Archive for the ‘rule 23’ Category

I was privileged to be invited to participate in a recent mini-conference with the Rule 23 Subcommittee to the Advisory Committee on Civil Rules, the committee that evaluates and proposed changes to the Federal Rules of Civil Procedure for consideration by the Supreme Court.  Click this link to the materials for last week’s mini-conference, which was held in Dallas.

The mini-conference attendees included the Rule 23 Subcommittee, members of the larger Advisory Committee, and representatives of key stakeholders including: federal district court and circuit court judges; academic thought leaders; private plaintiffs’ attorneys; private outside defense attorneys; in-house corporate counsel; non-profit public interest attorneys; and public interest class action objectors.  During the mini-conference, the attendees were encouraged to provide oral feedback on a variety of proposals being considered by the Subcommittee.  Many participants had also provided written comments in advance of the conference, which can also be found by clicking the link in the first paragraph.

The topics under discussion by the subcommittee, and a short summary of the issues discussed during the mini-conference for each topic, are listed below.  Note that I have not given a comprehensive summary of every comment made during the discussion of each topic but have rather focused just on some of the highlights.  For another perspective on the mini-conference, be sure to check out this post from Jocelyn Larkin at the Impact Fund.

Any changes proposed by the subcommittee have to be published for public comment before going to the Supreme Court for approval.  They won’t ultimately go into effect until 2018 even if they are ultimately proposed and approved.  The Rule 23 Subcommittee is still accepting comments, so please feel free to offer your own suggestions.

Topic 1: Disclosures regarding proposed settlements

The Subcommittee’s current draft proposals contemplate providing more detailed guidance to courts in what factors should be considered in approving a class action settlement before ordering notice to be given to the proposed settlement class.  The most extensive proposal sets forth a mandatory list of types of information that must be provided to the trial court before the court orders notice.  The proposed committee notes also state, among other things, that an order to give notice of a proposed settlement to the settlement class is not “preliminary approval” of the settlement and is not a decision to certify the class.  The goal would be to foreclose any argument by the parties that the court has already decided key issues relevant to final approval before any class member has been given notice of the settlement and an opportunity to object.

Several participants expressed concern with including a “laundry list” of information that had to be provided in every case, when not all of the categories of information are relevant in all cases.  Others noted that the list of factors was better suited for the committee comments than in the rule itself, though it was pointed out that comments cannot be added to the rule in the absence of a change to the rule itself.  Several participants suggested inclusion of a “catchall” factor allowing the court to request information not included in the list.

Several comments were raised about the proposed comments clarifying that the determination is a not a “preliminary approval” of the settlement, noting that it could create due process concerns to have a procedure that forces a class member to decide whether to opt out before a determination has been made that class certification is appropriate.  Participant suggestions for addressing this concern included the possibility of using a phrase like “contingent certification,” which would be a formal class certification decision while making clear that the settlement has not been preliminarily approved.

Topic 2: Expanded treatment of settlement criteria

The second topic was whether the Subcommittee should provide more specific criteria in the rule about what the trial court must consider in giving final approval to a settlement.  The proposals contemplate expanding the limited statement in the current rule that the court must determine that a proposed settlement is “fair reasonable and adequate.”  Many of the Circuits have adopted their own tests for what must be considered, and though the factors to be considered tend to be similar, they are not identical from Circuit to Circuit.  One justification for a possible rule change would be to bring national uniformity to the process.  Another goal stated by the Subcommittee would be to encourage more involvement from objectors to ensure an adversarial process at final approval.

The Subcommittee posed the question to the participants whether there would be any value to establishing a uniform list of more detailed standards rather than relying on judicial gloss that may vary from Circuit to Circuit.  Resulting comments were mixed, with one participant commenting that this may be a “solution looking for a problem.”  As with the first topic, several participants noted that it would be good to include a catchall factor or statement that the list of enumerated factors is not exclusive.  Still others observed that courts will likely add factors over time anyway, so that we may end up in the same situation down the road, with the additional factors varying from Circuit to Circuit.  There was also significant discussion about whether the rule or comments should encourage more scrutiny over the amount of attorneys’ fees in comparison to class relief and the actual claims rate should be something that the rule should mandate courts evaluate.

