Consumer Class Actions and Mass Torts : Class Action Lawyer & Attorney : J. Russell Jackson : Skadden Law Firm : Complex Class Actions : Consumer Class Actions & Mass Torts Law Blog

Once again, my friend Andrew Trask has beaten me to the punch with a post -- this time about Judge Richard Posner's decision in McReynolds v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 2012 WL 592745 (7th Cir. 2012). In McReynolds, the court held that, in a class of 700 people, an issues class could have been certified on the question whether two facially-benign company-wide policies nevertheless had a discriminatory effect in practice.

You've gotta get up early in the morning to put up a post before Andrew.  Given that he has described the opinion already, I won't say much here, other than offer a few thoughts.

First, the Seventh Circuit is one of the few circuits to hold that an issues class may be certified under Rule 23(c)(4) without a prior determination that certification is appropriate under some subdivision of Rule 23(b).

Second, the McReynolds court was not deciding that a class could be certified that would provide monetary relief to the plaintiffs.  Rather, the court expressly recognized that "the only issue of relief at present is whether to allow the plaintiffs to seek class-wide injunctive relief."  Id. at *9.  That is why the court reversed the denial of certification under Rule 23(c)(4) and 23(b)(2).

Third, the court understood that the claims for monetary damages could not be tried as a class action:

Obviously a single proceeding, while it might result in an injunction, could not resolve class members' claims.  Each class member would have to prove that his compensation had been adversely affected by the corporate policies, and by how much.  So should the claim of disparate impact prevail in the class-wide proceeding, hundreds of separate trials may be necessary to determine which class members were actually adversely affected by one or both of the practices and if so what loss he sustained--and remember that the class has 700 members.

Id. at *8.

Fourth, and what I view as particularly important, the court invoked the decisions in Rhone Poulenc and Bridgestone/Firestone outside of a negligence -- or even a tort -- context to recognize that using a class action to achieve "consistency" of judgments on a particular issue may be unfair, and that -- particularly in the context of multiple claims for monetary damages -- it may be better for a series of trials to occur before different triers of fact so that some sort of pattern or consensus of judgments may emerge.  As the court explained:

The Mejdrech decision, and Bridgestone/Firestone and Rhone-Poulenc more fully, discuss the danger that resolving an issue common to hundreds of different claimants in a single proceeding may make too much turn on the decision of a single fallible judge or jury.  The alternative is multiple proceedings before different triers of fact, from which a consensus might emerge; a larger sample provides a more robust basis for an inference.  But that is an argument for separate trials on pecuniary relief . . .

Id. at *9.  In the mass tort context, we have the concept of what Francis McGovern has labeled "immature" and "mature" mass torts.  "Immature" mass torts are those where few, if any, trials have occurred.  "Mature" mass torts are those where scores of trials have played out in different geographic locations over enough time that plaintiffs and defendants have had the opportunity to adjust their claims and defenses, such that patterns have emerged and some predictability is inherent in the trial process.  

McReynolds does not abandon the notion that, in cases for monetary damages -- which can bankrupt a company in an all-or-nothing class action trial -- a "larger sample" of smaller judgments (even those that conflict) is necessary to build a "more robust basis" for a conclusion.

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As many of you recall, I've written a considerable amount about the anticipated opinion in Wal-Mart Stores, Inc. v. Dukes, No. 10-277 (U.S.).  See, e.g., here, and here.  Indeed, in a roundtable discussion over at Point of Law, I even included a wish list of what I wanted the Supremes to bring me from Wal-Mart.

Today, Justice Scalia delivered the opinion.  And it's like an 8-year-old's Christmas morning in my office! 

Dukes was an employment discrimination case in which the Ninth Circuit had affirmed certification of a class of roughly 1.5 million women who worked or had worked for Wal-Mart (in positions from management to custodian) in any of its roughly 3,400 stores across the U.S.  The allegation was that despite Wal-Mart's written non-discrimination policy, its managers (including women) discriminated against women in the exercise of their roughly unfettered individual discretion of whom to promote, demote and fire, as well as how they were compensated.  The class sought injunctive relief, as well as back pay for all class members.  (It disclaimed consequential damages.)

