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Posts Tagged ‘preclusion’

This is the second of what will be six posts summarizing my notes of the six presentations at the ABA’s 16th Annual Class Actions Institute held last month in Chicago.  For more on this excellent conference, see this October 31, 2012 CAB Post.

Session 2 addressed a topic of great relevance to all class action practitioners, regardless of the subject matter area of practice.  It was entitled “The Class Definition That Works . . . or Does It?” Strategies for Pleading and Attacking Class Definitions;  The Most Basic and Most Ignored Step in a Class-Action Lawsuits Success or Failure.  The panel of academics, judges and practitioners discussed recent developments in the state and federal courts regarding the requirements for a class definition.  They also discussed practical tips for plaintiffs in articulating a class definition that will withstand attack at the class certification stage, and practical tips for defendants in defeating class certification by attacking the plaintiff’s choice of class definition.  Program Chair Daniel R. Karon moderated the panel discussion, which consisted of The Honorable James G. Carr, Bart D. Cohen, Donald Frederico, Professor Dean Robert Klonoff, Sabrina H. Strong, and Ranae D. Steiner. 

Here are some highlights of the pointers made by the panel during the presentation:

  • Many courts have accepted several additional elements as implicit under Rule 23 and similar state rules of civil procedure, including that the class definition be sufficiently clear and narrow so that the class is ascertainable and not overly broad.  These requirements are implied in order to ensure 1) that the class can be identified from a practical perspective; 2) that the defendant has notice of the claims being made against it and by whom those claims are being made; and 3) that the court can manage the litigation.
  • These issues can also be expressed through the other, express Rule 23 elements.  For example, if a class is not ascertainable, then there is no basis to conclude that numerosity is present.  Similarly, an inability to distinguish class members who have a claim from those who do not should lead the court to conclude that common issues do not predominate.
  • Many trial judges would prefer to consider issues relating to the class definition in terms of the express Rule 23 elements rather than by accepting addition, implicit requirements.
  • Rather than declining to certify altogether, courts are often willing to work with plaintiffs’ counsel to try to come up with alternative class definitions that resolve problems associated with a class as originally proposed.
  • Because most judges are not dealing with these types of issues on a daily basis, the involvement of counsel on both sides is essential to the judge’s well-reasoned evaluation of the potential legal and practical problems with the proposed class definition and whether those problems can be remedied without violating the rights of the defendant or absent class members or overburdening the court.

The panel grouped issues relating to class definitions into various categories.  The panel discussed each of these categories in reference to an example case.  In many instances, the categories overlap, and the example cases often illustrated more than one of the categories.  I have listed below, for each category, the key problems, the example case(s) discussed by the panel, and my notes on insights offered by panelists:

Lack of objective criteria for class membership

Issue – Membership in the class depends on criteria that cannot be established without looking at each class member individually.

Example –  Solo v. Bausch & Lomb Inc., MDL No. 1785, 2009 WL 4287706 (D.S.C. Sept. 25, 2009):  In class action seeking compensation for the lost value of tainted contact lens solution that purchasers were encouraged to dump out as part of a product recall, class defined as consisting of all purchasers who “lack[ed] full reimbursement” for the value of the solution purchased.

Notes – fixes proposed by panel members included 1) Expand definition to remove individualized issues, e.g. “all who purchased”, but this could create overbreadth problems; 2) create subclasses based on date of purchase, and estimate likely amount of consumption for members in each subclass.

Vagueness

Issue – The class definition is too vague and indefinite to determine who is in the class.

Example – Heisler v. Maxtor Corp., No. 5:06-cv-06634, 2010 U.S. Dist. LEXIS 125745 (N.D. Cal. Nov. 17, 2010): Class defined as anyone who experienced a hard drive “failure.”  The problem was determining what constituted a “failure” and limiting that phrase to failures caused by the alleged product defect. 

Notes – The Maxtor case provides an example of a decision where the court preferred to characterize the issues in relation to the express Rule 23 requirements.  The case also illustrates a common problem in cases where causation may be an issue.  By trying to limit class membership to only those individuals who suffered harm, the plaintiffs created a vagueness problem.

Failsafe Class

Issue – Class definition includes only those individuals who will ultimately prove their claims on the merits, so that class membership is not determined until a decision on the merits occurs.  The main problem with failsafe class is that it puts the defendant in a lose-lose situation.  Either the class wins at trial, binding the defendant to a classwide judgment, or the defendant prevails but gets no preclusive effect against absent class members.

ExampleNudell v. Burlington N. & Santa Fe Ry. Co., 2002 WL 1543725 (D.N.D. 2002): The court denied certification after determining that class membership hinged on class members’ ability to prove all of the factual issues that would prove their claims on the merits, including that they owned land abutting a railroad easement, that they did not give consent to the placement of utility cables on the easement, and so on. 

