Tuesday, June 21, 2011

U.S. Supreme Court’s Decision in Wal-Mart Stores, Inc. v. Dukes et al Unlikely To Significantly Impact Rule 23(b)(3) Certification

On June 20, 2011, the U.S Supreme Court reversed the Ninth Circuit’s certification decision in Wal-Mart Stores, Inc. v. Dukes et al, 564 U. S. ____ (2011), concluding that the Ninth Circuit applied improper criteria with regard to Rule 23(b)(2) (which was expected) and commonality under Rule 23(a)(2), which was somewhat surprising.

The Court’s Rule 23(a)(2) analysis unquestionably elevates the burden required to establish commonality, which up until now “has been construed permissively.” See Hanlon v. Chrysler Corp., 150 F.3d 1011, 1019 (9th Cir. Cal. 1998). As held by the Majority, this standard was improper, as the element of commonality requires a more demanding showing establishing that the defined class is not simply bound together by the same legal claim or common questions, but rather, is bound by (1) the same theory of liability that (2) is also capable of classwide resolution:
Commonality requires the plaintiff to demonstrate that the class members “have suffered the same injury,” Falcon, supra, at 157. This does not mean merely that they have all suffered a violation of the same provision of law. Title VII, for example, can be violated in many ways—by intentional discrimination, or by hiring and promotion criteria that result in disparate impact, and by the use of these practices on the part of many different superiors in a single company. Quite obviously, the mere claim by employees of the same company that they have suffered a Title VII injury, or even a disparate impact Title VII injury, gives no cause to believe that all their claims can productively be litigated at once. Their claims must depend upon a common contention—for example, the assertion of discriminatory bias on the part of the same supervisor. That common contention, moreover, must be of such a nature that it is capable of classwide resolution—which means that determination of its truth or falsity will resolve an issue that is central to the validity of each one of the claims in one stroke.
Slip Opinion, at 19.

The clear objective of this standard, in the view of the Majority, is to produce cohesion to the class found lacking in this case.  See id., at 12 (“Without some glue holding the alleged reasons for all those decisions together, it will be impossible to say that examination of all the class members’ claims for relief will produce a common answer to the crucial question why was I disfavored.”).

As the dissent points out, however, the practical effect of the Majority's standard elevates a court's commonality analysis to the functional equivalent of a Rule 23(b)(3) predominance analysis. See Dissent, at 9 (“The Court’s emphasis on differences between class members mimics the Rule 23(b)(3) inquiry into whether common questions “predominate” over individual issues.”). The majority rejects this criticism:
The dissent misunderstands the nature of the foregoing analysis. It criticizes our focus on the dissimilarities between the putative class members on the ground that we have “blend[ed]” Rule 23(a)(2)’s commonality requirement with Rule 23(b)(3)’s inquiry into whether common questions “predominate” over individual ones. See post, at 8–10 (GINSBURG, J., concurring in part and dissenting in part). That is not so. We quite agree that for purposes of Rule 23(a)(2) “‘[e]ven a single [common] question’” will do, post, at 10, n. 9 (quoting Nagareda, The Preexistence Principle and the Structure of the Class Action, 103 Colum. L. Rev. 149, 176, n. 110 (2003)). We consider dissimilarities not in order to determine (as Rule 23(b)(3)requires) whether common questions predominate, but in order to determine (as Rule 23(a)(2) requires) whether there is “[e]ven a single [common] question.” And there is not here. Because respondents provide no convincing proof of a companywide discriminatory pay and promotion policy, we have concluded that they have not established the existence of any common question.
Slip Opinion, at 19

While it is true that the procedural standard articulated by the Majority does not focus on whether common questions predominate, the Majority’s explanation on this point does not dispute the fact that the substantive effect of this commonality standard will likely limit the requisit issues to only those capable of satisfying predominance (which seemed to be the point articulated by Justice Ginsburg).
 
While the Court's standard likely will substantially impact certification under Rule 23(b)(1) and (b)(2) moving forward, it is unlikely to have significant impact Rule 23(b)(3) certification.  It is generally held that “the commonality element is of less importance in a Rule 23(b)(3) class action … because the class must also meet the more stringent predominance requirement of Rule 23(b)(3).”  See In re Educ. Testing Serv. Praxis Principles of Learning & Teaching: Grades 7-12 Litig., 2006 U.S. Dist. LEXIS 9726, 10 (E.D. La. Mar. 13, 2006).  “The Rule 23(b)(3) predominance inquiry tests whether proposed classes are sufficiently cohesive to warrant adjudication by representation.”  See Amchem Prods. v. Windsor, 521 U.S. 591, 623 (U.S. 1997).  Based on this fact, a court’s Rule 23(b)(3) inquiry generally subsumes Rule 23(a)(2) analysis altogether.  See Hanlon v. Chrysler Corp., 150 F.3d 1011, 1022 (9th Cir. Cal. 1998) (a court’s “[Rule 23(b)(3) predominance] analysis presumes that the existence of common issues of fact or law have been established pursuant to Rule 23(a)(2)[.]”); In re Ford Motor Co. Bronco II Prod. Liab. Litig., 177 F.R.D. 360, 366 (E.D. La. 1997) (“courts usually do not spend a great deal of time addressing whether common issues exist, but instead focus on the related issue under Rule 23 (b)(3) of whether common issues predominate over individual ones.”).