Those who follow this blog probably know that my own feeling is that class relief in settlements should be evaluated based on the adequacy of notice and whether the settlement relief being made available to the class is fair reasonable and adequate in light of the strength of the claims and the litigation risks.  I submit that this evaluation should be made without regard to the claims rate (except to the extent that a low claims rate may require more scrutiny over the notice program) and without regard to the amount of attorneys’ fees being requested (except to the extent that attorneys fees are being paid at the expense of class relief).  However, many of the participants felt strongly that both fees and claims rate should be subject to more scrutiny than courts have traditionally given to those issues.

Topic 3: Cy pres provisions in settlements

The discussion next turned to one of the most controversial subjects in class action litigation today: whether and under what circumstances cy pres distributions can be included as part of a class action settlement.  The Subcommittee’s current proposal would expressly permit cy pres distributions, but would require priority to be given to direct payments to class members if class members can be identified and if the distribution would be economically feasible, and would require the distribution to be made to a cy pres recipient “whose interests reasonably approximate those being pursued by the class.”

Comments on this topic were as varied as one would expect.  One participant questioned whether it was appropriate for a rule of civil procedure to address a remedy not otherwise authorized by law, though another pointed out that the rule already does address fee awards payable only by agreement.  This led to a discussion about whether the proposed revisions would violate the Rules Enabling Act.  Several participants argued that cy pres distributions in settlements are a matter of contract and therefore should not be problematic, but others disagreed, pointing out that class action settlements are not like other private agreements because they are subject to supervision by the court.  One participant pointed out that cy pres awards can serve a beneficial public purpose by, for example, providing funding for organizations that improve access to justice.  Overall, though, there seemed to be general agreement among those who were not opposed to cy pres distributions altogether that cy pres recipients in class action settlements should bear some relation to the class members and their interests.  Several creative solutions to identifying appropriate cy pres recipients were discussed, including the option of polling class members as part of the notice and claims process.

Topic 4: Objectors

The next topic was objectors.  The current Subcommittee proposal would add a variety of requirements for objectors, including procedural requirements for perfecting a valid objection, and requirements for articulating what the objection is intended to achieve and on whose behalf, and requirements for court approval before objections can be withdrawn.  Other requirements under consideration include express requirements for disclosing any financial consideration being paid to an objector or attorney in exchange for withdrawal of an objection.

There was a near unanimity among the participants that “greenmail” objectors (some would just call them “blackmail” objectors) remain a problem in class action settlements and that it would be beneficial to have procedures to prevent litigants from raising frivolous objections to class action settlements for the sole purpose of attempting to extract a monetary payment.  Perhaps this was because greenmail objectors were one of the few groups not represented at the mini-conference, though I’m sure it’s not easy to identify attorneys willing to self-identify as representative of this group.  Most participants seemed generally supportive of the purpose behind the committee’s proposed rules.  Some questioned whether it was necessary to include an express rule provision that monetary payments to objectors be disclosed since the Class Action Fairness Acts already requires disclosure of any side agreements, but otherwise, this was not one of the more hotly debated topics.

Topic 5: Class Definition & Ascertainability

The Subcommittee is considering adding a section describing the requirements for how a class should be defined and determining whether the class is ascertainable.  This is an active issue in the courts, and one on which the Circuits are split.  The Subcommittee’s current proposal for defining ascertainability includes several alternative wording options, and numerous alternative definitions were proposed by participants and other interested parties in written submissions before the mini-conference, which are included as an appendix to the conference materials (see the link in the first paragraph above).

