Class Actions: Post-Comcast, Court May Certify Liability-Only Class Even If Individualized Issues Predominate on Damages, Provided Damages Track Liability — Meaning of GVR Order from Supreme Court
Jacob v. Duane Reade, Inc., 2013 U.S. Dist. LEXIS 111989 (S.D.N.Y. Aug. 8, 2013):
Plaintiffs, individually and on behalf of all others similarly situated, bring claims against Duane Reade, Inc. and Duane Reade Holdings (collectively, "DR"), asserting that DR failed to compensate its assistant store managers ("ASMs") for hours worked in excess of 40 hours per week, in violation of the Fair Labor Standards Act, 29 U.S.C. §§ 201 et seq. ("FLSA"), and the New York Labor Law §§ 650 et seq. ("NYLL"). On March 20, 2013, the Court granted Plaintiffs' motion for class certification, certifying Plaintiffs as a class with regard to their NYLL claims pursuant to Federal Rule of Civil Procedure 23 and appointing Outten & Golden, LLP, Klafter Olsen & Lesser, and Gottlieb & Associates as class counsel. Before the Court is DR's motion for reconsideration, which seeks to decertify the class in light of the Supreme Court's recent decision in Comcast v. Behrend, 133 S. Ct. 1426 (2013). For the reasons that follow, DR's motion is granted in part and denied in part.
While bifurcation, or some use of Rule 23(c)(4) to certify the class in a limited fashion, is clearly an aspect of the post-Comcast landscape, the extent to which such procedures may be used remains a shifting reality. For example, prior to Comcast, the courts of appeal were split on the issue as to whether, when common issues or questions fail to predominate over an entire claim or action, a court may properly "isolate the common issues under Rule 23(c)(4) and proceed with class treatment of these particular issues." In re Nassau Cty. Strip Search Cases, 461 F.3d 219, 226 (2d Cir. 2006) (quoting Valentino v. Carter--Wallace, Inc., 97 F.3d 1227, 1234 (9th Cir. 1996) (quotations and citations omitted)). The Second Circuit, together with the Sixth, Seventh, and the Ninth Circuits subscribe to the view that Rule 23(c)(4)'s plain language operates as more than a mere "housekeeping rule," and thus permits the certification of some issues, such as liability, but not others. In re Motor, 2013 WL 1397125, at *6-7 (citing cases and discussing split among circuits). By contrast, the Fifth Circuit "has adopted a 'strict application' of Rule 23(b)(3)'s predominance requirement," reading Rules 23(b)(3) and (c)(4) to require "that a cause of action, as a whole, must satisfy the predominance requirement of (b)(3) and that (c)(4) is a housekeeping rule that allows courts to sever the common issues for a class trial." Nassau, 461 F.3d at 226 (quoting Castano v. Am. Tobacco Co., 84 F.3d 734, 745 n.21 (5th Cir. 1996) (quotations omitted)).
While Comcast itself fails to speak to the use and scope of Rule 23(c)(4), the Supreme Court did vacate and remand, in light of its Comcast ruling, a Sixth Circuit decision that had certified a class for liability purposes only. See Whirlpool Corp. v. Glazer, 133 S. Ct. 1722 (2013) (vacating and remanding 678 F.3d 409 for further consideration in light of Comcast). In In re Whirlpool Corp. Front-Loading Washer Products Liability Litig., 678 F.3d 409 (6th Cir. 2012), the Sixth Circuit had affirmed the district court's certification below of a Rule 23(b)(3) class of consumers, alleging various causes of action against the manufacturer of front-load washing machines. The Whirlpool district court had reserved proof of damages for individual determination, which the Sixth Circuit affirmed as well, citing precedent permitting certification even in the face of individualized damages determinations. See In re Whirlpool, 678 F.3d at 419 ("No matter how individualized the issue of damages may be, these issues may be reserved for individual treatment with the question of liability tried as a class action." (citing Sterling v. Velsicol Chem. Corp., 855 F.2d 1188, 1197 (6th Cir. 1988)). The Sixth Circuit also, assuming success on the merits, suggested that the district court might divide the class members into sub-classes for the purpose of determining damages. Id. at 421 ("For the purpose of determining damages, class members who were injured at the point of sale and also experienced a mold problem might be placed in one Rule 23(b)(3) subclass, while class members who were injured at the point of sale but have not yet experienced a mold problem might be placed in a separate Rule 23(b)(3) subclass. Alternatively, the class members who have not experienced a mold problem might be placed in a Rule 23(b)(2) subclass to allow any declaratory or injunctive relief necessary to protect their interests." (citation omitted)).