Friday, June 17, 2011

U.S. Supreme Court Severely Limits Preclusive Effect Afforded To Denials of Class Certification: Smith v. Bayer Corp.

On June 16, 2011, the U.S. Supreme Court issued an important class action decision in Smith v. Bayer Corp., 564 U. S. ____ (2011) (2011 U.S. LEXIS 4559) relating to the preclusive effect which may be given to a Federal court order denying class certification.  This opinion involves an issue I have litigated at length before.  See Johnson v. GlaxoSmithKline, Inc., 166 Cal. App. 4th 1497 (2d Dist. 2008).  In Smith, the Court considered whether a district court exceeded the bounds of its authority under the “relitigation exception” to the Anti-injunction Act (28 U.S.C. § 2283) by enjoining a State court class action from proceeding based on a prior certification denial in Federal court.  The Court resolved this question in the affirmative, finding that two elements of issue preclusion – i.e. the “identity of issues” and “identity of parties” requirements – could not be met.

With regard to the “identity of issues” requirement, the Court focused on whether variations in class action procedure at the State and Federal level could ever produce a finding that the "same issues" had actually been litigated and decided. The Court concluded that while such a finding was possible, this finding could not be predicated upon the mere fact that the State adopted Rule 23 procedural standards, as doing so would infringe upon each State’s right to develop its own class action jurisprudence.  According to the Court, this was the starting point in the analysis, and to the extent any uncertainty exists, this requires the issue be left for resolution at the state court level:
The Court of Appeals and Smith offer us two competing ways of deciding whether the West Virginia and Federal Rules differ, but we think the right path lies somewhere in the middle. The Eighth Circuit relied almost exclusively on the near-identity of the two Rules' texts. See 593 F.3d at 723. That was the right place to start, but not to end. Federal and state courts, after all, can and do apply identically worded procedural provisions in widely varying ways. If a State's procedural provision tracks the language of a Federal Rule, but a state court interprets that provision in a manner federal courts have not, then the state court is using a different standard and thus deciding a different issue. See 18 Wright & Miller § 4417, at 454 (stating that preclusion is "inappropriate" when "different legal standards . . . masquerad[e] behind similar legal labels"). At the other extreme, Smith contends that the source of law is all that matters: a different sovereign must in each and every case "have the opportunity, if it chooses, to construe its procedural rule differently." Brief for Petitioners 22 (quoting ALI, Principles of the Law, Aggregate Litigation § 2.11, Reporters' Notes, cmt. b, p. 181 (2010)). But if state courts have made crystal clear that they follow the same approach as the federal court applied, we see no need to ignore that determination; in that event, the issues in the two cases would indeed be the same. So a federal court considering whether the relitigation exception applies should examine whether state law parallels its federal counterpart. But as suggested earlier, see supra, at 6, the federal court must resolve any uncertainty on that score by leaving the question of preclusion to the state courts.
See Smith, 2011 U.S. LEXIS 4559, at 20-21.

With regard to the “identity of parties” requirement, the Court extended its "virtual representation" analysis in in Taylor v. Sturgell, 553 U.S. 880 (2008) to conclude that a prior order denying certification of a class cannot be imposed on a completely different representative plaintiff, even if the subsequent action is otherwise identical in all other respects.  As reasoned by the Court, the proposition that a denial of certification can itself be imposed on a class-wide basis rests squarely upon fallacious logic:
Indeed, the very ruling that Bayer argues ought to be given preclusive effect is the District Court's decision that a class could not properly be certified. So Bayer wants to bind Smith as a member of a class action (because it is only as such that a nonparty in Smith's situation can be bound) to a determination that there could not be a class action. And if the logic of that position is not immediately transparent, here is Bayer's attempt to clarify: "[U]ntil the moment when class certi-fication was denied, the McCollins case was a properly conducted class action." Brief for Respondent 37. That is true, according to Bayer, because McCollins' interests were aligned with the members of the class he proposed and he "act[ed] in a representative capacity when he sought class certification." Id., at 36.
But wishing does not make it so. McCollins sought class certification, but he failed to obtain that result. Because the District Court found that individual issues predominated, it held that the action did not satisfy Federal Rule 23's requirements for class proceedings. In these circumstances, we cannot say that a properly conducted class action existed at any time in the litigation. Federal Rule 23 determines what is and is not a class action in federal court, where McCollins brought his suit. So in the absence of a certification under that Rule, the precondition for binding Smith was not met. Neither a proposed class action nor a rejected class action may bind nonparties. What does have this effect is a class action approved under Rule 23. But McCollins' lawsuit was never that.
See Smith, 2011 U.S. LEXIS 4559, at 29-30.

