Cert Granted in Interesting Class Action Appeal

The Supreme Court has granted cert in an important case raising the issue whether a federal court of appeals has jurisdiction under both Article III and 28 U. S. C. §1291 to review an order denying class certification after the named plaintiffs voluntarily dismiss their individual claims with prejudice. See MICROSOFT CORPORATION, Petitioner, v. SETH BAKER, ET AL., No. 15-457 (U.S., petition granted 1/15/16).

A first group of plaintiffs appealed a denial of class certification, seeking interlocutory review under Fed. R. Civ. P. 23(f). Rule 23(f) gives federal courts of appeals “unfettered discretion” to “permit an appeal from an order granting or denying class-action certification.” Fed. R. Civ. P. 23(f); Fed. R. Civ. P. 23(f) advisory committee’s note to 1998 amendment. They argued the class-certification denial “constitute[d] the ‘death knell’ for this litigation” because the individual claims about their game consoles were too small to justify litigating on their own to final judgment. The Ninth Circuit denied the petition, and the plaintiffs eventually resolved their individual claims by an agreement with Microsoft.

A few years later, the same lawyers as in the original consolidated litigation filed a new lawsuit—again in the U.S. District Court for the Western District of Washington—on behalf of respondents, a handful of Xbox 360 owners who allegedly did not sue in the prior case. Respondents pressed the same claims as their predecessors and they likewise requested certification of a nationwide console class. They argued the Ninth Circuit’s intervening decision in Wolin v. Jaguar Land Rover North America, LLC, 617 F.3d 1168 (9th Cir. 2010) now allowed certification of their proposed classes.  (A careful reading shows that case did not  did not change the law relevant to this case.) As a result, the district court struck respondents’ class allegations. It found the reasoning in the first denial of class certification (by a different judge) persuasive and that nothing in Wolin undermined the previous analysis.  Baker v. Microsoft Corp., 851 F. Supp. 2d 1274, 1280 (W.D. Wash. 2012). Invoking Fed. R. Civ. P. 23(f), respondents sought immediately to appeal the district court’s order striking their class allegations. As in the previous case, respondents’ counsel asserted that “the district court’s order effectively kills this case.” The Ninth Circuit denied the petition, and remanded the case back to the district court.  

Instead of pressing their individual claims, respondents tried an end run, as they moved on remand to dismiss their claims with prejudice. Respondents explained that they wanted such an order so as to appeal the class decision, despite defendant's observation that plaintiffs would have no right to appeal the order striking class allegations after entry of their requested dismissal.  The district court granted the dismissal with prejudice.

The Ninth Circuit assumed jurisdiction over respondents’ appeal, holding that in the absence of a
settlement, a stipulation that leads to a dismissal with prejudice does not destroy the adversity in that judgment necessary to support an appeal of a class certification denial. That ruling seemed to conflict with Coopers & Lybrand v. Livesay, 437 U.S. 463 (1978), and the rule plaintiffs may not manufacture an immediate appeal by dismissing and thereby showing that a class certification denial has in fact sounded the “death knell” of their claims.

On the merits, the Ninth Circuit thought the district court had misread Wolin, and remanded for further proceedings. 

As our readers may know, courts disagree on whether plaintiffs seeking to represent a class “may appeal from a judgment entered after a voluntary dismissal with prejudice.” TASHIMA & WAGSTAFFE, FEDERAL CIVIL PROCEDURE BEFORE TRIAL § 16:396 (2015); see also 6 CYCLOPEDIA OF FEDERAL PROCEDURE §23.46 (3d ed. 2015) (explaining that while some courts allow such appeals of de-certification orders, “other courts consider this result untenable, because it allows the putative class representative to evade the policy against piecemeal review by waiving his or her individual claims”). Five circuits have held that a court of appeals lacks jurisdiction to review a denial of class  certification where the plaintiffs have voluntarily dismissed their claims with prejudice. E.g.,  Bowe v. First of Denver Mortg. Investors, 613 F.2d 798, 801 (10th Cir. 1980). The Third, Fourth, and Seventh Circuits have since adopted the same view. Reviewing a case in which the plaintiffs voluntarily dismissed all of their claims to manufacture finality, the Third Circuit held that such a “procedural sleight-of-hand” does not create appellate jurisdiction. Camesi v. Univ. of Pittsburgh Med. Ctr., 729 F.3d 239, 245-47 (3d Cir. 2013). The Fourth Circuit likewise has held that when a putative class plaintiff voluntarily dismisses the individual claims underlying a request for class certification, a court of appeals lacks jurisdiction to decide the issue whether the district court abused its discretion in denying the plaintiff's request for class certification. Rhodes v. E.I. DuPont de Nemours & Co., 636 F.3d 88, 100 (4th Cir.), cert. denied, 132 S. Ct. 499 (2011); see also Himler v. Comprehensive Care Corp., 993 F.2d 1537 (4th Cir. 1993) (unpublished opinion) (same). And the Seventh Circuit has held that it will not review the district court’s refusal to certify a class when the plaintiffs requested and were granted a voluntary dismissal of their claims. Chavez v. Illinois State Police, 251 F.3d 612, 629 (7th Cir. 2001). 

The Eleventh Circuit has gone even further, holding that it has no jurisdiction whenever a plaintiff appeals from a final judgment that resulted from a voluntary dismissal with prejudice.  See Druhan v. Am. Mut. Life, 166 F.3d 1324, 1325-26 (11th Cir. 1999). It does not matter whether the dismissal with prejudice was requested only as a means of establishing finality in the case such that the plaintiff could appeal an interlocutory order—an order that the plaintiff believes effectively disposed of her case. Id. at 1326. Nor does it matter whether the interlocutory order did, in fact, eliminate the plaintiff’s claim. Id. at 1327 n.7. In either case, neither 28 U.S.C. § 1291 nor Article III permits the
appeal. Id. at 1326-27. Druhan was not a class action, but courts have since confirmed that its 
categorical holding applies equally to class actions. See Woodard v. STP Corp., 170 F.3d 1043, 1044 (11th Cir. 1999); Kay v. Online Vacation Ctr. Holdings Corp., 539 F. Supp. 2d 1372, 1373-75 (S.D. Fla. 2008).

Only two circuits now hold that a named plaintiff’s voluntary dismissal with prejudice creates a sufficiently adverse—and thus appealable—final decision for the plaintiff to obtain review of a class-certification denial. Berger v. Home Depot USA, Inc., 741 F.3d 1061, 1065 (9th Cir. 2014); Gary Plastic Packaging Corp. v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 903 F.2d 176, 178-79 (2d Cir. 1990), cert. denied, 498 U.S. 1025 (1991).

 The Supreme Court now looks poised to resolve this split.

Class Certification Denied on Ascertainability Grounds

A federal court in New Jersey last week rejected a class certification effort by plaintiffs complaining about the marketing of Skinnygirl Margaritas. See Stewart v. Beam Global Spirits & Wine, Inc., No. 1:11-cv-05149 (D.N.J., 6/27/14).

Plaintiffs essentially allege that despite being marketed and sold as an "all natural" product and a "healthy alternative to other commercial Margarita products" defendants' low-calorie, pre-mixed alcoholic beverage product known as "Skinnygirl Margarita" allegedly did not live up to these claims. Plaintiffs purportedly purchased Skinnygirl Margarita based on these alleged representations by defendants in magazine advertisements and on the product packaging.