Notes – The problem in Nudell may have been due to a failure to develop the record sufficiently to convince the court that class membership could be determined based on objective criteria.  This is an example of a case where problems with the class definition could be remedied.  The case ultimately settled on a classwide basis after the class was re-defined.

Overbreadth

Problem – Class includes members who did not suffer injury or who have no legal right to recover.

ExamplesSanders v. Apple Inc., 672 F. Supp. 2d 978 (N.D. Cal. 2009): In action for deceptive advertising, class definition included all persons who “own” a 20-inch iMac.  The court found this definition overly broad because it included individuals who didn’t purchase the product and those who weren’t deceived by the advertising.  Anderson v. United Fin. Sys. Corp., 281 F.R.D. 292 (N.D. Ohio 2012): Class was found to be overly broad because it included class members whose claims were time-barred and who had no private right of action.

Notes – In some cases, overbreadth can be cured simply by narrowing the class definition.  On others, however, overbreadth is a symptom of predominance issues that may be difficult to remedy.

Class Definitions in Class Action Settlements

The panel also discussed issues in class definition within the settlement context.  As is true with other threshold requirements, the courts are generally more lenient about class definitions in the settlement context than they are in the litigation context, in large part because manageability concerns are lessened when otherwise contested issues do not have to be resolved.  An example is the DeBeers diamond settlement, Sullivan v. D.B. Invs., Inc., 667 F.3d 273 (3d Cir. 2011), where the Third Circuit affirmed certification of a settlement class over objections claiming that some of the class members would not have had a private right of action due to variations in state law.  Whether the inclusion of class members whose claims are barred or significantly weaker than other class members should be a bar to certification of a settlement class probably depends on whether other class members will suffer as a result.  If it’s simply a matter of the defendant agreeing to waive defenses as to a portion of the class, then courts are more likely to overlook variations in the strengths and weaknesses of individual class members’ claims.

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Last week, I posted a short note about the Eighth Circuit’s decision in In re Baycol Products Litigation.  Here is a more in-depth synopsis, thanks to fellow Baker & Hostetler partner Joe Ezzi:

The Eighth Circuit Court of Appeals recently affirmed a district court order enjoining state court plaintiffs from pursuing a class action because the district court had already denied certification of an identical class in federal court.  In re Baycol Products Litig., ___ F.3d ___ (8th Cir. January 5, 2010).

A state court putative class action was filed by George McCollins in West Virginia in 2001.  Bayer removed the case and it became part of a multidistrict action consolidated before the district court in Minneapolis.  Class certification was denied in the McCollins MDL class action, with the district court making certain legal conclusions concerning economic loss requirements under West Virginia law related to predominance.  At the same time, a similar West Virginia state court class action was pending against Bayer, albeit with different putative class representatives.  Following the district court’s denial of class certification, Bayer moved the district court to enjoin the plaintiffs in the West Virginia state court action from pursuing a class action because, as absent putative class members of the McCollins lawsuit, they could not relitigate the previous federal court decision denying certification of a West Virginia economic loss class.  The district court granted Bayer’s request for an injunction under the All Writs Act. 

The Eighth Circuit, in affirming the district court order enjoining the West Virginia state court class action, found that the West Virginia state court plaintiffs sought “certification on the same legal basis of the same class already denied in this case.”  In re Baycol Products Litig., ___ F.3d ___ (8th Cir. January 5, 2010), slip op. at 6.  Thus, “in the context of MDL proceedings, certification in a state court of the same class under the same legal theories previously rejected by the federal district court presents an issue sufficiently identical to warrant preclusion under federal common law.”  Id. at 10.  Further, relying on the Seventh Circuit decision in In re Bridgestone/Firestone, 333 F.3d 763 (2003), the Eighth Circuit noted that the putative class representative in the federal action was in privity with the state court class representatives for purposes of collateral estoppel based on allegations of adequacy of representation and because both putative class representatives asserted the same claims.

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A colleague tipped me off today to a recent Eighth Circuit Court of Appeals decision upholding a Minnesota federal district court’s order enjoining class certification proceedings in a West Virginia state court, following the federal court’s earlier denial of class certification in an action filed against the same defendant.  Here’s a link to the slip opinion: In re Baycol Products Litigation, No. 09-1069 (8th Cir., Jan. 5 2010).  The decision is in accord with a 2003 Seventh Circuit decision, In re Bridgestone/Firestone, 333 F.3d 763, 767-68 (7th Cir. 2003), which also held that the relitigation exception to the federal Anti-Injunction Act “permitted an injunction barring relitigation in state court of a federal court’s denial of class certification.”  In re Baycol Prods. Lit., No. 09-1069, slip op. at 9 (citing In re Bridgestone/Firestone, 333 F.3d at 769).