The majority opinion was written by Justice Scalia.  The opinion has a five-justice majority for some parts, and is unanimous in other parts.  Here is what Scalia Claus brought me this morning:

1.  A Unanimous Conclusion That Rule 23 Cannot Eviscerate Individual Defenses:  All nine justices joined in the part of the opinion holding that certification under Rule 23(b)(2) was improper because it included individualized claims for back pay.  A unanimous Supreme Court rejected a common attempt to impose statistical proof to cure the problem of individual defenses:

The Court of Appeals believed that it was possible to replace such proceedings with Trial by Formula.  A sample set of the class members would be selected, as to whom liability for sex discrimination and the backpay owing as a result would be determined in depositions supervised by a master.  The percentage of claims determined to be valid would then be applied to the remaining class, and the number of (presumptively) valid claims thus derived would be multiplied by the average backpay award in the sample set to arrive at the entire class recovery -- without further individualized proceedings.  We disapprove that novel project.  Because the Rules Enabling Act forbids interpreting Rule 23 to "abridge, enlarge, or modify any substantive right," a class cannot be certified on the premise that Wal-Mart will not be entitled to litigate its statutory defenses to individual claims.

Slip op. at 27 (emphasis added; citations omitted).  This means that third-party-payor claims and consumer fraud class actions will not be able to prove causation or reliance using statistical proof like that proposed and rejected in McLaughlin v. American Tobacco Co., 522 F.3d 215 (2d Cir. 2008) in order to facilitate class certification.  This is BIG NEWS!!!

2.  A Unanimous Conclusion that Individualized Monetary Damages Claims Cannot Be Included in a Rule 23(b)(2) Class:  The Supreme Court brushed aside the whole question of whether money damages are "incidental" to the claims or "predominate," instead instructing that if monetary damages require individualized determinations, they do not belong in a 23(b)(2) class, but instead require the opt-out and notice rights inherent in a Rule 23(b)(3) class.  Slip op. at 21-23.  It refused to decide "whether there are any forms of 'incidental' monetary relief that are consistent with the interpretation of Rule 23(b)(2) we have announced and that comply with the Due Process Clause."  Slip op. at 26.  But this holding will make it very difficult for plaintiffs to continue the practice of attempting to plead cases about money as cases for so-called "equitable relief" with incidental damages.  Indeed, the court made it plain that Rule 23(b)(2) talks about injunctions and declarations, not "equitable relief."  As such, attempts to couch "disgorgement" or other so-called equitable remedies involving money as 23(b)(2) classes should be rejected from this point forward.

3.  Unanimous Dicta on Claim Splitting and the Potential for Issue Preclusion:  In discussing why it was improper for individualized back pay claims to be included in a Rule 23(b)(2) class, the Court observed that doing so "created the possibility . . . that individual class members' compensatory-damage claims would be precluded by litigation they had no power to hold themselves apart from."  Slip op. at 24.  Such as if the class received a judgment that there was no discrimination.  This part of the Dukes opinion will provide strong support for attacking (b)(2) classes that may impact monetary claims as lacking due process protections, and should strengthen classic adequacy-of-representation arguments based on claim-splitting.

4.  A Reinvigorated Commonality Standard:  Many courts had pretty much read commonality out of the Rule 23(a) analysis, concluding that if any common questions existed, the commonality standard was met.  No more.  The Court adopted the late Professor Richard Nagareda's characterization of commonality as the capacity of the class proceeding to generate common answers.  Slip op. at 9.  The Court instructed:

Commonality requires the plaintiff to demonstrate that the class members 'have suffered the same injury.'  This does not mean merely that they have all suffered a violation of the same provision of law. . . .  Their claims must depend upon a common contention -- for example, the assertion of discriminatory bias on the part of the same supervisor.  That common contention, moreover, must be of such a nature that it is capable of classwide resolution -- which means that determination of its truth or falsity will resolve an issue that is central to the validity of each one of the claims in one stroke.

Id. (citation omitted).

5.  A Strong "Rigorous Analysis" Standard:  Stick a fork in Eisen v. Carlisle & Jacquelin.  It's done!  The majority once again declared that the class action proponent must actually prove each element of Rule 23, and embraced the Falcon "rigorous analysis" standard that courts must use to evaluate that proof.  Moreover, the Court explained:  "[f]requently that 'rigorous analysis' will entail some overlap with the merits of the plaintiff's underlying claim.  That cannot be helped."  Slip op. at 10.  Finally, the Court interred the long-dead (but often resurrected) canard that Eisen somehow precludes a look beyond the pleadings when deciding whether certification is proper.  Id. at n.6.

