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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.

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The Class Actions, Mass Torts and Derivative Suits Subcommittee of the Colorado Bar Association, now ably chaired by my BakerHostetler partner, Casie Collignon, held its first CLE luncheon of the year this past Friday.  The program, United States Supreme Court vs. Class Actions in 2013, featured excellent commentary about the Supreme Court’s 2013 class action decisions by The Honorable Marcia Krieger, Chief Judge, U.S. District Court for the District of Colorado, Seth Katz of Burg Simpson, and John Fitzpatrick of Wheeler Trigg O’Donnell.  Here are just a few of the many insightful observations made by each of the speakers:

Judge Krieger opened by observing that none of the cases this term have been a surprise from the standpoint of what a trial court judge would have expected given existing law.  Amgen was predictable because the question of materiality in a securities fraud case is unquestionably a common issue, so it is not surprising that it is a question for trial, not a prerequisite for class certification.  Standard Fire can be viewed as a straightforward application of agency law: a plaintiff cannot bind a class of people that he or she doesn’t yet represent.  Comcast exemplifies the importance of examining the plaintiffs’ theory of liability and the relationship to the theory of loss.  Damages are not the same as loss.  The theory by which the plaintiff establishes loss determines the measure of damages.

When asked to identify any trends that she has been seeing in class actions recently, Judge Krieger identified issue certification as a key trend.  She has been seeing more situations where the factual issues may be individualized but there are common legal issues that can be resolved classwide.  She noted that she has been inclined to grant partial certification limited to the common legal issue(s) in that situation.

From the plaintiffs’ perspective, Katz agreed that the outcome of Standard Fire was not surprising, and he went as far as to say that the outcome was correct, noting that plaintiffs’ attorneys shouldn’t be afraid of the federal courts.  Although the holding of Amgen was favorable to plaintiffs, Katz noted an issue that should be of great concern to plaintiffs, and that is the commentary from the conservative wing of the court suggesting that they might be willing to revisit the fraud-on-the-market presumption adopted in Basic Inc. v. Levinson.  Katz sees the potential of a 4-4 split on that issue, with Chief Justice Roberts being the deciding vote.  He predicts market studies being commissioned by both sides over the coming years to demonstrate or disprove the continued efficiency of the markets.

Comcast, Katz noted, caused a collective sigh of relief in the plaintiffs’ bar because it does not go as far as many would have feared by requiring Daubert hearings at the class certification phase.  He noted that one positive impact for plaintiffs arising from the “death of Eisen” (the rejection in decisions like Wal-Mart and Comcast of the idea that merits questions were off-limits at the class certification phase) is that it gives plaintiffs’ counsel an opportunity to obtain merits discovery much earlier in a case than was allowed previously.  On the other hand, Katz expressed fear about the possibility that the Court is trying to raise the bar for plaintiffs with a subtle change in the language about what common proof is necessary on the issue of damages.  Where earlier decisions required that damages be “susceptible to classwide proof,” the Comcast majority phrased the standard as requiring the plaintiff to “prove classwide damages.”  Katz predicts that defendants will argue that this means damages must be uniform, as opposed to simply being susceptible to formulaic calculation.  He noted, however, that the few lower courts that have interpreted Comcast so far have rejected a broad application of the decision.

Fitzpatrick combined philosophical commentary about the evolution of class actions with some practical tips for defense lawyers.  Standard Fire, he argued, is proof that judicial hellholes still exist.  He pointed to Amgen as an example of the dangers of accepting conventional wisdom, pointing out that the outcome in that case might well have been different if the defendants had stipulated to the existence of an efficient market.

Comcast, Fitzpatrick said, provides an opportunity for defendants to prevail at the class certification stage by discrediting a plaintiffs’ expert.  Focus not just on the opinions themselves, he suggested, but also on 1) the existence of bias; 2) the expert’s credentials, and 3) flaws in the methodology.  Scour the country for transcripts about the plaintiffs’ experts.  Look at misstatements and exaggerations in the expert’s CV.  Make sure you find and read all of their prior statements in books, media, and transcripts.  Just as important, Fitzpatrick reminded defense practitioners, is the make sure to prepare your own experts for class certification.

