Feeds:
Posts
Comments

Posts Tagged ‘trial by formula’

The California Supreme Court issued its long-awaited decision in Duran v. U.S. Bank National Association yesterday, addressing the use of statistical sampling as a way of evaluating aggregate liability and damages in a class action. Although Duran is a wage and hour case, its analysis is pertinent to the use of statistical evidence in a variety of other class action contexts.

In the opening line of his majority opinion, Justice Corrigan referred to Duran “an exceedingly rare beast” because it was a wage and hour class action that had proceeded all the way through trial to verdict.  In the trial court, the plaintiff had presented testimony from statistician Richard Drogin, who had also notably served as an expert for the plaintiffs in Walmart Stores Inc. v. Dukes.  Drogin proposed a random sampling analysis that purported to estimate the percentage of the defendant’s employees that had been misclassified for purposes of entitlement to overtime pay.  The trial court did not rely on Drogin’s analysis but instead came up with its own sampling approach, which involved pulling the names of 20 class members, hearing testimony from these witnesses along with the named plaintiffs, and then extrapolating the court’s factual findings across the entire class in order to determine the defendant’s liability.

The supreme court affirmed a decision by the Court of Appeal holding that this sampling approach violated due process and was a manifest abuse of discretion.  Generally, there were two independent reasons for the supreme court’s conclusion: 1) the use of random sampling deprived the defendant of the opportunity to present individualized evidence supporting its defenses to the claims; and 2) the sampling method adopted by the court was inherently flawed and unreliable.

Without categorically rejecting the use of statistics as a tool in managing class action litigation, the supreme court identified numerous conceptual limitations on its use.  First, “[s]tatistical methods cannot entirely substitute for common proof . . . .  There must be some glue that binds class members together apart from statistical evidence.”  So, while statistics may serve as circumstantial evidence to support a common issue–such as the existence of centralized policy or practice, they may not be used as a substitute for establishing commonality or for avoiding individualized determination of individual issues–such as by generalizing effects of a given policy or practice on large groups of claimants where the effects vary in actuality.

Second, a trial court cannot utilize statistical evidence in a way that prevents the individual adjudication of individual defenses.  Although courts are encouraged to develop innovative procedures in managing individual issues, a court cannot ignore individual issues altogether or prevent them from being decided on an individual basis.

Third, if statistical evidence is to be used as part of a litigation plan for managing complex class action, the methods to be employed should be presented, evaluated, and scrutinized at the class certification stage.  The court should not simply assume that statistical methods will permit class treatment and certify the class based on this hypothetical possibility.

Fourth, the court must ensure that the statistical method to be employed has to be reliable, based on statistically valid data, and not prone to a high margin of error.  In other words, junk science or ad hoc, rough justice are not enough.

The Duran opinion is worthy of careful study for anyone considering the use of statistics in class certification proceedings, both in the wage and hour context and in class actions more generally.  It also provides a colorful illustration of the due process and manageability problems posed by the “trial by formula” approach to class actions that the United States Supreme Court criticized in Dukes.

Read Full Post »

This is the first in what will be six posts summarizing my notes of the six presentations at the ABA’s 16th Annual Class Actions Institute held last Thursday in Chicago.  The National Institute sets the gold standard for class action conferences, and this year was no exception.  Program Chair Daniel Karon and the rest of the organizing committee did an excellent job selecting six of the most timely and relevant topics facing class action practitioners today.  As always, the list of panelists was a veritable who’s who in the class action field.  If you ever have the opportunity to attend this annual conference, I highly recommend it.

As has become the custom at the National Institute, Columbia Law Professor John C. Coffee, Jr. kicked off this year’s program with a comprehensive and insightful summary of the year’s key developments in class action law.  This year’s presentation saw what has been a hit solo act turn into an even better duet, as Professor Coffee shared the stage with Connecticut Law Professor Alexandra Lahav.  The session was titled “Holy Cow!  This Year the Courts Said What?!” A Brief History of this Year’s Developments in Class Action Jurisprudence.  Attendees were also treated to a comprehensive, 179-page summary of the year in class actions by Professors Coffee and Lahav entitled The New Class Action Landscape: Trends and Developments in Class Certification and Related Topics.