Plaintiffs moved for class certification, and the issue quickly became ascertainability. In recent years, the Third Circuit, like many courts, has increasingly emphasized the importance of ascertainability of a class with respect to classes certified under Rule 23(b)(3). See, e.g., Carrera v. Bayer Corp., 727 F.3d 300, 305-08(3d Cir. 2013); Hayes v. Wal-Mart Stores, Inc.,725 F.3d 349, 354-56 (3d Cir. 2013); Marcus v. BMW of N. Am., LLC,687 F.3d 583, 592-94 (3d Cir. 2012).  In Marcus, the Third Circuit recognized that "an essential prerequisite of a class action, at least with respect to actions [brought] under Rule 23(b)(3), is that the class must be currently and readily ascertainable based on objective criteria." Marcus, 687 F.3d at 592-93; see also Hayes, 725 F.3d at 355 ("As 'an essential prerequisite' to class certification, . . . plaintiff must show by a preponderance of the evidence that the class is ascertainable.") (citations omitted); Carrera, 727 F.3d at 306 ("a plaintiff must show, by a preponderance of the evidence, that the class is 'currently and readily ascertainable based on objective criteria,' and a trial court must undertake a rigorous analysis of the evidence to determine if the standard is met.") (citations omitted).

Several important objectives are served by virtue of the ascertainability requirement for Rule 23(b)(3) class actions: (1) the requirement eliminates serious administrative burdens that are incongruous with the efficiencies expected in a class action by insisting on the easy identification of class members; (2) the requirement protects absent class members by facilitating the best notice practicable' under Rule 23(c)(2); and (3) the requirement protects defendants by ensuring that those persons who will be bound by the final judgment are clearly identifiable. Marcus, 687 F.3d at 593; see also Hayes,725 F.3d at 355. 

Ascertainability thus consists of at least two important elements -- the class must be defined with reference to objective criteria, and there must be a reliable and administratively feasible mechanism for determining whether putative class members fall within the class definition.  See Hayes, 725 F.3d at 355. Ascertainability necessitates an inquiry into whether the defendants' records can ascertain class members, and if not, whether there is a reliable, administratively feasible alternative.  The Third Circuit has made clear that where class members are impossible to identify without extensive and individualized fact-finding or mini-trials, then a class action is inappropriate. Marcus, 687 F.3d at 593.

When considering a plaintiff's proposed mechanism for ascertaining the class, the courts have cautioned against approving a method that would amount to no more than ascertaining by potential class members' "say so" -- by, for example, having potential class members submit affidavits that promise they meet the class definition. Without further indicia of reliability, permitting such a method would essentially force defendants to accept as true absent persons' declarations that they are members of the class, raising serious due process implications.   

Defendants argued that the proposed class members cannot be identified from sales records; they pointed out that the named plaintiffs themselves had no objective evidence, or even consistent testimony, regarding their own alleged purchases. Some defendants were several steps removed from the actual retail purchases, and as a result, never had any record of which consumers bought the product. Absent proper records, it would be impossible to determine class membership without significant inquiry, resulting in a mini-hearing on the merits of each case.  

Plaintiffs proposed a mechanism for ascertaining the Classes which required that putative class members submit affidavits or attestations regarding their membership in the Classes. And defendants responded that they cannot be required to simply accept the self-serving say so of proposed class members; they must be permitted to exercise its due-process right individually to probe each putative class member's statements regarding their claimed purchase. Defendants had a due process right to challenge not only the named plaintiffs' claims that they purchased Skinnygirl Margarita, but also the claims of absent class members. That means individualized fact-finding and mini-trials as to every single absent class member's claim, which in turn means that class treatment is per se inappropriate.

So, plaintiffs' only suggested method for ascertaining the putative class members rested entirely on the submission of affidavits by individuals who claim that they purchased Skinnygirl Margarita; those affidavits would actually  need to include: (1) dates of purchases of Skinnygirl Margarita; (2) locations and retail establishments where purchases were made; (3) frequency of purchases; (4) quantity of purchases; (5) cost of purchases, etc. These types of information would be vital to determining whether each putative member fits within the class definitions in this case.

Moreover, even assuming that the affidavits sought all that information, obtaining this information by way of affidavits did not appear to be an effective method for ascertaining the Classes. Without any independently verifiable proof of purchase through receipts, retail records, or otherwise, putative class members would likely not accurately remember every Skinnygirl Margarita purchase they made during the class period, let alone where these purchases were made and the prices they paid each time. The submission of affidavits supplying such information would be very likely to invite speculation, or worse, not to mention that this process would result in an extremely burdensome task for the Court or a claims administrator even attempting to verify class members' claims. See Weiner v. Snapple Beverage Corp., 2010 WL 3119452, at *13 (S.D. N.Y. Aug. 5, 2010). Such a method cannot fairly be construed as an administratively feasible one which utilizes objective criteria.

Defendants have a right to cross-examine the plaintiffs on their alleged purchases, and cannot be forced to accept as true absent persons' declarations that they are members of the class, without further indicia of reliability.  Despite plaintiffs' attempt to argue otherwise, the rulings in cases like Marcus, Hayes, and Carrera make clear that relying on affidavits of putative class members as the primary method of ascertaining the members of the class is not a prudent course of action for a district court and is generally insufficient to meet the requirements of Rule 23. Such affidavits essentially amount to nothing more than reliance on the subjective "say so" of the putative members that they meet the class definition and are entitled to relief, and practically ignores the need for a class definition based on objective criteria. 

Class certification 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.

Federal Court Denies Class Certification in Vitamin Consumer Case

A federal court late last month declined to certify a proposed class action in which plaintiffs challenged alleged claims about the weight-loss properties of One-A-Day WeightSmart vitamins. Gray v. Bayer Corp., No. 08-4716 (D.N.J. 7/21/11).  Our readers will be interested in the discussion of the predominance and superiority requirements for class actions.

Plaintiff alleged that the packaging of One-A-Day WeightSmart falsely claimed that the vitamin enhances a user’s metabolism. Plaintiff filed a complaint against Bayer alleging claims based on intentional and negligent misrepresentation, and the New Jersey Consumer Fraud Act (NJCFA), N.J.S.A. 56:8-1, et seq.;  plaintiff later moved  to certify a class of purchasers of One-A-Day WeightSmart pursuant to Rule 23(b)(3), which requires that a plaintiff establish that the questions of law or fact common to the 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.

As plaintiff’s proposed nationwide class called for the application of state substantive law, the court first looked to determine which state’s law governed the claims. Plaintiff argued that New Jersey had the most significant relationship to the claims because all of the decisions with respect to marketing allegedly took place in New Jersey, and all of the alleged operative misrepresentations originated in New Jersey, at Bayer’s headquarters. Defendant noted that because consumers purchased One-A-Day WeightSmart throughout the United States and thereby received the alleged misrepresentations in various jurisdictions other than New Jersey, the consumer fraud laws of the states where the product was purchased should apply. The court agreed that .the place where the
putative class members received Bayer’s alleged representations and the place where the consumers acted in reliance upon those representations, were key factors pointing to the law of the individual states where the product was purchased. (Consumers purchased One-A-Day WeightSmart at retail locations nationwide, not from Bayer itself.)

Moreover, to apply the NJCFA to all the out-of-state consumers in this case would be to ignore the interests of potentially fifty other jurisdictions. Simply because New Jersey has struck a particular balance between consumer protection and the promotion of business within its borders does not suggest that its interest in deterrence should displace the differing policy goals of its fellow states. Those states have instead struck their own legislative balances, awarding compensation based on differing standards of, inter alia, intent, causation, reliance, and damages. The interests of interstate comity and the competing interests of the states counseled against the blanket application of one state’s law over the laws of other interested states.

Thus, the court had to next consider whether variations in state laws presented the types of insuperable obstacles which render class action litigation unmanageable. See In re Warfarin Sodium Antitrust Litig., 391 F.3d 516, 529 (3d Cir. 2004). Where the applicable law derives from the law of the 50 states, as opposed to a unitary federal cause of action, differences in state law will compound any disparities among class members from the different states. It is plaintiff’s burden to
credibly demonstrate, through an extensive analysis of state law variances, that class certification does not present insuperable obstacles. 

Here, plaintiff failed to carry this burden.The court acknowledged a “brewing issue” in the Third Circuit over whether the NJCFA could be applied in a national class action. But the better view was that the court would be required to apply distinct standards of, inter alia, intent, causation, reliance, and damages in order to adjudicate plaintiff’s claims under each state’s consumer fraud law. Litigating plaintiff’s claims based on law from potentially fifty-one different jurisdictions would likely require a multitude of mini-trials to determine Bayer’s liability to each statewide group of consumers. Such a procedure would be an inefficient use of  judicial resources and would defeat the purported economies of class treatment.

