Over the past few years, the Supreme Court has heard several cases involving class action procedure, including China Agritech, Inc. v. Resh; CalPERS v. ANZ Securities, Inc.; and Microsoft Corp. v. Baker. Today, the Supreme Court continued this trend, granting review to decide whether Rule 23(f)’s 14-day deadline to file a petition for permission to appeal an order granting or denying class certification is subject to equitable exceptions. Nutraceutical Corp. v. Lambert, No. 17-1094.
Earlier today, the Supreme Court heard oral argument (pdf) in Microsoft Corp. v. Baker, a case that raises complicated questions about federal appellate jurisdiction and Article III standing, but ultimately involves an important practical question in class action litigation: Can a named plaintiff engineer a right to an immediate appeal of the denial of class certification by voluntarily dismissing his or her claims with prejudice and appealing from the resulting judgment?
From the argument, it was clear that a number of Justices believe that the answer should be “no.” As Justice Ginsburg pointed out several times, the committee charged with amending the Federal Rules of Civil Procedure crafted Rule 23(f) to give courts discretion to decide whether to allow immediate appeals of orders granting or denying class certification. But plaintiffs maintain that they should be free to challenge the denial of certification immediately by appealing from what their counsel described as a “manufactured final judgment.” In other words, as Justice Ginsburg put it, “any time … that a class action is brought against a corporation, [Rule] 23(f) is out the window.”
As discussed below, there are many ways in which the Court could decide the issue. That said, businesses should be cautiously optimistic that the Court will reverse the Ninth Circuit and thus reject a dysfunctional regime in which class-action plaintiffs can appeal the denial of class certification while defendants remain able to appeal orders granting class certification only by grace.
The recent decision in Cholly v. Uptain Group, No. 15 C 5030, 2017 WL 449176 (N.D. Ill. Feb. 1, 2017), drives home the point—as we’ve discussed on the blog before—that sometimes the pleadings alone reveal that the requirements for class certification cannot possibly be met. In Cholly, the plaintiff alleged the defendant debt collector violated the Telephone Consumer Protection Act (“TCPA”) by calling her mobile phone using an automatic telephone dialing system (“ATDS”) after she had told the defendant to stop calling. The plaintiff sought to represent (i) a class of persons who received calls from the defendant where it did not have consent, and (ii) a subclass of persons who received calls after they revoked consent. But the district court struck all of the plaintiff’s class allegations under Federal Rule of Civil Procedure 12(f)—at the pleading stage and before discovery—and ordered that the case proceed on an individual basis.
At the outset, the court recognized that Rule 23(c)(1)(a) requires that it “determine whether to certify an action as a class action ‘[a]t an early practicable time’” and that a motion to strike class allegations under Rule 12(f) is an appropriate device to determine if the case will proceed as a class action. The court concluded that the plaintiff couldn’t satisfy the “typicality” requirement under Rule 23(a)(3) because she originally consented to the defendant’s calls and, thus, “cannot represent a class of persons who received calls from [the defendant] where [it] did not have express consent.”
The court held the plaintiff couldn’t represent the subclass either because she couldn’t meet the predominance requirement under Rule 23(b)(3). In particular, the court found that individual inquiries as to whether the putative class members revoked consent would predominate over any common questions of fact:
In order to determine whether each potential class member did in fact revoke his or her prior consent at the pertinent time, the [c]ourt would have to conduct class-members specific inquiries for each individual. The class members would not be able to present the same evidence that will suffice for each member to make a prima facie showing at the recipients of defendants’ telemarketing calls had validly revoked his or her prior consents.
The plaintiff has filed a petition for leave to appeal under Rule 23(f), and the Seventh Circuit directed the defendant to respond. We’ll report on any major developments.
[Editors’ note: Today we’re featuring a guest post by Tim Fielden, who is in-house counsel at Microsoft. His post spotlights an emerging—and important—issue in class-action litigation.]
In two recent decisions, the Ninth Circuit has carved out a new path for plaintiffs seeking immediate review of the denial of class certification: voluntarily dismiss the complaint under Rule 41(a), appeal from the final judgment, and challenge the class certification denial on appeal. If this tactic gains currency, plaintiffs (but not defendants) will have the right to an immediate appeal from any adverse class certification ruling. But at least four circuits have rejected this tactic, and the maneuver contravenes a unanimous Supreme Court decision limiting review of class decisions. As a result, defendants have reason to hope that these Ninth Circuit decisions will have limited and short-lived impact.
