Opposing Class Certification After Dukes, Bayer and Halliburton Paul Karlsgodt
Wal-Mart Stores, Inc. v. Dukes • Think of Dukes as a Swiss army knife, not a sledge hammer. • The many facets of Dukes: • The Standard of Proof/Review on Class Certification. • Commonality. • Consideration of merits issues. • The use and evaluation of expert testimony on class certification. • Statistical evidence in support of class certification. • The test for certification of claims for monetary relief under FRCP 23(b)(2).
Dukes, Cont’d: The Standard of Proof and The Death of Eisen • Clarifies that courts must delve into the merits at the class certification stage to the extent that issues necessary to resolving the merits are also necessary to resolve an element of FRCP 23. • Makes clear that Eisen v. Carlisle & Jacqueline, 417 U.S. 156 (1974) has been “mistakenly cited to the contrary.” • This standard is consistent with the clear trend in the lower courts, including the 9th Circuit’s own decision in Dukes: • In re IPO Securities Lit.,471 F.3d 24, 33-34 (2d Cir. 2006). • Dukes v. Wal-Mart Stores, Inc., 603 F.3d 571, 582-94 (2010) (approving of the standards in In re IPO and recognizing the misunderstanding about the meaning of the Eisen decision). • Note that state courts may take a different approach.
Dukes, Cont’d - New Teeth for Commonality • Commonality historically was a throw-away issue because the existence of one common issue of law or fact would satisfy it. • See Wal-Mart Stores, Inc. 2011 WL 2437013, *16 (Ginsburg, J., dissenting) • Id. at *11 (Scalia, J.) (recognizing that one common issue was sufficient but questioning whether there was even a single common question). • Clarifies that commonality looks not merely to whether there is a common question, but whether that question can be answered with regard to all class members in a “single stroke.” See Gray v. Hearst Communications, Inc., No. 10-1302 (4th Cir., August 25, 2011) (applying standard). • The majority opinion in Dukes appears to apply a heightened standard for determining whether a common issue exists. • Id. at *20 (Ginsburg, J., dissenting) (criticizing the majority for “blend[ing] Rule 23(a)(2)’s threshold criterion for the more demanding criteria of Rule 23(b)(3), and thereby elevates the (a)(2) inquiry so that it is no longer “easily satisfied.” • Id. at *8 (Scalia, J.) (requiring “significant proof” of a general policy of discrimination to “bridg[e] the gap” between an individual claim of discrimination and a claim that a class of persons has been harmed by a policy of discrimination). • It is unclear whether the “significant proof” test applies only in employment cases or whether it might also apply in other cases involving an alleged common policy or practice.
Dukes, Cont’d - Expert Testimony • “The District Court concluded that Daubert did not apply to expert testimony at the certification stage of class-certification proceedings. We doubt that this is so . . . .” Wal-Mart Stores, Inc., 2011 WL 2437013, at *8 (internal citation omitted). • This language is consistent with a trend in the federal circuits before Dukes. • American Honda Motor Co., Inc. v. Allen, 600 F.3d 813, 816-17 (7th Cir. 2010) (requiring Daubert analysis at the class certification stage when expert opinion is central to the argument that common evidence exists). • Sher v. Raytheon Co., --- F. App’x ---, 2011 WL 814379 (11th Cir. Mar. 9, 2011) (unpublished) (agreeing with American Honda). • At least one opinion after the Dukes decision suggests that the question remains unsettled • In re Zurn Pex Plumbing Prods. Lit., No. 10-2267, 2011 WL 2623342, at *4-6 (8th Cir. July 6, 2011) (applying “tailored Daubert analysis” and holding that it is not necessary to conduct an exhaustive Daubert analysis at the class certification stage and to rule on the admissibility of proffered expert testimony). • See alsoId. *20-21(Gruender, J., dissenting) (noting that the majority took a position on which the Supreme Court had expressed disapproval, although conceding that the above-quoted language from Dukes is dictum); Smith v. Ceva Logistics U.S., Inc., No. CV 09–4957 CAS (RCx)., 2011 WL 3204682 at *6 (C.D. Cal., July 25, 2011) (making similar observation).
Dukes, Cont’d - Statistics in Class Actions The Court addresses use of statistics in three key areas. • Existence of a common policy. • Dr. Bielby couldn’t say whether .5 percent or 95 percent of employment decisions were determined by stereotyped thinking. Wal-Mart Stores, Inc., 2011 WL 2437013, at *8. • Applied in Peterson v. Seagate U.S. LLC, Civil No. 07–2502, 2011 WL 3609351 (D. Minn. Aug. 15, 2011) (precluding portions of an expert's opinion that adverse employment decisions were based on negative ageist stereotypes). • Relationship between gender impact and discrimination (See id. at *10-12). • Majority’s view was in essence that statistics showing a disparity in pay based on gender did not give rise to an inference of gender discrimination. • Regional pay disparities might account for the nationwide differences. • Too many nondiscriminatory causes had not been ruled out, e.g. lack of qualified or interested women at a particular store. • Allowing class certification would have deprived defendant of an opportunity to defend based on individual factors. • Practical challenge—getting judges to understand the statistics: • See note 5 of Ginsberg’s dissenting opinion, accusing majority of misunderstanding the expert’s opinion. • Use of sampling to determine appropriate back-pay award. • “The Court of Appeals believed that it was possible to replace [individual damages] proceedings with Trial by Formula . . . We disapprove that novel project.” Id. at *15.
