By Robert H. Klonoff, Lewis & Clark Law School
In a forthcoming, full-length article,1 I describe how federal courts in recent years have cut back on the availability of class action lawsuits. These courts have tightened the requirements for almost every element of class certification under Rule 23. This case law undermines the compensation, deterrence, and efficiency functions of the class action device. In this article, I discuss my major conclusions.
I. Historical Perspective
Modern Rule 23, adopted in 1966, was designed to encourage more frequent use of class actions,2 and for many years, it had the desired effect. Courts certified even complex mass tort cases, driven in part by (but not limited to) the asbestos crisis.3 Beginning in the mid-1990s, however, courts became increasingly concerned that class certification was coercing defendants to settle even questionable cases, using terms such as “shakedown” and “judicial blackmail” to describe the coercion.4 Because interlocutory appeal was rarely available,5 defendants had no practical avenue for appellate review of a district court's class certification decision, other than taking a potentially bankrupting case to trial and challenging class certification on appeal of the final judgment. Defendants were also concerned that many multi-state class actions raising state-law claims were brought in state courts, and that those cases were often assigned to elected state judges who were unsympathetic to out-of-state corporate defendants.6
Rule 23(f), adopted in 1998, solved the reviewability problem by providing discretionary appellate review of an order granting (or denying) class certification.7 The Class Action Fairness Act of 20058 largely solved the concern about allowing state-court judges to adjudicate large multi-state class actions by expanding federal jurisdiction to cover most major class actions.9 As a result of CAFA and Rule 23(f), there is now a substantial body of federal case law across a broad spectrum of class certification issues.10 And while the jurisprudence has been far from uniform, several recent trends have emerged that make class certification more difficult to obtain than at any point since the adoption of modern Rule 23 in 1966. This article discusses 10 troublesome trends.
II. Recent Trends
A significant point of departure from earlier decisions is the view of virtually all federal circuits that district courts must resolve merits issues when those issues overlap with a class certification requirement.11 This approach is a significant change from earlier cases that had allowed class certification to be based on the pleadings or on a threshold evidentiary showing.12 For example, under the view now espoused by many courts, if plaintiff's expert in an antitrust case testifies that antitrust injury and damages can be proven on a classwide basis, whereas defendant's expert testifies that individualized proof is required, the court must choose which expert is more persuasive in deciding whether to certify the case as a class action.13 This case law imposes a substantial new burden on plaintiffs and means that much—or all—merits discovery must now occur prior to the class certification hearing.
Although the requirement is not expressly set forth in Rule 23(a), courts have universally held that a clear, objective class definition is required before a case can be certified as a class action.14 Prior to 2000, it was rare for a court to deny class certification based on a flawed definition. Instead, courts typically allowed plaintiffs to reformulate their class definitions when such definitions were found to be deficient. Recently, however, courts have been far more willing to deny class certification because of a flawed definition without giving plaintiffs a second chance to recraft the definition.15
Rule 23(a)(1) provides that a class may be certified only if “the class is so numerous that joinder of all members is impracticable … .”16 Because courts have held that classes as small as 20-40 members are sufficiently numerous, plaintiffs rarely had difficulty satisfying this requirement.17 Indeed, defendants frequently stipulated to numerosity. In recent years, however, courts have denied class certification in an increasing number of cases based on numerosity. Such courts have required strict proof of class size and have refused to apply common sense assumptions (for example, that a particular definition is likely to encompass hundreds or thousands of members, even if it is not possible to come up with a precise number).18
Under Rule 23(a)(2), a class cannot be certified unless “there are questions of law or fact common to the class … .”19Prior to 2011, commonality was rarely an issue for plaintiffs, and defendants frequently stipulated to the existence of a common question of law or fact. In Wal-Mart Stores, Inc. v. Dukes,20 however, the Supreme Court substantially increased the burden on plaintiffs by requiring that the common issue be essentially dispositive:
[T]he common contention … must be of such a nature that it is capable of classwide resolution—which means that determination of its truth or falsity must resolve an issue that is central to the validity of each one of the claims in one stroke.21
This heightened burden, as the dissent in Dukes pointed out,22 is akin to the “predominance” standard of Rule 23(b)(3).23 But there are four kinds of classes under Rule 23—those under (b)(1)(A), (b)(1)(B), (b)(2), and (b)(3). Under the text of these subdivisions, only (b)(3) contains a predominance requirement. Thus, Dukes arguably requires predominance under all four types of class actions. As a practical matter, Dukes gives class defendants a new weapon to challenge class certification, especially in cases brought under (b)(1) and (b)(2).