The first part of Professor Coffee’s presentation covered each of the class action-related cases on the U.S. Supreme Court’s docket this term.  Here is a list of those cases with some of Professor Coffee’s insights:

  • Connecticut Retirement Plans & Trust Funds v. Amgen, Inc., 660 F.3d 1170 (9th Cir. 2011) - Amgen raises the question whether the plaintiff must establish the materiality of an alleged false statement at the class certification stage of a securities fraud class action.  Professor Coffee believes that this case is a close call, but whichever way it comes out, it does not threaten to end securities class action litigation as we know it.
  • Behrend v. Comcast Corporation, 655 F.3d 182 (3d Cir. 2011) – In Behrend, the Court could decide whether a trial court must perform a full Daubert analysis of expert testimony offered in support of or in opposition to class certification.  The case raises the question, at least in the antitrust context, whether the plaintiff must present a  formal damages model or whether the mere possibility of common proof is enough.
  • Symczyk v. Genesis Healthcare Corp., 656 F.3d 189 (3d Cir. 2011) – This is a wage and hour case under the FLSA, which has a different procedure than Rule 23.  FLSA claims are more accurately characterized as collective actions, rather than class action.  The issue is whether a settlement offer for the full amount of the named plaintiff’s FLSA claim can moot the claim and prevent the case from proceeding on a collective basis, a concept also known as “picking off.”   One of the arguments that has been raised is that the writ of certiorari should be dismissed as improvident granted, so it is unclear whether the Court will actually enter a substantive ruling.
  • Knowles v. The Standard Fire Insurance Company, 2011 U.S. Dist. LEXIS 130077 (W.D. Ark. December 2, 2011) – This case raises the question whether a plaintiff can plead around CAFA removal jurisdiction by stipulating to less than $5 million in damages on behalf of the putative class.  Professor Coffee felt confident in making the prediction that the defendant will win.  He points to dicta in the Court’s recent decision in Smith v. Bayer Corporation calling into question whether a plaintiff can do anything to bind the members of a putative class before it is certified.

Professor Coffee then went on to highlight some of the big developments in the lower courts from over the past year, which include:

The proper burden of proof to be applied at class certification.  The circuits are split on this issue, with some applying a preponderance of the evidence standard and others simply requiring a rigorous analysis with no particular evidentiary standard.

Treatment of expert testimony.  The federal district courts continue to resist resolving a battle of the experts at the class certification stage, but dicta from the Supreme Court in Dukes, as well as holdings by several of the circuits, are putting increasing pressure on the federal courts to perform a Daubert analysis (and the Court could resolve this issue for good in Behrend).

Class Arbitration Waivers.  Some lower courts, especially the Second Circuit, continue to carve out exceptions to the Supreme Court’s ruling favoring arbitration agreements in Concepcion.   One key issue is whether a class arbitration waiver may still be held unconscionable as a matter of federal law.  Professor Coffee quipped that the Second Circuit will only change if the Supreme Court “stuffs it down their throat.”  While unconscionability under state law is no longer a viable argument against enforcing an arbitration clause, clauses with fee-shifting provisions continue to be susceptible to attack.

Settlement Only and Limited Fund Classes.  There is a lower court trend in permitting certification in settlement classes in cases that could not be certified as class actions in contested cases, notwithstanding the Supreme Court’s opinion in Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 617 (1997).  The primary justification tends to be that any individualized issues of fact in the case went to manageability, which is no longer an issue in the settlement context.   In cases where courts have found that individualized issues impact both predominance and manageability, settlement classes have continued to be rejected.

Partial Certification.   The question of issue certification has been one of the hottest trends in the federal courts in the wake of Dukes.  Professor Coffee pointed out that the resolution of whether courts allow partial certification tends to be determined whether the fact of certification creates an extortionate threat to settle the case.

