Wednesday, December 28, 2011

Northern District Court Declines to Decertify Rule 23(b)(2) Restitutionary Class In Light of Dukes: In re Conseco Life Ins. Co.

On December 20, 2011, Northern District Court Judge, Susan Illston, denied a request to decertify a nationwide Rule 23(b)(2) class based on the premise that the U.S. Supreme Court’s decision in Wal-Mart v. Dukes bars certification of claims seeking money damages under Rule 23(b)(2).  See In re Conseco Life Ins. Co., 2011 U.S. Dist. LEXIS 146139 (N.D. Cal. Dec. 20, 2011).  Defendant Conseco challenged certification of the plaintiffs’ lawsuit – which alleges that defendant increased monthly cost-of-insurance deductions and expense charges in breach of the policy terms – on the grounds that individualized damage determinations for each policyholder would predominate over injunctive and declaratory relief, precluding certification under Rule 23(b)(2).

Although the Court did conclude that Dukes required that Rule 23(b)(2) classes involving monetary claims be limited exclusively to individuals impacted by ongoing conduct, which in this case required the exclusion of former policyholders from the certified class [In re Conseco Life Ins. Co., 2011 U.S. Dist. LEXIS 146139, at 17 (concluding that monetary claims for former policyholders “would by definition predominate over claims for injunctive or declaratory relief”)], the Court found certification appropriate with regard to existing policyholders notwithstanding Dukes because the plaintiff’s theory of damage flowed directly from the harm at issue in the underlying claim. In reaching this conclusion, the Court adopted the Fifth Circuit’s “incidental test”, which permits (b)(2) certification where the monetary relief sought is predicated primarily on the same facts and law relied upon to establish liability in the underlying claim:
In Dukes, the Supreme Court discussed but did not explicitly adopt the Fifth Circuit's "incidental test." Dukes, 131 S.Ct. at 2560. In Allison v. Citgo Petroleum Corp., 151 F.3d 402, 415 (5th Cir. 1998), the Fifth Circuit held that a (b)(2) class would permit the certification of monetary relief that is "incidental to requested injunctive or declaratory relief," which it defined as "damages that flow directly from liability to the class as a whole on the claims forming the basis of the injunctive or declaratory relief." According to the Allison court, such "incidental damage should not require additional hearings to resolve the disparate merits of each individual's case; it should neither introduce new substantial legal or factual issues, nor entail complex individualized determinations." Id. Numerous courts within the Ninth Circuit have since adopted the incidental test to determine proper certification under (b)(2). See Delarosa v. Boiron, Inc., 275 F.R.D. 582, 2011 WL 4389919 (C.D.Ca. Aug. 24, 2011) (Tucker, J.); Aho v. AmeriCredit Financial Services, Inc., 2011 U.S. Dist. LEXIS 80407, 2011 WL 3047677 (S.D.Ca. Jul. 25, 2011) (Sabraw, J.) This Court also adopts the incidental test as the appropriate test for Conseco's motion for decertification of the current policyholders.
See In re Conseco Life Ins. Co., 2011 U.S. Dist. LEXIS 146139, 21-22.

The Court reasoned that while a damage theory seeking broad return of all monies paid toward premiums would be incapable of satisfying this inquiry [In re Conseco Life Ins. Co., 2011 U.S. Dist. LEXIS 146139, 24 (“The Court agrees with Conseco that if plaintiffs' theory of damages required return of premiums paid, there would necessarily be individualized inquiries of the type that fail the incidental test”)], the plaintiffs here had put forward a more limited theory of damage that was tailored to the amounts of the alleged inflated costs of insurance and expense charges that formed the basis of liability. See id., at 25. As explained by the Court, such a damages theory permitted adjudication of damages based largely on the same facts and law without complex individualized damage calculations:
Seeking return of wrongfully charged costs and fees of this sort will not require additional hearings to resolve the disparate merits of each individual's case; nor will it introduce "substantial legal or factual issues, nor entail complex individualized determinations." Allison, 151 F.3d at 415. It will simply entail "computation by means of objective standards" based on data in Conseco's records. Id. As a result, the return of the improper deductions would flow directly from the claims forming the basis of the declaratory and injunctive relief. Damages arising from the costs of insurance and expense charges are therefore incidental to the declaratory and injunctive relief sought, and allowed under 23(b)(2).
In re Conseco Life Ins. Co., 2011 U.S. Dist. LEXIS 146139, 25-27.

Thus, “[t]he primary inquiry post-Dukes for classes seeking monetary damages under 23(b)(2) is the theory of damages that the class seeks” [Id ., at 24], which based on the forgoing analysis, would be appear to encompass claims seeking restitutionary disgorgement (rendering (b)(2) certification a useful vehicle for many claims brought under the UCL).