Plaintiffs have long sought early review of class certification denials without the bother of pursuing their individual claims to judgment on the merits. But in Coopers & Lybrand v. Livesay, 437 U.S. 463 (1978), the Supreme Court rejected arguments that an order denying class certification should be immediately appealable, either as a final “collateral order” or because the denial of certification signals the “death knell” for the case when plaintiffs decide not to proceed to an appealable final judgment. The Court explained that because only Congress may expand the grounds for appellate review, “the fact that an interlocutory order may induce a party to abandon his claim before final judgment is not a sufficient reason for considering it a ‘final decision’ within the meaning of § 1291.” Id. at 477. And the Court added that the death knell doctrine unfairly “operates only in favor of plaintiffs [by giving them an immediate right to appeal] even though the class issue … will often be of critical importance to defendants as well.” Id. at 476.
As a result, plaintiffs for years had only limited routes to immediate review after a denial of class certification. Absent the district court’s certification of the decision for review under 28 U.S.C. § 1292(b) or the court of appeals’ acceptance of mandamus review, a plaintiff could obtain review of a class certification denial only by taking her individual case to trial and then appealing from the judgment on the merits. In 1998, Congress created a new avenue to review, amending Rule 23 to allow parties to file a petition seeking permission for an immediate appeal of adverse class decisions, which the courts of appeals could grant or deny at their discretion.
The Ninth Circuit’s End Run Around Rule 23(f)
In Berger v. Home Depot USA, Inc., 741 F.3d 1061 (9th Cir. 2014), the Ninth Circuit opened a new route for plaintiffs seeking interlocutory review of the denial of class certification. In Berger, the plaintiff chose not to seek Rule 23(f) review, which the Ninth Circuit could have exercised its discretion to deny. Instead, he voluntarily dismissed his case and appealed from the final judgment. In essence, he made good on the “death knell” threat from Coopers & Lybrand: he ended his case in response to the class certification order. Ignoring Coopers & Lybrand, the Berger panel held that the Rule 41 dismissal was sufficiently adverse to the plaintiff’s interests to create appellate jurisdiction, because Berger dismissed his individual claims with prejudice without settling. Id. at 1066.
Unlike in Berger, the plaintiffs in Baker v. Microsoft Corp., 2015 U.S. App. LEXIS 4317 (9th Cir. Mar. 18, 2015), sought Rule 23(f) review of the district court’s order striking class allegations, but the Ninth Circuit denied review. Months later, plaintiffs voluntarily dismissed, declaring their intent to seek review of the order striking class allegations. Before the decision in Berger, Microsoft asked the Ninth Circuit to dismiss, relying on Coopers & Lybrand and a Ninth Circuit opinion dismissing an appeal from a Rule 41(b) dismissal after the denial of class certification. In the meantime, Berger was decided. And the Baker panel, following Berger, decided that it had jurisdiction over the appeal. Neither the Baker nor Berger panels mentioned the previous (and conflicting) Ninth Circuit decision.
There is a strong possibility that the panel decisions in Baker and Berger are not the end of the story.
In Baker, Microsoft has filed a petition for en banc review (pdf), arguing that, among other things, Berger and Baker conflict with Coopers & Lybrand and at least one prior Ninth Circuit opinion.
The petition also notes the existence of a long-standing circuit split on this issue. A 25-year-old Second Circuit decision reached the same result as Berger and Baker. See Gary Plastic Packaging Corp. v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 903 F.2d 176, 179 (2d Cir. 1990). But at least four other circuits have rejected this approach to seeking appellate review of the denial of class certification. Most recently, in Camesi v. University of Pittsburgh Medical Center, 729 F.3d 239 (3d Cir. 2013), the Third Circuit held that it lacked appellate jurisdiction when workers dismissed their individual complaints with prejudice in an attempt to appeal the district court’s ruling decertifying their collective actions. The Third Circuit rejected their “procedural sleight of hand to bring about finality,” and held that “voluntary dismissals … constitute impermissible attempts to manufacture finality[.]” Id. at 245. The Fourth, Eighth, and Tenth Circuits agree that they lack jurisdiction over such an appeal. See Rhodes v. E.I. du Pont de Nemours & Co., 636 F.3d 88, 100 (4th Cir. 2011); Telco Grp., Inc. v. AmeriTrade, Inc., 552 F.3d 893, 893-94 (8th Cir. 2009) (per curiam); Bowe v. First of Denver Mortg. Investors, 613 F.2d 798, 800-02 (10th Cir. 1980).
This conflict provides reason to believe that the Ninth Circuit should grant rehearing en banc. Businesses should watch further proceedings in Baker closely.
