Conventional wisdom says that a defendant should move to dismiss a class action complaint if there are grounds to do so. Motions to dismiss have many potential strategic benefits beyond the mere possibility of an early victory, including allowing the defendant to avoid expensive discovery pending resolution of key threshold legal issues, providing an early opportunity to educate the judge about the weaknesses of the plaintiffs’ case, and pinning down the plaintiff’s legal theories at an early stage. However, it is always important to consider that there are alternative approaches, including:
- Moving for summary judgment instead of moving to dismiss on the pleadings;
- Moving to strike the class allegations or for an early ruling on class certification, leaving for a later date the matter of the plaintiffs’ individual claim; or
- Simply filing an answer and waiting until the record is more well-developed before raising a potentially dispositive legal argument, either in a later motion for summary judgment or a motion for judgment on the pleadings.
Without question, every defendant has an incentive to obtain resolution of a class action in the quickest, most efficient way possible. However, filing a motion to dismiss is not the most efficient means of resolution in every case. If the motion is unsuccessful, the trial court can develop preconceived notions about the strength of the plaintiff’s claims if they are attacked too early based on an undeveloped record. This is a risk especially where the trial judge has a reputation of denying motions to dismiss without serious analysis. But beyond the possibility that the motion will be denied, there is a potential downside to winning an early motion to dismiss on the pleadings. Having to defend a successful motion to dismiss on appeal can be an unnecessary expense in comparison to the available alternatives, and there is a risk of an unfavorable appellate ruling that can cause lasting harm on remand. Another consideration is that winning a dispositive motion prior to class certification will only bind the named plaintiff and doesn’t bind other class members (although in practice, defendants are usually willing to take the risk of future lawsuits if it means getting the current one dismissed).
There are two common scenarios in which defendants are successful in obtaining early dismissal of class action claims. The first is where the plaintiff’s underlying legal theory is a novel one. One recent example is a putative class action filed against New York Law School alleging that the school misrepresented its employment statistics, causing students to attend law school with the hopes of significant employment prospects, only to find themselves with limited job options upon graduation. A state court recently dismissed the case in a lengthy opinion that relies heavily on factual matters of which the court took judicial notice (link courtesy of www.abovethelaw.com). Another example is a putative class action in California challenging McDonald’s alleged practice of using toys in Happy Meals to entice children to buy unhealthy food. That case was dismissed last week, in a written decision that does not contain any analysis of the court’s reasons for sustaining the defendant’s demurrer (presumably, the court articulated the reasons orally).
There is no particular reason to believe that either of these decisions will be reversed on appeal, but the risk of reversal is present in almost any decision granting a motion to dismiss due to the individual plaintiff’s failure to state a claim. Even if the plaintiff’s legal theory is novel or borderline frivolous, there is always a danger that an appellate panel, left to analyze the case from the perspective of pure application of the law based on the facts viewed in the light most favorable to the plaintiff, will find that the plaintiff has stated a claim. This creates the related risk that due to the undeveloped state of the record, the appellate court will make generalized statements about the viability of the cause of action that will make it more difficult to obtain summary judgment or a denial of class certification later. This risk is most evident where the named plaintiff has alleged facts that, while implausible, would state an individual claim if accepted as true, but where the facts alleged are so individualized to the named plaintiff that they wouldn’t possibly support a common claim on a class-wide basis. In that situation, it is important to at least consider the alternative approaches of attacking class certification or filing a motion for summary judgment on a more well-developed record.
A second common scenario where defendant can obtain early dismissal of a class action is where there is a possible complete legal defense to the plaintiff’s class claims, but the defense is based on an unsettled question of law. In that situation, a win in the trial court may only guaranty years of litigation in the appellate courts rather than putting an end to the dispute. There may be strategic advantages to a defendant testing the legal theory early in the case anyway, but it is always important to consider other approaches. One situation in which the defendant may be better off waiting to raise a potentially dispositive legal defense is where the facts are likely to show that the plaintiff’s claim is baseless as a matter of fact, so that an early motion for summary judgment may be a more efficient alternative.
Of course, there is no set formula for deciding whether to file an early motion to dismiss. Instead, the decision requires an analysis of a variety of different variables that will depend on the specific case. A non-exhaustive list of the factors includes:
- the strength of the legal arguments and the extent to which the law is settled;
- the style and predilections of the trial court judge;
- the extent to which discovery can be limited or stayed if a motion to dismiss is pending;
- the likelihood of reversal given the composition and leanings of the applicable appellate court;
- the existence of alternative defenses, such as those based on facts outside the pleadings;
- the likelihood that the case will survive class certification; and
- the perceived willingness of the named plaintiffs and their attorneys to explore settlement or to abandon the case following an adverse trial court ruling;
- the effect of long-term uncertainty over a challenge to a particular business practice as the case awaits resolution in the appellate courts; and
- the cost of defending the judgment on appeal in comparison to the amount at stake in the litigation.