As has been true in the courts, much of the debate at the mini-conference focused on how to define what level of ascertainability should be required.  Possibilities include: 1) whether the class is defined in such a way that class members would know whether they are in the class, 2) whether the class members can be identified using objective criteria, 3) whether the identification of class members is administratively feasible, and 4) whether the specific members of the class can be both identified and located.  One participant noted that ascertainability is something that should only be an issue in Rule 23(b)(3) classes seeking monetary relief, as opposed to Rule 23(b)(2) classes, where notice is not required under the current rule.  Another participant made the comment that trial plans can be a useful tool in forcing the parties to define a class in a way that makes clear whether the class is identifiable and the class action manageable as a practical matter.

As with some of the other topics, the Subcommittee raised the question whether this is an issue that should be left to the courts to develop before a rule change is appropriate.  My best guess is that this is where the Subcommittee will end up on this issue, given the lack of consensus on how to define the ascertainability requirement.  Of course, one option would be to simply add a provision requiring that the class be “ascertainable” and then see what the courts do with it.

Topic 6: Settlement Class Certification

The Supreme Court issued its decision in Amchem Products, Inc. v. Windsor in 1997, holding that class certification for settlement purposes was subject to the same requirements as certification for litigation purposes.  Since then, courts have routinely certified settlement classes in cases in which certification would have been doubtful if it had been presented in the contested context.  Recognizing this practical reality, the Subcommittee is considering changes to Rule 23 that would expressly permit settlement class certification in situations where the settlement would be superior to other methods of adjudicating the controversy and the court otherwise finds that the settlement is fair, reasonable, and adequate, without the need to establish that the other elements of Rule 23(b)(3) (in particular, predominance).

From my point of view, the general sentiment of the discussion of this topic during the mini-conference seemed to be one of “if it ain’t broke, don’t fix it.”  The practitioners in the group seemed generally satisfied that the current jurisprudential climate seemed to be allowing settlements in those cases that needed to be settled as class actions, while other alternative procedures, like inventory settlements, had since been developed to permit settlements in mass tort cases of the type at issue in Amchem.  Some of the academics had serious reservations about the Constitutional implications of the proposed rule.  So, overall, the consensus seemed to be that no rule change was necessary at this point.

Topic 7: Issue Class Certification

Rule 23(c)(4) has long provided that class certification may be granted only as to certain issues and not an entire case.  However, the idea of “issue certification” has not been used in practice until recently.  Based on a perception that there was a Circuit split on whether certification of particular issues may be appropriate even if predominance could not be established as to an entire case, the Subcommittee is considering a change that would make clear that predominance is not a requirement for issue certification.  Accompanying this change would be a proposed change to Rule 23(f) that would permit interlocutory appeal of the court’s determination on the merits of the issue certified, prior to a final judgment.  However, since the change was originally suggested, the Circuits seemed to be coming into alignment, raising the question whether a rule change is necessary.

There was not a significant amount of debate at the – about this issue.  Most seemed to be content with the suggestion that the courts be allowed to develop the decisional law on the question of when issue certification is appropriate before a rule change is considered.  My own view is that it would be helpful to at least insert the requirement that the court determine that the resolution of the issue to be certified would “materially advance the litigation.” This would help avoid situations in which issue certification can potentially prolong expensive litigation that ultimately leads to no resolution all because of costs associated with resolving any individual facts in comparison to the amounts to be recovered or the number of class members who ultimately stand to benefit from a resolution of the issue in their favor.  However, the Subcommittee seems to be coming to the conclusion that issue certification reform is not a high priority at this point.

Topic 8: Notice

The Subcommittee has proposed a modification to the rule that is intended to make clear that the “best notice practicable” may include notice by email or other electronic means.  This is intended to remedy a perceived issue that the courts are reluctant to endorse electronic notice as a substitute for first class mail due to statements in the Supreme Court’s now 40-year decision in Eisen v. Carlisle & Jacquelin that best notice practicable is first class mail, when feasible.

