We have repeatedly discussed in this space the ongoing debate among the federal courts about ascertainability—a red-hot topic in class action litigation these days. (For a more detailed look at our views on the ascertainability doctrine, see the amicus brief (pdf) that we filed on behalf of the National Association of Manufacturers in support of a pending cert petition.) That topic—and the debate among the lower courts—shows no sign of slowing down, as evidenced by new decisions issued by the Second, Sixth, and Third Circuits over the past two months. The central takeaway from these decisions is that while ascertainability is not a panacea for defendants facing consumer class actions, the doctrine (or variations on the ascertainability theme) should help defeat class actions in many circuits when class members cannot be identified without individualized inquiries.
Can you have a class action if class members can’t reliably be found? That question is at the heart of the debate over ascertainability—one that has divided the federal courts. Earlier this week, the Ninth Circuit weighed in, holding in Briseno v. ConAgra Foods, Inc. (pdf) that plaintiffs need not demonstrate “an administratively feasible way to identify class members [as] a prerequisite to class certification.”
That conclusion is disappointing.
The first bill signed by Oregon Governor Kate Brown—H.B. 2700 (pdf)—changes the rules for handling payment of damages awards in class actions in Oregon state courts. Effective immediately, including for pending actions, the new law attempts to redirect unclaimed damages under class-action settlements or judgments to the state bar’s legal aid program and to charities picked by the judge presiding over each case. In other words, Oregon has effectively mandated cy pres in every class action. (We’ve repeatedly covered—and criticized—the use of cy pres awards in class actions.)
Among other things, the new law amends Oregon Rule of Civil Procedure 32, which governs class actions in state court, to add a new subsection addressing the payment of damages in accordance with “the settlement or judgment in a class action.” The court is authorized to approve a “process” for making payments that “may include the use of claim forms.” But “any amount awarded as damages” that the court finds either hasn’t been timely claimed by class members or simply “is not practicable” to pay to class members must be distributed in the following fashion:
- “At least 50 percent of the amount not paid to class members” must be given “to the Oregon State Bar for the funding of legal services provided through the Legal Services Program.”
- “The remainder of the amount not paid to class members” must be given to “any entity” chosen by the court “for purposes” that are “directly related to the class action or directly beneficial to the interests of class members.”
Before enactment of this law, damages in class actions that could not be paid to class members either reverted to the defendant or—in the context of some class-action settlements—were given to a charity picked by the parties and approved by the court.
Proponents of cy pres awards often contend that class members who can’t be paid their damages are better served by a donation to a charity whose mission is related in some fashion to the goals of the class-action lawsuit. Proponents also contend that forcing defendants to pay the full amount of damages they theoretically would owe if liability were established as to all class members—and then all class members actually claimed payments—would better deter future wrongdoing.
More cynical observers of class actions note that cy pres awards are often used by class counsel to puff up the amount of money purportedly recovered in the case in order to justify a higher fee award. Sometimes the recipient of cy pres largesse is picked simply to curry favor with a judge being asked to approve the settlement—for example, a donation to the law school clinic at the judge’s alma mater. And in every case, the use of cy pres eliminates the incentive for class counsel to ensure that class members—the ostensibly injured parties—get the individualized compensation they have been awarded. And while some federal courts have begun to pay closer attention to whether class members actually recover under class settlements, this law encourages Oregon state court judges to ignore that question.
Even worse, the potential of a cy pres award sometimes is used to justify the certification of particularly dubious class actions. For example, take a putative class whose members can’t be identified. Class certification should be denied because the class isn’t ascertainable. But if cy pres were mandatory, the would-be class counsel can always say “so what—let’s just figure out the defendant’s aggregate liability, pay the handful of class members we can identify, and then give the rest away in cy pres in order to punish the defendant.” And never mind, of course, that this procedure would deprive the defendant of the right to cross-examine absent class members or assert individualized defenses. Indeed, there are strong arguments that the use of cy pres—particularly in a litigated case where the defendant has not agreed to it—is unconstitutional (pdf).
