Feeds:
Posts
Comments

Posts Tagged ‘fifth circuit’

Editor’s Note – This article is a joint submission to CAB and the BakerHostetler Class Action Lawsuit Defense Blog.  Please visit our firm’s blog for more riveting class action-related content.

A definitive ruling on whether courts may certify class actions to decide discrete issues, as opposed to cases or claims, will have to wait.  Last Monday, the United States Supreme Court denied a writ of certiorari to review the Seventh Circuit Court of Appeals’ ruling in McReynolds v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 672 F.3d 482 (7th Cir. 2012).

In McReynolds, which was decided after the Court’s ruling in Wal-Mart Stores, Inc. v. Dukes, the Seventh Circuit had reversed a denial of certification of a class in a disparate impact employment discrimination case, holding that a class could be certified for the limited purpose of resolving the issue of whether a specific policy of the Defendant created an unlawful disparate impact on black stock brokers.  For a more detailed summary of Judge Posner’s decision in McReynolds, see Deborah Renner’s March 1, 2012 CALD post.

The issues that had been presented for review by the Supreme Court were as follows:

(1) Whether the Seventh Circuit’s certification of a disparate impact injunction class conflicts with this Court’s decision in Wal-Mart Stores, Inc. v. Dukes, which rejected certification of a nationwide class that, like this one, asserted disparate impact claims based on employment policies requiring the exercise of managerial discretion; and

(2) whether the Seventh Circuit erred in holding, in conflict with other circuits, that Federal Rule of Civil Procedure Rule 23(c)(4) permits class certification of a discrete sub-issue when the claim as a whole does not satisfy Rule 23(b) and hundreds of individual trials would be needed to determine liability.

The denial of certification means that the lower federal courts will be left to decide whether and under what circumstances “issue certification” is permitted.  A procedural tool not often applied in practice until recently,  issue certification, at least in some form, 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.”).  However, a common question that arises in the interpretation of this language, and the one that had been presented for review in McReynolds, is whether issue certification is permitted when the resolution of the issue certified would not eliminate the need to resolve individualized issues before any claim could be resolved.

The federal circuits are split on whether issue certification is allowed to resolve discrete issues short of a full claim.  The Fifth Circuit has not allowed issue certification in a class action for damages where predominance cannot otherwise be satisfied, and it has not allowed issue certification in a class action for injunctive or declaratory relief in cases when monetary relief is the predominant relief sought.  Castano v. American Tobacco Co., 84 F.3d 734, 745 n.21 (5th Cir. 1996) (“[a] district court cannot manufacture predominance through the nimble use of subdivision (c)(4).”); Allison v. Citgo Petroleum Corp., 151 F.3d 402 (5th Cir. 1998).  [Ed. Note: just before the Supreme Court denied the petition for certiorari, in McReynolds, the 5th Circuit issued its decision in Rodriquez v. Countrywide Home Loans, Inc., No. 11-40056 (Sept. 14, 2012), a case that the McReynolds plaintiffs argued in supplemental briefing to the Supreme Court eliminated the Circuit split.  In Rodriguez, the 5th Circuit approved of the use of Rule 23(c)(4) to certify a class for the purpose of resolving injunctive and equitable relief, leaving damages for a different proceeding].  The Second Circuit has been more open to issue certification. Robinson v. Metro North Commuter,  R.R. Co., 267 F.3d 147 (2d Cir. 2001) (holding that “litigating the pattern-or-practice liability phase [of a disparate treatment discrimination case] for the class as a whole would both reduce the range of issues in dispute and promote judicial economy”); In re Nassau County Strip Search Cases, 461 F.3d 219 (2d Cir. 2006) (holding that “a court may employ Rule 23(c)(4) to certify a class on a particular issue even if the action as a whole does not satisfy Rule 23(b)(3)’s predominance requirement.”). The approach taken by Judge Posner in McReynolds generally follow the Second Circuit’s approach by allowing issue certification even where predominance would not be satisfied with respect to the claim as a whole.

An interesting feature of issue certification is that unlike full-blown class certification of a claim or case, issue certification does not necessarily put a defendant at risk of catastrophic liability in a single stroke, because any individualized defenses to liabilty on the claim as a whole may still be available even after the common issue is decided.  On the other hand, it is this feature that often begs the question whether issue certification has any utility in materially advancing litigation that will inevitably require individualized proceedings before reaching finality.  It also leaves the procedure vulnerable to a great risk of misinterpretation and abuse, which may explain the Fifth Circuit’s skepticism.  Plaintiffs may seek and courts may grant issue certification on the mistaken impression that to certify part of a class will hasten the resolution of litigation.  Defendants may fear issue certification based on a mistaken belief that certification of even part of a class action puts them at risk of aggregated liability.