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It’s not too late to sign up for tomorrow’s Strafford Publications Webinar Class Certification After Dukes, Bayer and Halliburton Rulings.   As a preview, here is a copy of the written materials for my portion of the presentation, Opposing Class Certification After Dukes, Bayer and Halliburton.  I hope you can make it.

 

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I’m embarrassingly late in reporting on them, but I would be remiss if I did not mention two key recent United States Circuit Courts of Appeals decisions addressing the legal standards governing class certification under FRCP 23:

In American Honda Motor Co. v. Allen, No. 09-8051 (7th Cir., April 7, 2010) the Seventh Circuit held that a district court abused its discretion by failing to conduct a Daubert inquiry into the admissibility of expert testimony before relying on that testimony in determining that the plaintiff had met his burden of establishing the elements of class certification. 

Meanwhile, in Dukes v. Wal-Mart Stores, Nos. 04-16688 and 04-16720 (9th Cir., April 26, 2010) (en banc), the Ninth Circuit Court of Appeals clarified that circuit’s standards for conducting the “rigorous analysis” necessary to determine whether the elements of Rule 23 are satisfied.  Following extensive discussion of the history of class certification standards both outside and within the Ninth Circuit, the court articulated class certification standards that essentially mirror those recognized in the Second Circuit’s decision in In re IPO Securities Litigation, 471 F.3d 24 (2d Cir. 2006).  However, applying those standards, the court came to a very different result, affirming certification of a nationwide class of thousands of female employees seeking injunctive and declaratory relief, back pay, and punitive damages arising out of allegedly common, discriminatory employment practices.

Both decisions are worthy of careful reading and study, and you will no doubt hear more about both decisions in the weeks and months ahead.

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While doing some research today on another issue, I came across this news clipping from the May 3, 1973 issue of the St. Petersberg Times discussing a federal court of appeals decision in a class action decided a few days before. 

The article begins:

NEW YORK – A three-judge panel of the U.S. Court of Appeals ruled here Monday that a person who files a class-action suit must pay the cost of notifying each person on behalf of whom the suit was brought – even if that means notifying millions of people.

The decision, handed down by Judges Harold R. Medina, J. Edward Lumbard and Paul R. Hays, could, if it stands, bring an end to mass class-action lawsuits.

The decision, Eisen v. Carlisle & Jaquelin, 479 F.2d 1005 (2d Cir. 1973), ultimately did stand.  The United States Supreme Court, in Eisen v. Carlisle & Jaquelin, 417 U.S. 156 (1974), agreed with the Second Circuit panel’s holding that the plaintiff must be required to bear the cost of class notice.  However, in reaching that conclusion the Court created a rule that would for decades become a key argument by plaintiffs in support of certification in class actions: that it is improper for a trial court to consider the merits of the plaintiff’s claims in evaluating class certification.  See Generally Geoffrey P. Miller, Review of the Merits in Class Action Certification, 33 Hofstra L. Rev. 51 (2004).  In this way, the decision, in an odd way, actually contributed to the explosion of class actions between the late 1970s and early 2000s.  Several key recent federal decisions, including In re IPO Securities Litigation, 471 F.3d 24 (2d Cir. 2006) and In re Hydrogen Peroxide Antitrust Litigation, 552 F.3d 305  (3d Cir. 2008), reflect an erosion of what was previously considered by many authorities to be a hard-and-fast rule preventing any consideration of the merits at the class certification stage.  This interpretation had caused many courts to gloss over practical problems posed by certification of cases in which certification was only arguably appropriate if one accepted the plaintiff’s bare allegations on issues of fact.

So, aside from perhaps marking the end of the use of a hyphen between “class” and “action,” the Second Circuit’s decision in 1973 did not mark the end of anything.

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