Chief Justice Roberts has said that the U.S. Supreme Court might be interested in hearing a case that presents appropriate questions about the use of cy pres awards in class-action settlements in federal court. Of course, if the case arises in federal court, those questions might be framed in terms of Federal Rule of Civil Procedure 23(e), which tasks federal judges with assessing the fairness of class settlements. If the case arises from the Oregon courts—which may be a possibility thanks to H.B. 2700—more fundamental questions of due process would be raised, with potentially much larger ramifications for class-action litigation.
As readers of our blog know, ascertainability is one of the most contentious issues in class action litigation these days. Ascertainability is the main issue presented in Jones v. ConAgra Foods, No. 14-16327, a pending Ninth Circuit case in which the plaintiff and his amici have mounted a full-scale attack on whether the ascertainability requirement even exists. Along with our colleagues Andy Pincus and Dan Jones, we have filed an amicus brief (pdf) on behalf of the Chamber of Commerce of the United States arguing that ascertainability is a critical requirement for class certification, and that due process forbids courts from relaxing that requirement in the name of certifying a class.
As we explain in the brief, the plaintiff in Jones proposed a consumer class whose members will be largely impossible to identify. The putative class consists of California residents who purchased certain Hunt’s canned tomato products bearing particular labels. Who are these people? The answer cannot be found through objective documentation: Consumers typically do not keep receipts or packaging from food products (or other similar products) that likely were purchased or consumed years ago. The plaintiff in Jones says that this hurdle can be overcome by allowing absent class members to file affidavits testifying that they purchased a particular product (presumably based on their recollection). But that testimony and recollection (under the plaintiff’s proposal) would be immune from challenge by the defendant (for example, through cross-examination).
The district court properly held (pdf) that this proposal flunked the ascertainability requirement implicit in Rule 23. On appeal, Jones and his amici (Public Citizen and the Center for Science in the Public Interest) argue that the approach to ascertainability adopted by the district court is a recent invention of the Third Circuit in Carrera v. Bayer Corp. (We’ve discussed Carrera extensively.) They contend that the ascertainability requirement should be either eliminated from the class certification analysis altogether or substantially relaxed in order to clear the runway for consumer class actions.
In our brief, we explain why that view is mistaken. Here are some of the key points from our brief:
- The assumption by the plaintiff and his amici that the ability to certify class actions is to be promoted at every turn is deeply misguided. Class actions are a means of dispute resolution, not an end in themselves. As the Supreme Court recently reiterated in Wal-Mart Stores, Inc. v. Dukes, class actions are an “exception to the usual rule” that cases are litigated individually, and it is therefore critical that courts apply a “rigorous analysis” to the requirements governing class certification before a lawsuit is approved for class treatment.
- Ascertainability is one of those requirements that, like many other class certification requirements, is rooted in well-established principles of due process. It seems hard to dispute that if the named plaintiff were to sue a company over a particular product on his own, he would have to prove at trial that he purchased the challenged product and that he was injured as a result. As a matter of due process, the defendant would have to be given the opportunity to challenge the plaintiff’s evidentiary showing, including through cross-examination, and to have a court or jury resolve any factual disputes.
- The fact that a plaintiff has chosen to bring a class action cannot alter the due process rights of defendants. A Rule 23 class action is the sum of the individual class members’ claims within it—nothing more. The Supreme Court made this clear in Dukes when it held that a class can’t be certified “on the premise that [the defendant] will not be entitled to litigate its * * * defenses to individual claims.” Interpreting Rule 23 otherwise would violate the Rules Enabling Act, which embodies the due process principle that procedural rules cannot “abridge, enlarge or modify any substantive right.” 28 U.S.C. § 2072(b).
- Ascertainability ensures that due process is honored by preserving defendants’ ability to challenge any would-be class member’s claim of eligibility and right to recovery. Without a reliable and administratively feasible method for identifying who is in a class, defendants will have no way to bring such challenges, short of extensive individualized fact-finding and an unmanageable series of mini-trials.
- Virtually all courts to consider the issue have insisted that plaintiffs demonstrate that a proposed class is ascertainable. And the notion that ascertainability should be relaxed or ignored in order to make consumer class actions easier to bring runs headlong into defendants’ due process rights.
- The policy argument advanced by the plaintiff and his amici that unascertainable class actions of this sort are beneficial cannot be squared with the evidence. In a theme we have explored on this blog, the ordinary justification for class actions—that they offer benefits for class members who would not pursue relief on their own—is simply inapplicable to cases involving class members who can’t be identified; when such class actions are certified, only a handful of class members actually receive benefits.