The court therefore concluded that plaintiff’s proposed nationwide class failed both the predominance and superiority requirements under Rule 23(b)(3). 

Bayer argued that the alternative proposed Florida class was not ascertainable because claims under the Florida consumer fraud act are subject to a four-year statute of limitations and thus the claims of some Florida class members would be barred -- an issue requiring an individual analysis. Plaintiff was, however, granted leave to file a revised motion for class certification with respect to a more ascertainable Florida class only.

 

Supreme Court Declines To End Multiple Class Action Mischief

The second of our Supreme Court trilogy for the week.  The Court ruled last week in Smith v. Bayer Corp., No. 09-1205, that a federal district court was prevented by the the Anti-Injunction Act from enjoining a state court from entertaining plaintiff's motion to certify a class action even when that federal court had earlier denied a similar motion to certify an overlapping class in a closely related case.

Generally, the Anti-Injunction Act bars a federal court from granting injunctions to stay proceedings in state courts except where specifically authorized by Congress, or "where necessary in aid of its jurisdiction, or to protect or effectuate its judgments."  Most of our readers hoped that the Court would agree with the lower courts' ruling that this was just such an exception.

The Smith case involved the issue whether a federal court can enjoin class members from bringing a product liability class suit in a state court after the federal court declined to certify a similar class. Specifically, the Baycol MDL court in Minnesota had denied class certification, and the court of appeals upheld the injunction barring plaintiffs from bringing virtually the same suit in West Virginia state court. The federal court of appeals in fact unanimously affirmed, holding that the injunction was authorized by the All Writs Act and the re-litigation exception to the Anti-Injunction Act, and that petitioners did not have a due process right to re-litigate class certification.

The Supreme Court, unfortunately, reversed, in a decision that may encourage forum shopping.

-The decision encourages "creative" case structuring strategies by the plaintiffs' bar to give themselves a second bite at the apple (or more) in class claims, even after the federal court properly denies certification, and even when the state class law mirrors Federal Rule 23; here, the Court found that an application of West Virginia's Rule 23 did not present the same exact issue as the application of the federal rule version, even though the language of the rules is nearly identical.

-The decision highlights the double-edged sword that is federalism; now, the preclusive effect of a certification denial, if any, will be decided by state courts applying the notions of res judicata rather than by the enjoining court.  This comports with the general notion that the second court looking back decides the impact, not the first court looking forward.  But readers are well aware of the hard-to-fathom preclusion decisions some state courts have fashioned in the class action context.  E.g., the Engle class in Florida. And, as plaintiffs told Justice Ginsburg in oral argument of the case, a state has the right to apply and interpret a rule of civil procedure "as it sees fit to manage its own docket and administrate its own docket as it sees fit."

-As a practical matter, it invites "if at first you don't succeed, try, try again," with plaintiffs seeking to bring similar cases again and again, shopping for a forum or judge that will finally agree to certify something. Plaintiffs will recruit a new named plaintiff, and recreate the risks associated with class certification, even after the defendant has seemingly won that important battle. Justice Alito asked petitioners at oral argument whether after a class certification denial is entered in one federal court, a plaintiff's attorney could simply substitute the name of a new named plaintiff and file the same complaint in another federal court. Plaintiffs answered that an attorney could do that.

-Note that petitioners had not been foreclosed from seeking relief on their individual claims, but only from seeking to represent other people through a class action. Whether a class should be certified had been fully and fairly litigated in proceedings that ought to be binding on petitioners and in which petitioners’ interests were adequately represented by an identically situated named plaintiff -- one whom plaintiff's counsel promised was an adequate representative, was typical, with common claims and no adverse interests. The Court apparently did not consider the possible argument that an absent class member who is adequately represented might be in sufficient privity with the named plaintiff such that he can be precluded from litigating the certification decision a second time.

-Even though in dicta, the Court discouraged the application of preclusion to absent class members.   It may be of little comfort to defendants faced with the costs and risks of serial class claims that, as the Court put it, the "legal system generally relies on principles of stare decisis and comity among courts to mitigate the sometimes substantial costs of similar litigation brought by different plaintiffs."

-The Court agreed that the policy concerns were the defendant's "strongest argument, " and seemingly recognized the mischief it was permitting, because the opinion noted that nothing in this holding forecloses legislation to modify established principles of preclusion should Congress decide that CAFA does not sufficiently prevent re-litigation of class certification motions. Nor does the opinion at all address the permissibility of a change in the Federal Rules of Civil Procedure pertaining to this question.  The Court said the trial court could not call on the "heavy artillery" of an injunction, but perhaps an even mightier weapon is needed.

 


 

Dukes v. Wal-Mart: What It May Mean for Mass Torts

Three new Supreme Court decisions to comment on this week.  Let's take one at a time and start with Dukes v. Wal-Mart, 564 U.S. __ (2011). The U.S. Supreme Court yesterday overturned a lower-court decision that had certified a massive class action against retailer Wal-Mart. The suit was filed by current or former employees of petitioner Wal-Mart, who sought judgment against the company for injunctive and declaratory relief, punitive damages, and backpay, on behalf of themselves and  a class of some 1.5 million female employees.  They claimed that local managers exercised their discretion over pay and promotions disproportionately in favor of men.

The District Court certified the class, finding that respondents satisfied Federal Rule of Civil Procedure 23(b)(2)’s requirement of showing that “the party opposing the class has acted or refused to act on grounds that apply generally to the class, so that final injunctive relief or corresponding declaratory relief is appropriate respecting the class as a whole.”  The Ninth Circuit substantially affirmed,and ruled that the class action could be "manageably" tried without depriving Wal-Mart of its right to present its statutory defenses.

We will leave to our colleagues on the Employment Litigation & Policy  team how this decision impacts employee discrimination claims.  But let's talk about the larger potential significance of the decision for mass tort class actions.

The Court began where we always like to begin in class certification briefing, reminding everyone that a class action is an exception to the usual rule that litigation is conducted by and on behalf of the individual named parties only.  In order to justify a departure from that rule, a class representative must be part of the class and possess the same interest and suffer the same injury as the class members. Rule 23(a) ensures that the named plaintiffs are appropriate  representatives of the class whose claims they wish to litigate. The Rule’s four requirements—numerosity, commonality, typicality, and adequate representation—effectively limit the class claims to those fairly encompassed by the named plaintiff’s claims, when applied correctly.

The crux of this case, said the Court, was commonality—the rule requiring a plaintiff to show that “there are questions of law or fact common to the class.”  But that language, warned the Court, is "easy to misread" as any competently crafted class complaint can raise seemingly common questions. (citing the late mass tort scholar R. Nagareda, Class Certification in the Age of Aggregate Proof, 84 N. Y. U. L. Rev. 97, 131–132 (2009)). Such as the standard ones relating to defendant's alleged conduct.  But simply reciting these questions is not sufficient to obtain class certification. Commonality requires the plaintiff to demonstrate that the class members have suffered the same injury, which in turn does not mean merely that they have all suffered a violation of the same provision of law. The allegedly common contention must be of such a nature that it 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.  So, what matters is not the raising of seemingly common questions, but, rather, the capacity of a class-wide proceeding to generate common answers apt to drive the resolution of the litigation. Thus, the Court came down on the side of the lower courts that have applied the commonality rule with rigor and with common sense, requiring meaningful common questions.  And commonality thus becomes a more potent weapon in your efforts to defeat mass tort class actions.

Second, the Court re-emphasized that a party seeking class certification must affirmatively demonstrate his compliance with the Rule.  Sometimes it may be necessary for the trial court to probe behind the pleadings before coming to rest on the certification question. Certification is proper only if the trial court is satisfied, after a rigorous analysis, that the prerequisites of Rule 23(a) have been satisfied.  And frequently that “rigorous analysis” will entail some overlap with the merits of the plaintiff’s underlying claim. "That cannot be helped." The class determination generally involves considerations that are enmeshed in the factual and legal issues comprising the plaintiff’s cause of action.  Not completely new, but an important reminder.

