Class Actions — What Does Predominance Mean and How Is It Properly Analyzed? — Circuit Split — Can Subclasses & Issue Certification Help? — Another Circuit Split) — Impact of Damages on Predominance
Daye v. Community Fin. Serv. Ctrs., LLC, 2016 U.S. Dist. LEXIS 26539 (D. N.M. Feb. 9, 2016):
There is little uniform guidance on how to assess when common issues predominate over individual ones. Moreover, there is currently a split of authority between the United States Courts of Appeals over the proper way to analyze predominance -- with the Sixth and Seventh Circuits, on one side and the Third, Tenth and Eleventh Circuits on the other. The Honorable Richard A. Posner, United States Circuit Judge for the Seventh Circuit, concludes that the predominance inquiry boils down to "a question of efficiency." Butler v. Sears, Roebuck & Co., 702 F.3d at 362. Judge Posner poses the predominance question as: "Is it more efficient, in [*47] terms both of economy of judicial resources and of the expense of litigation to the parties, to decide some issues on a class basis or all issues in separate trials?" Butler v. Sears, Roebuck & Co., 702 F.3d at 362. The Sixth Circuit defines predominance in a similar manner. See In re Whirlpool Corp. Front-Loading Washing Products Liability Litigation, 678 F.3d 409 (6th Cir. 2012). The Sixth and Seventh Circuits, thus, define predominance in much the same way: if the district court can design a mechanism for trying the case that is fair to the defendants and more efficient than individual litigation of the same dispute, then predominance is satisfied. See Butler v. Sears, Roebuck & Co., 727 F.3d at 802.
The Third, Tenth, and Eleventh Circuits stake out a different test.
"Whether an issue predominates can only be determined after considering what value the resolution of the class-wide issue will have in each class member's underlying cause of action." Common issues of fact and law predominate if they "'ha[ve] a direct impact on every class member's effort to establish liability' that is more substantial than the impact of individualized issues in resolving the claim or claims of each class member." If "after adjudication of the classwide issues, plaintiffs must still introduce a great deal of individualized proof or argue a number of individualized legal points to establish most or all [*48] of the elements of their individual claims, [their] claims are not suitable for class certification under Rule 23(b)(3)."
Sacred Heart Health Sys., Inc. v. Humana Military Healthcare Serv., Inc., 601 F.3d at 1170 (emphasis in original)(citations omitted).7 The Eleventh Circuit, however, imposes a different, more rigorous, second step: the district court's trial plan must spend more time adjudicating the common questions than it does adjudicating the individual questions.8
7 The Eleventh Circuit first adopted this test in 2004 in Klay v. Humana, Inc., and gave renewed articulations of the test in 2009 in Vega v. T-Mobile USA, Inc., and in 2010 in Sacred Heart Health Systems, Inc. v. Humana Healthcare Services, Inc. In each case, the Eleventh Circuit made some reference to additionally adopting a Fifth Circuit rule-of-thumb test:
An alternate formulation of this test was offered in Alabama v. Blue Bird Body Co., 573 F.2d 309 (5th Cir. 1978). In that case, we observed that if common issues truly predominate over individualized issues in a lawsuit, then "the addition or subtraction of any of the plaintiffs to or from the class [should not] have a substantial effect on the substance or quantity of evidence offered." Put simply, if the addition of more plaintiffs to a class requires the presentation of significant amounts of new evidence, that strongly [*49] suggests that individual issues (made relevant only through the inclusion of these new class members) are important. Alabama v. Blue Bird Body Co., 573 F.2d at 322 . . . .
Klay v. Humana, Inc., 382 F.3d at 1255. See Sacred Heart Health Sys., Inc. v. Humana Military Healthcare Serv., Inc., 601 F.3d at 1170 ("In practical terms, while '[i]t is not necessary that all questions of fact or law be common,' 'the addition or subtraction of any of the plaintiffs to or from the class [should not] have a substantial effect on the substance or quantity of evidence offered.'"); Vega v. T-Mobile USA, Inc., 564 F.3d at 1270 (quoting the above portion of Klay v. Humana, Inc.).