The “ascertainability” requirement for class certification is a crucial safeguard for both defendants and absent class members. There is some debate about its origin: some courts have held that it is implicit in Rule 23 that class members must be readily identifiable; others find ascertainability to be rooted in Rule 23(a)(1)’s numerosity mandate or Rule 23(b)(3)’s requirement that a class action be superior to other methods for resolving the controversy. Either way, courts agree that a class is ascertainable only if the class definition is sufficiently definite to make it administratively feasible for the court to determine by reference to objective criteria whether a particular person is a member of the putative class.
In two recent opinions—Hayes v. Wal-Mart Stores, Inc. (pdf), 2013 WL 3957757 (3d Cir. Aug. 2, 2013), and Carrera v. Bayer Corp., 2013 WL 4437225 (3d Cir. Aug. 21, 2013)—the Third Circuit vacated class certification orders because the plaintiffs hadn’t met their burden of proving that class members were ascertainable. These decisions are a goldmine for class action defendants: They provide great examples of the ascertainability requirement in action.
Class-action lawyers on both sides of the “v.” have been debating the impact of the Supreme Court’s decision earlier this year in Comcast Corp. v. Behrend. Last week, the D.C. Circuit delivered its answer in In re Rail Freight Fuel Surcharge Antitrust Litigation, the most significant opinion thus far to address Comcast. As the D.C. Circuit put it in a unanimous opinion by Judge Brown, “[b]efore [Comcast v.] Behrend, the case law was far more accommodating to class certification under Rule 23(b)(3).” But Comcast places that case law in doubt: When class certification rests on expert economic testimony—which is increasingly the case—“[i]t is now clear . . . that Rule 23 not only authorizes a hard look at the soundness of statistical models that purport to show predominance—the rule commands it” (emphasis added). That powerful holding makes the Rail Freight decision especially important for defendants opposing class certification.
Here’s a common scenario: After unsuccessfully moving for class certification and having a petition for review under Federal Rule of Civil Procedure 23(f) rebuffed, the plaintiff wants to take another shot at an appeal. Can the plaintiff simply settle his individual claims—subject to his right to appeal the denial of class certification—so that he has a dismissal giving him an automatic right to an immediate appeal?
If you’re in the Third, Seventh, Eighth, or Ninth Circuit, the answer is no. Each of these courts have held that they lack jurisdiction over the appeal of a would-be class representative following such a settlement.
The most recent of these decisions is the Eight Circuit’s opinion in Ruppert v. Principal Life Ins. Co. (pdf), No. 11-2554 (8th Cir. Feb. 13, 2013), which involved an ERISA claim by the plaintiff against his insurer. The district court denied class certification for lack of commonality and typicality. And the Eighth Circuit denied a Rule 23(f) petition for review. So the plaintiff next tried entering into a settlement, accepting $80,000 in exchange for a dismissal of his individual claims. In the agreement, the plaintiff reserved the right to appeal the denial of class certification and, if the Eighth Circuit were to reverse, to seek a share of any recovery to the class. The Eighth Circuit dismissed the appeal for lack of appellate jurisdiction.
The Eighth Circuit held that there was no final judgment because the settlement “allows for [the plaintiff’s] individual claims to spring back to life.” The Third, Seventh, and Ninth Circuits have also dismissed appeals for lack of finality, concluding that such settlements are impermissible attempts to manufacture appellate jurisdiction. See India Breweries, Inc. v. Miller Brewing Co., 612 F.3d 651, 656-57 (7th Cir. 2010); Fed. Home Loan Mortg. Corp. v. Scottsdale Ins. Co., 316 F.3d 431, 440 (3d Cir. 2003); Dannenberg v. Software Toolworks, Inc., 16 F.3d 1073, 1076 (9th Cir. 1994). By contrast, the Second Circuit deems a decision to be final, despite the plaintiff’s ability to reassert a dismissed claim on remand, if the “plaintiff’s ability to reassert a claim is made conditional on obtaining a reversal” on appeal. Purdy v. Zeldes, 337 F.3d 253, 258 (2d Cir. 2003).
The Eight Circuit also held that the settlement of the plaintiff’s individual claims deprived him of standing to appeal the denial of class certification. The Eighth Circuit acknowledged that the Supreme Court has held that a would-be class representative has standing to challenge the denial of class certification even if his individual claims are involuntarily extinguished. See United States Parole Comm’n v. Geraghty, 445 U.S. 388, 404 (1980). But when the claims are voluntarily settled—even under terms that give the plaintiff a stake in the class recovery—the case is moot. In so holding, the Eighth Circuit sided with the Fourth Circuit and rejected the position of the D.C. Circuit. Compare Rhodes v. E.I. du Pont de Nemours & Co., 636 F.3d 88, 100 (4th Cir. 2011) with Richards v. Delta Air Lines, Inc., 453 F.3d 525, 529 (D.C. Cir. 2006). (The fact that the D.C. Circuit’s decision rests on an application of Deposit Guaranty National Bank v. Roper, 445 U.S. 326 (1980)—which the Supreme Court recently suggested might no longer be good law—suggests that the Eighth Circuit has the better side of this split.)