Third, the Court noted that the parties disputed whether plaintiffs' expert's testimony met the standards for the admission of expert testimony under Federal Rule of Evidence 702 and Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U. S. 579 (1993). The District Court concluded that Daubert did not apply to expert testimony at the certification stage of class action proceedings. Although dicta, the Court went out of its way to note, " We doubt that is so."  A signal to the lower courts who somehow think junk science is acceptable at the class certification hearing, and a green light to those that apply Daubert.

Fourth, the Court also concluded that respondents’ claims for backpay were improperly certified under Federal Rule of Civil Procedure 23(b)(2), holding that such claims cannot be, at least where (as here) the monetary relief is not incidental to the injunctive or declaratory relief.  One possible reading of this provision is that it applies only to requests for injunctive or declaratory relief and does not authorize the class certification of monetary claims at all. The Court did not have to reach that question because, at a minimum, claims for individualized relief (like the backpay at issue here) do not satisfy this Rule. The key to the (b)(2) class is “the indivisible nature of the injunctive or declaratory remedy warranted—the notion that the conduct is such that it can be enjoined or declared unlawful only as to all of the class members or as to none of them.”  Thus, Rule 23(b)(2) applies only when a single injunction or declaratory judgment would provide relief to each member of the class. It does not authorize class certification when each individual class member would be entitled to a different injunction or declaratory judgment against the defendant. Similarly, it does not authorize class certification when each class member would be entitled to an individualized award of monetary damages. The Court said it was "clear that individualized monetary claims belong in Rule 23(b)(3)."  While not deciding in this case whether there are any forms of truly  “incidental” monetary relief that are consistent with this interpretation of Rule 23(b)(2) and that comply with the Due Process Clause, the Court's ruling may impact mass torts such as medical monitoring claims in which the plaintiffs try to avoid the predominance test of Rule 23(b)(3) by seeking a so-called court administered fund to pay for medical monitoring for the class rather than individual medical monitoring damages.  When the "program" sought is in essence an injunction ordering defendant to pay for each class member's individual medical screening tests, (b)(2) should not be available.

Fifth, the Court noted that the 9th Circuit had found the trial of the proposed class action to be manageable and in accord with due process by ignoring the traditional procedures and proceeding "with Trial by Formula."  In other words, a sample of the class members would be selected, as to whom liability for sex discrimination and the backpay owing as a result would be determined in depositions supervised by a special master. The percentage of claims determined to be valid would then be applied to the entire remaining class, and the number of (presumptively) valid claims thus derived would be multiplied by the average backpay award in the sample set to arrive at the entire class recovery—without further individualized proceedings. This extrapolation methodology has been proposed by many mass tort plaintiffs (including in asbestos) as a means to make the class trial "manageable."  The Supreme Court was clear: "We disapprove that novel project." Because the Rules Enabling Act forbids interpreting Rule 23 to abridge,enlarge or modify any substantive right, a class cannot be certified on the premise that the defendant will not be entitled to litigate its defenses to individual claims.  The same issue applies to the trial plans proposed by many mass tort plaintiffs, which try to use the class rule to prevent defendants from ever having an opportunity to litigate individual defenses as to individual class members. 

Lots to think about.

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.

 

Class Certification Denied in YAZ MDL

The federal judge managing the multidistrict litigation over the birth control pill Yaz last week declined to certify a proposed national class of users allegedly harmed by the contraceptive, and struck the class action allegations from the complaint.  In re: Yasmin and Yaz (Drospirenone) Marketing, Sales Practices and Products Liability Litigation, No. 3:09-md-02100 (S.D. Ill.).

In the opinion, Judge Herndon noted that named plaintiff Plaisance was a 44-year-old citizen of the State of Louisiana who was prescribed YAZ in May of 2006 by her physician. During the summer of 2006, plaintiff was hospitalized due to a deep vein thrombosis (“DVT”) in her left leg.  She alleged that the DVT, as well as other adverse effects, were caused by her ingestion of YAZ.  Plaintiff sought class certification of a nationwide class of YAZ purchasers who contracted DVT, but in the alternative proposed separate state-wide classes.

Plaintiff asserted claims for negligence, strict product liability, breach of express warranty, breach of implied warranty, fraudulent misrepresentation, fraudulent concealment, negligent misrepresentation, medical monitoring, and fraud and deceit.

Plaintiff maintained that the putative nationwide and state wide classes met the requirements of Rule 23(a) and 23(b)(3). In addition, plaintiff contended that the unitary application of the law of Louisiana was appropriate and somehow resolved issues related to the application of the substantive laws of multiple jurisdictions.

Here, the Court’s analysis began and ended with Rule 23(b)(3); it was "evident" to the court that individual questions of law and fact predominated, and therefore the case was not manageable as a nationwide or statewide class action.  Rule 23(b)(3)’s predominance and manageability  requirements also precluded any proposed “issue” certification under Rule 23(c)(4).

To satisfy the requirements of Rule 23(b)(3), a plaintiff must show that common questions of factor law predominate over individual questions and that class treatment is superior to other available methods of adjudication.Fed. R. Civ. P. 23(b)(3). Assessing the predominance factor requires consideration of the substantive elements of a plaintiff’s claims and the proof necessary to establish those elements. See Szabo v. Bridgeport Machines, Inc., 249 F.3d 672, 673-74, 677-78 (7th Cir. 2001); In re Bridgestone/Firestone, Inc., 288 F.3d 1012, 1015-19 (7th Cir. 2002). In addition, a court must consider issues pertaining to manageability and choice of law.

On that last point, this action was transferred from the United States District Court for the Eastern District of Louisiana. Therefore, Louisiana choice of law rules governed the complaint. See Chang v. Baxter Healthcare Corp., 599 F.3d 728, 732 (7th Cir. 2010). Under Louisiana’s codified choice of law rules, the substantive law of each plaintiff’s home state would govern the merits of the case. Accordingly, the laws of all fifty states plus the District of Columbia would be applicable to the putative nationwide class members’ claims. Amongst the states, there are differences in the law of product liability as well as in the applicable theories of recovery and their subsidiary concepts. These differences, said the court, "are not insignificant." See e.g., Rhone-Poulenc Rorer Inc., 51 F.3d 1293, 1300-1301 (7th Cir. 1995). Indeed, “such differences have led [the Seventh Circuit] to hold that other warranty, fraud, or products-liability suits may not proceed as nationwide classes”). In re Bridgestone/Firestone, Inc., 288 F.3d at 1015.See also Isaacs v. Sprint Corp., 261 F.3d 679 (7th Cir.2001); Szabo v. Bridgeport Machines, Inc., 249 F.3d 672 (7th Cir.2001); In re Rhone-Poulenc Rorer Inc., 51 F.3d 1293 (7th Cir.1995).  In the class action context differences in state law cannot be swept away by electing to apply the law of a single state to all class members’ claims. See Id. at 1017-1020. Although the unitary application of a single state’s law might promote  efficiency, it would also constitute an unacceptable violation of principles of federalism.   Differences across states may be costly for courts and litigants alike, but they are a fundamental aspect of our federal republic and must not be overridden in a quest to clear the queue in court.

The court went on to correctly note that mass product liability suits are rarely sustainable as class actions. Establishing the requisite elements of product liability claims sounding in strict liability, negligence, warranty, and/or fraud generally requires fact intensive inquiries unique to each plaintiff(such as questions related to causation, injury, affirmative defenses, and damages). In the instant case, almost every element of the asserted claims would have required highly individualized factual inquiries unique not only to each class member but also to each class member’s  prescribing physician. For example, establishing causation would require (1) an examination
of each class member’s medical history, including pre-existing conditions and use of other medications; (2) an evaluation of potential alternate causes for the alleged injury; and (3) an assessment of individualized issues pertaining to each class member’s prescriber, including how the doctor balances the risks and benefits of the medicine for that particular patient, the particular doctor’s prescribing practices, the doctor’s knowledge about the subject drug, and the doctor’s sources of information with regard to the subject drug. Establishing elements of the fraud and warranty claims would also turn on facts unique to each plaintiff, particularly with regard to questions of materiality and reliance.