6.  A Strong Hint That Daubert Applies at the Class Certification Stage:  Plaintiffs had proffered testimony from a "corporate culture" expert who opined that there was a general policy of discrimination at Wal-Mart, although "he could not calculate whether 0.5 percent or 95 percent of [its] employment decisions . . . might be determined by stereotyped thinking."  Slip op.at 13.  As the Court observed, the "District Court concluded that Daubert did not apply to expert testimony at the certification stage of class-action proceedings."  Slip op. at 14.  The Court opined:  "We doubt that this is so."  But it did not need to reach the question because the testimony, even if fully credited, was "worlds away from 'significant proof' that Wal-Mart 'operated under a general policy of discrimination.'"  Id.  Below, the Ninth Circuit had refused to apply Daubert to expert testimony on class certification.  It seems unlikely that a court can ignore Daubert principles at class certification now.

So let's see what I had listed at Point of Law prior to the issuance of the Dukes opinion.  It looks like Scalia Claus brought me a majority of what was on my initial list.  Everything that is in Dukes from the original list is marked with an asterisk:

*1. District courts must give rigorous scrutiny to whether the class action prerequisites are met.

*2. Rule 23 is a procedural rule that cannot alter the substantive claims or defenses.

*3. You can’t use a mandatory class to elude the prerequisites for an opt-out class.

4. Money is not an available remedy under Rule 23(b)(2).

5. The canard that the need for individualized damages determinations cannot preclude class certification should be shot.

6. Intra-class conflicts fail the adequacy of representation requirement.

*7. Expert testimony merits particularly close scrutiny at the class certification stage. 

*8. Although courts should not reach to judge the merits at the class certification stage, they must decide merits issues where necessary to determine whether the class action prerequisites are met.

All in all, this was an extraordinarily useful opinion for class action defense counsel -- beyond even employment discrimination lawyers.

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We've been going steady for quite a while now, dear reader.  And during that time I've given you first dibs on my electronic musings about new cases and topics of interest.  Sure, I've published a few print pieces from time to time, but I've always immediately brought them to our little electronic home.

But recently, I had an offer I couldn't refuse.  You see, Ted Frank over at Point of Law  has a regular monthly group discussion on a particular case or topic.  Usually, the group is comprised of lots of scholars, Super Lawyers, and other legal A-listers.  This month, however, Ted made a charitable exception and invited me to participate in the group! 

The topic is the Wal-Mart v. Dukes case.  Other than me, the group is just as notable and insightful as ever. 

So you can see why -- just for this month -- I'll be cheating on you by first posting my Wal-Mart related musings over at Ted's site as part of the group discussion.  In contrast, this site will be a Wal-Mart free zone.

But I promise to tell you about each illicit post!  And you can follow the group in "real time" by visiting the discussion here.

I hope you'll check it out and get in on the action by commenting yourself.

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My friends in the plaintiffs' bar are extraordinarily creative individuals.  I think this is great, as it makes my job much more interesting and has the added benefit of keeping me employed.  One of the creative trends that I have seen from my friends in the plaintiffs' bar in recent years is the attempt to alternatively plead damages claims as claims for injunctive relief.  Indeed, as it becomes obvious that a claim for breach of warranty or contract cannot be certified as a Rule 23(b)(3) class because of individual issues involving breach, one can expect to see an alternative "declaratory and injunctive relief" count in the complaint asking for a class to be certified under Rule 23(b)(2) for a classwide declaration that the contract has been breached and an injunction directing the defendant to perform what it purportedly is contractually obligated to do.

Plaintiffs do this, of course, because there is no "predominance" and "superiority" requirement explicitly written into Rule 23(b)(2).  But courts have seen through this ruse, holding that 23(b)(2) has an inherent "cohesiveness" requirement that serves the same function as predominance and superiority.  See, e.g., Compaq Computer Corporation v. LaPray, 135 S.W.3d 657 (Tex. 2004).

Of course the irony of plaintiffs' ruse is that it would allow a court that could not certify an opt-out class for damages to instead certify a mandatory class that would bind all class members.