There are many situations in which the cost and potential long-term risks of seeking an early dismissal are outweighed by the benefits of a quick win in the trial court. But, while filing an early motion to dismiss is always a strategy to consider, it is important to at least consider alternatives that may be only slightly more costly in the short term and may provide a better foundation for a win in the trial court to remain a win forever.
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Jackson v. Unocal – Class Actions Find a Welcome Home in Colorado
Posted in Class Action Decisions, Class Action Trends, Colorado Civil Procedure, Colorado Class Action News, Commentary, tagged bp america, class action, class certification, colorado, colorado supreme court, conditional certification, crcp 23, decertification, dukes, frcp 23, garcia, jackson, medved, patterson, reyher, rigorous analysis, rule 23, state farm, unocal, wal-mart on November 2, 2011| 1 Comment »
Ever since the U.S. Supreme Court issued its decisions in Smith v. Bayer and Wal-Mart Stores, Inc. v. Dukes, I have wondered aloud whether we would start to see a significant divergence between the standards applicable to class certification in the state and federal courts. (See the Parting Thoughts Section of this August 31 SCOTUSBlog Post). My home state of Colorado has been the first to end this speculation, adopting a decidedly more liberal standard for class certification in its decision yesterday in Jackson v. Unocal Corp. than the standards discussed in Dukes and many other lower federal court decisions.
The main holding of the Colorado Supreme Court’s decision in Jackson can be summarized with the court’s statement that:
Jackson, Slip Op. at 18. At first glance, this statement may not seem out of step with the “rigorous analysis” standard commonly recognized by the federal courts. However, the majority’s intentional use of the phrase “to its satisfaction” rather than “by a preponderance of the evidence” makes the Colorado standard a potentially far less exacting hurdle. A large portion of Justice Martinez’s majority opinion is dedicated to explaining why the court chose to make the class certification decision a matter of pure judicial discretion by the trial court rather than a matter of evidentiary proof. The majority opinion makes reference no less than four times to the state’s “policy of favoring the maintenance of class actions” and juxtaposes this policy against a federal policy that the majority characterizes as “limiting class actions.”
Also key to the majority’s analysis was the language of Colorado’s rule 23 allowing the court to make a “conditional” class certification order, language that has recently been removed from the federal rule. Because certification can be tentatively granted and later revoked by the trial court in Colorado, the court reasoned, the applicable evidentiary standard should be more flexible and less definitive than the “preponderance” of the evidence standard applied in most federal courts, where (the Jackson court reasoned) the rule requires a single class certification decision.
The majority addressed two other issues that are closely related to the standard of review. The first was whether a trial court may resolve factual disputes that overlap with the merits of the case. On that issue, the majority reached the relatively uncontroversial conclusion that a court may consider disputes about facts that overlap with the merits, but “only to the extent necessary to satisfy itself that the requirements of C.R.C.P. 23 have been met.” Slip op. at 27.
The second issue was whether the trial court should resolve expert witness disputes in reaching its determination on class certification. On this issue, the court’s holding was nuanced. Although it recognized that the trial court must evaluate the competing experts’ opinions in order to determine whether the evidence at trial can be presented in a way to resolve the class claims through a common set of facts, the majority held that a trial court should not rule on the admissibility of the plaintiffs’ expert’s testimony at the class certification phase. The majority again recognized that this holding was contrary to the holdings of several federal court decisions, but it reasoned that a different standard was justified under the Colorado rule because a trial court had the power to reconsider a preliminary certification order following a pretrial Shreck (the Colorado equivalent of Daubert, not to be confused with Shrek, the surly but loveable ogre) hearing on the admissibility of a plaintiffs’ expert’s testimony. See id. at 31-32.
A strongly-worded dissent from Justice Eid, who was joined by Justice Rice, criticized the decision by stating, in summary, that:
Slip Op. at 1 (Eid, J., dissenting). Justice Eid’s dissent contains a wealth ammunition for academics, commentators, and the courts of other jurisdictions to question the majority’s reasoning. But alas, for litigants in Colorado, it does not have the force of law. So, rather than discuss it in depth, I simply commend it to your reading.