Dukes, Cont’d - Monetary Relief under FRCP 23(b)(2) • No certification of claims for monetary relief FRCP 23(b)(2) unless they are “incidental” to injunctive or declaratory relief sought on behalf of class as a whole. • What does it mean to be “incidental”? • [A]t a minimum, claims for individualized relief (like the backpay issue here) do not satisfy the Rule.” Wal-Mart Stores, Inc., 2011 WL 2437013, at *12. • Possible tests: • One reading is that it “does not authorize class certification of monetary claims at all.” Id. • Damages not allowed if they are individualized but may be allowed if they are uniform: • See Id. (“The key to the (b)(2) class is the ‘individual nature of the injunctive or declaratory remedy warranted—the notion that the conduct is such that it can be enjoined or declared unlawful only as to all of the class members or as to none of them.”). • But seeParker v. Time Warner Entertainment Co., 331 F.3d 13, 23-26 (2d Cir. 2003) (Newman, J., concurring) (questioning whether statutory penalties of $1,000 per class member could be considered “incidental” to the award of injunctive relief even if they would not vary from class member to class member). • Damages susceptible to objective determination without any exercise of judicial discretion. See In re Monumental Life Ins. Co., 365 F.3d 408 (5th Cir. 2004). • What about issue certification of the liability phase only under FRCP 23(b)(2)? • United States v. The City of New York, No. 07–CV–2067 (NGG)(RLM), --- F.R.D. ----, 2011 WL 2680474, at *8-9 (E.D.N.Y., July 8, 2011) (holding that liability phase of pattern and practice disparate treatment case could be certified under FRCP 23(b)(2)).
Some Possible Practical Implications of Dukes • Forum Shopping • More on this later… • Smaller class actions • The majority opinion leaves open the possibility of certification on the store or regional level. • Dukes may have an impact similar to cases like In re Bridgestone/Firestone, Inc., Tires Products Liability Litigation, 288 F.3d 1012 (7th Cir. 2002), – where lack of success in nationwide class actions led to multiple filings in selected states. • Limiting cases to <$5M in controversy keeps them out of federal court. • More expensive class certification discovery. • Plaintiffs will be more likely to develop the facts before certification. • More Daubert challenges. • Less of a distinction between class vs. merits discovery.
Dukes, For Further Study • Articles • Richard A. Nagareda, Class Certification in the Age of Aggregate Proof, 84 N. Y. U. L. Rev. 97, 131–132 (2009) (cited extensively in Dukes) (http://law.nyu.edu/ecm_dlv3/groups/public/@nyu_law_website__journals__law_review/documents/documents/ecm_pro_061537.pdf) • John C. Coffee, Jr., “You Just Can’t Get There From Here”: A Primer on Wal-Mart v. Dukes, BNA Class Action Litigation Report (July 7, 2011) (subscription only). • Early Cases Interpreting Dukes • Ramos v. SimplexGrinnell LP, No. 07-CV-981 (SMG), 2011 WL 2471584 (E.D.N.Y., June 21, 2011) (distinguishes Dukes and grants class certification under FRCP 23(b)(3) of a class of employees who claimed unpaid prevailing wages for work on various public works projects). • Lee v. ITT Corp., No. C10-0618-JCC, 2011 WL 2516367 (W.D. Wash., June 24, 2011) (applies Dukes to deny certification of a class under FRCP 23(b)(2) and also denying “hybrid” certification under Rules 23(b)(2) and 23(b)(3)). • Artis v. Deere & Co., No. C 10-5289 WHA (MEJ), 2011 WL 2580621 (N.D. Cal., June 29, 2011) (rejects defendant’s argument that Dukes should preclude discovery of individual evidence regarding putative class members, including names, addresses, and telephone numbers).
Smith v. Bayer Corp. • Holding – The re-litigation exception to the Anti-Injunction Act did not empower a federal court to enjoin a West Virginia state court from considering the issue of class certification in a case involving a proposed class that was nearly identical to one previously rejected by the federal court. • Significance – A state’s courts are free to apply their own interpretations of the state’s own class action rule, even if the text of the rule is identical to FRCP 23.