The Seventh Circuit recently gave State Farm a Valentine, flatly rejecting the 23(b)(2) dodge and providing important guidance on why courts must not let a claim for damages be recast as one for equitable relief.  See Kartman v. State farm Mutual Auto. Ins. Co., 2011 WL 488879 (7th Cir. Feb. 14, 2011).  In Kartman, plaintiffs brought a putative class action of roughly 7,000 policyholders against State Farm for failing to adequately compensate them for hail damage to their homes.  The trial court refused to certify a Rule 23(b)(3) class, recognizing that individual issues predominated over any common ones.  But it certified a Rule 23(b)(2) class of "all State Farm policyholders who filed insurance claims for damage resulting from the April 2006 hailstorm and did not receive 'an entirely new roof.'"  Id. at *7.  The theory was that by inspecting roofs on an ad hoc basis, State Farm had somehow breached an obligation to apply a uniform and objective standard in assessing roof damage.

The Seventh Circuit flatly rejected plaintiffs' argument and the trial court's theory.  To begin with, the court recognized that this was merely a claim for damages -- nothing more.  The "injunctive relief" theory was merely a set up to a claim for damages; even if State Farm reevaluated everyone's roof according to a uniform standard, it would only be laying a foundation for some class members to argue that they had been undercompensated under their policies -- which is a claim for damages:

[C]ertification under Rule 23(b)(2) is permissible only when class plaintiffs seek 'final injunctive relief' that is 'appropriate respecting the class as a whole.'  Here, the requested injunction is neither 'appropriate' nor 'final.'  The relief is not appropriate for several reasons, not hte least of which is that the normal remedy for wrongful denial of insurance benefits is damages, not equitable relief.  Moreover, the injunction envisioned by plaintiffs would in no sense be a final remedy.  A class-wide roof reinspection would only lay the evidentiary foundation for subsequent individual determinations of liability and damages.

Id. at *1 (citation omitted).

The court admonished that:

This technique of recasting a straightforward claim for damages as a claim for damages and injunctive relief runs into trouble on some basic principles of common law -- most fundamentally that a claim of injury is not cognizable unless it results from the breach of a recognized legal duty owed to the plaintiff.  Simply put, State Farm has no independent duty -- whether sounding in contract or tort -- to use a particular method to evaluate hail damage claims. . . .  [T]he method it uses to adjust claims is not independently actionable.

Id. at *5 (citations omitted).

The court noted that the basic elements of an injunctive relief class could not be met here.  First, there was no irreparable injury -- plaintiffs could be fully compensated by money damages for any alleged underpayment of their insurance claims.  Id. at *7.  The court also noted that the injunctive relief, as described by the plaintiffs, would be impractical and overly burdensome on State Farm, and -- importantly -- would simply amount to shifting the burden to State Farm to prove the elements of the plaintiffs' claims.  Id. at *8-*9.

Notably, in deciding the class certification question, the court was unafraid to look to the merits of the claims.  Indeed, it even recognized that there could be no unjust enrichment claim as a matter of law because there was an underlying contract.  Id. at *6.

Kartman is a strong opinion recognizing that where damages will remedy the plaintiffs' claimed injury, one cannot plead around the claim's Rule 23(b)(3) problems by recasting the relief sought as equitable in nature. 

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Judge Garrett E. Brown, Jr. recently issued an opinion in a consumer product class action that illustrates the typical problems with the types of claims that are presently brought as consumer class actions.  In Payne v. Fujifilm U.S.A., Inc., Civ. A. No. 07-385 (GEB), Slip op. (D.N.J. May 28, 2010), plaintiffs sought to bring a nationwide class action against Fujifilm, alleging that its FinePix 3800 camera had a soldering defect on the power board that could cause the camera to lose function intermittently or totally.  Plaintiffs brought various breach of contract and breach of warranty theories, as well as a claim under New Jersey's Consumer Fraud Act.

The court didn't even bother analyzing the Rule 23(a) factors, as it was able to conclude that the class was not certifiable under Rule 23(b)(2) or Rule 23(b)(3).

In analyzing whether an equitable relief class was proper under Rule 23(b)(2), the court quickly concluded that "Plaintiffs' main goal is to obtain monetary damages," and thus the monetary damages were not merely incidental to the claim for injunctive relief.  Indeed, plaintiffs sought "compensatory damages, statutory damages, punitive damages, and a refund of monies spent purchasing, repairing, and/or disposing of their cameras."  Slip op. at 5.  The court refused to certify the class under Rule 23(b)(2).

