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Posts Tagged ‘decertification’

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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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:

A trial court must conduct a rigorous analysis of the evidence and find to its satisfaction that each C.R.C.P. 23 requirement is established.

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:

the majority’s standardless approach makes class certification in Colorado essentially unreviewable by appellate courts and raises serious procedural due process concerns.

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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This article is about defending against class certification based on illogical, circular arguments in support of an oversimplified “one-size-fits all” legal theory based on an amalgam of facts that don’t describe any one class member’s actual experience.  (In other words, many defense lawyers would say, it’s about what you face in all class actions.)  Most class action defense lawyers are aware of numerous procedural devices that can be used challenge–and keep challenging–class certification, from the moment the case is filed until after the verdict is rendered.  A well-versed defense lawyer can also see all the fallacies in the plaintiff’s argument and the manageability nightmare posed by the prospect of trying the would-be class claims from the vary first reading of the complaint.  Armed with this knowledge, the defense lawyer knows the science of how to challenge certification.  But there is also an art to defending class actions, and part of the art is in knowing whether to challenge class certification at each available opportunity.  Of course, because this is about the art and not the science, there is no single answer to this question, but below I have tried to sketch out some of the possible considerations in making the decision to use various different procedural devices at different phases of the litigation. 

Motion to “Strike” Class Allegations

A motion to “strike” class allegations can refer to any preemptive motion challenging the viability of the case as a class certification even before a motion for class certification is filed.  One consideration in deciding whether to file a motion to strike class allegations is the standard of review that will be applied by the court.  Depending on the jurisdiction, how the motion is raised, and the predilections of the judge, a motion to strike class allegations may be reviewed under a variety of standards ranging from the “rigorous analysis” standard applicable to class certification motions, the “well-pleaded complaint” rule applicable to FRCP 12(b)(6) motions, or the “immaterial, impertinent, or scandalous” standard applicable to a motion under FRCP 12(f).  

As a practical matter, it is important to consider whether the record is sufficiently developed to permit a decision that class treatment is inappropriate.  Although failure on a motion to strike class allegations does not foreclose the ability to challenge certification in later proceedings, filing the motion too early in the case can backfire.  An undeveloped record can help the plaintiffs because it allows them to rely on supposition or speculation about what the common facts and legal issues might be.  If the judge denies the motion to strike class allegations because the issue is not sufficiently developed, he or she may then develop a preconception that class certification is appropriate.  For that reason, it is sometimes better to keep one’s powder dry and wait until class certification except in cases where the barriers to certification are obvious from the face of the complaint itself.  A motion to strike class allegations can be useful, however, when a plaintiff drags his feet in seeking class certification.

Response to a motion for class certification 

There are not many situations in which a class action defendant will not want to object to the motion for class certification when it is filed.  However, there are few strategies short of a complete objection that might be appropriate in certain cases.  One is to consent to class treatment on limited issues.  Issue certification, although not often applied in practice, is expressly permitted under FRCP 23(c)(4) (“When appropriate, an action may be brought or maintained as a class action with respect to particular issues.”).  This strategy may be useful when there are certain common threshold legal or factual questions that, if resolved in the defendant’s favor, can end the litigation short of a full trial on the merits.  Certification of issues can allow the defendant to obtain a collateral estoppel effect of a favorable decision on those issues, as to the entire class.  FRCP 23(c)(4) can also be a useful tool to combat a common plaintiff’s strategy in which the plaintiff relies on a few legal or factual issues that are indisputably common in an attempt to justify class treatment of an entire claim that would require resolution of facts or issues that are clearly not common.

Motion to reconsider class certification

Many of the considerations in deciding to move to reconsider a class certification order are the same as in moving to reconsider any other trial court order.  However, class certification orders are inherently preliminary and subject to change.  Given the court’s on-going obligation to assess the appropriateness of certification, the court should at least theoretically give the motion more thoughtful reconsideration than it might other motions.  Arguments that go beyond a mere claim of unfairness to the defendant in having to defend against class claims, such as the argument that the certification order will lead to manageability problems, may have a greater likelihood of success than a run-of-the-mill motion to reconsider.  Other factors to consider in deciding whether to move to reconsider a class certification order may include:

1) What are the prospects for appeal?  Will moving to reconsider simply give the judge a chance to correct any obvious errors in the class certification analysis but still reach the same outcome?

2) Is the judge someone who is ever apt to reconsider his or her orders?  A big part of the strategy at this phase or any other phase is to know the judge’s tendencies and disposition as well as possible.  Some judges will deny motions to reconsider out of hand.  Some will give every motion careful consideration regardless of how many times the same issue comes before them.  (I have had judges who seemingly reversed course multiple times on the same issue in the same case).  Still other judges are so unpredictable that every motion seems like a roll of the dice. 

3) Are there clear logical, legal, or factual errors in the court’s analysis that might be outcome-determinative?  By “clear” error here, I’m not referring to any particular standard of appellate review.  I mean, as a practical matter, is the error clear enough that a judge is likely to admit it herself.

 4) Might further development of the factual record improve the likelihood of success later?  You may note that this is a recurring theme.  See the section below on motions to de-certify.

Rule 23(f) appeal 

Whether interlocutory appeal is available at all in state court class actions will vary from state to state.  These days, Rule 23(f) will apply to allow discretionary interlocutory appeal in most federal class actions, although the standards for accepting discretionary appeal differ from circuit to circuit.