The real question with issue certification tends to be whether formally certifying an issue for class-wide treatment creates any practical efficiency that materially advances litigation.

In many cases, there are legal issues, the answer to which indisputably have class-wide implications, but the question arises whether formal certification of these issues is even necessary.  For example, common legal issues are often resolved in a preliminary motion.  Even if these issues are not resolved on a class-wide basis after a formal order of certification, their resolution has a practical class-wide effect.  Examples would be decisions on the interpretation of a particular statutory provision.  For example, does the statute confer a private right of action?  Is proof of injury required as an essential element of a statutory claim? Whatever the initial court’s decision on this type of issue is likely to have a practical impact on any later litigation, so the resolution of the issue in the first case to address it tends to have a practical impact on any other affected litigants that usually avoids the need for duplicate litigation on the same issue.

In other cases, resolution of issue, however indisputably common, can often bring the litigation no further to conclusion.  For example, in products liability case against a tobacco company, resolution of the factual issue whether cigarettes cause cancer probably does not move most cases closer to resolution because the primary issue in the case is going to be whether cigarettes caused the plaintiff’s cancer.

A big problem with issue certification is that resolution of important issue in a vacuum, without proper context, can have disastrous and unfair consequences later in a case. Answering the question whether the defendant was “negligent” is a problem in most cases becuase the question of “negligence usually depends not simply on whether the defendant breached an applicable standard of care, but also whether that breach caused injury to the plaintiff.  So, certifying the question of “negligence” is usually inappropriate due to the necessity to resolve individualized questions of fact.  Unless the question on which the class is to be certified is very well defined, certification in these types of case can create serious problems.  Certification of whether the defendant breached an applicable standard of care may be a more appropriate question for certification, but only if resolution of that question could materially advance the litigation to a resolution.  In many cases, as in the tobacco example noted above, certifying a preliminary question of “breach of the standard of care” does not create any real efficiencies in the litigation as a practical matter.

Thus, there are serious questions whether issue certification has any social utility in many cases.  However, not only are there situations in which issue certification is not only beneficial from the perspective of judicial economy, but there are also situations in which issue certification can be used by a defendant to its own advantage.  They include:

1) a case in which certification appears imminent, despite the presence of individualized issues; in these cases, issue certification provides a an alternative to full blown certification in a way that may preserve the defendant’s ability to avoid having a determination of mass liability in a single case or the defendant’s ability to raise important individualized defenses.

2) to illustrate the analytical and manageability flaws in certification of an entire case or claim.  In some cases, pointing out issue certification as an option may serve not only to provide an option short of full-blown certification, but also to show to the court how certification of merely the issues that are truly common may not create any real efficiency in resolving the litigation.  In these cases, pointing out that issue certification is an option may serve to avoid class certification in its entirety.

Read Full Post »

Editor’s Note: The following is a post that I contributed to the Baker Hostetler Class Action Lawsuit Defense Blog.  Please be sure to visit the firm’s blog for more great class-action related content!

What to do with unclaimed settlement funds is a common problem facing class action litigants.  There are at least four methods of distributing unclaimed settlement funds:  (1) reversion of unclaimed funds back to the defendant; (2) payment to those claimants who did make claims on a pro rata basis; (3) letting the funds escheat to the state; and (4) a cy pres award to a charitable organization.  All of these methods have been the subject of criticism, but the practical reality is that something has to be done with funds from a class action settlement that are not claimed by class members.

Recently, the First Circuit Court of Appeals issued a decision that outlines the circumstances under which a court may approve a cy pres distribution of unclaimed settlement funds.  In In re: Lupron Marketing and Sales Practices Litigation, Case Nos. 10-2494, 11-1329 (1st Cir., Apr. 24, 2012), the parties had agreed to a provision that gave the trial court discretion on the distribution of any unclaimed funds from a settlement of claims alleging overcharging for the medication Lupron.  The Court had ordered that $11.4 million in unclaimed funds be distributed to a non-profit cancer center for the purpose of treating diseases for which Lupron was commonly prescribed.  Although the First Circuit expressed “unease with federal judges being put in the role of distributing cy pres funds at their discretion,” it found that the trial court had not abused its discretion.

In reaching this decision, the First Circuit adopted the “reasonable approximation” test for evaluating whether a district court’s cy pres award constitutes an abuse of discretion.  Under the “reasonable approximation” test, which had previously been applied by the Seventh, Eighth, and Ninth Circuits, the Court looks to whether the cy pres distribution is to a recipient that reasonably approximates the interests being pursued by the members of the class.  The Court listed a number of non-exclusive factors to be considered in making this determination:

(1)        the purposes underlying statutes claimed to have been violated;

(2)        the nature of the injury to the class members;

(3)        the characteristics and interests of the class members;

(4)        the geographic scope of the class;

(5)        the reasons why the settlement funds have gone unclaimed; and

(6)        the closeness of the fit between the class and the cy pres recipient.