On the (c)(4) issue, the court recognized that Seventh Circuit jurisprudence indicates that Rule 23(b)(3)’s requirements of predominance and manageability are applicable to “issue” certification under Rule 23(c)(4).  There is disagreement amongst district courts with regard to whether, under Rule 23(c)(4), the predominance evaluation is a limited inquiry, focusing only on the individual issue for which class treatment is sought, or requires consideration of the cause of action as a whole. See e.g., In re Fedex Ground Package System, Inc., Employment Practices Litigation, 2010 WL 1652863, *1-2 (N.D. Ind. Apr. 21, 2010); In re General Motors Corp. Dex-Cool Prods., 241 F.R.D. 305, 313-314 (S.D.Ill.2007).  The Fifth Circuit Court of Appeals in particular has been critical of district courts that fail to consider the case as a whole when evaluating predominance under Rule 23(c)(4). See Castano v. Am. Tobacco Co., 84 F.3d 734, 745 n. 21 (5th Cir. 1996). 

Here, the court felt no need to choose a side, because In the instant case, the putative common issues, including matters such as whether the subject drugs were defective or whether these defendants failed to give adequate warnings,  were enmeshed with the same individual issues of law and fact as affected certification of the putative class as a whole. The allegedly common issues had subsidiary concepts (such as causation, duty of care, and reliance) which would present questions that can only be answered by considering facts that are unique to each putative class member and her prescribing physician.

In addition, many – if not all – of the proposed common issues could not be certified without triggering the Seventh Amendment concerns discussed in Rhone-Poulenc Rorer. See Rhone-Poulenc Rorer, 51 F.3d at 1303. A trial court must divide issues between separate trials in such a way that the same issue is reexamined by different juries. Here, multiple juries in follow-up trials would have to examine such issues as comparative negligence and proximate cause after a first jury examined the alleged negligence.

Court of Appeals Vacates Class Certification in Toxic Tort Case

The Fifth Circuit has vacated the decision of the trial court in granting class status to a group of plaintiffs alleging that a refinery exposed them to toxic dust. Madison v. Chalmette Refining LLC, No. 10-30368 (5th Cir. 4/4/11).

Back in 2007, a number of schoolchildren, chaperoned by parents and teachers, participated in a historical reenactment at the Chalmette National Battlefield, the site of the January 8, 1815, Battle of New Orleans, the last great battle of the War of 1812 and “the site along the Mississippi River where Andrew Jackson gave the British their comeuppance.” D. BRINKLEY, The Wilderness Warrior: Theodore Roosevelt and the Crusade for America,p. 414 (2009). Adjacent to the battlefield is the Chalmette Refinery, which allegedly released an amount of petroleum coke dust that migrated over the battlefield. Plaintiffs sued on behalf of a class of all persons or entities located at the Chalmette National Battlefield in St. Bernard Parish, Louisiana, in the early afternoon of Friday, January 12, 2007 and who sustained property damage, personal injuries, emotional, mental, or economic damages and/or inconvenience or evacuation as a result of the incident.

The District Court granted the motion to certify, and defendants appealed. The court of appeals reviews the district court's decision to certify a class for an abuse of discretion. See, e.g., McManus v. Fleetwood Enters., Inc., 320 F.3d 545, 548 (5th Cir. 2003). The decision to certify is within the discretion of the trial court, but that discretion must be exercised within the framework of Rule 23. Castano v. Am. Tobacco Co., 84 F.3d 734, 740 (5th Cir. 1996).  The Supreme Court requires district courts to conduct a rigorous analysis of Rule 23 prerequisites.

The crux of this appeal was the legal basis for and sufficiency of evidence supporting the district court’s findings of superiority and predominance under Rule 23(b)(3). Before certifying a class under Rule 23(b)(3), a court must determine that questions of law or fact common to the members of the class 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. Determining whether the plaintiffs can clear the predominance hurdle set by Rule 23(b)(3) requires district courts to consider how a trial on the merits would be conducted if a class were certified.

Chalmette Refining cited the advisory committee note to Rule 23(b)(3), which has been quoted numerous times by the Fifth Circuit as highlighting the “relationship between predominance and superiority in mass torts.” See Castano v. American Tobacco Co., 84 F.3d 734, 745 n.19 (5th Cir. 1996). According to the note, a  “mass accident” resulting in injuries to numerous persons is ordinarily not appropriate for a class action because of the likelihood that significant questions, not only of damages but of liability and defenses to liability, would be present, affecting the individuals in different ways. In these circumstances an action conducted nominally as a class action would degenerate in practice into multiple lawsuits separately tried.

Here, the district court abused its discretion by failing to afford its predominance determination the “rigorous analysis” that Rule 23 requires. In particular, the district court did not meaningfully consider how plaintiffs’ claims would be tried.  Plaintiffs cited, and the trial court relied on, two cases that are among the very few certifying a tort injury class action. In Watson v. Shell Oil, the court certified a class of over 18,000 plaintiffs seeking damages stemming from an explosion at a Shell plant. 979 F.2d 1014, 1016 (5th Cir. 1992). Notably the court of appeals now clarified that "whether Watson has survived later developments in class action law–embodied in Amchem and its progeny–is an open question."  But even in Watson, the district court had a detailed four-phase plan for trial. Similarly, in Turner v. Murphy Oil USA, Inc., the district court granted class certification to a class of plaintiffs who suffered damages resulting from a post-Hurricane Katrina oil storage tank spill. 234 F.R.D. 597, 601 (E.D. La. 2006). Critical to the court’s predominance inquiry was the fact that plaintiffs had submitted a detailed proposed trial plan to the court, calling for bifurcation of certain issues.

In contrast, here there was no analysis or discussion regarding how the court would administer the trial.  Robinson v. Tex. Auto. Dealers Ass’n, 387 F.3d 416, 425–26 (5th Cir. 2004). The court failed to identify the substantive issues that would control the outcome, assess which issues will predominate, and then determine whether the issues are common to the class. Absent this analysis, it was impossible for the court to know whether the common issues would be a significant portion of the individual trials, much less whether the common issues predominate.  Instead, the trial court appears to have "adopted a figure-it-out-as-we-go-along approach." 

Even among the named class representatives, significant disparities existed, in terms of exposure, location, and whether mitigative steps were taken. The primary issues left to be resolved would turn on location, exposure, dose, susceptibility to illness, nature of symptoms, type and cost of medical treatment, and subsequent impact of illnesses on individuals.

 


 

Bills to Curb Frivolous Suits Introduced in Congress

With the Republicans in control of the House, many were wondering about the prospects for tort reform at the federal level.  Indeed, President Barack Obama observed in his State of the Union address on January 25, 2011, “I am willing to look at . . . ideas to bring down costs including reform to rein in frivolous lawsuits.” 

House Judiciary Committee Chairman Lamar Smith (R-Texas) earlier this month introduced legislation to reduce frivolous lawsuits. Senate Judiciary Committee Ranking Member Chuck Grassley (R-Iowa) then introduced a companion bill in the Senate (S.533).

The Lawsuit Abuse Reduction Act (LARA), H.R. 966, would impose mandatory sanctions for plaintiff lawyers who file merit-less suits in federal court. 

Chairman Smith argued that lawsuit abuse has become too common in American society partly because the lawyers who bring these cases have everything to gain and nothing to lose. Plaintiffs' lawyers can file frivolous suits, no matter how absurd the claims, without any penalty. Meanwhile defendants are faced with the choice of years of litigation, high court costs and attorneys' fees or a settlement. Our legal system encourages frivolous lawsuits while defendants are left paying the price even when they are innocent. Many of these cases have cost innocent people and business owners their reputations and hundreds of thousands of dollars.