We will be watching Jones v. ConAgra closely to see whether the Ninth Circuit—which oversees the so-called “Food Court”—continues to ensure that ascertainability is satisfied in class actions. But the Ninth Circuit is not the only circuit that will address the question. This Friday (February 6), the Eleventh Circuit will hear oral argument in Karhu v. Vital Pharmaceuticals, Inc., No. 14-11648. (We’ve covered the district court’s decision in Karhu.) In Karhu, plaintiffs argue that class members can be identified through claimant affidavits and retailer records. Like the plaintiffs in Jones, the Karhu plaintiffs argue that Carrera was wrongly decided and should not be followed.
Will either circuit create a split with Carrera and other cases? Stay tuned!
Sometimes it’s hard to know who’s in a class without substantial individualized inquiries. Can a court certify a class of persons with allegedly similar injuries by pigeonholing the question of class membership as a question of damages to be determined later? Not so fast, the Fourth Circuit held in EQT Production Co. v. Adair (pdf). A class that is not ascertainable ex ante is not a class at all.
And the Fourth Circuit also decided another question that has led to different answers from different courts. When the rule of law proposed by plaintiffs would permit a controlling question to be answered in common for the class, but the competing rule proposed by defendants would require individualized inquiries, can the trial court treat the dispute of law as itself a common question supporting class certification? On this point, the Fourth Circuit held that the court must first determine the correct rule and then decide whether it is susceptible to a common answer. In a recent post, we described a California Court of Appeal decision taking the contrary view; the California Supreme Court has since denied review. (We submitted an amicus letter (pdf) on behalf of the U.S. Chamber of Commerce supporting the petition.)
Finally, the Fourth Circuit outlined a qualitative rather than a quantitative, issue-counting approach to predominance. Under this approach, it is not how many circumstances are common among class members, but whether the common circumstances or other, individualized ones will be more significant in determining class members’ entitlement to relief.
EQT arises from a series of disputes about who was entitled to royalties for coal-based methane, a coal byproduct that is an energy source in its own right; wells are drilled to extract methane gas. The owners of surface rights to real property often sever coal mining rights (the “coal estate”) from subsurface gas rights (the “gas estate”). The disputes in EQT focus on who owns the rights to coal-based methane when the owner of the gas estate and the owner of the coal estate for a particular tract differ. The plaintiffs are gas estate owners who assert that they are entitled to royalties for coal-based methane.
The district court certified five classes. Four consist of current and former gas estate owners who were never paid coal-based methane royalties; the members of the fifth class assert that they were underpaid. The Fourth Circuit reversed all five certifications.
First, the court of appeals held that you can’t certify a class if you can’t tell who is in it. The Fourth Circuit held that the district court had not properly considered whether identifying class members “would render class proceedings too onerous” in light of a variety of “heirship, intestacy, and title-defect issues” affecting many potential class members’ claims. The Fourth Circuit understood ascertainability to require a way to “readily identify the class members in reference to objective criteria”—which means something less individualized than tract-by-tract ownership analyses.
Plaintiffs often like to recharacterize the deficiencies in a class definition as pertaining only to damages calculations—and that’s what the EQT plaintiffs did to get around their inability to determine who was in the class and who was out. Plaintiffs contended that it would not be necessary to resolve the individualized ownership issues until the damages phase, but the court of appeals disagreed: “The fact that verifying ownership will be necessary for the class members to receive royalties does not mean it is not also a prerequisite to identifying the class.”
Second, the court held that a dispute over the dispositive rule of law is not automatically a common issue if one competing rule could be resolved only upon individualized inquiries. In certifying the four classes who had never been paid royalties, the district court found that the overriding common issue was a dispute over whether Virginia law entitled the owners of the gas estate to coal-bed methane royalties. One legal rule would entitle all gas-estate owners to those royalties; the other would make the answer hinge on particular deed language. The Fourth Circuit held that the district court should have resolved the question, and went ahead to hold that deed language was paramount. The court of appeals left open the possibility of subclasses organized around deeds for which the relevant language was materially similar.
