Today a special treat for our readers: my partner Becky Schwartz has submitted a post as guest blogger.  Becky has defended numerous high profile class actions for tobacco, pharmaceutical, medical device, and alcoholic beverage manufacturers, and others. Her focus is a recent Third Circuit class action decision.  And she writes:

Good news for defendants facing threatened consumer class actions: the Third Circuit has once again confirmed that ascertainability and numerosity, two seemingly humble definition-related prerequisites of Fed. R. Civ. P. 23, can be sufficient to foil class certification. In a companion decision to last year’s Marcus v. BMW of North America, LLC, 687 F.3d 583 (3d Cir. 2012), last week the Third Circuit vacated a New Jersey district court’s order certifying a class against defendant Wal-Mart Stores, Inc. See Hayes v. Wal-Mart Stores, Inc., No. 12-2522, 2013 WL 3957757 (3rd Cir. Aug. 2, 2013). Plaintiff asserted claims for violation of the New Jersey Consumer Fraud Act, breach of contract and unjust enrichment in connection with the sale of extended warranty (service) plans for items sold at Wal-Mart’s wholly owned subsidiary, Sam’s Club. Plaintiff had allegedly purchased two “as is” items from Sam’s Club a clearance area, along with extended warranty service plans for each item. The express terms of the service plans sold, however, allegedly made them inapplicable to the “as is” items. The district court certified a class of persons who had purchased service plans to cover ineligible “as is” products sold at Sam’s Club, and Wal-Mart appealed the class certification on an interlocutory basis pursuant to Fed. R. Civ. P. 23(f).

Ascertainability and Numerosity Are Evidentiary Questions the Proponent of Certification Must Prove.

The district court’s certification of the Hayes class occurred before last year’s decision by the Third Circuit in Marcus, where the appellate court addressed Rule 23’s ascertainability, and numerosity requirements in significant detail. The Third Circuit here agreed to consider Wal-Mart’s appeal based on the company’s argument that Hayes had failed to establish by a preponderance of the evidence that the class was both ascertainable and sufficiently numerous under the class action rule. Specifically, Wal-Mart argued that the district court had erred by finding the Hayes class ascertainable without considering whether it was administratively feasible to determine class membership. And as to numerosity, Wal-Mart asserted that plaintiff had not adduced evidence sufficient to demonstrate that anyone (including himself) and thus that sufficient claimants could satisfy the proposed class definition.

Putative Class Members’ “Say So” Is Not Enough to Establish Class Membership.

Last year in Marcus, the Third Circuit held that to satisfy the implied Rule 23 prerequisite of ascertainability, a proposed class must be defined with reference to objective criteria, and an administratively feasible mechanism must exist for determining whether putative class members fall within the class definition. 687 F.3d at 593-94.  One key factor in assessing ascertainability is whether the defendant possesses records that could show whether individuals should be included in the class; if not, the class definition would be insufficient. Id. at 593.

In Hayes, the evidence reflected that Wal-Mart kept some records related to “as is” clearance items for sale, but lacked records that could definitively link the sale of extended service plans to ineligible “as is” clearance items. The Third Circuit confirmed that in such circumstances, a lack of evidence is the class proponent’s problem, not the defendant’s. “[T]he nature or thoroughness of a defendant’s record-keeping does not alter the plaintiff’s burden to fulfill Rule 23’s requirements,” particularly where there is no “statutory or regulatory authority obligating [defendant] to create and maintain a particular set of records.” Hayes, 2013 WL 3957757 at *4. “Rule 23’s requirements . . . cannot be relaxed or adjusted” simply because a defendants’ records prove to be no help to plaintiff. Id. Importantly, a dearth of evidence in defendant’s possession cannot be overcome by form affidavits provided by putative class members: a “petition for class certification will founder if the only proof of class membership is the say-so of putative class members or if ascertaining the class requires extensive individual fact-finding.” Id. at *5.

Mere Speculation Is Insufficient to Prove Rule 23(a) Numerosity.

The Third Circuit also made clear that precise proof is required to prove numerosity. Just as it had previously in Marcus, 687 F.3d at 596-97, the Third Circuit in Hayes considered whether and when “common sense” or “logic” could be substituted for such evidence. Sam’s Club had records reflecting 3,500 sales transactions that might have qualified purchasers for class membership, but no record evidence to establish which of those transactions actually did qualify purchasers for class membership. Proof of class membership would thus have required impermissible mini-trials for each putative class member. The district court nonetheless found the Rule 23(a)’s numerosity prerequisite met by reasoning that if even a mere hypothetical 5% of those potential class members actually qualified, the class would be sufficiently numerous under Rule 23. Hayes, 2013 WL 3957757 at *5.

Despite acknowledging that in some limited instances “circumstantial evidence” might permit the district court to make a factual finding by using “’common sense’ to forgo precise calculations and exact numbers,” the Third Circuit made clear that a district court cannot certify a class based on “improper speculation.” Id. at *6. And that, it found, is precisely what the district court had done: “the only conclusion that can be drawn from the evidence presented to the trial court is that the number of class members would equal-to-or-less than 3,500 and equal-to-or-greater than zero,” meaning that the court “can only speculate as to the number of class members.” Id. at *6. “[W]here a putative class is some subset of a larger pool, the trial court may not infer numerosity from the number in the larger pool alone.” Id. (citations omitted). Nor can a trial court take a “wait-and-see approach” to numerosity (or any other requirement of Rule 23). Id.

Key Takeaways.

Defense counsel working with clients facing class action allegations – particularly in the consumer fraud context where complete transactional histories and other class membership related records may not be available in defendants’ records – should recognize the potential power of Rule 23’s ascertainability and numerosity prerequisites to bar class certification.

Keep the following in mind:
– Lack of available evidence to prove ascertainability and/or numerosity is plaintiff’s problem, not defendant’s;
– Class member affidavits alone (mere “say-so”) cannot be used to establish class membership; the result would be an impermissible compromise of defendants’ rights;
– Plaintiffs’ imperative to find evidence supportive of class certification could very well give rise to surprisingly aggressive and contentious discovery;
– Some trial courts may require reminders of the evolving standards applicable to these Rule 23 prerequisites, including burden of proof; and
– Defendants’ briefing and argument should focus on any gaps (when available) in the evidence supporting ascertainability and/or numerosity; courts must be dissuaded from employing speculation masquerading as “common sense” and “logic” to fill such gaps.