DELVACCA Inaugural
In-House Counsel Conference
April 1, 2009
The New Class Action Game:
“No Injury” Plaintiffs
And Multi-District Litigation
Ezra D. Rosenberg
Will Sachse
Dechert LLP
“You can fool some
of the people all of
the time, and all of
the people some of
the time, but you can
not fool all of the
people all of the
time.”
“And if you’re not
fooling all of the
people all of the
time, you can’t have
a class action .”
“You can fool
some of the
people all the
time, and those
are the ones you
want to
concentrate on.”
“This concept
may have some
relevance to
plaintiffs’
selection of
forums in
consumer fraud
class actions.”
To MDL Or Not To MDL
• Jurisdiction and Venue
– Pro: Removal of case from
plaintiffs’ hand-picked judge
and/or venue
– Pro: May reduce plaintiff’s
control of media in hand-picked
venue, if not the same as MDL
venue
– MDL judges are, on average,
more experienced and
somewhat more conservative,
but that’s changing, as there are
more MDL’s
– Con: But you might get worse
To MDL Or Not To MDL
• Case Coordination:
– Pro: Better coordination
– Pro: Control over outliers
– Pro: Interlocutory appeal
chances
– Pro: Effect on costs and
budgets
– Pro: Effect on settlement
– Con: Cases outside MDL
continue
– Con: Costs
To MDL Or Not To MDL
• Plaintiffs
– Pro: May create conflicts
– Pro: Reduces renegade
problems
– Con: Attracts sophisticated
counsel
– Con: Better plaintiffs’
coordination
– Con: Helps weaker counsel
– Con: May save plaintiffs money
– Con: May lead to more cases
To MDL Or Not To MDL
• Courts
– Con: May send
message that you’re
willing to settle
– Con: May send subtle
message to court that
cases should be
aggregated for trial or
certified as classes
To MDL Or Not To MDL
• Strategy
– Pro or con: Magnifies the impact of pretrial
rulings
– Pro or con: Depends on which judge you get
and which Circuit you’re in
To MDL Or Not To MDL
• Use and abuse of Master Consolidated
Complaint
– Administrative tool
– Can’t supplant underlying complaints
• Have to know what complaint you’re
moving against
– Keeping eye on laws of different states
– Improper narrowing of MDL into model claims
– Improper deferral of class certification motions,
when limiting motion to certain claims
Plaintiffs’ New Tacks
– Clump states into small number of groups,
containing materially identical standards
– Hold back claims from class certification
adjudication
•Violates precept that
class certification
decision be made at
earliest opportunity
•Flies in face of
purpose of MDL
Plaintiffs’ New Tacks
• Dangers of bellwether trials
• Lexecon issues
– Attempts to circumvent Lexecon by teeing up first
trial in MDL court
Effect Of “Choice Of Law”
• Which Circuit Court’s law will apply to
class certification decision in MDL?
• Whose law will apply to substantive law?
Whose Law Of Class Certification
Applies In MDL?
Judge Scheindlin, MTBE
Litigation MDL:
– Not pretrial ruling, because
can be reviewed up through
trial
– Shouldn’t force trial court to try
case it wouldn’t have certified
– Involves issues relating to
state substantive law
– Law of transferor Circuit
applies
Whose Law Of Class Certification
Applies In MDL?
• In re Live Concert Antitrust Litig., 241 F.R.D. 98, 105
(C.D. Cal. 2007)
•Reduction in efficiency of
forcing court to apply
divergent interpretations of
federal law
•Law of transferee circuit
applies, because pretrial
proceeding, under section
1407
Whose Law Of Class Certification
Applies In MDL?
• In re Wal-Mart Wage and Hour Employment Practices
Litig., 2008 WL 3179315 (D. Nev. June 20, 2008)
• First looked at law of transferee circuit (which
was also a transferor circuit)
• Then looked at law of transferor circuits
Whose Law Of Class Certification
Applies In MDL?
• Strategic
Considerations:
– Be careful what
you wish for
– May be better off
trying to move
Circuit on
underlying
approach to class
certification
Where Do You Want To Be?
• Which Circuit Court’s law will apply to
class certification decision in MDL?
– May affect position before MDL Panel
– May affect outcome of case once in MDL
Where Do You Want To Be?
• Limited choice
– Plaintiffs make the
first choice
– But do not always
act in concert
• In absence of
obvious choice,
weigh all options
Where Do You Want To Be?
• No strict formula or
predictability
• Factors:
– where cases first filed
– where locus of litigation
is
– convenience of forum,
docket (regular docket
and number of MDLs)
– availability of
experienced judge
Not All Circuits Are The Same
• Circuits differ on outcome determinative issues
relating to class certification:
–
–
–
–
Level of analysis of pleadings
Standard of proof
Trial Plan
Nature of proofs
• Admissible evidence
• Daubert/Frye
– Issue Certification
– Fluid Recovery
Whose Class Cert Law Do You
Want?