Finally, the Fourth Circuit rejected the finding of predominance for the class of owners claiming underpayment. On that issue, the district court had pointed to a large number of uniform practices by the defendants that were relevant to the royalty calculation. The Fourth Circuit rejected this quantitative approach because the dispositive questions again hinged on the specific contract language, again recognizing that subclasses perhaps could be constructed around materially similar terms.
EQT provides some welcome structure and discipline to class certification analysis. Let’s hope that other courts of appeals will provide similar guidance.
Can you have a class action if you can’t figure out who’s in the proposed class? According to many in the plaintiffs’ bar, the answer is “yes.” But as we have discussed in prior blog posts, there is an emerging consensus to the contrary. Most courts agree that plaintiffs in consumer class actions have the burden of proving that members of the putative class can be identified (i.e., that the class is ascertainable). And most of those courts have held that it is not sufficient for plaintiffs to rely upon affidavits by would-be class members who attest that they fall within the class definition.
The Third Circuit adopted both of those principles last fall in Carrera v. Bayer Corp., 727 F.3d 300 (3d Cir. 2013). As we have reported, that court recently denied en banc review over objections by plaintiffs’ lawyers that taking ascertainability seriously would render many class actions unsustainable.
As it turns out, a growing number of other courts are following Carrera’s lead in holding that classes whose membership cannot be determined flunk the ascertainability requirement and therefore cannot be certified.
For example, in Karhu v. Vital Pharmaceuticals, Inc. (pdf) (S.D. Fla. Mar. 3, 2014), the court refused to certify a putative class of purchasers of weight-loss supplements. The court explained that the plaintiffs had failed to show any objective, administratively feasible method of ascertaining the identities of class members. Class members could not be identified from the defendants’ records because the products were sold to retailers, and defendants therefore had no database of end-user consumers. The plaintiffs could not show that the purchasers could be identified from the records of third-party retailers. And, of course, few if any purchasers would have retained receipts from such purchases years after the fact.
The plaintiffs argued that class members could simply submit affidavits confirming that they bought the supplements at issue during the relevant time period. But the court recognized that this process would be extremely unwieldy, and would inevitably devolve into “a series of mini-trials” over the circumstances of particular purchases that would “defeat the purpose of class action treatment.” And the court added—citing Carrera—that simply exempting the affidavits from individualized challenges would lead to fraudulent claims, which “could dilute the recovery of genuine class members.”
Similarly, a federal court recently decertified a California class action—in part on ascertainability grounds— in In re Pom Wonderful LLC Marketing and Sales Practices Litigation (pdf) (C.D. Cal. Mar. 25, 2014). The plaintiffs alleged that Pom Wonderful had misled a class of California customers with purportedly false or misleading statements in advertising about the “various health benefits” of “certain Pom juice products.” But the court held that class members could not be identified, and therefore that no “ascertainable class exists.” In reaching that conclusion, the court provided some useful guidance on how ascertainability works:
- “Class actions, and consumer class actions in particular, each fall on a continuum of ascertainability dependent upon the facts of the particular case or product.”
- “While no single factor is dispositive, relevant considerations include the price of the product, the range of potential or intended uses of a product, and the availability of purchase records.”
- “In situations where purported class members purchase an inexpensive product for a variety of reasons, and are unlikely to retain receipts or other transaction records, class actions may present such daunting administrative challenges that class treatment is not feasible.”
Applying these principles, the court readily concluded that the proposed class in Pom Wonderful “falls well towards the unascertainable end of the spectrum.” That was so for multiple reasons, including that (i) “millions of consumers paid only a few dollars per bottle”; (ii) “[f]ew, if any consumers, are likely to have retained receipts”; (iii) “[n]o bottle, label, or package included any of the alleged misrepresentations” (as they were all contained in advertising); and (iv) “consumer motivations” for purchasing Pom juice “likely vary greatly, and could include a wide array of sentiments such as ‘I was thirsty,’ ‘I wanted to try something new,’ ‘I like the color,’ ‘It mixes well with other beverages,’ or even, ‘I like the taste,’ or, as Plaintiffs contend, ‘It prevents prostate cancer.’” As a result, “there is no way to reliably determine who purchased [the challenged] products or when they did so.”
(The decision also contains an extensive discussion of why the plaintiffs’ proposed damages models failed to satisfy the predominance requirement under Comcast Corp. v. Behrend.)