Ranking Member Grassley noted that without the serious threat of punishment for filing frivolous lawsuits, innocent individuals and companies will continue to face the harsh economic reality that simply paying off frivolous claimants through monetary settlements is often cheaper than litigating the case. "This perverse dynamic not only results in legalized extortion, it leads to businesses spending money to defend against baseless lawsuits rather than to create new jobs."

The Lawsuit Abuse Reduction Act would take three steps to help thwart frivolous lawsuits.

* Reinstates the requirement that if there is a violation of Rule 11, there will be sanctions.

* Requires that judges impose monetary sanctions against lawyers who file frivolous lawsuits.

* Reverses the 1993 amendments to Rule 11 that allow parties and their attorneys to avoid sanctions for making frivolous claims by withdrawing them within 21 days after a motion for sanctions has been served.

The House Judiciary Committee has already held a hearing on the House version, at which witnesses included Elizabeth A. Milito of the NFIB Small Business Legal Center, Professor Lonny Hoffman of the University of Houston Law Center, and Victor E. Schwartz, well known tort reform advocate.


 

Supreme Court Hears Oral Argument in Class Action Preclusion Case

This week, we are going to explore some of the more interesting cases pending before the Supreme Court. In Smith v. Bayer Corp., No. 09-1205 (U.S., oral argument 1/18/11), the Court took up a case involving the preclusive impact of a decision denying class certification. We recently posted on a case involving the significant problem of plaintiffs hopping from court to court, state to state, shopping for a court that will certify their class after it has already been denied.

The Smith case involves the issue whether a federal court can enjoin class members from bringing a product liability class suit in state court after the federal court declined to certify a similar class.  Specifically, the Baycol MDL court in Minnesota had denied class certification, and the court of appeals upheld the injunction barring plaintiffs from bringing the same suit in state court. The court of appeals in fact unanimously affirmed, holding that the injunction was authorized by the All Writs Act and the re-litigation exception to the Anti-Injunction Act, and that petitioners did not have a due-process right to re-litigate class certification.

Plaintiffs have argued that they should not be enjoined, nor barred under the doctrine of collateral estoppel, because the state's (West Virginia's) rule for class certification is not identical to the federal rule:  while a putative class may not meet one test, it may meet the other. As plaintiffs told Justice Ginsburg, a state has the right to apply and interpret that rule of civil procedure "as it sees fit to manage its own docket and administrate its own docket as it sees fit."

The defendants argue that class members were adequately represented in the first class action, and whatever the technical differences may be, the heart of the West Virginia rule is substantively identical to the federal rule. Petitioners have not been foreclosed from seeking relief on their individual claims, but only from seeking to represent other people through a class action. Whether a class should be certified has been fully and fairly litigated in proceedings that are binding on petitioners and in which petitioners’ interests were adequately represented by an identically situated named plaintiff.  The plaintiffs' position is that class certification is a “heads-I-win, tails-you-lose” proposition. Under this theory, every unnamed plaintiff could re-litigate class certification, no matter how large the putative class, no matter how many times certification had already been denied, and no matter how adequately the class members’ interests were represented in the prior proceedings.

Part of the issue facing the Court is the application of preclusion to a non-party (as the class was not certified, absent class members were not "parties" for some purposes), and this was explored at oral argument. In response to questioning from the Court, plaintiffs argued that the re-litigation exception to the Anti-Injunction Act did not apply here. Because the plaintiffs are not the same "parties" that litigated the federal class action, and because the same issues were not litigated in the prior case -- that is, West Virginia's own class certification rule vs. Federal Rule 23.  Counsel argued that the state court has said "we do not want our legal analysis to be nothing more than a mere Pavlovian response to Federal decisional rules."

A number of Justices wondered what were the supposed differences, and part of the response to Justice Sotomayor was that the federal "court's not only trying to bind us on the procedural ruling, but is also trying to bind us in a substantive ruling as to what the elements of the claims in West Virginia are and as to what's needed to prove those claims." The state court was free to disagree with that federal ruling, counsel argued. In response to Justice Kagan, Bayer noted that the predominance requirement under the West Virginia version of Rule 23 is essentially identical to the Federal version, and there is no evidence of any content that's different from the Federal version on this point. But Justice Ginsburg pressed defendant on the issue that "sometimes Federal judges, they try their best, they're not the last word on what the State law is."

Several Justices raised the issue of forum shopping in their questions for petitioners' counsel. Justice Alito asked petitioners, whether after a class certification denial is entered in one federal court, a plaintiff's attorney could simply substitute the name of a new named plaintiff and file the same complaint in another federal court. Plaintiffs agreed that an attorney could do that.

Justice Alito asked about some of the possible implications of the plaintiffs' argument. If part of the issue is notice, would that compel federal courts to engage in a lengthy and expensive class notice period even in cases in which the class is denied? Plaintiff responded that notice would be required to bind the absent class members. Bayer argued in response to similar questions from Justice Sotomayor that the preclusion test focuses on whether the parties' interests are aligned, and the class members' interests were identical,  the first named plaintiffs understood that they was acting in a representative capacity, and the federal court took normal steps to protect the interests of non-parties, i.e., absent class members.  All that was met here. But Justice Scalia asked whether the counsel had ever been found adequate since the class was denied certification on other grounds.

Justice Kagan asked about CAFA, and Congressional intent to prevent forum shopping with classes and keep state courts from too freely certifying these kinds of class actions, which plaintiff had to concede.

Plaintiff had a hard time with the Court's questions about due process and how it affects procedural rights as opposed to substantive or property rights, particularly, as Justice Sotomayor asked, where the Federal litigation has applied essentially the same standard that the State has, and there has been adequate representation on the procedural question, and where no substantive right of a plaintiff has been extinguished. Chief Justice Roberts similarly asked about line-drawing, with a hypo about the second court limiting discovery because of what happened in the first court: "So now it's not only that you're entitled to your day in court substantively; you're entitled to your day in court procedurally as to some procedural aspects but not others?"

Justice Ginsburg asked counsel for Bayer whether there was a difference between preclusion being applied by the state court and the federal court issuing the injunction based on preclusion, calling the latter a "heavy gun.”  Meaning we're "not going to trust the West Virginia court to apply issue preclusion. We're going to stop that court from proceeding altogether."  Bayer replied that the injunction was very important because trial courts in West Virginia need not follow other trial courts, and there is no intermediate appeals court.  Thus plaintiff could go from county to county until they found a court that refused to apply preclusion.  

 

Consolidated Benlate Trials Improper

A Florida appeals court recently reaffirmed its prior ruling granting new trials and reversing approximately $20 million in verdicts against defendant DuPont.  See Agrofollajes, S.A., et al., v. E.I. Du Pont De Nemours & Company, Inc., 2010 WL 4870149  (3d DCA, 12/1/10). The court had issued a prior opinion in December, 2009, but it then granted the farmers' motion for a rehearing.

This action involved the mass, consolidated tort cases commenced by twenty-seven Costa Rican growers of leatherleaf ferns against Du Pont, alleging product liability claims for injuries allegedly caused by Benlate, a systemic fungicide that Du Pont manufactured and marketed. Leatherleaf fern is an ornamental crop, a brightly colored and symmetrically shaped fern that florists use to enhance cut flower arrangements. The plaintiffs are commercial growers of leatherleaf fern in Costa Rica who grow the ferns for a worldwide market, providing ferns mostly for Europe and Japan. The complaints alleged that the plaintiffs’ leatherleaf fern plants were damaged by Du Pont
because: (1) the Benlate was cross-contaminated with other chemicals that were manufactured at the same facility, and (2) Benlate DF broke down into DBU, a herbicide-like agent called dibutylurea (DBU), which was toxic and caused the plant damage.