• Eisen v. Carlisle & Jacquelin, 417 U.S. 156 (1974): No
preliminary inquiry into merits
• General Telephone Co. of Southwest v. Falcon, 457 U.S.
147 (1982): Rigorous inquiry
• Vast Majority of Courts Hear Evidence to Inform Their
Certification Decision
– Szabo (7th Circuit)
• 10th Circuit: Accept pleadings as true and limited
evidence
The Third Circuit Changes The
Game
•Trial court “must make
whatever factual and
legal inquiries are
necessary and must
consider all relevant
evidence and
arguments presented
by the parties.”
The Third Circuit Changes The
Game
• “The
decision to certify
a class calls for findings
by the court, not merely
a ‘threshold showing’
by a party, that each
requirement of Rule 23
is met.”
Preponderance of
evidence
•
The Third Circuit Changes The
Game
• “The court must
resolve all factual or
legal disputes relevant
to class certification,
even if they overlap
with the meritsincluding disputes
touching on elements
of the cause of action.”
The Third Circuit Changes The
Game
•“The court's obligation
to consider all relevant
evidence and
arguments extends to
expert testimony,
whether offered by a
party seeking class
certification or by a
party opposing it.”
Class Certification Is A Two-Way
Street
• Rule 23 standards not
relaxed in consumer fraud
cases
•Class certification “may
force a defendant to settle
rather than incur the costs
of defending a class action
and run the risk of
potentially ruinous liability.”
How Can Case Be Tried?
• Trial court “must formulate
some prediction as to how
specific issues will play out
in order to determine
whether common or
individual issues
predominate in a given
case.”
•“If proof of the essential
elements of the cause of
action requires individual
treatment, then class
certification is unsuitable.”
Proof Of Injury
• Plaintiffs must
demonstrate that injury is
capable of common proof
• Court must make
“rigorous assessment of the
available evidence and the
method or methods by
which plaintiffs propose to
use the evidence to prove
impact at trial.”
Looking Behind The Pleadings
• Court may “delve
beyond the pleadings”
• Court may make
“preliminary inquiry into
the merits”
• Disputes relating to
merits are “not forfeited”
in favor of plaintiffs
Counsel’s assurances
are not enough
•
Findings
• Findings as to each
element capable of being
proved by common proof
• Clear and precise
statement of class
parameters
• Clear and complete list
of the claims, issues or
defenses to be treated on
a class basis
Experts
• Daubert applies
• “Weighing conflicting
expert testimony at
the certification stage
is not only
permissible; it may be
integral to the rigorous
analysis Rule 23
demands.”
Whose Class Cert Law Do You Want
– Other Than The Third Circuit?
• Most Circuits weigh conflicting evidence
– 2nd Circuit – IPO
– 5th Circuit --- Castano
– 7th Circuit -- Szabo
• 9th Cir: Evidence need only be “sufficient” to
demonstrate requirements for class certification
Dukes v. Wal-Mart, Inc., 474 F.3d 1214 (9th Cir.
2007)
– Not resolve battle of experts
• 1st Cir: Applies “some evidence” standard
Do Rules Of Evidence Apply?
•
One Circuit has expressly held Rules do not apply:
– Paxton v. Union Nat’l Bank, 688 F.2d 522, 562 n.14 (8th Cir. 1982)
•
One Circuit has expressly applied Federal Rules of Evidence:
– Mars Steel Corp. v. Continental Bank N.A., 880 F.2d 928, 938 (7th
Cir. 1989)
• Some trial courts have implied Rules of
Evidence apply by rejecting hearsay.
Pecere v. Empire Blue Cross and Blue
Shield, 194 F.R.D. 66, 70 (E.D.N.Y.
2000)
Convincing Court To Apply Rules
• R. Evid. 101:
– Govern “proceedings” in courts
– Unless exempted under R. Evid. 1101
• Class certification not among exemptions
Do Daubert/Frye Apply?
o Gutierrez v. Johnson & Johnson, No. 01-5302, 2006
WL 3246605 at *2 (D.N.J. Nov. 6, 2006):
o “[A]ny Daubert inquiry is a limited one, tailored to the purpose
for which the evidence is offered -- to determine whether the
requisites of Rule 23 have been met.”
Convincing Court To Apply
Daubert/Frye
– Must apply where Rules of Evidence apply
– Courts must look down the road to see how claims would be tried
– Not an evaluation of the merits
Daubert
Importance Of Daubert
– On Science –
• Educational value
– On Injury-in-fact/Damages
• May be outcome determinative
• May couple with summary judgment
– Convince court that it’s not an accepted theory
– Therefore, no proof of injury/damages on classwide basis
Issue Certification
– R. 23(C)4)
• When appropriate, an action may be maintained as
a class action with respect to particular issues.