Carrera, Karhu, and Pom Wonderful should be helpful for defendants who oppose class certification when the proposed class consists of purchasers of consumer products for which there are no customer lists. In these cases, plaintiffs often have no real plan for satisfying the ascertainability requirement other than by inviting a show of hands—via barebones affidavits—from the (relatively few) individuals who might want a small payout from a potential class fund.
In response, defendants routinely (and appropriately) argue that affidavits are not good enough, because due process entitles them to challenge an individual’s claim that he or she purchased a given product, such as by cross examination at a trial. Recognizing that the right to individualized cross-examination would render a trial unmanageable—making class certification inappropriate—plaintiffs sometimes argue that fraudulent claims can be winnowed out through the use of a claims administrator.
That approach strikes us as improper. To be sure, in class action settlements, the parties often agree that a claims administrator may make judgments to determine whether a claimant truly is a class member who qualifies for benefits and to assess whether any submitted claims are fraudulent. But that agreement reflects one of the compromises of settling a case, in which defendants trade away the right to cross-examine each putative class member in exchange for certainty, finality, and—most significantly—a substantial discount on the potential liability claimed by the plaintiff and his or her counsel.
By contrast, in a litigated case, defendants’ due process rights cannot be so easily jettisoned. In the absence of party agreement, how can it be that the administrative determinations of an outside third party serve as an adequate substitute for a defendant’s right to cross-examine its accusers and for judicial resolution of factual disputes? (We leave to one side whether assessments by claims administrators would be accurate, but commend to our readers an article by Alison Frankel discussing an interesting amicus brief on the subject that was filed in Carrera.)
* * *
In short, when it comes to ascertainability, the list of questions goes on and on. Defendants targeted by consumer class actions where customer lists are not readily available may wish to insist upon answers.
We previously wrote about the Third Circuit’s decision in Carrera v. Bayer Corp., which reversed a district court’s class-certification order because there was no reliable way to ascertain class membership—indeed, no way to identify who was a member of the class aside from a class member’s own say-so. Last week, the full Third Circuit denied (pdf) the plaintiff’s request to rehear the case en banc over the dissent of four judges. The clear message of Carrera is that when plaintiffs file class actions that have no hope of compensating class members for alleged wrongs because the class members can’t be found, courts should refuse to let these actions proceed.
As we discuss below, the denial of rehearing is significant in itself, given the concerted efforts by Carrera and his amici to draw attention to the case. But what might be most significant about this latest set of opinions is what even the dissenting judges did not say.
Plaintiffs routinely bring consumer class actions under statutes that allow only consumers—not businesses—to bring claims, or that are limited to transactions solely for personal or household purposes. See, e.g., Electronic Funds Transfer Act, 15 U.S.C. § 1693a(2); Real Estate Settlement Procedures Act, 12 U.S.C. § 2606(a)(1); California’s Consumer Legal Remedies Act, Cal. Civ. Code § 1780. But in some cases, the “consumer” requirement can be the Achilles’ heel for class certification. If it is difficult to determine whether a particular customer is a “consumer” without individualized inquiries, a proposed class action may flunk the predominance, ascertainability, and manageability requirements for class certification.
For example, in a recent zip-code class action, Leebove v. Wal-Mart Stores, Inc., the retailer was accused of improperly requiring customers paying by credit card to provide their phone numbers and addresses in violation of California’s Song-Beverly Credit Card Act. But that statute creates a private right of action only for a “natural person to whom a credit card is issued for consumer credit purposes.” Cal. Civ. Code § 1747.02(d). Business entities and people who use corporate credit cards are not eligible to sue.
That fact was crucial for defeating class certification in Leebove. As the court explained, “before liability could be established with respect to each class member, individualized proof regarding whether each class member’s credit card was issued as a consumer or as a business card would have to be produced.” Although the court also identified other defects in the proposed class, the need for mini-trials as to whether each class member qualified as a “consumer” under the statute was key to the court’s holding that the plaintiffs had failed to establish predominance.
