Class Actions and Mass Litigation Update - March 2012

As any attorney who handles class action cases knows, the U.S. Supreme Court’s decision in Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011), was significant because it clarified the Rule 23 standards for class certification and strongly supported the need for a rigorous analysis of those requirements.  Of particular importance was the Court’s focus on the commonality requirement of Rule 23(a)(2) as being a real hurdle that plaintiffs must overcome before a class can be certified, and not a throw-away rule that is effectively subsumed by the predominance requirement of Rule 23(b)(3).  After Wal-Mart, a party seeking to certify a class can no longer satisfy the commonality requirement by raising issues that, while technically common to a group of people, are not central to resolving the dispute.  Instead, the common questions must “resolve an issue that is central to the validity of each of the claims in one stroke.”

Even though this holding appeared to be an important change in the way the commonality requirement is to be applied, after Wal-Mart was decided, it was not clear whether lower federal courts would view the decision as making a real change to the meaning of Rule 23(a)(2), or whether its holding would be limited to employment discrimination disputes.  This article focuses on the way that federal courts have applied Wal-Mart’s enhanced commonality rule.

Before Wal-Mart, it was rare for the commonality requirement to stand in the way of the certification of almost any class.  Class action complaints used to identify laundry lists of basic and often uncontroversial questions raised by each class member’s claim, such as whether each purchased a product from the defendant or whether the defendant had a particular company policy.  Any minimally competent plaintiffs’ attorney could draft a list of “common” issues, and, as a result, defendants were unable to seriously contest the commonality requirement.

In Wal-Mart, the Court went out of its way to give the commonality requirement independent significance.  After accepting certiorari to determine whether the putative class satisfied Rule 23(b)(2) (concerning whether injunctive or declaratory relief is proper for a class), the Court ordered briefing sua sponte on the Rule 23(a) requirements and ultimately found that “[t]he crux of this case is commonality.”

In finding that Rule 23(a)(2) was not met, the Court clarified the commonality requirement in three significant ways.  First, it put a limiting gloss on the terms of Rule 23(a)(2).  The Rule requires that there be “questions of law or fact common to the class.”  But the Court explained that this requirement is not satisfied merely by identifying any common question.  Instead, the common question must be “capable of classwide resolution,” meaning that the question must be capable of resolution “in one stroke,” yielding a “common answer[].” 

Second, Wal-Mart made the commonality requirement a real obstacle to the certification of Rule 23(b)(2) classes seeking injunctive or declaratory relief.  Because the predominance requirement of Rule 23(b)(3) does not apply to Rule 23(b)(2) classes, a strong commonality requirement is critical to ensuring that the claims of members of such classes are cohesive and rise or fall on the basis of common issues.

Wal-Mart’s third clarification was that the common question must be central to the merits of the class claims.  The Court found insufficient basic questions such as “Do all of us plaintiffs indeed work for Wal-Mart?  Do our managers have discretion over pay?  Is that an unlawful employment practice?” and “What remedies should we get?”  Because the answers to these types of questions are not “central to the validity” of the putative class members’ claims, they are insufficient to satisfy the commonality requirement.

A review of recent decisions shows that lower courts have applied Wal-Mart’s commonality analysis across a range of class action cases and in ways reflecting that Wal-Mart changed the law in this area.  For example, in Corwin v. Lawyers Title Insurance Co., 276 F.R.D. 484 (E.D. Mich. Aug. 1, 2011), the court applied Wal-Mart to a dispute involving the sale of title insurance and found that commonality was not met.  Stating that the commonality requirement requires “a common issue the resolution of which will advance the litigation,” the court found commonality lacking because “the critical inquiry without which liability cannot attach requires individualized determination.”  Likewise, in Stone v. Advance America, 2011 U.S. Dist. LEXIS 142464 (S.D. Cal. Dec. 9, 2011), the court considered whether to certify a class of individuals who received payday loans and held that a common question such as “whether the defendant violated the same statute with a uniform corporate policy” did not satisfy Rule 23(a)(2) because the key facts of each person’s claim “must be resolved on a transaction-by-transaction basis.”  Because commonality was dispositive, the court did not reach any of the other Rule 23 requirements.  In Haynes v. Planet Automall, Inc., 276 F.R.D. 65 (E.D.N.Y. 2011), the court denied class certification in a case alleging that a car dealer did not disclose that certain fees it charged in connection with automobile financing were part of the finance charge, in violation of the Truth in Lending Act.  The court cited Wal-Mart and found that the commonality requirement was not met because determining “the critical … disputed question[],” whether the fees were in fact part of the finance charge, could not be “answered uniformly on a class-wide basis.”  And the court in In re OnStar Contract Litigation, 2011 U.S. Dist. LEXIS 145846 (E.D. Mich. Dec. 19, 2011), refused to certify a class of OnStar customers and found that the commonality requirement was not met because the plaintiffs “offer[ed] the same kinds of broad questions that the Court found insufficient” in Wal-Mart.