– Manual on Complex Litigation:
• Selectively used, this provision may enable a court
to achieve the economies of class action treatment
for a portion of a case, the rest of which may either
not qualify under Rule 23 (a) or may be
unmanageable as a class action.
Issue Certification
– Approved issue certification
• 2d, 3rd, 7th, and 9th Circuits
– Must significantly advance litigation
– Can’t be used if many issues left unresolved
• 2nd Cir. (McLaughlin)
• 8th Cir. (St. Jude)
– May violate 7th Amendment right to jury trial
• 7th Cir. (Rhone Poulenc): Judge must not divide issues
between separate trials in such a way that the same issue is
reexamined by different juries.
Issue Certification
– Disapproved issue
certification
• 5th Circuit (Castano)
• Can’t manufacture
predominance
• Whole cause of action
must meet predominance
requirement
• Housekeeping rule
Fluid Recovery
– Used by plaintiffs in attempt
to avoid individual inquiry of
causation
• Jury determines aggregate
damage to class
• Individual allocation of award
made later administratively
and formulaically
• Remainder distributed cy pres
E.g., Price v. Altria
Fluid Recovery
– McLaughlin v. American Tobacco Co, 522 F.3d 215, 231 (2d Cir.
2008)
– Rules Enabling Act violation:
• Roughly estimated astronomical damages from aggregate
determinate
– does not reflect actual number of injured plaintiffs
– little relationship to economic harm caused
• Distributing residue on the basis of cy pres principles means
that defendants will pay an inflated total, still an overpayment
– Due Process violation:
• Impermissibly masks the prevalence of individual issues
• Right of defendants to challenge individual plaintiffs is lost
Fluid Recovery
– Against fluid recovery: 3rd Circuit (Newton v. Merrill Lynch, Pierce,
Fenner & Smith, Inc.)
– 9th Cir. (In re Hotel Tel. Charges)
– 4th Cir.: Rejected fluid recovery
– 8th Cir.: Permits it under appropriate circumstances – but does not
automatically utilize it as a procedural alternative to class action
disposition
– 7th Cir. – Simer – middle road: The general inquiry is whether the use
of such a mechanism is consistent with the policy or policies reflected
by the statute violated. This matter can be more particularized into an
assessment of to what extent the statute embodies policies of
deterrence, disgorgement, and compensation.
Which Circuit Law Do You Want?
– Best: 5th Circuit
• on class certification approach
• on issue certification
• no fluid recovery law
– Next best: 2nd, 3rd, 4th, 7th
• But 7th is mixed on fluid recovery
– 8th
– Fourth tier: 1st
– Undeveloped law: 6th, 10th, DC
– Worst: 9th Cir.
• on class certification approach
• on issue certification
• good on fluid recovery
Choice Of State Law Can Make Or
Break Class Certification
Choice Of State Law Can Make Or
Break Class Certification
– Burden is on plaintiff
• Analysis must be on claim-by-claim
basis
– To get nationwide class, plaintiffs must show
that
• No difference between law of single state
on claim and law of all other states
• Single state’s interest outweighs interest of
all others in enforcing its laws
Choice Of State Law Can Make Or
Break Class Certification
– Court must identify substantive law issues that
control the outcome of litigation
– Constitutionally required to protect rights of absent
class members and defendants
• Procedural Due Process/Enabling Act
• Dormant Commerce Clause – applying law to
transactions that occurred wholly outside of state
– Presumption against extraterritorial application
Choice Of State Law Can Make Or
Break Class Certification
– Application of multiple state laws causes
manageability and predominance problems
• Class certification impossible where 50 states
establish large number of different legal standards
governing a particular claim
• Impossible task of instructing jury on relevant law
– Important to consider not only wording of statutes, but
legislative history and judicial construction
Differences: Consumer Fraud Law
–
–
–
–
–
–
–
–
–
–
–
Who qualifies as a consumer under the law
Whether intent/scienter is an element
How to define ascertainable injury or injury-in-fact
Availability of learned intermediary defense
Availability of other specialized defenses
Statutes of limitation
Availability of treble or punitive damages
Availability of jury trial
Permissibility of class action
Whether reliance is an element
Definition of causation (transaction causation or loss
causation)
Differences: Unjust Enrichment Law
Central concept:
• Plaintiff conferred benefit on defendant under circumstances
that make it unjust or inequitable for defendant to retain that
benefit.