Many attendees agreed that a specific reference to electronic notice would be a good idea and would help keep the rule consistent with modern technology and practice.  However, concerns included that electronic mail may deprive lower-income individuals of adequate notice in certain cases.  Another concern was whether the wording that the Subcommittee had proposed could be read to prioritize electronic notice over more traditional forms of notice.

Topic 9: Pick-Off and Rule 68

The rule changes being considered by the Subcommittee on this issue include proposing to amend Rule 68 to state that it does not apply to class actions brought under Rule 23, in an effort to put an end to the tactic of picking off putative class representatives by attempting to moot their individual claims with an offer of judgment.

Most of the attendees agreed that given the shift toward agreement in the federal Circuits that an unaccepted offer of judgment does not moot class claims, along with the fact that the Supreme Court has granted certiorari on that very issue in Campbell-Ewald Company v. Gomez, it would be premature to propose any significant revisions to the rules dealing with Rule 68 offers.

Read Full Post »

Along with my colleague, Jacqueline Matthews, I recently authored a commentary on the possible changes to the rule on issue classes, Rule 23(c)(4), Federal Rules of Civil Procedure, that were proposed recently in a report issued by the Rule 23 Subcommittee.  Our commentary was among several articles on the Subcommittee’s proposals published by the ABA Section of Litigation’s Class Actions and Derivative Suits Committee (CADS), all of which I strongly recommend.  Please visit the link below to see our article, and if you aren’t already a CADS member, you should strongly consider becoming one.



Read Full Post »

Last week, the Rule 23 Subcommittee to the Advisory Committee on Rules of Civil Procedure issued its latest report outlining potential revisions to Rule 23, Federal Rules of Civil Procedure.  Click the following link to view the Rule 23 Subcommittee Report.  Generally, the topics addressed in the Subcommittee’s Report are as follows:

  1. Settlement Approval Criteria
  2. Settlement Class Certification
  3. Cy Pres Treatment
  4. Dealing with Objectors
  5. Rule 68 Offers and Mootness
  6. Issue Classes
  7. Notice

If you’d like an opportunity to give feedback to Subommittee in person, make sure to sign up for the upcoming Second Annual Western Regional CLE Program on Class Actions and Mass Torts, scheduled for June 19 in San Francisco, where several Subcommittee members will be on hand to discuss the report and receive comments in a town hall-style discussion.

Also, I will be among several contributors to an upcoming commentary on the report to be published by the ABA’s CADS Committee.  My submission will address the Subcommittee’s suggestions on Issue Classes.   Stay tuned for more information about that publication.

Read Full Post »

Whirlpool Corporation made headlines yesterday when a Ohio federal court jury issued a verdict finding that the manufacturer’s washers did not have a defect that caused them to develop mold.  The verdict comes in the first of the “moldy washer” cases to reach a trial, following the Sixth Circuit Court of Appeals’ decision in 2013 that the case should be certified as a class action despite the inability to resolve the question of damages on a class wide basis.  Along with the Seventh Circuit’s decision in Butler v. Sears, Roebuck & Co., Nos. 11-8029, 12-8030 (7th Cir., Aug. 22, 2013), the Sixth Circuit’s decision in  In re Whirlpool Corp. Front‐Loading Washer Products Liability Litigation, No. 10-4188 (6th Cir. July 18, 2013) have come to epitomize the concept of “issue certification,” where a class is certified for the purpose of resolving some, but not all, of the issues in the a case.  Both the Sixth and Seventh Circuits held that classes should be certified to decide the question whether the washers had a defect, despite strong objection from the defendants, who presented evidence showing that a vast majority of washing machine purchasers had never complained about any mold problems.  Last year, the Supreme Court declined certiorari review in both cases.