8 Rule 23(c)(4) allows for adjudication of common issues, even if these issues do not add up to a common claim. Rule 23(c)(5) allows for collective adjudication, even if it falls short of being completely "classwide" adjudication. Current case law remains unclear whether subclassification and issue certification can help satisfy predominance, or if these techniques are separate from the predominance inquiry. The Fifth Circuit staked out a clear answer to this question in Castano v. American Tobacco Co.:
Severing the defendants' conduct from reliance under rule 23(c)(4) does not save the class action. A district court cannot manufacture predominance through the nimble use of subdivision (c)(4). The proper interpretation of the interaction between subdivisions (b)(3) and (c)(4) is that a cause of action, as a whole, must satisfy [*50] 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. Reading rule 23(c)(4) as allowing a court to sever issues until the remaining common issue predominates over the remaining individual issues would eviscerate the predominance requirement of rule 23(b)(3); the result would be automatic certification in every case where there is a common issue, a result that could not have been intended.
84 F.3d at 745 n.21 (citations omitted). The Fifth Circuit's approach attracted the adherence of a revered jurist on the Fourth Circuit -- although not the Fourth Circuit itself. The Honorable Paul V. Niemeyer, United States Circuit Judge for the Fourth Circuit, endorsed the Fifth Circuit's view in an opinion concurring in part and dissenting in part from an opinion in which the Fourth Circuit adopted the opposing view:
According to the majority, to require the certified issue in this case to predominate over the individualized issues in the action as a whole ignores Rule 23(c)(4)(A), which it appears to view as a fourth avenue for class certification, on equal footing with Rules 23(b)(1), 23(b)(2), and 23(b)(3). In doing so, the majority glorifies Rule 23(c)(4)(A) -- a housekeeping rule that authorizes a court to certify [*51] for class treatment "particular issues" in a case that otherwise satisfies Rule 23(a) and 23(b) -- with the effect of materially rewriting Rule 23 such that Rule 23(b)(3)'s requirements no longer need be applied to "[a]n action," see Fed. R. Civ. P. 23(b), but rather to any single issue, no matter how small.
Gunnells v. Healthplan Servs., Inc., 348 F.3d at 446-47. Despite Judge Niemeyer's concern with creating a Circuit split, the Second Circuit, the Seventh Circuit, and the Ninth Circuit have all held that subclasses can be used to satisfy predominance concerns since at least 2001. See Robinson v. Metro-North Commuter R.R., 267 F.3d 147, 167-69 (2d Cir. 2001); Jefferson v. Ingersoll Int'l Inc., 195 F.3d 894, 898 (7th Cir. 1999).
The Eleventh Circuit has refrained from taking a side on this question. See Borrero v. United Healthcare of N.Y., Inc., 610 F.3d 1296, 1310 n.5 (11th Cir. 2010). The Tenth Circuit also appears to have refrained from taking a side. See Monreal v. Potter, 367 F.3d at 1237 n.12.
The Tenth Circuit followed the Eleventh Circuit's approach in CGC Holding Co., LLC v. Broad and Cassel:
[W]e must characterize the issues in the case as common or not, and then weigh which issues predominate. Here, that task requires us to survey the elements of the class's RICO claims to consider (1) which of those elements are susceptible to generalized proof, and (2) whether those that are so susceptible predominate over those that are not. Stated another way, consideration of how the class intends to answer factual and legal questions to prove its claim -- and the [*52] extent to which the evidence needed to do so is common or individual -- will frequently entail some discussion of the claim itself.
CGC Holding Co., LLC v. Broad & Cassel, 773 F.3d at 1087-88. The Tenth Circuit then considered whether reliance "is susceptible to general and classwide proof." 773 F.3d at 1088-90. It concluded that it could infer reliance where "circumstantial evidence that can be used to show reliance is common to the whole class. That is, the same considerations could lead a reasonable factfinder to conclude beyond a preponderance of the evidence that each individual plaintiff relied on the defendants' representations." 773 F.3d at 1090. It is clear, given the Tenth Circuit's repeated citations to Eleventh Circuit case law, including Klay v. Humana, that the Tenth Circuit has adopted the Eleventh Circuit's test of comparing the total time the district court most likely will spend on common versus individual questions. See CGC Holding Co., LLC v. Broad & Cassel, 773 F.3d at 1087.9 The Third Circuit has adopted a similar approach. See Marcus v. BMW of North America, LLC, 687 F.3d 583 (3d Cir. 2012).
9 The Tenth Circuit cites to a section of Newberg for its predominance analysis, which directs courts to "first characterize the issues in the case as common or individual and then weigh which predominate." Newberg § 4:50.