There should be many other opportunities to make this kind of argument either in opposing a motion for class certification or in moving to strike class allegations at the very outset of the case. Here are some ideas (and helpful authority):
- If the class is defined to include only consumers, does the need for individualized inquiries into whether a purchaser qualifies as a consumer or a business render the class non-ascertainable? See, e.g., Walewski v. Zenimax Media, Inc., 502 F. App’x 857, 861 (11th Cir. 2012).
- Alternatively, is the class overbroad because it includes businesses? See, e.g., Mazur v. eBay Inc., 257 F.R.D. 563, 567 (N.D. Cal. 2009).
- Or is the question whether the putative class member qualifies as a consumer so individualized as to either defeat predominance or make a classwide trial unmanageable? See, e.g., Kennedy v. Natural Balance Pet Foods (pdf), 361 F. App’x 785, 787 (9th Cir. 2010); Johnson v. Harley-Davidson Motor Co. Group, LLC (pdf), 285 F.R.D. 573, 583 (E.D. Cal. 2012); Ballard v. Branch Banking & Trust Co., 284 F.R.D. 9, 13-16 (D.D.C. 2012); Ewert v. eBay Inc., 2010 WL 4269259, at *9 (N.D. Cal. Oct. 25, 2010).
- Finally, if the named plaintiff himself or herself arguably is not a “consumer” under the applicable law, are his or her claims typical of those of the absent class members? See, e.g., Aberdeen v. Toyota Motor Sales, U.S.A. (pdf), 2009 WL 7715964, at *6 (C.D. Cal. June 23, 2009), aff’d in relevant part, 422 F. App’x 617 (9th Cir. 2011).
While the U.S. Supreme Court and federal courts of appeals have in recent years demanded rigorous scrutiny before authorizing certification of class actions, the Supreme Court of Canada has charted a different course. In a trio of recent decisions in antitrust class actions, Canada’s high court rejected key U.S. precedents on the scope and nature of class actions, forcing companies to defend against the same types of allegations under distinctly different legal regimes on each side of the border.
The three cases decided by the Canadian court, which all involved allegations of price-fixing, are:
- Pro-Sys Consultants Ltd. v. Microsoft Corporation (pdf), relating to Microsoft operating systems;
- Infineon Technologies AG v. Option Consommateurs (pdf), involving DRAM computer chips; and
- Sun-Rype Products Ltd. v. ADM (pdf), concerning high-fructose corn syrup.
In each case, plaintiffs had filed a class action in Canada on the heels of a similar class action filed in the United States. The Supreme Court of Canada addressed four issues that have been critical to antitrust class actions on both sides of the border, and deviated in several places from the path charted by the U.S. Supreme Court.
Indirect Purchasers May Sue Under Canada’s Antitrust Law
In Pro-Sys, the Supreme Court of Canada ruled that a defendant is generally precluded from asserting a passing-on defense in an antitrust class proceeding (i.e., the Court largely adopted the U.S. Supreme Court’s ruling in Hanover Shoe). But Canada’s court rejected the U.S. Supreme Court’s Illinois Brick rule that bars indirect-purchaser suits under federal antitrust law, and held instead that an indirect purchaser may assert a cause of action under Canada’s Competition Act. In concluding that an indirect-purchaser class action may be certified in the common-law provinces in Canada—i.e., those other than Quebec—the Court echoed Justice Brennan’s dissent in Illinois Brick, concluding that “the same policies of insuring the continued effectiveness of the [antitrust] action and preventing wrongdoers from retaining the spoils of their misdeeds favor allowing indirect purchasers to prove that overcharges were passed on to them.”
The Pro-Sys Court acknowledged the potential risk of double recovery when parallel claims are brought by direct and indirect purchasers, either as part of the same action or in multiple jurisdictions. But the Court noted that “legislation restricts individual recovery for damages for violations to just two years,” making it impractical for potential Canadian indirect plaintiffs to sit on their claims until resolution of an earlier direct purchaser suit. Where multiple suits are brought, a defendant may present evidence of the potential for overlapping recovery to the trial judge, who may modify any damage award accordingly.
In Infineon, the Supreme Court of Canada held that similar principles apply under Quebec’s civil-law regime. Accordingly, indirect-purchaser class actions also may be filed in that province.