The Whirlpool jury’s decision that the washers were not, in fact, defective is seemingly a huge win for the defense bar, but the verdict also provides fodder for courts to justify granting class certification on isolated issues in other cases where it is clear that individual damages trials would be necessary.  As Judge Posner rationalized in reaffirming the original decision in Butler following remand by the Supreme Court to reconsider in light of the Court’s Comcast decision:

Sears argued that most members of the plaintiff class had not experienced any mold problem. But if so, we pointed out, that was an argument not for refusing to certify the class but for certifying it and then entering a judgment that would largely exonerate Sears—a course it should welcome, as all class members who did not opt out of the class action would be bound by the judgment.

Butler, slip op. at 4.  Certainly, that is the scenario that has played out for Whirlpool, at least as to a class of Ohio purchasers (with more trials of other state-wide class claims to come).

But at what cost?  Before the litigation sees any final resolution, Whirlpool will have paid its legion of outside attorneys to defend it in MDL proceedings, motions to dismiss, class certification discovery,  class certification proceedings, two trips to the Seventh Circuit, two trips to the Supreme Court, trial preparation, trial, post-trial motions, and inevitably more appeals, all to achieve “exoneration” in the face of allegations that a small number of their customers experienced mold in their washing machines.  The plaintiffs’ attorneys will have spent a similar amount of time and efforts on their side of all of these proceedings.  And, with the plaintiffs’ attorneys vowing to press ahead with more statewide class trials, the parties are still no closer to having any clear process for resolving the dispute on a global basis.  It doesn’t take a law and economics expert to spot the inefficiencies in this process.

Although the Whirlpool verdict arguably illustrates Judge Posner’s point that the defendant could very well win on the class issue and bind the entire class, that is small consolation for other defendants facing the prospect of expensive class trial proceedings for the purpose of giving a shot at redress to a tiny fraction of its customers who may claim some small injury from a product defect, data breach, misleading label, or any other general business practice.  As much as it serves to “largely exonerate” Whirlpool, the jury’s rejection of the claimed defect calls into question the wisdom of allowing the product defect issue go forward on a class wide basis in the first place rather than requiring the individual claimants to press forward with their claims individually.

Read Full Post »

One of the key questions in the aftermath of the Supreme Court’s recent decision in Comcast Corp. v. Behrend is the extent to which damages must be susceptible to classwide calculation in order to justify class certification.  In particular, the question is as follows: When the Comcast Court held that class certification was improper because the plaintiff had failed to demonstrate that “damages are capable of measurement on a classwide basis,” did it mean that Rule 23(b)(3) certification is never proper if damages cannot be determined on a classwide basis?  If the answer to this question is yes, then consumer class actions are in trouble because it’s a rare case where classwide determination of damages is possible.  But if the answer to this question is no, then as the Comcast dissent suggested, “the opinion breaks no new ground on the standard for certifying a class action under Federal Rule of Civil Procedure 23(b)(3).”

Yesterday, in the second of two moldy washing machine class actions that had been vacated and remanded for further consideration in light of Comcast, the Seventh Circuit Court of Appeals joined the Sixth Circuit in answering “no” to this question.  In Butler v. Sears, Roebuck & Co., Nos. 11-8029, 12-8030 (7th Cir., Aug. 22, 2013) (Posner, J.), the court reaffirmed its earlier decision that if common issues predominate over individualized issues in resolving the question of liability, then a class can be certified even if the question damages would require individual determinations. As usual, Judge Posner’s decision is colorful and an interesting read, even for those who disagree with the outcome.  The Sixth Circuit’s decision, which was issued last month, is In re Whirlpool Corp. Front‐Loading Washer Products Liability Litigation, No. 10-4188 (6th Cir. July 18, 2013).