Rule 23(a)(4) requires that “the representative parties will fairly and adequately protect the interests of the class.”24This requirement is well-grounded: Because class actions are representative actions, it is important that class representatives and class counsel be knowledgeable, competent, and free of conflicts of interest.25 In recent years, however, many courts have added a troublesome new component to adequacy: class representatives and counsel may be inadequate if they omit from their complaint potentially viable claims, even if those claims are not suitable for class certification. The rationale is that the failure to bring such claims may later preclude class members from asserting them by way of collateral estoppel or res judicata.26 These cases undermine the traditional notion that the very job of the lawyer is to select the best—or most viable—claims from among the universe of potential claims. Part of that assessment means excluding claims that are not suitable for class certification. Moreover, courts adopting this approach make no attempt to minimize the res judicata or collateral estoppel effects, such as providing in the certification order that the action is without prejudice to the ability of class members to pursue claims not raised in the class action.27
Rule 23(b)(2) permits classes seeking declaratory or injunctive relief.28 Traditionally, courts permitted monetary claims to be included with the declaratory or injunctive relief, as long as the monetary relief was of lesser importance.29 All federal circuits that had addressed the issue had permitted back pay in employment discrimination actions under (b)(2).30 In Dukes, however, the Supreme Court unanimously held that back pay could not be sought in a (b)(2) action.31 Under (b)(2), only incidental monetary damages (which do not include back pay) are appropriate. Indeed, the Court left open the possibility that even incidental damages under (b)(2) might not be consistent with due process, given that (b)(2) classes do not afford class members the right to opt out.32
In recent years, many courts have adopted virtually a per se rule that fraud actions cannot be certified under (b)(3) when individualized reliance issues exist.33 Similarly, many courts have adopted an equally rigid approach in holding that cases involving the laws of multiple states fail (b)(3)’s predominance requirement.34 By adopting such a rigid approach in fraud and choice-of-law cases, courts provide plaintiffs with no real opportunity to show that, despite the individualized issues, common issues predominate.
In Amchem Products, Inc. v. Windsor,35 the Supreme Court held that when class certification is sought simultaneously with approval of a classwide settlement, plaintiff must nonetheless satisfy all the requirements of Rule 23 for a contested class action. The only exception is that plaintiffs need not satisfy the manageability component of superiority when the class is brought under Rule 23(b)(3).36 Thus, for example, in a (b)(3) settlement class, plaintiffs must still show that common issues predominate over individual issues. Amchem has had serious adverse repercussions. Specifically, a number of courts have rejected classwide settlements in light of Amchem,37 and many mass tort actions now settle outside of Rule 23, without the protection of judicial review of the fairness of the settlement.38
One significantly underutilized provision of Rule 23 is subsection (c)(4), which provides that, “[w]hen appropriate, an action may be brought or maintained as a class action with respect to particular issues.”39 Although not all courts have curtailed issues classes, there is serious cause for concern.
In the view of some courts, (c)(4) is a “housekeeping” rule that does not alter the usual predominance inquiry under Rule 23(b)(3), meaning that the case as a whole must still satisfy the predominance test.40 To be sure, some courts have taken a more practical approach to issue certification. Under one formulation, which has been endorsed by the American Law Institute's Principles of the Law of Aggregation Litigation, the proper inquiry under Rule 23(c)(4) is whether certification of one or more issues will “materially advance” the case as a whole.41
Quite apart from the issue of when Rule 23(c)(4) permits a court to certify an issues class, some courts have also ruled that the Seventh Amendment's Reexamination Clause42 acts as an additional constraint on a court's authority to sever distinct issues for trial.43 As one court explained its rationale, “[t]he Seventh Amendment entitles parties to have fact issues decided by one jury, and prohibits a second jury from reexamining those facts and issues.”44 Therefore, the argument runs, because juries in later proceedings would need to “reexamine” facts that were previously determined by the first jury, this overlap would run afoul of the Reexamination Clause. Again, not all courts have endorsed such a rigorous approach. As one court explained, “the Seventh Amendment prohibition is not against having two juries review the same evidence but rather against having two juries decide the same essential issues.”45
In short, while the cases are divided, the ability to bring issues classes has been substantially curtailed by many courts.
