that can be fused into designs when sprayed with water. A Chinese sub-contractor apparently substituted adhesives. While the substitute adhesive was chemically similar to the specified glue, when ingested, the sub metabolizes into gamma-hydroxybutyric acid (GHB), which can induce nausea, dizziness, drowsiness, agitation, depressed breathing, amnesia, unconsciousness, and even death, depending on the dose. Although the directions told users to
spray the beads with water and stick them together, it was possible, given the age of the intended audience, that some would be eaten; children who swallowed a large quantity of the beads could become sick.

After learning of the problem, the manufacturer recalled all Aqua Dots products. The recall notice instructed consumers to take Aqua Dots products away from children and to contact the sellers to exchange them. Consumers got an exchange, or upon request, a refund. The recall was widely publicized, and hundreds of thousands of products were returned.

The plaintiffs were purchasers of Aqua Dots products whose children were not harmed and who did not ask for a refund; they challenged the adequacy of the recall program. The plaintiffs asked for a full refund under federal law plus punitive damages under state law. The Panel on Multidistrict Litigation transferred twelve suits to the Northern District of Illinois for pretrial proceedings. After the district court denied plaintiffs’ motion to certify a class, see 270 F.R.D. 377 (N.D. Ill. 2010), the Seventh Circuit authorized an interlocutory appeal under Fed. R. Civ. P. 23(f).

The district court framed the central class question as whether a defendant- administered refund program may be found superior to a class action within the meaning of Rule 23(b)(3).  270 F.R.D. at 381.  The court concluded that consumers would be better off returning their products for refund or replacement than pursuing litigation, which the court thought would just require the class members to bear attorneys’ fees in order to obtain a remedy that is theirs for the asking already. The record showed that more than 600,000 consumers returned Aqua Dots kits, and that more than 500,000 of these 600,000 received refunds. The district court concluded that the substantial costs of the legal process could make a suit inferior to a recall as a means to set things right.

The Seventh Circuit noted that it "is hard to quarrel with the district court’s objective." The lower the transactions costs of dealing with an allegedly defective product, the better. The transactions costs
of a class action include not only lawyers’ fees but also giving notice under Rule 23(c). Here, notice might well cost more, per kit, than the kits’ retail price—and could be ineffectual at any price, since most purchases were anonymous. The trial court couldn't order that defendants send each buyer a letter; notice presumably would be by publication, yet the recall was already widely publicized. Why bear these costs a second time?

Moreover, the Consumer Products Safety Commission had not expressed dissatisfaction with the recall campaign or its results, and the record did not contain any evidence of injury to children after the recall was announced.

The problem was, however, that a recall is not a form of “adjudication” as described in Rule 23, and a “policy approach” to the superiority analysis could not ignore the Rule’s text.  Policy about class actions has been made by the Supreme Court through the mechanism of the Rules Enabling Act, and Rule 23 establishes a national policy for the district judges.

Even as it mis-read Rule 23(b), departing from the text of Rule 23(b)(3), the district court could have, said the appeals court, simply relied on the text of Rule 23(a)(4), which says that a court may certify a class action only if the representative parties will fairly and adequately protect the interests
of the class.  Plaintiffs here wanted relief that duplicated a remedy that most buyers already had received, and that remained available to all members of the putative class. Bottom line: "A representative who proposes that high transaction costs (notice and attorneys’ fees) be incurred at the class members’ expense to obtain a refund that already is on offer is not adequately protecting the class members’ interests."

So, the trial judge cited the wrong subsection of Rule 23. But defendants did not forfeit their arguments by focusing on superiority; they made the essential contentions -- there is something wrong with proceeding as a class under these circumstances.

The panel noted also serious problems of management with the proposed class, including the  variability of state law, and the fact that individual notice would be impossible, which would make it hard for class members to opt out.  The per-buyer costs of identifying the class members and giving notice could exceed the price of the toys (or any reasonable multiple of that price), leaving nothing to be distributed. "The principal effect of class certification, as the district court recognized,
would be to induce the defendants to pay the class’s lawyers enough to make them go away."