Divining the Supreme Court's intent from a so-called "GVR order" [i.e., grant of cert, vacate and remand] is the subject of much scholarship and little clarity; suffice it to say that the vacatur and remand of In re Whirlpool does not necessarily speak to the propriety of liability-only certification in a post-Comcast world. The Sixth Circuit, on remand, acknowledged this obfuscation and construed the Supreme Court's GVR similarly, noting that the "law is clear that a GVR order does not necessarily imply that the Supreme Court has in mind a different result in the case, nor does it suggest that our prior decision was erroneous." In re Whirlpool Corp. Front-Loading Washer Products Liability Litig. (Whirlpool II), No. 10-4188, 2013 WL 3746205, at *1 (6th Cir. July 18, 2013). In light of its view of the GVR, the Sixth Circuit declined to remand the matter to the district court, holding that "the present GVR order require[d] [the court] to consider only whether Comcast Corp. has any effect on [its] Rule 23 analysis affirming the district court's certification of a liability class." Id. at *2.
Instead of remanding the case, the Sixth Circuit, in reviewing the district court's certification and its prior affirmance in light of Comcast, was "satisfied that the [district] court considered relevant merits issues with appropriate reference to the evidence," as required by Dukes and Amgen Inc. v. Conn. Retirement Plans & Trust Funds, 133 S. Ct. 1184 (2013), despite its favorable citation of Eisen v. Carlisle & Jacquelin, 417 U.S. 156, 177 (1974), in which the Supreme Court "expressed the view that 'nothing in either the language or history of Rule 23 ... gives a court any authority to conduct a preliminary inquiry into the merits of a suit in order to determine whether it may be maintained as a class action.'" Whirlpool II, 2013 WL 3746205, at *8. The Whirlpool II court also again discussed the Rule 23(a) requirements, noting in particular, with respect to commonality, that despite defendant's arguments, "the trial of common questions will evoke common answers likely to drive resolution of this lawsuit." Id. at *14 (citation omitted). According to the Sixth Circuit, the lead plaintiffs, like all Ohio owners of the particular Whirlpool model at issue in the case, were allegedly injured "immediately upon purchase of a Duet [model of washer] due to the design defect in, and the decreased value of, the product itself, whether mold causing additional consequential damages has yet manifested or not." Id. For this reason, the district court did not abuse its discretion in finding commonality and typicality, despite the fact that some class members had experienced mold growth and others had not, and, despite the reality that all class members had varied laundry habits. Id. at 14-15.
With respect to predominance, the Whirlpool II court emphasized that Amgen stands for the enduring principle that "the predominance inquiry must focus on common questions that can be proved through evidence common to the class," but a plaintiff class "need not prove that each element of a claim can be established by classwide proof." Id. at *15 (citation omitted). "Following Amgen's lead," the Sixth Circuit upheld the district court's predominance conclusion, finding "that liability questions common to the Ohio class--whether the alleged design defects in the Duets proximately caused mold to grow in the machines and whether Whirlpool adequately warned consumers about the propensity for mold growth--predominate over any individual questions." Id. at *16. In other words, the evidence required for the claims at issue in Whirlpool "will either prove or disprove as to all class members whether the alleged design defects caused the collection of biofilm, promoting mold growth, and whether Whirlpool failed to warn consumers adequately of the propensity for mold growth in the Duets." Id. (citations omitted).
And finally, in applying Comcast, the Whirlpool II court determined that the Supreme Court's decision, while offering further instruction on the "necessary predominance inquiry," failed to "change the outcome" of the court's prior Rule 23 analysis. Id. In particular, the court noted that Comcast dealt with the certification of both "a liability and damages class under Rules 23(a) & (b)(3)." Id. For the Whirlpool II court, the fact that the district court had certified only the liability class meant that Comcast had "limited application," as damages were not at issue. Id. at *17 ("Where determinations on liability and damages have been bifurcated, see Fed. R. Civ. P. 23(c)(4), the decision in Comcast--to reject certification of a liability and damages class because plaintiffs failed to establish that damages could be measured on a classwide basis--has limited application."). Similar to the Levya court, the Sixth Circuit also noted that "[t]o the extent that Comcast Corp. reaffirms the settled rule that liability issues relating to injury must be susceptible of proof on a classwide basis to meet the predominance standard," that requirement was fully satisfied as to the Whirlpool class. Id. (citation omitted).
Taking this jurisprudence into account, the Court finds it most logical to construe Comcast as requiring a baseline inquiry into damages at the certification phase -- meaning that the putative class's theory of liability must track its theory of damages. Put another way, there cannot be a mismatch between the injury and the remedy, as there was between the single variant of antitrust impact -- the overbuilder competition -- and the generalized model of damages provided by the Comcast plaintiffs. See Comcast, 133 S. Ct. at 1435 ("'The first step in a damages study is the translation of the legal theory of the harmful event into an analysis of the economic impact of that event.' The District Court and the Court of Appeals ignored that first step entirely." (internal citation omitted)).
