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.
Hundreds of lower courts have interpreted and applied the Supreme Court’s decision in Spokeo, Inc. v. Robins over the past ten months. We will provide a more comprehensive report on the post-Spokeo landscape in the near future, but the overarching takeaway is that the majority of federal courts of appeals have faithfully applied Spokeo’s core holdings that “Article III standing requires a concrete injury even in the context of a statutory violation,” and that a plaintiff does not “automatically satisf[y] the injury-in-fact requirement whenever a statute grants a person a statutory right and purports to authorize that person to sue to vindicate that right.” Nonetheless, a handful of other decisions have been receptive to arguments by the plaintiffs’ bar that Spokeo did not make a difference in the law of standing, and that the bare allegation that a statutory right has been violated, without more, remains enough to open the federal courthouse doors to “no-injury” class actions.
Two recent decisions by the Seventh and Third Circuits illustrate these contrasting approaches.
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.
Rule 23 may be in for some major changes. The Advisory Committee has commissioned a Rule 23 subcommittee to investigate possible revisions to the class action rules. That subcommittee issued a report (pdf) discussing its progress, and recently has been conducting a “listening tour” of sorts regarding potential rule changes.
Our initial view is that the business community should have serious concerns about the approach that at least some members of the subcommittee appear to be taking, as several proposals are aimed at rolling back judicial decisions—including Supreme Court decisions—that are critical to ensuring that class actions satisfy the requirements of due process.
Here are ten things you need to know from the subcommittee’s report.
[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.
After much anticipation, the Third Circuit heard oral arguments (audio) last Tuesday in the interlocutory appeal in FTC v. Wyndham Worldwide Corp. We have written previously about this case, which likely will be a significant one in the privacy and data-security field. At issue is whether Section 5 of the FTC Act authorizes the FTC to regulate data security at all, as well as what constitutes “unfairness” in the data-security context. The case may have a large impact on future FTC enforcement actions and major implications for class action litigation.
But after all the build up, the panel of the Third Circuit hearing argument might change the script. Questioning by the judges (Thomas Ambro, Jane Roth, and Anthony Scirica) indicated that the panel was seriously considering a ruling that the FTC should have brought any unfairness claim in an FTC administrative action in the first instance (as it did in the LabMD action), not in federal district court. If that happens, we will have to wait even longer to learn whether the federal courts agree with the FTC’s views on the scope and contours of its unfairness authority in the data-security context.
Counsel for the FTC and for Wyndham spent large portions of the oral argument emphasizing the positions they had briefed. Wyndham’s counsel, for example, argued at length that negligence alone cannot satisfy an “unfairness” standard, that businesses had not received adequate notice of what triggers such liability, and that the FTC had not adequately alleged substantial injury. But the panel may not reach those issues. Instead, the court focused on the threshold question of whether the FTC had the authority in the first place to sue in federal court under Section 13(b) of the FTC Act. That section permits “the Commission [to] seek, and after proper proof, the court [to] issue, a permanent injunction,” but limits such relief to “proper cases.”
Is the Wyndham action a “proper case”? According to the FTC—which invoked decisions of the Ninth Circuit and the Seventh Circuit for support—it is “proper” to sue whenever the FTC alleges a violation of a law that the FTC enforces. For its part, Wyndham did not disagree, instead arguing that such a rule would have practical benefits—including that, in its view, the company would get a fairer shake in federal court than in an FTC administrative action. But the Third Circuit panel appeared to be unconvinced on this point, and focused instead on whether a case presenting novel and complex issues should first be brought in an administrative action. In fact, the panel asked the parties to provide supplemental briefing on the point.
It is always perilous to read the tea leaves after an oral argument. But it is an understatement to say that the Third Circuit’s panel was dropping some hints, especially by requesting further briefing on whether the FTC action belongs in federal court. There is therefore a substantial possibility that the court will send the action to the FTC for administrative adjudication in the first instance.
That result would serve to underscore a point we have made before—that post hoc litigation is a poor way to impose data-security standards. Litigation moves forward in fits and starts, and by its nature is unlikely to produce clear rules or standards in complex areas like data security. In short, it is an unpredictable and expensive method of forging broadly applicable standards. All stakeholders—both businesses and their consumers and employees—are likely to suffer from a lack of meaningful direction if data-security standards are generated via litigation. With the cyber threat continuing to grow—from garden-variety hackers to sophisticated operations that may be sponsored by foreign governments—consensus-based standard setting is far more likely to provide practical guidance for American businesses that seek to protect private information, intellectual property, and business-critical systems from the continuing cyber onslaught.
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!
We have written previously about the FTC’s action arising out of the data breach suffered by the Wyndham hotel group, and the company’s petition for permission to pursue an interlocutory appeal regarding the FTC’s use of its “unfairness” jurisdiction to police data security standards. On Tuesday, the Third Circuit granted Wyndham’s petition. Even the FTC had agreed that the “the legal issues presented are ‘controlling question[s] of law,’ and they are undoubtedly important.” Yesterday’s ruling promises that these questions soon will be considered by the Third Circuit.
We have written previously about FTC v. Wyndham Worldwide Corp., currently pending in federal district court in New Jersey, and its potential significance for data security class actions. A recent opinion in that case has brought it back into the news—and made clear that the stakes are as high as ever.
Over the FTC’s opposition, the district court certified an interlocutory appeal to the Third Circuit regarding its earlier denial of Wyndham’s motion to dismiss. Specifically, the district court certified two questions of law for appellate review: (1) whether the FTC has the authority under Section 5 of the FTC Act to pursue an unfairness claim involving data security; and (2) whether the FTC must formally promulgate regulations before bringing such an unfairness claim. Here is a copy of Wyndham’s petition to the Third Circuit to accept the certified appeal.
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.