Class Action Settlements.  If you read just one class certification decision this year, Professor Coffee recommends Judge Rosenthal’s memorandum opinion in In re: Heartland Payment Systems, Inc. Customer Data Security Breach Litigation, MDL No. 09-2046 (S.D. Tex. March 20, 2012), which has a well-organized, step-by-step analysis of the approval of a class action settlement.

Professor Lahav focused her remarks on what has been happening in the lower courts in response to the three key aspects of the Court’s decision in Dukes: 1) the “new commonality” requirement; 2) the rejection of the use of Rule 23(b)(2) to recover individualized money damages; and 3) the rejection of “trial by formula,” of the use of statistical sampling to solve individualized damages problems.

The “new commonality”.  Among Professor Lahav’s key observations was that in the Title VII context, there must be a policy, but if there is an identifiable policy, the courts will allow discretionary elements of that policy to be attacked.  This trend is best exemplified by Judge Posner’s decision in McReynolds v. Merrill Lynch, Pierce, Fenner & Smith, Inc.  As many commentators predicted, Plaintiffs have had better success after Dukes by narrowing the geographic scope of discrimination claims.  This has also been true in the consumer context.  In the civil rights context, allegations of systemic constitutional violations have had success when the courts have focused on the systemic nature of the practice, but not when courts have focused on the effects of a systemic practice on the prospective class members.  In general, there has been an increasing reliance on issues classes to overcome individualized issues that might destroy commonality or predominance.

Rule 23(b)(2) and monetary damages.  The majority opinion in Dukes raised the question whether there can ever be a class with monetary damages.  None of the circuit courts have provided further guidance on when damages might be sufficiently “incidental” to still allow relief.  One area that has seen mixed results since Dukes is the area of medical monitoring class actions, where the remedy sought is medical monitoring of the possible health effects of a toxic exposure but the cost of monitoring can vary from person to person.  Professor Lahav pointed to the Third Circuit’s decision in Gates v. Rohm & Haas Co., No. 10-2108 (3d Cir., Aug. 25, 2011), as potentially supporting arguments on both sides.  Hybrid class actions, where classes are certified based on both Rule 23(b)(2) and 23(b)(3), are becoming increasingly common, especially in the Title VII context.  One unanswered question is whether damages claims are precluded if a Rule 23(b)(2) class is certified but not successful.

Statistical evidence and “trial by formula.”   Statistical evidence is still accepted in contexts where it has been accepted traditionally, e.g. civil rights, disparate impact, and antitrust cases.  It is not allowed in cases where the defendant can raise individualized defenses.  One proposed solution is, again, issues classes, but this creates a class action funding problem – How do lawyers get paid?

Professor Lahav also revisited statistical trends in class actions, focusing primarily on data compiled by the Federal Judicial Center in 2008 which analyzed the impact of the Class Action Fairness Act (“CAFA”).  She made the key point that statistical data on class action trends has been severely lacking since the FJC study, making updated empirical analysis of class action trends difficult.

Read Full Post »

In preparing for our webinar on the use of statistics in class actions tomorrow, I discovered that the California Supreme Court has granted review in Duran v. U.S. Bank, a case that could have major implications for the future of statistical sampling as common proof in class actions.  See my April 6, 2012 post titled Trial by Formula, Statistical Sampling, and the Right to Due Process for a summary of the Court of Appeal’s decision, which has lost its precedential effect by virtue of the decision to grant review.  The supreme court’s docket for the case  is available here.   Kimberly Kralowec has posted many of the court documents on her blog, The UCL Practitioner.

The folks at the Litigation Impact Journal have noted that the decision to grant review in Duran was foreshadowed by Justice Werdegar’s concurrence in his own majority opinion in the California Supreme Court’s highly publicized decision last month in Brinker Restaurant Corp. v. Superior Court.  In that concurrence, Justice Werdeger argued that “[r]epresentative testimony, surveys, and statistical analysis all are available as tools to render manageable determinations of the extent of liability [in wage and hour cases].”  In Duran, the court will have an opportunity to explore that issue in more detail.