This latter conclusion is the kicker, as it all but eliminates any argument that issue preclusion can be applied to subsequent lawsuits.  The Court acknowledged as much, asserting that the policy objective of preventing a successive line of separate actions “flies in the face of the rule against nonparty preclusion.”

Friday, June 10, 2011

Northern District Certifies False Advertisement Class Based on Walnut Manufacturer Health Claims: Zeisel v. Diamond Foods, Inc.

On June 7, 2011, Northern District Judge Jeffrey S. White certified a nationwide UCL/CLRA class based on allegations that the defendant engaged in promotional activities that “‘used express and implied statements about the positive effects of omega-3 fatty acid consumption on health to entice consumers to purchase its’ Shelled Walnut Products.” See Zeisel v. Diamond Foods, Inc., 2011 U.S. Dist. LEXIS 60608, 12-13 (N.D. Cal.). The Court’s opinion contains interesting analysis on issues relating to absent class member standing, as well as the element of ascertainability.

With regard to the first issue, the defendant attempted to re-hatch an issue, raised and rejected in Tobacco II, that absent class members must independently establish Article III standing. The defendant maintained that the California Supreme Court’s ruling in Tobacco II only applies in State court (a line of argumentation that I have been seeing with increasing frequency on various issues).  The Court rejected the argument, reasoning that the Tobacco II court relied on Federal authorities interpreting Article II standing under Rule 23 in making its determination:
Diamond also urges the Court to deny class certification because absent class members lack Article III standing. [] Diamond argues that although the California Supreme Court has held that "state courts may permit uninjured individuals to pursue UCL actions in state court, so long as the class representative has established standing," the Supreme Court's decision did not and could not "remove the standing requirements set forth in Article III, including injury-in-fact and causation." (Opp. Br. at 14:8-13 (emphasis in original, citing Tobacco II, 46 Cal. 4th at 324).) The Court does not read Tobacco II to hold that a class may include members who have not been injured by a defendant's conduct. Rather, the Tobacco II court held that Proposition 64 "was not intended to, and does not, impose section 17204's standing requirement on absent class members in a UCL class action where class requirements have otherwise been found to exist." Tobacco II, 46 Cal. 4th at 324. This holding appears to be in accord with federal authority construing Rule 23. Indeed, the Tobacco II court relied heavily on federal cases interpreting the requirements of Rule 23. Thus, it noted that, in general, "standing in a class action is assessed solely with respect to class representatives, not unnamed members of the class." Id., 46 Cal. 4th at 319 (quoting In re General Motors Corp. Dex-Cool Prod. Liab. Litig., 241 F.R.D. 305, 310 (S.D. Ill. 2007)).
See Zeisel, 2011 U.S. Dist. LEXIS 60608, at 13-14.

With regard to the second issue, the Court the rejected the defendant’s argument that the lack of records enabling one to confirm whether individual consumers actually purchased the products in question foreclosed a finding of ascertainability. As reasoned by the Court, it was sufficient that the class was defined in such a way that consumers could identify themselves:
Diamond argues that it is not administratively feasible to determine if a person is a member of the proposed class because it sells its Shelled Walnut products to retailers and it does not track consumer purchases. Diamond also argues that it sells numerous other nut products and that neither the prospective class members nor the Court would have a means by which they could determine whether they purchased the Shelled Walnut products at issue in this litigation. The Court is not persuaded. [] The proposed class includes (1) all persons (2) who purchased Shelled Walnut Products in 6 ounce, 10 ounce, 16 ounce and/or 3 pound bags (3) which bore labels bearing the Structure Function Claim and Banner (4) from March 22, 2006 through the present. The Court does not find this definition to be subjective or imprecise. Rather, it includes objective characteristics that would permit a consumer to identify themself as a member of the proposed class. See, e.g. Parkinson v. Huyndai Motor America, 258 F.R.D. 580, 594 (C.D. Cal. 2008); cf. Keilholtz, 268 F.R.D at 336 (finding class definition that included persons who lived in the United States who own a home in which the disputed product was installed after a particular date was not subjective or imprecise); Chavez v. Blue Sky Nat. Bev. Co., 268 F.R.D. 365, 377 (N.D. Cal. 2010) (concluding that class of persons who purchased beverage bearing disputed mark or brand, in the United States, during a particular period was ascertainable).
See Zeisel, 2011 U.S. Dist. LEXIS 60608, at 20-21.