The opinion more generally has an interesting discussion of some of the policy arguments for and against each potential alternative method of disposing of unclaimed funds.  Relying on the American Law Institute’s Principles of the Law of Aggregate Litigation, the First Circuit rejected the presumption suggested by the concurrence in Klier v. Elf Atochem North America, Inc., 658 F.3d 468 (5th Cir. 2011), that any residual funds in a class action settlement should be returned to the defendant.  The Court also cited the ALI Principles in rejecting escheat to the state as the preferred option of disposing of unclaimed settlement funds.  The opinion lists a variety of policy reasons why unclaimed funds should not be given pro-rata to the claimants who do participate, including that this method creates a windfall and leads to perverse incentives to prevent participation in a settlement by absent class members.

Like the Fifth Circuit’s decision in Klier last year, the First Circuit’s decision in In re: Lupron Marketing and Sales Practices Litigation illustrates the need for parties to be specific in the settlement agreement about the means of distributing unclaimed settlement funds.  Failure to take care in specifying how unclaimed funds are to be distributed can lead to additional unwanted and expensive litigation with objectors, and can force the court to make a public policy-driven decision that may be inconsistent with the desires of both parties to the settlement.

Read Full Post »

The Baker Hostetler class action practice team issued a new Executive Alert today authored by Columbus Partner Mark Johnson entitled Fifth Circuit Restricts Cy Pres Doctrine in Class Action Settlements.  The alert discusses the Fifth Circuit’s recent decision in Klier v. Elf Atochem North America, Inc., restricting the use of the cy pres doctrine to distribute unclaimed class action settlement funds in the absence of express terms in the settlement agreement.

Read Full Post »

Having been focused on several other speaking and writing projects recently (in addition to my day job), it’s taken longer than I had hoped to comment on several recent class-action-related decisions by the federal circuit courts of appeals.  Here’s a brief summary of three recent decisions of note:

Washington State v. Chimei Innolux Corp., No. 11-16862 (9th Cir. Oct. 3, 2011) – joining the Fourth Circuit in holding that a parens patriae action brought by state attorneys general or other state officials for the benefit of the state’s citizens is not a “class action” for the purposes of removal under the Class Action Fairness Act (CAFA).

Klier v. Elf Atochem N. Am., Inc., No. 10-20305 (5th Cir., Sept 27, 2011) – holding in the absence of an express provision in the settlement agreement to the contrary that unclaimed funds should be distributed pro rata to class members who participated in the settlement as opposed to being given to charity as a cy pres distribution.  Take note of the concurrence by Judge Edith H. Jones, which makes a strong argument that in the absence of any agreement to the contrary or express waiver of the right to recover unclaimed funds, the equities favor returning those funds to the defendant rather than paying them to the class or distributing them to charity.

Esurance Ins. Co. v. Keeling, No. 11-8018 (7th Cir., Sept. 26, 2011) – holding that when punitive damages are at issue, the correct standard is whether it would be “legally impossible” for the plaintiff to recover an amount of punitive damages that, when combined with the amount of compensatory damages sought, would exceed the $5 million amount in controversy threshold under CAFA, but concluding that it was not legally impossible under Illinois law, even though it was unlikely, that $4.4 million in punitive damages could be awarded in a case where the compensatory damages were slightly more than $600,000.

A great resource for more timely commentary and analysis on recent class action decision in the federal courts of appeals is Alison Frankel’s blog On the Case.

Read Full Post »

Just when we were starting to think that 2011 might mark the end of the great American class action…

Today, the Supreme Court issued a unanimous decision reversing a denial of class certification in the securities class action Erica P. John Fund, Inc. v. Halliburton Co., No. 09-1403, slip op (June 6, 2011).  In the opinion, authored by Chief Justice Roberts, the Court held that the Fifth Circuit Court of Appeals had erred by requiring a securities fraud plaintiff proceeding under a “fraud on the market” theory to prove loss causation as a prerequisite to class certification. 

The decision does not necessarily mean that class certification will be granted, however.  It just means that the denial of class certification cannot rest on the conclusion that the plaintiff failed to prove loss causation at that stage.  The case will be remanded to the Fifth Circuit, which may consider any other arguments against class certification to the extent that they have been preserved by the defendant.  See Slip Op. at 9.

Read Full Post »