When it is available, interlocutory appeal of a class certification order is never mandatory, so there are still a few factors to consider before deciding to appeal.  Many are the same as those discussed above with respect to motions to reconsdier.  In particular, the defendant should consider whether the odds of decertification by the trial judge after the case is more developed might be greater than the odds of successfully appealing the initial order.  If so, it might be better to wait, since an unfavorable ruling by the appellate court will only serve to solidify the class certification order in the judge’s mind and further embolden class counsel.

Motion requiring class counsel to submit a trial plan

A trial plan is a document that may describe, among other things, the the claims and theories of liability, the witnesses and evidence that will be used to prove those claims, and how the presentation of evidence on behalf of the class will proceed.  For a defendant, it can be a useful tool in bringing to light practical manageability problems in adjudicating the claims on a classwide basis.  In some states, a trial plan is a requirement, but it most courts, it is simply something that a judge may order in his or her discretion as part of his or her inherent authority over management of the case.  However, in jurisdictions in which there is no express rule or precedent, it may be difficult to educate a judge about what a trial plan is or why it may be useful in ensuring that the case is manageable as a class action for trial.  Therefore, a defendant has two hurdles to overcome in getting the judge to order a trial plan; 1) explain what a trial plan is, why it is different than a scheduling or trial management order, and why it might be useful; and 2) then convincing the judge to exercise his or her discretion to order one.

Motion to decertify

A motion to decertify can be a powerful weapon if timed properly.  The court has the power and obligation to continue to reassess certification, and as trial approaches, the rubber starts to meet the road.  The plaintiffs’ theories have to solidify, and the factual record is complete.  Now that trial is approaching, presumably the plaintiffs have had to settle on one or more legal theories, and the factual record is finally developed.  It should be much easier at this point to articulate the fallacies in the plaintiff’s theories, and give specific examples showing why the trial is either going to be unmanageable or unfair to the defendant.

The big factor in filing a motion to decertify is timing.  The case has to be developed enough to convince the judge that it isn’t what the plaintiffs promised in the original class certification, but not so close to trial that the case has reached the point of no return in the judge’s mind.

The success or failure of a motion to decertify will also depend to some extent on the law of the jurisdiction on what types of changed facts or other circumstances are necessary to justify the motion.  In Colorado, the Supreme Court’s recent decision in Farmers Ins. Exchange v. Benzing, 206 P.3d 812 (Colo. 2009) addresses this issue.

“Halftime” motion at trial

For many practitioners, the idea of challenging certification at trial may be more of an academic discussion than anything, since it is so rare for a class action to reach the trial phase.  However, in the few cases that have reached the trial phase, it will finally be time for the plaintiffs to put their money where their mouths were at the certification phase and actually prove their claims by common evidence.  It may be that when the evidence is finally introduced, it only proves the individual class representatives’ claims, or is so general that it doesn’t prove one or more elements of the claims of anyone.  The same arguments that supported denial of class certification should now have come into clear focus, and there is no longer any room for debate about what the evidence “might” show in order to justify class treatment.  Thus, on issues of typicality, commonality, and predominance, where the judge may have given the plaintiffs the benefit of the doubt at the certification phase, after the evidence is presented, the judge may now be bound to conclude that these elements of class certification are not in fact satisfied.

However, there are a number of strategic reasons why a defendant would not want to file a halftime motion challenging the appropriateness of the class certification order, including a) the jury appears favorable to the defendant; or b) the plaintiffs’ presentation of their case-in-chief was weak.  These considerations may especially be important if there is a possibility of individual litigation if the class is decertified.  Instead of formally challenging certification at this phase, a better strategy may simply be to seek a judgment as a matter of law that the class failed to prove its claims because it did not prove them by common evidence.  In this way, the defendant may get a binding judgment precluding all future litigation on the issue rather than simply an end to the litigation at hand.

Post-trial motions and appeal of an adverse verdict in favor of a certified class

Thankfully, I’ve never been faced with this situation, so I can only offer this obvious guidance: You should probably challenge the certification order if you get this far!

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While browsing the news today, I came across an informative class action-related snippet on www.lexology.com apparently authored by someone at my firm.  (I’m not sure specifically whom to credit for the tip, I just know it wasn’t me.)  The article summarizes a January 2010 decision authored by Seventh Circuit Court of Appeals Judge Richard Posner regarding the impact of a denial of class certification under the Class Action Fairness Act.  The case is Cunningham Charter Corp. v. Learjet, Inc., 592 F.3d 805 (7th Cir. 2010).  A full copy of the opinion is available courtesy of the good folks at the CAFA Law Blog.  Here’s a link to the Baker Hostetler article.

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Conventional wisdom says that for a defendant, class certification is to be avoided at all costs, and many defendants may assume that the best strategy for dealing with a certified class, short of settlement, is to find a way to get the class decertified.  But it’s important to remember that a class action judgment has a preclusive effect on all class members if the defendant wins. 

As a result, a defendant should always at least consider whether filing a dispositive motion or simply defending the case on the merits at trial may be a better strategy than seeking decertification.  This may especially be true where there is a risk that individual plaintiffs will pursue their own suits even if the class action is not successful.  If so, a successful defense of the class action may prevent even greater exposure, or at least the significant defense costs associated with defending numerous individual cases.

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