But, the most interesting aspect of the decision, again, is the analysis of Rule 23(a)(4) and the notion that the adequacy requirement forbids class representatives from bringing socially wasteful litigation for the benefit of the attorneys at the expense of the class they seek to represent. The decision can be seen as part of the trend (including Dukes) to put rigor into the Rule 23(a) analysis.

Class Certification Denied in BPA MDL

The federal judge in the MDL involving BPA in baby bottles refused last week to certify
three proposed  multistate classes in this multidistrict litigation. In re: Bisphenol-A Polycarbonate Plastic Products Liability Litigation, No. 08-1967 (W. D. Mo. July 7, 2011).

On August 13, 2008, the Judicial Panel on Multidistrict Litigation centralized the cases; there are approximately twenty-four cases left in this litigation.

The court’s discussion focused on three of the components required for certification: commonality, predominance, and superiority. The court said it focused on these issues because they presented "the most insurmountable obstacles to" plaintiffs’ request.

The analysis offered several interesting points:

1. Choice of law.  The court noted that many problems and immense difficulties arose from the vagaries of state law. The difficulties involved in comparing and contrasting all of the nuances of the laws of fifty-one jurisdictions is "undeniably complicated." Several courts have indicated the mere need to engage in such an analysis – and the exponential increase in the potential grounds for error – demonstrates a class action is inappropriate. E.g., Cole v. General Motors Corp., 484 F.3d 717, 724-26 (5th Cir. 2007); Klay v. Humana, Inc., 382 F.3d 1241, 1267-68 (11th Cir. 2004); Castano v. American Tobacco Co., 84 F.3d 734, 751-52 (5th Cir. 1996); In re American Medical Systems, Inc., 75 F.3d 1069, 1085 (6th Cir. 1996); In re Sch. Asbestos Litig., 789 F.2d 996, 1010 (3d Cir. 1986).

Here, the court offered a sampling of the legal disputes that the court was unable to resolve without delving into a legal inquiry more extensive than had been provided by the parties in order to ascertain (or predict) the holdings of the highest courts in these jurisdictions on legal issues. While defendants cannot thwart certification simply by tossing out imagined or slight variances in state laws, it is the plaintiffs' burden to demonstrate the common issues of law. Here, the plaintiffs could not show that the legal groupings they proposed actually satisfy Rule 23(a)(2)’s commonality requirement. And they present significant manageability concerns.

Significantly, the court noted that even if the plaintiffs had correctly grouped similar states’ laws, the application of those laws can turn out to be different even if they appear similar on the surface.  For example, plaintiffs have never alleged that the FDA banned BPA or argued that any government agency has definitively concluded that BPA in baby products is unsafe. Rather, the underlying theory of plaintiffs’ case is that, during the class period, there existed a serious scientific debate or controversy regarding the safety of BPA and that all defendants were aware of this  controversy;  defendants failed to advise them that the product contained BPA, a substance that the FDA approved for use but that was the subject of ongoing scientific discussion or controversy.  But, would every state regard this fact as material and something defendants were obligated to warn about?

2. Common issues of fact? The court relied on the recent Dukes v. Wal-Mart decision to note that commonality requires the plaintiff to demonstrate that the class members have suffered the same injury. This does not mean merely that they have all suffered a violation of the same provision of law. Their claims must depend upon a common contention that is capable of class-wide resolution – which means that determination of its truth or falsity will resolve an issue that is central to the validity of each one of the claims in one stroke.  Even before Dukes, many courts held that commonality required an issue (1) linking the class members (2) that was substantially related to the litigation’s resolution. DeBoer v. Mellon Mortg. Co., 64 F.3d 1171, 1174 (8th Cir. 1995), cert. denied, 517 U.S. 1156 (1996); Paxton v. Union Nat’l Bank, 688 F.2d 552, 561 (8th Cir. 1982), cert. denied, 460 U.S. 1083 (1983).

While there were some common issues, other facts plaintiffs described as “common” clearly were not. For instance, “Plaintiffs’ testimony regarding the purchase of their Baby Products” was not common for all class members. One plaintiff’s actions, decisions, knowledge, and thought
processes are unique to that plaintiff. While this question must be answered for each plaintiff, the question will not be proved with the same evidence or have the same answer for each plaintiff. Even the simple question “Did each Plaintiff purchase a product manufactured by Defendant?” is not a common question because it is not capable of class-wide resolution as required by Dukes.