In light of the Tenth Circuit's analysis in CGC Holding Co., LLC v. Broad [*53] & Cassel, the Court concludes that, to determine whether predominance is satisfied, it must first "characterize the issues in the case as common or not, and then weigh which issues predominate. 773 F.3d at 1087 (emphases in original). The Court also thinks that Wal-Mart and Comcast Corp. v. Behrend have changed the landscape for the predominance analysis overall. For example, there are some old cases that state that rule 23(b)(3) "does not require that common questions be dispositive or significant; it only requires that common questions predominate." In re Potash Antitrust Litig., 159 F.R.D. 682, 699 (D. Minn. 1995)(Kyle, J.). Similarly, the Second Circuit had said that the fact that the answer to a common question is not disputed -- for example, if the parties have stipulated to the answer or the court has already ruled -- does not affect either its commonality or its ability to predominate. See In re Nassau Cty. Strip Search Cases, 461 F.3d 219, 228 (2d Cir. 2006)(Straub, J.)("That the class-wide proof comes in the form of a simple concession rather than contested evidence certainly shortens the time that the court must spend adjudicating the issue, but it does nothing to alter the fundamental cohesion of the proposed class, which is the central concern of the predominance requirement."). The Court believes that the days of submitting a long [*54] list of allegedly common issues -- some dispositive, some not dispositive, some significant, some not significant, some upon which the Court has already ruled, some which remain unanswered, some of which are not disputed, some of which the parties have stipulated -- are over. The common issues have to be real issues -- not phantom issues -- or else the analysis will not mean anything.10
10 In a post-Wal-Mart case, the Supreme Court wrote that plaintiffs need not "prove that the predominating question will be answered in their favor" at the class certification stage. Amgen Inc. v. Conn. Retirement Plans & Trust Funds, 133 S. Ct. at 1196.
A defendant's desire to assert individual counterclaims does not typically defeat predominance. See Phillips Petrol. Co. v. Shutts, 472 U.S. 797, 810 (1985); Allapattah Servs, Inc. v. Exxon Corp., 333 F.3d 1248, 1260 (11th Cir. 2003). A defendant's desire to assert individual affirmative defenses also often does not defeat predominance, see Smilow v. Sw. Bell Mobile Sys., Inc., 323 F.3d 32, 39 (1st Cir. 2003)("Courts traditionally have been reluctant to deny class action status under Rule 23(b)(3) simply because affirmative defenses may be available against individual members."), but this statement is limited after Wal-Mart.11 Other recurring individual issues present more serious challenges to predominance, such as: (i) the prima facie element of reliance or due diligence in common-law fraud and other cases;12 (ii) differences in the applicable [*55] law in a multi-state, state law-based class actions,13 see Castano v. Am. Tobacco Co., 84 F.3d 734, 741 (5th Cir. 1996); and (iii) the need to determine individual personal injury damages, which presents such a challenge to predominance that class certification of mass tort claims is now exceedingly rare, see Amchem Prods., Inc. v. Windsor, 521 U.S. at 625.
11 Limitations defenses are an especially common breed of affirmative defense. The statute of limitations defense does not typically defeat predominance:
Although a necessity for individualized statute-of-limitations determinations invariably weighs against class certification under Rule 23(b)(3), we reject any per se rule that treats the presence of such issues as an automatic disqualifier. In other words, the mere fact that such concerns may arise and may affect different class members differently does not compel a finding that individual issues predominate over common ones. As long as a sufficient constellation of common issues binds class members together, variations in the sources and application of statutes of limitations will not automatically foreclose class certification under Rule 23(b)(3). Predominance under Rule 23(b)(3) cannot be reduced to a mechanical, single-issue test.
Waste Mgmt. Holdings, Inc. v. Mowbray, 208 F.3d 288, 296 (1st Cir. 2000)(citing 5 James Wm. Moore et al., Moore's Federal Practice ¶ 23.46 (3d ed. 1999)). See Newberg [*56] § 4:57 (confirming that the above passage "reflects the law in most circuits" (footnote omitted)).