The court just as easily concluded that the proposed class could not meet the predominance standard of Rule 23(b)(3).  To begin with, this was not a product with a high failure rate.  Rather, the vast majority of putative class members had not experienced a product malfunction.  As the court noted, out of the nearly 300,000 cameras sold in a two-year period, the total return rate for any reason whatsoever was only 4%.  The number of cameras returned for any kind of power problem was only between 1% and 2%.  Thus, the vast majority of the class members had not experienced any product malfunction.  Moreover, there are a variety of potential causes for power problems with cameras, including:  "impact damage, water, a short circuit, extreme temperatures, blown fuses, tamper damage, normal wear and tear, or simply improper batteries."  Slip op. at 9-10.  Thus, even the small return rate was not per se evidence of a solder problem.

The court concluded that common factual issues did not predominate because the cases would devolve into individual determinations of whether the class member had experienced a "manifested" defect, since the law generally does not give consumers relief from so-called "unmanifested defects."  See id. at 6-8 (citing Chin v. Chrysler Corp., 182 F.R.D. 448 (D.N.J. 1998); In re Ford Motor Co. Ignition Switch Prods. Liab. Litig., 174 F.R.D. 332 (D.N.J. 1997); In re Cannon Cameras Litig., 237 F.R.D. 357 (S.D.N.Y. 2006)).

Plaintiffs had relied on an expert who examined the named plaintiffs' cameras.  He testified that the cameras had a joint solder defect that would cause power loss.  The court was unpersuaded that this was evidence of a defect in all cameras.  To begin with, the expert only examined the named plaintiffs' cameras, not any others.  He admitted that he could not determine how the solder fractures occurred or whether they even occurred in joints that were necessary for the camera's functionality.  He further admitted that he could not causally connect the fractures to any difficulties the named plaintiffs had experienced with their cameras.  And he admitted that "normal wear and tear" can contribute to "accumulating creep fatigue" in all solder joints in any soldered product over time.  This was not enough to prove a common defect among all cameras.  Slip op. at 10.

Plaintiffs also sought to rely on the fact that the defendant, in its troubleshooting guide, had indicated that a soldering problem might be a cause of power problems experienced with the camera.  But the inclusion of that potential cause was based on only one instance, and it was only one of many potential causes listed for power problems.  The troubleshooting guide was not enough to establish a common defect -- particularly where most customers used the product for the life of the warranty without experiencing any problem.

The court also concluded that common issues of law did not predominate.  Plaintiffs argued that because Fujifilm had its principal place of business in New Jersey, New Jersey law should apply to all plaintiffs' claims.  The court -- applying sections 6, 148, and 188 of the Restatement (Second) of Conflict of Laws -- held that the law of the plaintiffs' residences governed each transaction.  The court faulted the plaintiffs for not preparing an extensive choice of law analysis, which was their burden once it was clear that multiple states' laws might apply to the claims. 

The court held that state consumer fraud laws are too different to have common issues of law predominate:

For example, only thirty-three states have authorized injunctive relief under their consumer fraud statutes, thirty-four states required that a plaintiff plead an "ascertainable loss" with regard to consumer fraud claims, and many states have varying statute of limitations periods applicable to such claims.  Plaintiffs have not provided the Court with any method for managing such individualized issues of state law . . .

Slip op. at 16.

Similarly, the court held that the breach of contract/breach of warranty causes of action were too different to be tried together:

State laws regarding breach of express and implied warranty also differ greatly with regard to "(1) whether plaintiffs must demonstrate reliance, (2) whether plaintiffs must provide notice of breach, (3) whether there must be privity of contract, (4) whether plaintiffs may recover for unmanifested . . . defects, (5) whether merchantability may be presumed and (6) whether warranty protections extend to used [goods]."

Slip op. at 17 (citation omitted).

Judge Brown's analysis is spot on.  Where, as here, there is no widespread failure of a product, there simply is no reason for a class action.  As a practical -- as well as a legal -- matter, people whose product performs as expected throughout the warranty period are not entitled to damages or other relief for so-called breach of warranty or consumer fraud. 

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