3. Individual issues.  Numerous individual issues predominated, including damages. Individual issues relating to damages do not automatically bar certification, but they also are not completely ignored. E.g., In re St. Jude Medical, Inc., 522 F.3d 836, 840-41 (8th Cir. 2008) (individual issues related to appropriate remedy considered in evaluating predominance); Owner-Operator Independent Drivers Ass’n, Inc. v. New Prime, Inc., 339 F.3d 1001, 1012 (8th Cir. 2003), cert. denied, 541 U.S. 973 (2004) (individual issues related to damages predominated over common issues); see also In re Wilborn, 609 F.3d 748, 755 (5th Cir. 2010).

Another individual issue in this case was each plaintiff’s knowledge about the BPA "controversy." A consumer’s knowledge of BPA’s existence and the surrounding controversy is legally significant.
Knowledge of the controversy carries with it knowledge of the likelihood (or at least possibility) that a plastic baby bottle contained BPA. A consumer who knew about the BPA knew what defendants allegedly failed to disclose. Similarly, a consumer who knew about the controversy and exhibited no concern about whether the product purchased contained BPA may have difficulty convincing a jury that the seller did anything wrong.

The time and other resources necessary to resolve the individual issues in a single forum, in the context of a single case, in front of a single jury, would be staggering. In contrast, the common factual issues would be relatively easy to litigate, said the court.

4. Adequacy.  The court observed that plaintiffs had elected not to assert consumer protection
claims and warranty claims against certain defendants, apparently motivated by the fact that the class representatives are from states that do not support certification of such claims. But other states may have more favorable law for plaintiffs, and thus the court concluded the class representatives were inadequate to protect the class. There was a problem with  depriving absent class members of his/her opportunity to pursue a warranty claim just because the class representative cannot assert such a claim on his/her own.

Plaintiffs proposed state-wide classes in the alternative, but the MDL court noted that the judges who preside over the individual cases would be best-equipped to rule on the
single-state classes.


Proposed Class Rep Not Adequate: Got Your Dates Straight?

A federal court in New Jersey last week joined the small but growing trend (call it a simmer not a boil) of courts putting some real meaning into the prerequisites to class certification found in Rule 23(a).  The court in Coyle v. Hornell Brewing Co., No. 1:08-cv-02797-JBS-JS (D.N.J. 2011) found that the factual inaccuracies and/or inconsistencies in the proposed class representative's testimony constituted fatal flaws under Rule 23(a)(4) requiring an adequate class representative.

Plaintiff alleged that she was misled by labels on bottles of Arizona brand beverages touting “All Natural” ingredients, and thereby induced into buying bottles of Arizona beverages that contained High Fructose Corn Syrup (“HFCS”), which she claimed is not “natural”. Plaintiff sought to certify, under Fed. R. Civ. P. 23(b)(2), a class of consumers who purchased similarly labeled Arizona beverages that contained HFCS, seeking only declaratory and injunctive relief.  The underlying claims were based on the New Jersey Consumer Fraud Act (“NJCFA”). [Full disclosure, we are partial to their Arizona Sports thirst-quenchers.]

The court denied plaintiff’s motion for class certification because she could not satisfy the adequacy requirement of Rule 23(a)(4).  The reasoning is instructive. During the course of discovery in this case, plaintiff produced a retainer agreement she signed in anticipation of this lawsuit. But, the agreement was signed on August 9, 2007, more than seven months before plaintiff alleged that she was first misled by defendants’ “all natural” labeling in her product purchase on March 30, 2008.  Indeed, plaintiff repeated the 3/08 purchase date in her deposition.

Problem. Solution? Nearly two months after her deposition, plaintiff produced a signed declaration that contradicted her deposition testimony (and prior answers to interrogatories and the allegations in both her original Complaint and subsequent Amended Complaints).  She now said she meant to claim the alleged purchase occurred in March, 2007 rather than on March 30, 2008. But she offers no explanation for why she had previously alleged the March 30, 2008 date in her Complaints and in certified answers to interrogatories.