Bayer, Cont’d – Potential Future Impacts of the Decision • Potential divergence between the state and federal courts on the standards applicable to class certification. • See Phillip Morris USA, Inc. v. Jackson, No. 10-735 (S. Ct., June 27, 2011) (declining review of whether certification of a massive, nationwide class action against cigarette manufactures by a Louisiana state court violated due process). • Watch for developments this fall in several key states, including decisions in 4 cases pending before the Colorado Supreme Court - Garcia v. Medved (09SC1080), Jackson v. Unocal (09SC668), BP America v. Patterson (10SC214), State Farm v Reyher (10SC77). • However, many state courts will likely continue to follow the lead of the federal courts in both granting and denying class certification orders. • Henry v. Dow Chemical Co., Case No. 03-47775 (Saginaw County, Mich., July 18, 2011) (applying Dukes in denying certification in a toxic tort case). • Sosa v. Safeway Premium Finance Co., 2011 WL 2659854, at *15 (Fla., July 7, 2011) (relying on Erica P. John Fund in concluding that plaintiffs should not be required at class certification to prove that defendant had committed “knowing” violations of a statute prohibiting certain finance charges).
Bayer, Cont’d – New Considerations in Forum Selection • Before removing a case to federal court, be sure to consider: • Is the state court standard different than the federal standard? • Is it possible for plaintiffs’ counsel to file subsequent class actions in state court that will not be removable? • Small amount in controversy. • Local controversy or home rule exception to CAFA applies. • What about the impact of state rules that may limit class actions? See Shady Grove Orthopedic Assoc., P.A. v. Allstate Ins. Co., 130 S. Ct. 1431 (2010).
Bayer, cont’d - For Further Study • Smith v. Bayer Corp., 131 S. Ct. 61 (2010) • Anti-Injunction Act, 28 U.S.C. § 2283. • All-Writs Act, 28 U.S.C. § 1651(a) (permits injunctions when an exception to the Anti-Injunction Act applies) • Survey of State Class Action Law, Annual Report of the State Laws Subcommittee of the Class Actions and Derivative Suits Committee (CADS), ABA Section of Litigation.
Erica P. John Fund v. Halliburton • Plaintiff cannot be required to prove an element of his or her claim as a prerequisite to class certification. • Is this holding reconcilable with Dukes? Yes. • The court may consider merits questions to the extent that they overlap with class certification (Dukes) • The court should consider the elements of the claims in determining whether the class certification standards have been satisfied (Dukes, Halliburton) • The court cannot require the plaintiff to prove an element of a claim as a prerequisite to class certification (Halliburton) • But the court can and should consider whether the plaintiff will be able to prove the element with common proof at trial (Dukes)
Halliburton, Cont’d –Certification of Fraud Claims • Materiality • Would a reasonable person/investor attach importance to the fact? • Tends to be an objective standard, but what if the context of the fact differs from person to person? • Reliance • Was there actual (subjective) reliance of the fact? • Causes problems for class certification, unless theory of common, third-party, or presumed reliance (e.g. “fraud on the market”) is present. • Loss Causation • Did the misrepresentation or omission cause harm? • There can be materiality and reliance without loss causation • Halliburton implies that there must be some situations in which the loss causation element can be proved on a common, classwide basis. • Other considerations • Halliburton is a securities fraud case, but many of the same considerations apply in the consumer fraud context. • See Dukes for its discussion of the scrutiny to be given to statistical evidence at the class certification phase.
Halliburton – For Further Study • Erica P. John Fund, Inc. v. Halliburton Co., 131 S. Ct. 856 (2011). • Dura Pharmaceuticals, Inc. v. Broudo, 544 U.S. 336 (2005) (addresses the loss causation requirement in the securities fraud context). • Securities Exchange Act of 1934 § 10(b), 15 USC § 78j(b) • Private Securities Litigation Reform Act, 15 USC § 78u-4(b)(4) • Papers discussing economic and legal theories of loss causation after Dura: • Scott Hakala, Richard A. Kaplan, & Madge S. Thorsen, Rediscovering the Economics of Loss Causation, 6 Bus. & Sec. L. 93 (2005). • Allen Ferrell & Atanu Saha, The Loss Causation Requirement for Rule 10b-5 Causes-of-Action: The Implication of Dura Pharmaceuticals v. Broudo, 63 Bus. Law. 163, 166-67 (2007). • Selected opinions and articles discussing the “fraud on the market” theory in the consumer class action context: • Farmers Ins. Exchange v. Benzing, 206 P.3d 812 (Colo. 2009). • Clark v. Pfizer, Inc., 990 A.2d 17 (Pa. Super. 2010). • James D. Arden & Peter C. Brensilver, A Bitter Pill for Plaintiffs: Obstacles to Market Theories of Causation in Prescription Drug Consumer Fraud Cases, 61 Food & Drug L.J. 539-46 (2006).