Differences:
• Basic elements
– Enrichment, impoverishment, connection, absence of
justification, no remedy at law
– Benefit, defendant’s appreciation of benefit, defendant’s
acceptance of benefit under inequitable circumstances
Differences: Unjust Enrichment Law
• Type of Misconduct
–Illegal or unlawful
–Doesn’t have to be illegal or
unlawful
–Can be where defendant innocently
received benefit and passively
accepted it
–Unjust, unconscionable, or unlawful
• Whether plaintiff must prove
absence of adequate remedy of law
Differences: Contract Law
– Contract claims
– Decisions refusing to certify
• Differences on issues such as parol evidence, extrinsic
evidence, laches, waiver and unconscionability
– Breach of warranty claims
– Variations in warranty law
• Requirements that putative class members be in privity with
manufacturer and they provide notice of the alleged breach
of warranty to the manufacturer
• Sanders v. J & J (DNJ)
The “Negative Value” Fallacy
• That these are “negative value” cases
is plaintiffs’ most potent policy
argument in favor of class certification
The “Negative Value” Fallacy
[W]e identified as important to the
superiority analysis a consideration of the
“class members' ‘lack of financial
wherewithal.’ ” . . . In such circumstances,
we have expressed a concern that, absent
a class, the individual class members
would not pursue their claims at all, thus
demonstrating superiority of the class
action mechanism.
Int’l Engineers v. Merck
The “Negative Value” Fallacy
•
These are not true “negative value” suits
•
These are fabricated claims
•
If people were truly injured, ample avenues of redress
•
Attorney fee awards, not compensation for real injury, driving many of these
lawsuits
The “Reliance Is Irrelevant” Fallacy
• Evolution of CFAs
– State AG actions
• No need to show any individual relied
– Private cause of action
• Need to show ascertainable loss caused by fraud
The “Reliance Is Irrelevant” Fallacy
– Engineers: Ascertainable loss causation is an
individual issue
“Our statute essentially replaces reliance, an element
of proof traditional to any fraud claim, with the
requirement that plaintiff prove ascertainable loss.”
This means:
– Must prove causative link between injury and fraud
– Can’t prove injury by “fraud on the market” theory
The “Reliance Is Irrelevant” Fallacy:
RICO
Bridge v. Phoenix Bond & Indemnity Co., --- U.S. ----, 128
S.Ct. 2131, --- L.Ed.2d ---- (2008)—
– Reliance is not an element to be plead in a mail fraud case
– Person can be injured by reason of mail fraud even without
reliance
but . . .
The “Reliance Is Irrelevant” Fallacy:
RICO
– “none of this is to say that a RICO plaintiff
who alleges injury 'by reason of' a pattern of
mail fraud can prevail without showing that
someone
relied
on
the
defendant's
misrepresentations....”
– “In most cases, the plaintiff will not be able to
establish even but-for causation if no one
relied on the misrepresentation....”
– “In addition, the complete absence of reliance
may prevent the plaintiff from establishing
proximate cause.”
RICO Reliance/Causation
– Has to be either first party or third party
reliance
– If defendant can show that no one
relied, no proximate causation
The “Reliance Is Irrelevant” Fallacy
• Defendants have the right to test proof:
“Whatever Group Health means about the need for
these plaintiffs to present direct evidence of
individual reliance, it does not eliminate the right of
a defendant to present evidence negating a
plaintiff's direct or circumstantial showing of
causation and reliance.”
St. Jude, 8th Cir.
The “Reliance Is Irrelevant” Fallacy
• Could individual sue for consumer fraud,
where he/she says:
– Didn’t see the misrepresentation
– Didn’t rely on the misrepresentation
– Hasn’t been injured by the misrepresentation
– But someone else has
– But wants his/her money back
If Individual Can’t Bring Claim, No
Class Action
• Cannot use procedural tool of Rule 23 to
effect a change in the substantive law
– Violates Federal Rules Enabling Act
– Violates Substantive Due Process
• Bundling together non-actionable claims
into a class action does not make them
actionable
If Individual Can’t Bring Claim, No
Class Action
• Benefit of bringing summary judgment
Individual Issues Of Causation
• Differences in information
–
–
–
–
–
–
–
–
personal experience
other consumers
family/friends
competitors
media
teachers
government
trusted professionals
• Differences in actual knowledge or beliefs
• Differences in reasons for purchases
Different Reactions After “Truth”
Known
• Changes in consumer demand?
• Changes in price?
• Named plaintiffs’ behavior?
Challenging The Damages Theory
• Hydrogen Peroxide: Plaintiff must present valid, reliable,
and scientifically accepted methodology for
demonstrating impact (i.e. damages) to everyone in the
class
– key class certification battleground
• no classwide impact = class certification inappropriate
• classwide impact but class members impacted to different degrees
= courts more receptive to certifying class and leaving damages
issues for another day
– McLaughlin rejected plaintiffs’ proposed damage shortcuts:
• Loss of value
• Artificial market