Read Full Post »

For those of you interested in the topic of statistics in mass and class actions, U. Conn. Law Professor and Mass Tort Litigation Blog contributor Alexandra D. Lahav has written an academic paper on the subject in the Texas Law Review, aptly entitled The Case for “Trial by Formula.”  For Professor Lahav’s synopsis of the paper, a link to the paper, and a brief response to last week’s CAB post on the subject, see this Mass Tort Litigation Blog post.

Read Full Post »

Editor’s Note: This is a joint post for ClassActionBlawg and the newly-launched Baker Hostetler Class Action Lawsuit Defense Blog.  Be sure to bookmark the Baker Hostetler blog at www.classactionlawsuitdefense.com for the latest in class action trends and decisions.

A common temptation in class action litigation is to fashion procedures based on “rough justice” to avoid overburdening the courts or attempting to redress alleged mass harm.  Over the past decade, as storage and computing power have increased exponentially, it has become increasingly tempting to use statistical sampling as a proxy for the actual adjudication of facts in class or mass actions.  The idea is that if the facts regarding a statistically significant subset of a class can be evaluated for a particular issue or set of issues, then the results of the evaluation of the sample can be extrapolated across the rest of the class.

One jurisdiction in particular where this approach has gained traction has been California.  There, the use of statistical sampling has been recognized for several years as a means of apportioning damages in some cases.   See Bell v. Farmers Ins. Exchange (2004) 115 Cal.App.4th 715 [9 Cal.Rptr.3d 544] (Bell III).   However, in recent years, plaintiffs have attempted to use statistical sampling as proof of liability, not simply as a means of apportioning damages when liability has been established or (as in Bell III) it is not contested.  This approach was harshly criticized in Part III of Justice Scalia’s majority opinion in Wal-Mart v. Dukes, (notably, this was the portion of the Dukes opinion with which all nine justices concurred):

The Court of Appeals believed that it was possible to replace such proceedings with Trial by Formula. A sample set 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 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. [internal citation omitted].  We disapprove that novel project.

Earlier this year, in Duran v. U.S. Bank National Association, No. A125557 & A126827 (Cal. App., Feb.  6, 2012), a division of the California Court of Appeal agreed with the above-quoted dicta in Dukes and rejected an attempt to use statistical sampling to prove liability an a wage and hour class action.  The plaintiff had presented testimony from statistician Richard Drogin, who had also served as an expert for the plaintiffs in Dukes.  Drogin presented a random sampling analysis that purported to estimate the percentage of the defendant’s employees that had been misclassified for purposes of entitlement to overtime pay.  The trial court adopted a sampling approach that was modeled on (but not exactly the same as) Drogin’s proposal.  

The Court of Appeal held that the trial court’s approach was improper and that it violated defendant’s due process rights for a variety of reasons, including that 1) the use of statistics to estimate the total number of employees who had been misclassified deprived the defendant an opportunity to present relevant evidence and individualized defenses as to individual plaintiffs’ alleged misclassification; 2) the court’s statistical methodology was flawed because it arbitrarily used a sample of 20 employees without any basis for concluding that the sample was statistically significant; 3) even the use of sampling as to damages was improper because the methodology used had an unacceptably high margin of error.

The Duran opinion is worthy of careful study for anyone considering the use of statistics in class certification proceedings, both in the employment context and in other types of class actions.  The opinion examines many of the due process problems with allowing proof of liability through statistical sampling, the most significant of which is that it tends to deprive a defendant of presenting evidence in its defense that it would be able to present in an individual case.  It also provides an additional illustration of what the Supreme Court considered an improper “trial by formula” in Dukes.

Read Full Post »

Follow

Get every new post delivered to your Inbox.

Join 51 other followers