Even if this linkage requirement is met, together with all the other strictures of Rule 23(a) and (b), it is still quite possible, however, that individualized determinations or proof might be required at the damages phase. For example, where an employer fails to keep computerized or otherwise accessible records, contacting employees individually might be required in a wage and hour case, even where those employees' theory of liability--lack of payment for overtime wages in violation of state law--tracks completely its theory of damages--payment of time and one-half, as prescribed by statute, for each hour worked above 40. Accordingly, those individual damages accounts might indeed predominate over the common questions linking the class together for liability purposes. The dissent in Comcast seems to suggest that the presence of such individualized proof with respect to damages does not act as a bar to certification. See 133 S. Ct. at 1437 (Ginsburg and Breyer, JJ., dissenting) ("Recognition that individual damages calculations do not preclude class certification under Rule 23(b)(3) is well nigh universal." (citations omitted)). Nevertheless, reading Dukes and Comcast together, it appears that there are due process implications for defendants, which render the so-called "trial by formula" approach, whereby representative testimony is utilized to determine damages for an entire class, inappropriate where individualized issues of proof overwhelm damages calculations. Compare Dukes, 131 S. Ct. at 2561 ("[A] class cannot be certified on the premise that Wal--Mart will not be entitled to litigate its statutory defenses to individual claims. And because the necessity of that litigation will prevent backpay from being 'incidental' to the classwide injunction, respondents' class could not be certified even assuming, arguendo, that 'incidental' monetary relief can be awarded to a 23(b)(2) class."), with Comcast, 133 S. Ct. at 1434 ("Under that logic, at the class-certification stage any method of measurement is acceptable so long as it can be applied classwide, no matter how arbitrary the measurements may be. Such a proposition would reduce Rule 23(b)(3)'s predominance requirement to a nullity.").
If the Court accepts the premise that the necessity of individualized proof, with respect to damages, may indeed defeat the predominance requirement, the next inquiry relates to the extent to which this determination affects the certification of other discrete issues, such as liability. While Comcast surely requires some inquiry into the relationship between injury and damages at the class certification stage, this Court understands Comcast to require a linkage between those two, rather than forbidding bifurcation in the event of individualized proof. In fact, the Comcast majority's primary concern was the inability of the putative class to match their damages methodology to the single, viable, overbuilder theory of antitrust impact. See Comcast, 133 S. Ct. at 1434 ("This methodology might have been sound, and might have produced commonality of damages, if all four of those alleged distortions remained in the case. But as Judge Jordan's partial dissent pointed out: '[B]ecause the only surviving theory of antitrust impact is the clustering reduced overbuilding, for [the proposed methodology] to be relevant, [the] benchmark counties must reflect the conditions that would have prevailed in the Philadelphia DMA but for the alleged reduction in overbuilding.'" (citing Behrend, 655 F.3d at 216 (Jordan, J., concurring in part and dissenting in part)). Comcast does not, however, establish a rule that prohibits certification of solely a liability class in the face of individualized proof of damages. In fact, were the Court to interpret Comcast to adopt such a rule, employers would be subject to a perverse incentive: maintain company-wide, computerized, and generally accessible records of overtime hours and face class action litigation or rely on individual agreements and employee-by-employee records and defeat class certification in every instance. Therefore, "in the absence of authority to the contrary, [the Court is] not inclined to extend Comcast beyond its facts and holding. Thus, Comcast does not foreclose a district court from certifying a liability only class under Rule 23(c)(4) . . . ." Wallace v. Powell, No. 3:09 Civ. 286, 2013 WL 2042369, at *19 (M.D. Pa. May 14, 2013).
To summarize, Comcast requires that a putative class seeking Rule 23(b)(3) certification demonstrate a linkage between its theory of liability and its theory of damages. The Court must examine this relationship at the class certification stage, even where the inquiry overlaps with, or is "pertinent to[,] the merits determination." 133 S. Ct. at 1432-33. After establishing this linkage, certification of both liability and damages together may nevertheless prove untenable in light of Dukes, as due process concerns imbue defendants with the right to defend each claim when damages are too individualized. Nothing in Comcast, however, vitiates the longstanding principle in this Circuit that courts may certify a class as to liability, but not damages, utilizing Rule 23(c)(4), so long as the proposed liability class meets the requirements of Rule 23(a) and (b). See, e.g., Wallace, 2013 WL 2042369, at *19. Of course, "[c]ourts should use Rule 23(c)(4)  only 'where resolution of the particular common issues would materially advance the disposition of the litigation as a whole.'" In re Motor, 2013 WL 1397125, at *7 (citations omitted). Accordingly, where so-called "noncommon issues are inextricably entangled with common issues or . . . the noncommon issues are too unwieldy or predominant to be handled adequately on a class action basis," bifurcation or limited certification under Rule 23(c)(4) is inappropriate. Id. (quotations and citations omitted).
Rule 23(c)(4) cannot cure every ill that troubles a putative class. It can, however, serve as a useful and fair case management tool where (1) damages track liability in the manner contemplated by Comcast; (2) Rules 23(a) and (b) are satisfied as to common issues; and (3) individualized issues of proof predominate over a discrete, uncommon issue, such as damages, and due process impels that a defendant have the opportunity to respond to such individual positions. Accordingly, in the vein of In re Motor, Miri, Wallace, and Whirlpool II, the Court construes Rule 23(c)(4) as a viable option within the context of classwide damages.
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