The court noted that in the procedural posture, the substantive allegations of the complaint must be taken as true.  But class certification questions are sometimes enmeshed in the factual and legal issues comprising the plaintiff's cause of action, and courts may delve beyond the pleadings to determine whether the requirements for class certification are satisfied.  The Third Circuit calls for a “rigorous analysis”  of a motion to certify a class. In re Hydrogen Peroxide Antitrust Litig., 552 F.3d 305, 309 (3d Cir. 2008). Specifically, the district court must make findings that each Rule 23 requirement is met.  Id. at 310. Plaintiff has the burden of proof by a preponderance of the evidence that she has met each and every element of Rule 23.

Rule 23(a)(4) seeks to ensure “that the representatives and their attorneys will competently, responsibly, and vigorously prosecute the suit and that the relationship of the representative parties’ interests to those of the class are such that there is not likely to be divergence in viewpoint or goals in the conduct of the suit.”  Bogosian v. Gulf Oil Corp., 561F.2d 434, 449 (3d Cir. 1977). On the subsidiary question whether the named plaintiff has interests antagonistic to those of the class, courts often have to evaluate attacks on the named plaintiff’s credibility.

Here, defendants argued that plaintiff’s inconsistent allegations and testimony regarding the date of her qualifying purchase of an Arizona product render her an inadequate class representative. See Friedman-Katz v. Lindt & Sprungli (USA), Inc., 270 F.R.D. 150, 159 (S.D.N.Y. 2010). Plaintiff  responded that, to the extent that defendant raised a problem of plaintiff’s credibility, such a credibility question is one for the jury to decide; it would be improper for the court to make a credibility determination, on the factual dispute of when plaintiff last purchased an Arizona product, at this certification stage of the litigation.  However, the court properly recognized it had an independent obligation at the class certification stage to make findings on whether the named plaintiff satisfied each of the Rule 23 elements. The court thus had an obligation to look at whether the credibility problems raised by plaintiff’s contradictory testimony and subsequent declaration rendered her an inadequate class representative.

The court observed that it need not find plaintiff to have intentionally lied to hold that she does not meet the adequacy element of Rule 23(a)(4). The issue was not simply whether plaintiff in fact lied, but whether her inconsistent testimony makes her vulnerable to a unique factual or legal defense not faced by other class members, thereby rendering her interests potentially too antagonistic to the interests of the other class members.  And that is exactly the case; the court found that plaintiff’s factual inconsistencies raised sufficiently grave credibility problems as to prevent her from serving as an adequate class representative.

First, she filed three separate Complaints alleging with specificity that she was misled by  defendants’ labeling when she first purchased an Arizona beverage in March, 2008, but she had retained an attorney on this issue seven months previously.  She repeated these claims in at least two answers to interrogatories, assisted by counsel, and again repeated the claim in her  deposition, even after being confronted with the apparent inconsistency of such a claim. Her subsequent declaration, in which she attempted to “clarify” the time-line in her deposition, did not explain how she had repeatedly asserted the incorrect date in her Complaints and discovery answers.  This level of inconsistency logically demonstrated either (1) an effort to disguise the fact that she did purchase the Arizona beverage in 2008 as alleged, but for the sole purpose of bringing the lawsuit she had already hired a lawyer for, or (2) a significant carelessness about the specific highly material facts she has alleged in the case, said the court.

Under either scenario, the court would find that plaintiff was not an adequate class representative.  Were she to be a class representative, she would be required to address defendants’ argument that she made her only documented purchase of Arizona iced tea in March of 2008 solely for the purpose of bringing the instant lawsuit and therefore suffered no ascertainable loss. This argument would divert attention from the substance of the claims advanced on behalf of the class.  That would risk that the class could fail in its claim because its representative was unable to prove she made a qualifying purchase, noted the court.

Finally, the court found, as an alternative basis to deny class certification, that plaintiff’s counsel’s adequacy was also brought into question through the existence of these material discrepancies. Under the "most charitable interpretation" of these facts, counsel submitted three separate Complaints to the court alleging an incorrect date of purchase, at least two answers to interrogatories repeating the same purportedly incorrect purchase date. The court thought that was insufficient attention to detail to show the ability to effectively represent the interests of a class.