It has become common in many contracts to require individual arbitration of disputes and to prohibit classwide proceedings. In AT&T Mobility LLC v. Concepcion,46 the Supreme Court held that the Federal Arbitration Act preempted a state common law unconscionability doctrine that generally barred class action waivers in consumer contracts.47The full implications of Concepcion could be enormous.48
Concepcion makes it easier for potential defendants to avoid class litigation (and class arbitration) by inserting class action waiver clauses into their written agreements. One developing issue is whether the holding in Concepcion—which involved a dispute over a tax under a cell phone service agreement—also governs in other contexts. For example, the Second Circuit held that Concepcion did not require enforcement of a class action waiver clause in an antitrust suit by a class of merchants against the credit card company defendant.49 The court explained that, “if plaintiffs cannot pursue their allegations of antitrust law violations as a class, it is financially impossible for the plaintiffs to seek to vindicate their federal statutory rights.”50 Other courts, however, have read Concepcion much more expansively.51
A particularly troublesome aspect of Concepcion is that it may operate to preclude aggregation in cases that the Supreme Court has said are “at the very core of the class action mechanism”52—so-called “negative value” suits. These cases, practically speaking, can only be litigated on a class basis, since the individual claims are too small to justify the expense of an individual lawsuit. Concepcion may foreclose many types of small-claims cases, thereby undermining the compensation and deference functions of the class action device.
III. The Current State of Class Actions
and Possibilities for Reform
Despite the troubling jurisprudential developments described in Part II, supra, the class action device remains viable to some extent. To begin with, in certain cases, plaintiffs can avoid some of the most restrictive case law by filing class actions in federal circuits that have shown greater receptivity to class actions. Indeed, recent figures from the Federal Judicial Center's study on post-CAFA class action filings suggest that this sort of forum shopping is already taking place.53
Moreover, despite the trends against class actions overall, several areas remain in which class actions are alive and relatively well. In particular, courts have continued to authorize class certification in a number of antitrust cases, ERISA cases, securities cases, and wage and hour cases.54 Of course, Concepcion may adversely impact some of these areas.
Finally, it is worth noting that the Supreme Court has not been as consistently anti-class action as might appear at first blush.55 Three recent decisions are illustrative. First, in Shady Grove Orthopedic Associates, P.A. v. Allstate Insurance Company, the Court held that Federal Rule of Civil Procedure 23 conflicted with, and therefore preempted, a contrary state rule that would have otherwise prohibited the suit from being brought as a class action in federal court.56Second, in Erica P. John Fund, Inc. v. Halliburton Co., decided the same term as Dukes and Concepcion, the Court held (reversing the Fifth Circuit's holding to the contrary) that a securities fraud plaintiff did not need to prove that the defendant's misconduct caused the economic loss at issue in the case in order to obtain class certification.57 Finally, in Smith v. Bayer Corp., the Court held that a federal district court, having denied class certification, could not enjoin a West Virginia court from certifying a similar class against the same defendant.58 These cases certainly rebut the notion that the Supreme Court is steadfastly anti-class action. In terms of their likely impact, however, these cases are far less significant than Concepcion, Dukes, and Amchem.
There are no easy ways to address the case law developments discussed in Part II of this article. The proper approach will differ from issue to issue. On some issues, courts can alter their approaches as a matter of case law. On others—such as where the Supreme Court has rendered a decision or there is an unresolved conflict among the circuits—a rule change may be required. And with respect to Concepcion, which is based on the FAA, congressional action will be necessary.
In appropriate cases, the class action provides a private remedy for achieving mass justice. In some cases, it may be the only realistic vehicle for recovery. The threat of a class action also deters wrongdoing. In addition, a class action avoids the need to resolve the same issues repeatedly for numerous claimants. Courts should not lose sight of the value and efficiency inherent in the class action mechanism. And they should not allow abstract concerns about blackmail settlements or the theoretical possibility of abuse by class counsel to erode a device that worked so well for many years following the adoption of modern Rule 23 in 1966.
Robert H. Klonoff, dean and professor of law at Lewis & Clark Law School, can be reached at firstname.lastname@example.org. The author is a consulting editor on the BNA Class Action Litigation Report Advisory Board, and a co-author of the first casebook on class actions, now in its third edition. Klonoff wishes to thank his research assistants, Jacob Abbott and Ben Pepper, for their outstanding assistance on this article.
This article will appear in the Loyola University Chicago Law Journal, Vol. 44, No. 2 (2013). A much longer version will appear in Vol. 90 of the Washington University Law Review (2013).
This document and any discussions set forth herein are for informational purposes only, and should not be construed as legal advice, which has to be addressed to particular facts and circumstances involved in any given situation. Review or use of the document and any discussions does not create an attorney-client relationship with the author or publisher. To the extent that this document may contain suggested provisions, they will require modification to suit a particular transaction, jurisdiction or situation. Please consult with an attorney with the appropriate level of experience if you have any questions. Any tax information contained in the document or discussions is not intended to be used, and cannot be used, for purposes of avoiding penalties imposed under the United States Internal Revenue Code. Any opinions expressed are those of the author. The Bureau of National Affairs, Inc. and its affiliated entities do not take responsibility for the content in this document or discussions and do not make any representation or warranty as to their completeness or accuracy.
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