The plaintiffs sought a consolidated trial, representing to the trial court that consolidation would be more efficient because there were "many common issues" between the claims.  Conversely, Du Pont alleged substantial differences in the plaintiffs’ Benlate use, farm management, growing conditions, growing practices, chemical uses, periods in which deformities materialized, plant disease problems experienced, and damage claims. DuPont also proffered different alternative causes for the plant damages at the various ferneries. DuPont proposed that the court schedule either one fernery or one group of ferneries, under common management, as individual
plaintiffs in separate trials. The trial court nevertheless ordered a single, consolidated trial of
the claims by all twenty-seven plaintiffs.  At trial, however, the plaintiffs’ opening statement re-characterized the "common issues." The plaintiffs acknowledged instead that there was only one
material issue that was common to all the plaintiffs, the use of Benlate.  The evidence presented at trial substantiated the many differences that existed among the individual plaintiffs, including use of Benlate, use of other chemicals, and regarding the ferneries.

After an eight-week trial during which the parties introduced considerable evidence that alleged disparate material facts among the twenty-seven individual plaintiffs, the jury deliberated for five days. The jury found against DuPont on negligence and awarded each of the twenty-seven consolidated plaintiffs identical awards. The jury awarded every plaintiff the same percentage, sixty percent, of the past damages claimed.

On appeal, DuPont argued that the trial court denied defendant a fair trial by improperly consolidating plaintiffs’ twenty-seven disparate claims.  In deciding whether to consolidate cases, a Florida  trial court must consider: (1) whether the trial process will be accelerated due to the consolidation; (2) whether unnecessary costs and delays can be avoided by consolidation; (3) whether there is the possibility for inconsistent verdicts; (4) whether consolidation would
eliminate duplicative trials that involve substantially the same core of operative facts and questions of law; and (5) whether consolidation would deprive a party of a substantive right.  The court said that Florida courts have noted that Florida Rule of Civil Procedure 1.270(a) essentially “duplicates” Federal Rule 42(a).

The issues were with items four and five. The record demonstrated that the common issues did not predominate at trial. As plaintiffs’ counsel's candid opening statement remark confirmed, other than Benlate, the plaintiffs “don’t have anything else in common.”  Illustrative of the disparate experiences: fourteen ferneries claimed that the damage appeared immediately while others claimed that the symptoms did not appear for years. The plaintiffs’ ferneries were located in different areas of Costa Rica and were situated at different elevations, resulting in different climates and growing environments for the plants. The ferneries also experienced distinctive problems controlling pests and fungus and were subject to unique issues regarding hurricane damage, flooding, poor sunlight, over-harvesting and inadequate drainage.

DuPont further claimed that consolidation was not proper because it was deprived of a substantive right, as consolidation of the twenty-seven claims resulted in unfair prejudice to it. Unfair prejudice as a result of consolidation is a broadly recognized principle. The Florida Supreme Court in State v. Williams, 453 So. 2d 824, 825 (Fla. 1984), held that “even if consolidation is the ‘most
practical and efficient method of processing’ a case, practicality and efficiency should not outweigh a defendant's right to a fair trial.”  Here, the jurors were asked to recall a vast assortment of unique facts for each of the twenty-seven plaintiffs. The particulars included each fernery’s previous growing history, when the various symptoms manifested, what injuries Benlate allegedly caused, and what damage could be attributed to other causes, as well as numerous other factors that uniquely impacted fern production at each individual fernery. This almost guaranteed juror confusion.  The common awards by the jury, in conjunction with the vast amount of disparate evidence presented at trial, demonstrate that the consolidation of the twenty-seven claims resulted in a hopelessly confused jury.

Importantly, the court also saw that by consolidating the claims, the plaintiffs introduced evidence to the jury that would not have been admissible had the cases been tried separately.  For example, in considering evidence on claims by plaintiffs who did not use Benlate after 1991, the jury was allowed to hear evidence of DuPont’s subsequent remedial measures, even though the measures were inadmissible as to those plaintiffs.

The court of appeals reversed the trial court’s final money judgments and amended final
money judgments rendered upon disposition of the parties’ post-trial motions and
remanded the cases to the trial court for new individual trials and for further proceedings
consistent with the opinion. The trial court was left free to choose to schedule either one fernery or one group of ferneries, under common management, as individual plaintiffs in separate trials.

DRI Webinar on FRE 502 Worth a Listen

Readers recognize how the discovery landscape has changed, and not necessarily for the better, with the amendments to the Federal Rules of Civil Procedure regarding electronic discovery. We are also coming up on the two-year anniversary of Federal Rule of Evidence 502, intended to address concerns about the disclosure of information protected by the attorney-client privilege or work product doctrine, including inadvertent disclosures.

An interesting upcoming DRI webcast in June will discuss how Rule 502 has impacted discovery strategy, document review, and document disclosures, with a focus on the production of documents in the electronic age. The speakers will also discuss how courts have addressed the new rule, how those cases impact your mass tort and complex litigation practice, and how to advise your clients on these issues.

Check out the brochure.

Rule 15 Amendments May Impact Removal Prospects

Readers of MassTortDefense know how important the choice of forum can be for significant product liability and mass tort matters.  The differences between federal and state court -- perhaps right down the street from each other -- can be huge, with differing juror pools, differing procedural rules, differing views on class actions, different methods of selecting the judiciary, etc.

Thus, it is worth making sure a subtle amendment to Rule 15 of the Federal Rules of Civil Procedure, which took effect Dec. 1, 2009, does not miss your attention, because of the potential impact it has on removal to federal court.

Prior to the amendments to Rule 15 — which governs amended and supplemental pleadings —  a plaintiff could amend the complaint once as a matter of course before any responsive pleading was filed.  Responsive pleading came to mean the defendant’s answer, and not a motion to dismiss.  E.g., Foster v. DeLuca, 545 F.3d 582 (7th Cir. 2008).  Thus, a defendant could eliminate the plaintiff’s right to amend as a matter of course by serving an answer.  That is, under the old version of Rule 15, a defendant could prevent amendments designed to eliminate the basis for removal by serving an answer just prior to or along with the filing of the notice of removal. When a plaintiff wanted to amend after the defendant had removed and answered, the plaintiff had to obtain consent or leave of court. So what about the removal, then? Any proposed amendment to the complaint affecting the court’s jurisdiction would trigger a heightened scrutiny of the amendment.  E.g., Hensgens v. Deere & Co., 833 F.2d 1179 (5th Cir. 1987). Defendants could argue that the  proposed amendment should be rejected on this basis. 

The new Rule 15 permits a plaintiff to amend “as a matter of course” even after the defendant has served “a responsive pleading.”  A party may file an amended pleading without leave of court within 21 days after service of a responsive pleading or 21 days after service of a Rule 12 motion, whichever is earlier. After that, a party may file an amended pleading only with leave of court. 

That raises the issue for your consideration whether the new ability of the plaintiff to amend “as a matter of course,” even after the defendant has served an answer, permits the plaintiff to make one of those jurisdiction-destroying amendments.  One possibility is that courts will look at "matter of course" amendments under the new rule the same way they were analyzed by many courts under the old rule.  That is, courts were guided by 28 U.S.C. § 1447(e), which states that if after removal the plaintiff seeks to join additional defendants whose joinder would destroy subject matter jurisdiction, the court may deny joinder, or permit joinder and remand the action to the state court. Schur v. L.A. Weight Loss Centers, Inc., 577 F.3d 752, 759 (7th Cir. 2009); Whitworth v. TNT Bestway Transp. Inc., 914 F.Supp. 1434 (E.D.Tex.,1996).  Courts, in the motion for leave context and sometimes in the "as of course" context as well, to decide between those two choices, would scrutinize the amendments closely, and due consideration is given to the original defendant’s interest in the choice of forum. Courts examine whether the purpose of the amendment is to defeat federal jurisdiction; how timely/prompt the plaintiff has been in seeking the amendment; whether the plaintiff will be prejudiced if amendment is not allowed; and any other equities. Bailey v. Bayer CropScience L.P., 563 F.3d 302 (8th Cir. 2009).