12 Despite the concern about the individual issues involved in fraud cases, there are at least three situations in which courts typically find common issues predominant in fraud cases: "(1) those in which reliance is common across the class; (2) those in which courts have excused a showing of individual reliance; and (3) those in which the underlying law does not require a showing of individual reliance." Newberg § 4:58. Reliance may be a common issue when the same misrepresentation is made to the entire class; some circuits have held that written misrepresentations may be common issues while oral misrepresentations are presumed to be individualized. See, e.g., Moore v. PaineWebber, Inc., 306 F.3d 1247, 1253 (2d Cir. 2002)("[T]he Third, Fourth, Fifth, Sixth, and Seventh Circuits . . . have held that oral misrepresentations are presumptively individualized."); In re Prudential Ins. Co. Am. Sales Practice Litig. Agent Actions, 148 F.3d 283, 319 (3d Cir. 1998)(certifying class where alleged misrepresentations were written and uniform); Spencer v. Hartford Fin. Servs. Grp., Inc., 256 F.R.D. 284, 297 (D. Conn. 2009)(certifying class where class definition was narrowed to include only those who had received written communications from defendant). The requirement that plaintiffs show reliance is most often presumed or excused in so-called fraud-on-the-market [*57] securities cases, in which class members -- investors in the defendant company -- are presumed to be rational, fully informed actors who use all of the information available to the general public, but are also presumed to not possess insider information. See Stoneridge Inv. Partners, LLC v. Scientific-Atlanta, 552 U.S. 148, 159 (2008)(citing Affiliated Ute Citizens of Utah v. United States, 406 U.S. 128, 153 (1972); Basic Inc. v. Levinson, 485 U.S. 224, 245 (1988)).
13 In In re Bridgestone/Firestone, Inc., 288 F.3d 1012 (7th Cir. 2002), Judge Easterbrook, in a pre-Wal-Mart/Comcast opinion, stated:
No class action is proper unless all litigants are governed by the same legal rules. Otherwise the class cannot satisfy the commonality and superiority requirements of Fed. R. Civ. P. 23(a), (b)(3). Yet state laws about theories such as those presented by our plaintiffs differ, and such differences have led us to hold that other warranty, fraud, or products-liability suits may not proceed as nationwide classes
. . . .
Differences across states may be costly for courts and litigants alike, but they are a fundamental aspect of our federal republic and must not be overridden in a quest to clear the queue in court. . . . Tempting as it is to alter doctrine in order to facilitate class treatment, judges must resist so that all parties' legal rights may be respected.
In re Bridgestone/Firestone, Inc., 288 F.3d at 1015-20.
Finally, despite earlier case law, recent Supreme Court case law makes clear that damages determinations, whether they relate [*58] to classwide damages or individual damages, can defeat predominance. See Comcast Corp. v. Behrend, 133 S. Ct. 1426 (2013). In Comcast Corp. v. Behrend, the Supreme Court held that the plaintiffs' method for determining classwide damages -- a regression model not based on any particular one of the plaintiffs' four liability theories -- was inadmissible to prove classwide damages. See 133 S. Ct. 1433. The Third Circuit had allowed the plaintiffs' method to establish damages without deciding "whether the methodology was a just and reasonable inference or speculation." 133 S. Ct. at 1433 (quoting 655 F.3d 182, 206 (3d Cir. 2011)). Justice Scalia said that
it is clear that, under the proper standard for evaluating certification, respondents' model falls far short of establishing that damages are capable of measurement on a classwide basis. Without presenting another methodology, respondents cannot show Rule 23(b)(3) predominance: Questions of individual damage calculations will inevitably overwhelm questions common to the class.
Comcast Corp. v. Behrend, 133 S. Ct. at 1433. In short, Justice Scalia stated that, without any reliable method for establishing classwide damages, individual issues relating to determining classwide damages defeated predominance. See 133 S. Ct. at 1433.
The Court thinks that Comcast Corp. v. Behrend is relevant not only to classwide damages, but also [*59] to individual damages determinations, in three ways. First, at the class certification stage, the Court cannot ignore how individual damages are to be decided. In other words, the Court cannot ignore the possible complexities of the individual damages determinations in making the predominance calculation. A class can have individual damage calculations, but the Court must consider the issues of individual damages calculations at the class certification stage. Second, the methodology for all class members needs to be common or, if there are different methodologies for some plaintiffs and class members, the Court must take these differences into account at the class certification stage in the predominance analysis. In other words, if the Court is going to use different methodologies for different class members, it must decide: (i) whether these differences create questions affecting only individual members; and (ii) whether these individual questions predominate over the questions of law or fact common to the class. Third, even if the methodology is common to the class, the Court must decide whether it will operate in a consistent way for each individual class member. The law and methodology [*60] may be the same, but when applied to the class, they may create issues for one class member or group of class members that they do not create for other class members or groups. The predominance analysis must identify precisely the common issues and uncommon issues that application of the class methodology or methodologies raise, and then determine whether, in the total issue mix, the common issues predominate over the individual ones.
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