Plaintiffs frequently seek to certify class actions where the proposed classes contain a significant number of uninjured persons.  The First Circuit recently reversed the certification of such a class in In re Asacol Antitrust Litigation, concluding that a class cannot be certified where the “individual inquiries” necessary to resolve whether each class member has suffered an injury-in-fact “overwhelm common issues.”  When such inquiries are needed to ensure that a defendant’s due process and jury trial rights are honored, a plaintiff cannot satisfy Rule 23(b)(3)’s predominance requirement.  The court also rejected the plaintiff’s proposal to outsource these individualized inquiries to claims administrators.

We discuss the opinion in detail after the jump, but here are key takeaways for busy readers:

  • The decision explains why a proposed damages class likely fails the predominance test—and therefore cannot be certified—if there are more than a negligible number of uninjured class members and there is no administratively feasible way to weed out those uninjured class members without individualized inquiries.
  • The use of affidavits by class members to establish injury (or any other element of their claim) does not suffice to avoid individualized inquiries so long as the defendant plans to contest those affidavits, because a class cannot be certified on the premise that a defendant will not be entitled to challenge a class member’s ability to prove the elements of his or her claim.
  • Policy justifications for consumer class actions cannot relax the requirements of Rule 23 or defendants’ due process and jury trial rights.

Continue Reading First Circuit Reverses Class Certification Where Individualized Inquiries Would Be Required To Identify And Exclude Uninjured Class Members

We recently noted that the Ninth Circuit had granted a Rule 23(f) petition in Chen v. Allstate Insurance Co.—on the issue whether a named plaintiff can refuse an offer of judgment for full relief and persist in litigating a class action—and was expected to issue a briefing schedule soon. Leaving aside the substance of the case, there is nothing unusual about the practice the Ninth Circuit followed in Chen. That is standard operating procedure virtually everywhere, although in a few rare instances courts of appeals have ordered briefing and argument on both the Rule 23(f) petition and the merits of the class certification ruling. E.g., In re Rail Freight Fuel Surcharge Antitrust Litig. (pdf), 725 F.3d 244 (D.C. Cir. 2013); Tilley v. TJX Cos., 345 F.3d 34, 36 (1st Cir. 2003). See also Lienhart v. Dryvit Sys., Inc., 255 F.3d 138, 141 (4th Cir. 2001) (after hearing argument on the Rule 23(f) papers, the court granted the petition and vacated the class certification order).

The Seventh Circuit is different. Sometimes it will follow grant a Rule 23(f) petition and order briefing on the merits. See, e.g., Abbott v. Lockheed Martin Corp. (pdf), 725 F.3d 803 (7th Cir. 2013); McReynolds v. Merrill Lynch, Pierce, Fenner & Smith, 672 F.3d 482 (7th Cir. 2012); Ross v. RBS Citizens, N.A., 667 F.3d 900 (7th Cir. 2012).

But in many cases it skips the second step: it grants the petition and rules on the merits at the same time, based on only the parties’ Rule 23(f) papers and without oral argument. See, e.g., Hughes v. Kore of Ind. Enters. (pdf), 2013 WL 4805600, at *1 (7th Cir. Sept. 10, 2013); Butler v. Sears, Roebuck & Co., 702 F.3d 359 (7th Cir. 2012); Creative Montessori Learning Ctrs. v. Ashford Gear LLC (pdf), 662 F.3d 913, 915 (7th Cir. 2011); CE Design Ltd. v. King Architectural Metals, 637 F.3d 721, 722–23 (7th Cir. 2011); Pella Corp. v. Saltzman, 606 F.3d 391, 393 (7th Cir. 2010); Am. Honda Motor Co. v. Allen, 600 F.3d 813 (7th Cir. 2010).

The parties have no way of knowing which procedure the Seventh Circuit will use in any given case—it depends entirely on the discretion of the judges who happen to be on the motions panel when the court considers the Rule 23(f) petition. The parties do not learn which approach the court will follow in a particular case until it issues its decision on the petition.

The Seventh Circuit’s unique approach to handling Rule 23(f) petitions has significant implications for parties filing and responding to Rule 23(f) petitions in that court. Most importantly, the parties should endeavor to make all of their merits arguments in their Rule 23(f) papers, because they may not get another chance. This is often difficult; the petition and response are limited to 20 pages each, and the petitioner will not have a right to file a reply brief (although petitioners occasionally are given leave to file a reply). Moreover, respondents should be wary of following a strategy of not responding to a Rule 23(f) petition, on the theory that the decision below is obviously correct or that responding may make the case seem more worthy of immediate review. In at least two cases where there was no response to a Rule 23(f) petition, the Seventh Circuit has granted the petition and overturned the district court’s ruling, reversing decertification of a class in Hughes—a controversial recent decision by Judge Posner that the plaintiffs’ bar has been citing with regularity—and vacating class certification in Creative Montessori Learning Centers.

At this point, some 15 years after the adoption of Rule 23(f), it seems unlikely that other circuits will opt to embrace the Seventh Circuit’s approach. But in the Seventh Circuit, the practice of granting a Rule 23(f) petition and ruling on the merits simultaneously shows no sign of abating.

One final practitioners’ note: The Seventh Circuit follows a similar practice when it comes to appeals under the Class Action Fairness Act of orders granting or denying remand, so the same caveats apply equally in that context. Examples include Knudsen v. Liberty Mut. Ins. Co., 435 F.3d 755, 758 (7th Cir.2006), and In re Safeco Ins. Co. of Am. (pdf), 585 F.3d 326, 327 (7th Cir. 2009).

 

6SDCD5ARNUKS

Can a plaintiff who bought a security in one offering bring a class action on behalf of purchasers in other offerings if the plaintiff alleges a misstatement common to all of the offerings? In cases under Sections 11 and 12 of the 1933 Securities Act—particularly those involving mortgage-backed securities—the consensus view had been that a plaintiff lacked standing to assert class claims regarding offerings in which the plaintiff did not buy. On September 6, the Second Circuit rejected that consensus view in NECA-IBEW Health & Welfare Fund v. Goldman Sachs & Co. (pdf)., creating a split with the First Circuit’s decision in Plumbers’ Union Local No. 12 Pension Fund v. Nomura Asset Acceptance Corp. (pdf), 632 F.3d 762 (1st Cir. 2011). Plaintiffs’ lawyers may seek to use the NECA-IBEW decision to broaden class litigation against securities issuers and underwriters.

Continue Reading NECA-IBEW: Second Circuit Rules That Plaintiffs Sometimes Have Standing to Bring Class Claims Covering Securities Offerings Other Than Ones in Which They Bought