In evaluating the potential broader impact of the Sixth and Seventh Circuit’s decisions, it is important to maintain a clear distinction between the question of damages and the related questions of injury and causation of damages.  Courts have long accepted that individualized damages questions do not prevent class certification, and the moldy washer decisions themselves break little new ground other than to interpret Comcast as not having altered that longstanding principle.  However, saying that individualized questions of damages can be left for a later proceeding is very different than saying that there is a good reason to certify a class when the elements necessary to prove liability itself (which typically include both the existence of injury and causation) cannot all be resolved on a classwide basis.  Individualized questions of whether a given class member has suffered any compensable injury at all or whether the allegedly wrongful conduct caused any alleged injury should still defeat predominance, and neither Sears nor Whirlpool should be read to suggest differently.  In those cases, because the plaintiffs had advanced what these courts concluded was a viable theory of common injury, the only individualized questions related to the amount of, and not the existence of, damages. See In re Whirlpool Corp., slip op. at 22 (“Because all Duet owners were injured at the point of sale upon paying a premium price for the Duets as designed, even those owners who have not experienced a mold problem are properly included within the certified class.)

Read Full Post »

The United States Supreme Court issued its decision in Comcast Corp. v. Behrend, No. 11-864 today.  In a 5-4 decision, the Court held that the class of cable subscribers had been improperly certified.  Justice Scalia, writing for the majority, reasoned that the expert testimony offered by the plaintiff to show that antitrust damages were capable of class-wide proof addressed alleged damages that did not logically flow from the plaintiff’s theory of class-wide liability.  The majority held that the trial court had erred by refusing to consider questions concerning the expert testimony on damages that might overlap with the “merits,” while the Third Circuit had erred by accepting the plaintiffs’ contention that it had a class-wide theory of damages through expert testimony without actually scrutinizing the factual basis for that contention:

The Court of Appeals simply concluded that respondents “provided a method to measure and quantify damages on a classwide basis,” finding it unnecessary to decide “whether the methodology [was] a just and reasonable inference or speculative.” 655 F. 3d, at 206.  Under that logic, at the class-certification stage any method of measurement is acceptable so long as it can be applied classwide, no matter how arbitrary the measurements may be.  Such a proposition would reduce Rule 23(b)(3)’s predominance requirement to a nullity.

The dissenting Justices would have dismissed the writ of certiorari as having been improvidently granted.  The dissent’s criticism of the majority’s holding has more to do with the procedural posture of the case and the methodology used by the majority in reaching its factual conclusions than with the legal class certification concepts underlying the majority’s reasoning.  In particular, the dissent faulted the majority for having changed the issue on review after the conclusion of briefing and took issue with the majority’s analysis of the factual basis for the expert’s opinions.

Read Full Post »

The Supreme Court has issued its opinion in one of the most highly anticipated class action-related cases on the docket this term.  The result in Amgen Inc. v. Connecticut Retirement Plans and Trust Funds, No. 11-1085, slip op. (U.S., Feb. 27, 2013) is not surprising given the content and tone of the questioning at oral argument.  In an 6-3 opinion authored by Justice Ginsberg, the Court held that the plaintiff in a securities fraud case based on a fraud-on-the-market theory of reliance does not have to prove materiality of the fraudulent statement or omission at the class certification stage.  Because materiality is a common question capable of resolution simultaneously for the entire class, the majority reasoned, it does not have to be proven at the class certification stage.  Justices Scalia, Thomas, and Kennedy dissented.

Amgen is an important decision in the securities fraud context because it addresses the lingering question of whether any special prerequisites exist in certifying a securities fraud class action that aren’t required in certifying other types of class actions.  Like the Supreme Court’s earlier decision in Erica P. John Fund v. Halliburton Co., 131 S. Ct. 2179 (2011), Amgen will probably have an impact beyond the securities fraud context.  In the context of class certification decisions more broadly, the opinion will be almost certainly be cited as clarifying the distinction between issues impacting the elements of class certification, which must be resolved at the class certification phase, and merits issues, which can wait until trial to be resolved.

Read Full Post »

Older Posts »


Get every new post delivered to your Inbox.

Join 57 other followers