If this heightened scrutiny is applied to "matter of course" amendments made under the new version of Rule 15, removals may be in less jeopardy when when a plaintiff attempts to amend the complaint post-removal, post-answer  “as a matter of course.”

How Much Did They Pay? I Need to Know

Many mass torts involve multiple defendants, and many of our readers have been in the position of hearing that co-defendants had settled out of the case.  It is natural to wonder, and could be quite useful to know, what co-defendants paid to settle their part of the case.  Typically, the agreements are subject to confidentiality agreements, and the protections of Fed. R. Evid. 408, which recognizes the strong public policy promoting settlement. See Block Drug Co. v. Sedona Labs., Inc., 2007 WL 1183828, at *1 (D.Del. Apr.19, 2007); Fidelity Fed. Sav. & Loan Assn. v. Felicetti, 148 F.R.D. 532, 534 (E.D.Pa.1993).

A recent federal case tested these boundaries.  Dent v. Westinghouse, et al., 2010 WL 56054 (E.D.Pa. Jan. 4, 2010).  Warren Pumps, a defendant in multi-party asbestos litigation, filed a motion to compel the plaintiff to respond to certain interrogatories and requests for production of documents regarding the settlement of any claim asserted in the complaint. Plaintiff objected.  The thrust of Warren Pumps' argument was that the discovery about each additional asbestos-containing product which plaintiff claims caused his mesothelioma made it that much less likely that his mesothelioma was caused by exposure to any Warren Pump product.  And it allegedly made plaintiff's assertions to the contrary less and less credible.

Warren Pumps pointed out that on its face Rule 408 pertains to the admissibility of evidence, and argued it was inapplicable to a discovery dispute. (citing DirecTV, Inc. v. Puccinelli, 224 F.R.D. 677, 685 (D.Kan.2004)).  Although Rule 408 speaks in terms of admissibility, several courts have concluded that a heightened showing is required for even the discovery of settlement information. That is, they have required a more particularized showing that the evidence of settlement sought is relevant and calculated to lead to the discovery of admissible evidence. Block Drug, 2007 WL 1183828, at *1; Lesal Interiors, Inc. v. Resolution Trust Corp., 153 F.R.D. 561, 562 (D.N.J.1994)). 

Warren Pumps also argued that it was not seeking the information for any purpose prohibited by the rule.  Rule 408 bars the use of settlement information “to prove liability for, invalidity of, or amount of a claim....” F.R.E. 408(a). Among other purposes, Rule 408 specifically permits settlement evidence to show a witness's bias or prejudice. F.R.E. 408(b).  The defendant contended that it was merely seeking the settlement information to test the credibility of plaintiff's claims.

The court found this was merely "repackaging" the motives forbidden by Rule 408 by placing them under the guise of credibility.  To the extent the defendant was seeking the information to determine whether the dismissed co-defendants were dismissed for lack of evidence, Warren Pumps wanted to impugn the credibility of plaintiff's claims against Warren Pumps by virtue of his apparently merit-less claims against the dismissed co-defendants. Thus, Warren Pumps sought the information to prove the invalidity of the claims against it, a use which Rule 408 prohibits, said the court.  To the extent defendant sought the settlement information, and the amounts of those settlements, it was trying to show that if plaintiff had settled with a co-defendant more or less equivalent in culpability to Warren for a certain sum of money, and thus established the value of his damages with regard to that co-defendant, it would not be credible for plaintiff to seek a higher sum from Warren.   But, said the court, this would be using the settlement information to establish the amount of plaintiff's claim against Warren Pumps. Again, this is forbidden by Rule 408.

Bottom line, the discovery was denied because while disclosure of the settlement agreements would reveal the amount of money plaintiff received from other asbestos manufacturers, the settlement amounts could not then be used to prove the extent of plaintiff's exposure to, or damages from, asbestos from another manufacturer's product.

Supreme Court Hears Oral Argument In Class Action Restriction Case

The Supreme Court heard oral argument earlier this week in Shady Grove Orthopedic Assocs. v. Allstate Ins. Co. (No. 08-1008), a case which considers whether a state law (here, New York's) prohibiting class actions for certain statutory damages claims can preclude class certification in a federal court diversity action. (The Second Circuit's decision is at 549 F.3d 137 (2d Cir. 2008).)

The case takes your humble blogger back to Civil Procedure class in law school and Prof. Steve Burbank who was, and is, a leading authority on the Rules Enabling Act, because the case potentially implicates the Act's command that the Federal Rules of Civil Procedure "shall not abridge, enlarge or modify any substantive right."  28 U.S.C. 2072(b). But for readers of MassTortDefense, the import is the ability of state legislatures to restrict the availability of class actions in federal court.

Plaintiff brought a case pursuant to a New York insurance law that provides for interest penalties on claims that are paid late. However, New York Civil Practice Law and Rules §901(b), prohibits plaintiffs from recovering state statutory penalties in class actions unless class proceedings are authorized in the statute (which they were not). The District Court found Section 901(b) applied, which meant the case could not proceed as a class action in federal court.

Civil procedure mavens will note that the case depends in part on whether the state law at issue is substantive or procedural. Plaintiff, Shady Grove, argued that the law is procedural and thus cannot displace the federal rules; class action Rule 23 would trump any contrary procedural state statute or rule. Shady Grove argued that Section 901(b) does not create a substantive right not to face a class action, but rather provides a mere procedural entitlement not to be subject to a class action seeking certain forms of relief in the New York state courts. Justice Ginsburg, at oral argument, however, wondered why the ban was not akin to a restriction on remedies, such as a ceiling on the amount of damages that could be recovered under  state law (and was thus substantive).

Allstate took the view that the statute is substantive, that while Rule 23 sets forth the criteria governing class action certification in federal court, it does not address the initial question of whether a claim is eligible for class certification. Applying Rule 23 would overrule substantive policy decisions that certain claims are categorically ineligible for class certification, and that would venture beyond the bounds of the Rules Enabling Act. Their defense brief included a list of various federal and state laws that represent substantive policy choices curbing class action remedies or ruling out class action claims in specific contexts. At argument, Shady Grove conceded that at least some of them would be invalid under plaintiff's theory.

Allstate also raised the specter of forum shopping: plaintiffs would be drawn to federal court, thwarting a state's efforts to limit liability for those claims. The Second Circuit agreed that the New York law barred the plaintiff from bringing its claim against Allstate as a class action under Federal Rule of Civil Procedure 23.  And at oral argument, Allstate asserted that New York State made the substantive policy decision that class actions seeking monetary penalties for misconduct defined by this state law would unduly magnify those penalties, and thus barred lawsuits combining such claims, forcing plaintiffs to sue for them one at a time. Justice Sotomayer seemed skeptical, wondering if under Allstate's theory, states could pass a law stating that no cause of action under state law can be brought as a class action, ever.

The Partnership for New York City Inc. joined with the U.S. Chamber of Commerce and some other  groups to support Allstate, while Public Justice, a Washington-based liberal pro-plaintiff interest law firm, filed an amicus brief in support of Shady Grove. The plaintiff amicus argued that the controlling doctrine is not Erie, but the decision in Hanna v. Plumer, which, they argued, requires that a valid federal procedural rule must be applied by a federal court in a case involving citizens of different states regardless of contrary state law.

For readers of MassTortDefense, who recognize the overwhelming trend in federal courts not to certify personal injury product liability class actions, there is the countervailing concern that states could choose to expand the availability of class actions, and whether the Supreme Court might adopt an approach that would later force federal courts to certify actions that would seem uncertifiable under Rule 23. And much of the questioning by the Court related to one "slippery slope" or another.

One final thought: given the Court’s recent emphasis on federalism and state’s rights (underlying, in part, recent questionable preemption decisions), a respect for state legislative prerogatives could favor Allstate here.  Indeed, at oral argument Allstate counsel argued that if a state has created a legal claim, it is only appropriate that it be allowed to define its terms and limits. And Justice Ginsburg remarked that this Court has been sensitive to state limitations.