Canada Does Not Require Rigorous Analysis Of Class Certification Requirements Prior To Certifying A Class
In Pro-Sys, the Supreme Court of Canada addressed the “rigorous” approach to class certification that the U.S. Supreme Court has reiterated is necessary under Federal Rule of Civil Procedure 23—most recently in Wal-Mart Stores, Inc. v. Dukes and Comcast Corp. v. Behrend. The Canadian court rejected the U.S. approach.
To the contrary, the court held that a plaintiff seeking class certification in Canada’s common-law provinces does not need to prove with evidence at the class-certification stage that the class-certification requirements are met, nor does the court need to resolve “conflicting facts and evidence at the certification stage.” Rather, in Canada a would-be class representative need only adduce a “credible” or “plausible” methodology to prove the issues of loss and liability on a class-wide basis.
More specifically, in an antitrust class action, “the methodology must offer a realistic prospect of establishing loss on a class-wide basis so that, if the overcharge is eventually established at the trial of the common issues, there is a means by which to demonstrate that it is common to the class.” The methodology must be “grounded in the facts” and “there must be some evidence of the availability of the data.”
But the Canadian court did not give a completely free pass to plaintiffs at the class-certification stage. Instead, the court suggested, certification remains “a meaningful screening device” (including the requirement that an expert’s methodology offer a “realistic prospect” of establishing class-wide loss).
In Infineon, the Supreme Court of Canada held that the standard for class certification in Quebec is even lower because the evidentiary burden is “less demanding” under the Civil Code. In a total departure from U.S. precedent, a Quebecois plaintiff must present merely an “arguable case that an injury was suffered”—and need not do so by presenting expert testimony. In fact, “presentation of expert evidence is not the norm at the [class-action] authorization stage in Quebec.” (Defense lawyers in Quebec tell us that class-action trials are far more common than they are here; this comparatively loose approach to class certification may explain why.)
Canadian Courts May Exercise Jurisdiction Over Companies Alleged To Be Part Of Foreign-Based Conspiracies.
Another significant aspect of the Canadian high court’s decision in Infineon was the conclusion that Quebec courts could exercise jurisdiction over companies accused of entering into price-fixing arrangements outside of Canada, so long as there is some indication of injury or “economic damage” to a consumer in Quebec.
Similarly, in Sun-Rype, the Court ruled that if plaintiffs adequately allege that defendants conduct business in Canada, make sales in Canada, and conspire to fix prices on products sold in Canada, Canadian courts could adjudicate the claims regardless of where the challenged conduct had taken place. As the Court put it: “The respondents have not demonstrated that it is plain and obvious that Canadian courts have no jurisdiction over the alleged anti-competitive acts committed in this case.”
Some Good News On Ascertainability In Canada?
The Supreme Court of Canada did refuse to approve certification of a class action in one of the three cases. In rejecting class treatment for the indirect-purchaser class action in Sun-Rype, the court focused on the plaintiffs’ failure to establish “some basis in fact” that an identifiable class existed. In particular, the plaintiffs in Sun-Rype did not offer any evidence to show that two or more persons could prove that they purchased a product actually containing high-fructose corn syrup during the class period.
This holding parallels a recent trend in U.S. courts of taking Rule 23’s ascertainability requirement seriously—with the most prominent examples being the Third Circuit’s recent decisions in Hayes and Carrera—decisions we have previously discussed in some detail. That said, it does not appear that the inquiry is as stringent in Canada as it is in Hayes and Carrera; although those U.S. decisions rejected the use of self-identification alone as a means of demonstrating the existence of an identifiable class in those cases, the Canadian Sun-Rype decision may leave that door open.
While the full impact of these rulings will become apparent only over time—and future litigation—some implications already are clear. As an initial matter, plaintiffs’ lawyers are likely to be emboldened by these rulings. Indirect-purchaser suits are now expressly permitted in Canada. It will be easier to certify class actions in Canada than the U.S. now that the Canadian high court has expressly rejected the type of “rigorous analysis” mandated by the U.S. Supreme Court in Dukes and Comcast. And foreign defendants with no presence in Canada may be required to defend competition class actions in Quebec, and possibly other provinces, that are filed by plaintiffs alleging that they suffered losses in those jurisdictions that were caused by a price-fixing scheme entered into entirely outside Canada.
More generally, these decisions may lead Canada’s class-action system to see more litigation progress further along towards trial as fights that previously took place at the class-certification stage now get pushed down the road to summary judgment or trial. When it comes to class actions—like the Winter Olympics—our neighbor to the north is one to watch.