There are a host of questions that arise out of Jackson that will likely be the subject of future litigation in the Colorado courts, and I’ll address a few of them now. However, I’ll apply the Colorado Supreme Court’s class certification standard to the following remarks by saying that they are preliminary and tentative and subject to later reconsideration as the record develops.
Does the Jackson decision mean that trial courts in Colorado should take a “certify first, ask questions later” approach to the certification question?
This is a position that any party seeking class certification will likely take in the wake of Jackson. However, a review of all four companion cases decided by the Colorado Supreme Court on Monday makes clear that this is not a permissible approach. Jackson vests wide discretion in the trial court to grant or deny certification depending on whether the class certification elements are met to the court’s satisfaction, but it also requires the trial court to consider evidence presented by both sides in analyzing whether class treatment is appropriate. These conclusions are reflected by the results in State Farm Mutual Automobile Insurance Co. v. Reyher, in which the court applied its new standard and held that a trial court had acted within its discretion in denying class certification after a rigorous analysis, and Garcia v. Medved Chevrolet, Inc., in which it determined that the trial court had erred by granting class certification without taking into consideration the evidence presented by the defendant showing that individual questions would predominate.
Is the “rigorous analysis” standard meaningless in light of the trial court’s vast discretion under Jackson?
Justice Eid’s dissent argues that the majority’s decision renders the “rigorous analysis” requirement a purely procedural requirement. In other words, as long as the trial court goes through all the motions, the court still has relatively unfettered discretion to grant or deny certification. This may be true as an analytical matter, but as a practical matter, performing the “rigorous analysis” requires the trial judge to think critically about how the trial is actually going to be conducted. It also prevents the trial judge from glossing over what may turn out to be insurmountable practical problems in fairly adjudicating the case through common, class-wide evidence. Thus, even if a “rigorous analysis” is a purely procedural requirement, that does not mean that it will have no impact on the outcome of class certification motions.
Has the Colorado Supreme Court resurrected the pre-Dukes misinterpretation of Eisen as prohibiting any analysis of the merits of the case?
That the answer to this question is no may not be completely clear from the majority’s opinion in Jackson itself, but it becomes clear when Jackson is read in combination with Justice Martinez’s companion opinion in Reyher. While, curiously, the majority opinion in Jackson makes no reference to Dukes, the opinion in Reyher cites Dukes approvingly in holding that a trial court cannot simply accept the plaintiff’s allegations as true. The line that can’t be crossed is that the trial court cannot prejudge the merits, a conclusion that is consistent with the Supreme Court’s recent ruling in Erica P. John Fund, Inc. v. Halliburton Co.
Is class certification now effectively unreviewable in the Colorado appellate courts?
The widely disparate outcomes in the three companion cases decided along with Jackson reflect that appellate review will still have a function after Jackson. An appellate court may clearly find 1) that the trial court conducted a rigorous analysis of the evidence and acted within its discretion in either granting (Jackson, Patterson) or denying (Reyher) class certification; or 2) that the trial court failed to conduct a rigorous analysis of the evidence and therefore the case must be remanded (Garcia). What is less clear is whether there ever going to be circumstances in which an appellate court could find that a trial court performed a rigorous analysis but abused its discretion in deciding the outcome of the class certification motion, and whether, if so, the appellate court could dictate the result of the class certification motion rather than remanding that decision to the trial court.
What are the practical implications of Jackson?
There many potential practical implications of the Jackson decision. First, the standard in Colorado is clearly less stringent than the federal court standard. This raises the prospect that plaintiffs will view Colorado as a favorable forum for class action litigation, and it will almost certainly raise the stakes in battles over forum selection and federal jurisdiction. Moreover, given the trial court judge’s broad discretion over the class certification, the particular leanings and predispositions of the trial court judge become pivotal in the likely success or failure of a class action.
Second, the court’s emphasis on the tentative nature of class certification decisions under Colorado Rule 23 means that even once they are certified, class actions in Colorado are likely to be subjected to repeated efforts at decertification as the case progresses.
Third, the emphasis on the “rigorous analysis” standard increases the likelihood that, despite the lack of a clear standard for resolving the issue, class certification will necessitate a mini-trial involving the presentation of live witnesses and a fully-developed record, likely increasing the cost of discovery and the class certification process itself.
On the other hand, none of these potential impacts would be a drastic change from the way that class actions are already being litigated in the Colorado Courts. Parties already fight over removal and forum selection, courts already conduct evidentiary hearings on class certification motions, and defendants already make repeated efforts at decertifying a class. Thus, the legacy of Jackson may ultimately be merely to validate the existing customs and practices for litigating class actions in Colorado.
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