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In late July, I commented on a possible trend in courts allowing foreign investors to be included as class members in securities class actions filed in U.S. courts.  At the time, the primary decision allowing foreign investors to be included in an opt-out securities class was In re Vivendi Universal, S.A. Sec. Litig., 242 F.R.D. 76 (S.D.N.Y. 2007).  In Vivendi, the Court had allowed French, English, and Dutch investors to be included in the class after finding based on a preponderance of the evidence that the courts in those countries would recognize a U.S. class action judgment as preclusive as to absent class members.

In August of this year, Judge Victor Marrero of the same court addressed the issue of whether French investors could be included in a securities fraud class action against another French company, but reached a different result.  In re Alstom SA Securities Litigation, 03 Civ. 6595 (VM) (S.D.N.Y. Aug. 27, 2008).  Judge Marrero’s opinion cites Vivendi’s analysis extensively, but ultimately concludes that French courts would not give preclusive effect to the judgment of a United States court in an opt-out securities class action.  The reasons for the departure in Alstom are based on developments impacting the factual findings underlying the Vivendi court’s conclusion on how a French court would probably resolve the issue, as summed up in this footnote:

The Court notes that the Vivendi court concluded that a French court would not find that a United States opt-out class action would violate French public policy because, at least in part, there was at that time an “ongoing debate in legal and business sectors” regarding the possibility of French authorities adopting an opt-out framework. Vivendi, 242 F.R.D. at 101. Vivendi, however, was issued on May 21, 2007, which was prior to the issuance of the Ministry of Justice Letter, the Constitutional Council’s August 16, 2007 decision, and the Attali Commission’s final report in 2008, all of which expressly rejected opt-out mechanisms of class actions as contrary to French Constitutional principles.

Alstom, slip op. at 47 n.11. 

A full copy of the Alstom opinion is available here, thanks to AmLaw Daily.

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As reported this morning on NPR’s Morning Edition, the New York Times, and the Wall Street Journal’s Deal Book blog, among other news sources, the firm of Coughlin Stoia Geller Rudman & Robbins, recently named as lead counsel in a securities class action against French bank Société Générale, has sent a group of lawyers across the pond to build publicity, recruit plaintiffs, and collect potential evidence in France.  The lawsuit arises out of the highly publicized trading scandal earlier this year involving unauthorized trades totaling billions of Euros by one of its traders, Jérôme Kerviel.  Coughlin Stoia is no stranger to scandal itself.  Formerly Lerach Coughlin Stoia, it is the former firm of the recently convicted William Lerach.

The PR campaign in France is part of a growing trend to increase the pool of potential plaintiffs in U.S. securities class actions against multinational companies.  As the WSJ article aptly describes the dynamic:

Lawyers have an incentive to maximize the number of plaintiffs because it increases their fee payments. And non-American plaintiffs are attracted by the potential of enormous damage payments in the United States and a common provision protecting them from paying legal fees even if they lose.

The incentives underlying this trend are not hard to understand.  These attempts to create transnational plaintiff classes, however, raise complex issues of due process, choice of law, preclusion or res judicata, and full faith and credit.  Last year, a federal judge in New York entered an order allowing investors in France, England, and the Netherlands to be included in a securities class action against French conglomerate Vivendi.  A copy of that order is available on the Milberg website.  In deciding whether to allow foreign investors to be included, Judge Richard J. Holwell analyzed whether courts in each country would recognize a final judgment in the U.S. lawsuit as preclusive and binding on its citizens.  The court, relying on expert testimony and scholarly works discussing the law of the recognition of foreign judgments and res judicata of the various countries, determined that the plaintiffs had shown that it was more likely than not that courts in those three countries would recognize a U.S. class action judgment as preclusive as to absent class members.  With respect to England, the court admitted that the applicable law was unclear, but stated (on page 54):

While the issue is hardly free from doubt, based on the affidavits before it, the Court concludes that English courts, when ultimately presented with the issue, are more likely than not to find that U.S. courts are competent to adjudicate with finality the claims of absent class members and, therefore, would recognize a judgment or settlement in this

The court went on to find that the plaintiffs had not shown by a preponderance standard that courts in Germany and Austria would not recognize a U.S. class action judgment as preclusive as to absent class members.  Therefore, the court allowed investors in England, France, and the Netherlands to be included in the class, but rejected certification as to investors in Germany and Austria.  The 68-page opinion addresses a whole host of related issues and is worth a careful read.

According to the New York Times and WSJ articles, the court in the Société Générale case is expected to address in 2009 the issue of whether absent French investors should be included in a shareholder class.

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