For weeks, class-action practitioners have been waiting to see whether the Supreme Court would grant review in Marek v. Lane, a case involving a challenge to the cy pres component of the class settlement of the Facebook “Beacon” litigation. The Court did not, but Chief Justice Roberts issued a rare statement respecting the denial that sounded a warning to everyone involved in class-action settlements: At least some Justices are on the lookout for a case in which to address the propriety of cy pres settlements.
Here’s the background. The plaintiffs alleged that Facebook’s Beacon program violated a host of federal and state privacy laws. The parties reached a settlement requiring Facebook to pay up to $9.5 million to resolve the case, with $6.5 million to be paid in the form of cy pres relief to a new charitable foundation that would be established to promote online privacy. The settlement did not provide for the distribution of funds to any of the absent class members; the parties agreed that any payments to individual class members would have been so small as not to be worth writing checks. The district court ultimately approved the settlement and awarded plaintiffs’ counsel $2.36 million in fees and expenses and granted incentive payments to the named plaintiffs. The Ninth Circuit affirmed and denied en banc review over the dissent of six judges.
An objector, Megan Marek, petitioned for a writ of certiorari, represented by (among others) Ted Frank of the Center for Class Action Fairness. Marek sought review of whether a settlement featuring “a cy pres remedy that provides no direct relief to class members” is “fair, reasonable, and adequate”—as required by Rule 23.
As noted above, the Supreme Court denied review. But the Chief Justice’s statement respecting the denial of certiorari is well worth a read; it is a warning shot that—at some point—the Court may take up the question whether (and under what circumstances) cy pres is an appropriate way to settle class actions.
Chief Justice Roberts explained that the Facebook case was not the right vehicle for addressing the issue because “Marek’s challenge is focused on the particular features of the specific cy pres settlement at issue.” Another case, the Chief Justice suggested, might “afford the Court an opportunity to address more fundamental concerns surrounding the use of [cy pres] remedies in class action litigation.” According to the Chief, this non-exclusive list of concerns includes:
- “when, if ever, such relief should be considered”;
- “how to assess its fairness as a general matter”;
- “whether new entities may be established as part of such relief,” and, “if not, how existing entities should be selected” to receive cy pres funds;
- “what the respective roles of the judge and parties are in shaping a cy pres remedy”; and
- “how closely the goals of any enlisted organization must correspond to the interests of the class.”
These questions—which the “Court has not previously addressed”—range from the operational details of how cy pres works to the fundamental question whether cy pres is permissible at all. And thus, while Ted Frank’s petition did not succeed in getting review of the Facebook settlement, there is no question that cy pres is now on the Supreme Court’s radar screen. Because “[c]y pres remedies … are a growing feature of class action settlements,” the Chief Justice opined that “[i]n a suitable case, this Court may need to clarify the limits on the use of such remedies.”
What does this mean for companies facing class actions and the lawyers who defend them? Certainly any defendant who agrees to cy pres relief in a class settlement should be prepared for potential objections—and, if the most tenacious objectors are involved, for the possibility that those objectors will seek appellate and Supreme Court review. If defendants agree to cy pres settlements, those settlements should be negotiated and crafted with Chief Justice Roberts’ questions in mind. Within the world of cy pres settlements, there is a wide spectrum of possibilities, and the less troubling the features of such a settlement might appear to courts, the less likely it is that the Supreme Court will view the case as an appropriate vehicle for review.
There is a second issue lurking in the background of the Chief Justice’s opinion. In response to defendants’ arguments that class certification is improper because a class is unascertainable or a trial would be unmanageable, plaintiffs often argue that it doesn’t matter whether class members can be identified or cross-examined at trial, because so long as aggregate liability can be determined, any funds that can’t be distributed to individual class members can be paid out through a cy pres remedy. Yet that premise is open to debate: Cy pres payments in litigated class actions are exceptionally rare—in part because class actions that go to trial are so infrequent—and a number of courts have either concluded or suggested that defendants cannot be forced to make cy pres payments in the context of a litigated class action. Some of the questions in Chief Justice Roberts’ opinion indicate that he may be receptive to such arguments in an appropriate case.