Although Ruppert deepens two preexisting circuit splits, the court’s docket suggests that the plaintiff is not seeking further review. Accordingly, unless and until the Supreme Court decides the issue, if you’re a class-action defendant and the plaintiff comes to you with a proposal for one of these settlements, consult the law of the relevant circuit before deciding whether the offer is too good to pass up.
One oddity of the law in the Second Circuit is the unbalanced standard of review that the court sometimes applies to class certification decisions. On a dozen or so occasions over the last twenty years, the Second Circuit has proclaimed that it is “noticeably less deferential when the district court has denied class status than when it has certified a class.” Shahriar v. Smith & Wollensky Restaurant Group, Inc., 659 F.3d 234, 250 (2d Cir. 2011); see also, e.g., Brown v. Kelly, 609 F.3d 467, 485 (2d Cir. 2010). But the Second Circuit has never explained why orders granting class certification should receive privileged treatment. In reality, the Second Circuit’s approach arises out of a misreading of the court’s earlier precedents. And developments in the law since the introduction of Rule 23(f) leave no room for courts of appeals to place a thumb on the scale in favor of class certification.
The “noticeably less deferential” standard first appears in Lundquist v. Security Pacific Automotive Financial Services Corp., 993 F.2d 11, 15 (2d Cir. 1993). Lundquist attributed the unbalanced standard of review exclusively to Robidoux v. Celani, 987 F.2d 931 (2d Cir. 1993). But Robidoux held only that “abuse of discretion can be found more readily on appeals from the denial of class status than in other areas, for the courts have built a body of case law with respect to class action status.” Id. at 935 (emphasis added). Robidoux was not saying that denials of certification should be reversed more readily than grants; it was explaining that class certification decisions are more readily reversed than other discretionary rulings. The sole case cited in Robidoux confirms that understanding: “Abuse of discretion can be found far more readily on appeals from the denial or grant of class action status than where the issue is, for example, the curtailment of cross-examination or the grant or denial of a continuance.” Abrams v. Interco, Inc., 719 F.2d 23, 28 (2d Cir. 1983) (emphasis added).
Rule 23(f), which authorizes permissive interlocutory appeals from class certification rulings, likewise says nothing that would authorize a court of appeals to review a grant of class status more deferentially than a denial. And the advisory committee notes are clear that the need for appellate review is no less pressing for rulings denying class certification than for those granting certification. If anything, a grant of class certification should receive closer scrutiny than a denial, given the Supreme Court’s recent reaffirmation that a “class action is an exception to the usual rule” and that plaintiffs “must affirmatively demonstrate . . . compliance with” Rule 23. Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541, 2550-51 (2011).
Accordingly, defendants in Rule 23(f) appeals in the Second Circuit should resist the notion that greater deference is due to a ruling granting class certification than to one denying it.
Lest there was any uncertainty on the topic, in Gelder v. Coxcom Inc. (pdf), the Tenth Circuit has now made clear that when a party moves for reconsideration of an order granting or denying class certification, the time for filing a petition for permission to appeal under Rule 23(f) runs from the date of the order resolving the motion for reconsideration. The court rejected the contention that the motion for reconsideration merely tolls the time for filing the petition for review such that the time it takes to file the motion for reconsideration is deducted from the 14 days that Rule 23 (f) affords the losing party to file the petition for review. It instead held, consistent with the rule in appeals from final judgments, that the losing party has the full amount of time to petition from the date of action on the motion for reconsideration.
Federal Rule of Civil Procedure 23(f) gives federal courts of appeals authority to permit interlocutory appeals from orders granting or denying motions to certify a class. The rule leaves it murky, however, whether an order partially decertifying a class is appealable under Rule 23(f). In a brief opinion by Judge Posner, the Seventh Circuit has now held that it is.
In Matz v. Household International Tax Reduction Investment Plan (pdf), the court ruled that “an order materially altering a previous order granting or denying class certification is within the scope of Rule 23(f) even if it doesn’t alter the previous order to the extent of changing a grant into a denial or a denial into a grant.” The court reasoned that “[t]his is best seen by imagining that rather than altering a class that the court had already certified the district judge had at the outset certified a narrower class than proposed by the plaintiff. That order would have been appealable by either party . . . . We don’t see why it should make a difference that the order modifying the class requested by the plaintiff came later. The difference is between one order and two orders that accomplish the same thing.”