Other courts have relied on Wal-Mart’s rejection of “common questions” that do not have “common answers” as insufficient to meet Rule 23(a)(2).  In In re Bisphenol-A (BPA) Polycarbonate Plastic Products Liability Litigation, 276 F.R.D. 336 (W.D. Mo. 2011), the court denied motions for class certification in disputes over the inclusion of BPA in baby bottles and cups because key fact questions such as each person’s “actions, decisions, knowledge, and thought processes” in purchasing the products were “unique” to each class member, not common.  The court went so far as to find that the basic question whether each plaintiff even bought a product from the defendant was “not a common question because it is not capable of classwide resolution as required by [Wal-Mart].”  Likewise, in Wong v. AT&T Mobility Services LLC, 2011 U.S. Dist. LEXIS 125988 (C.D. Cal. Oct. 20, 2011), the court denied class certification because “while there might be common issues, it is relatively apparent that there will not be common resolutions of or answers to the key issues/questions.”  And in Novak v. Boeing Co., 2011 U.S. Dist. LEXIS 146676 (C.D. Cal. Dec. 19, 2011), the court found that “Boeing has presented evidence that demonstrates that the common questions asserted by Plaintiffs are not capable of common resolution.”

Wal-Mart’s commonality rule has been analyzed in employment disputes as well.  In Ellis v. Costco Wholesale Corp., 657 F.3d 970 (9th Cir. 2011), the plaintiffs challenged Costco’s promotion decisions on behalf of a company-wide class of women.  The Ninth Circuit held that in certifying a class, the district court had failed to conduct the required “rigorous analysis” of the commonality and typicality requirements of Rule 23(a) by refusing to analyze the persuasiveness of the parties’ evidence.  On remand, the district court was required to “determine whether there was ‘significant proof that [Costco] operated under a general policy of discrimination’” that formed the basis for each class member’s claim.  Absent such a policy, the plaintiffs “would face an exceedingly difficult challenge in proving” commonality (citing Wal-Mart).

This is not to say that Wal-Mart’s commonality standard cannot be met, or even that it cannot be met in employment discrimination cases.  But the bar is now higher.  For example, the Seventh Circuit recently reversed the denial of class certification of Title VII race discrimination claims because the claims did not turn on local managers’ exercise of discretion (as did Wal-Mart), but on a company-wide practice that purportedly had a disparate impact on class members.  McReynolds v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 2012 U.S. App. LEXIS 3683 (7th Cir. Feb. 24, 2012).  Even so, the Seventh Circuit noted that if the class sought damages, hundreds of separate trials would be necessary to determine whether each individual class member was adversely affected, assuming the class could establish that the practice in question caused a disparate impact. 

In sum, these developments bode well for defendants faced with motions for class certification.  Several courts have explicitly recognized that Wal-Mart established a more restrictive commonality standard.  As other courts confront situations in which core liability issues are not common, or where no single issue drives the outcome of the litigation, we expect that Wal-Mart’s commonality rule will give defendants another real chance to defeat class certification.

Goodwin Procter helped defeat class certification in three recent cases involving consumer financial services.  In In re Countrywide Financial Corporation Mortgage Marketing & Sales Practices Litigation, 2011 U.S. Dist. LEXIS 118034 (S.D. Cal. Oct. 11, 2011), the plaintiffs sought to certify a class of over 500,000 borrowers who received mortgage loans from subsidiaries of Countrywide Financial Corporation, alleging claims under RICO and California’s Unfair Competition Law, as well as for unjust enrichment.  Among other reasons for denying certification, the court found that there was no uniform misrepresentation or actionable omission and that reliance could not be presumed because borrowers took out their mortgage loans for a wide variety of reasons.

Two days later, the U.S. District Court for the Western District of Kentucky denied class certification in In re Countrywide Financial Mortgage Lending Practices Litigation, 2011 U.S. Dist. LEXIS 118695 (W.D. Ky. Oct. 13, 2011).  That multi-district litigation consolidated four nationwide class actions alleging claims for disparate impact discrimination under the Fair Housing Act and the Equal Credit Opportunity Act.  The court found class certification inappropriate because, among other reasons, there was no evidence that “every member of the class suffered the same injury, or any injury at all.”

Finally, the U.S. District Court for the Southern District of California denied a motion to certify a class consisting of nearly 60,000 California borrowers representing billions of dollars in originated loans in Peralta v. Countrywide Home Loans, Inc., 2011 WL 6325877 (S.D. Cal. Dec. 16, 2011).  In Peralta, the plaintiff challenged the loan documents and disclosures she received in connection with her payment option mortgage loan.  In denying class certification, the court held that the plaintiffs’ claims did not satisfy the commonality or predominance requirements under Rule 23 because despite the alleged uniformity of the loan documents, borrowers received non-uniform written and oral communications concerning the challenged loan terms.

Rader v. Teva Parenteral Medicines, Inc.

Goodwin Procter attorneys defeated a motion for class certification in a case brought on behalf of approximately 60,000 former patients of two Las Vegas endoscopy centers who alleged they were exposed to (but not infected by) blood-borne diseases including Hepatitis C due to the centers’ alleged mishandling of Teva’s prescription anesthetic, propofol.  Rader v. Teva Parenteral Meds., Inc., 276 F.R.D. 524 (D. Nev. 2011).

Among other reasons for denying class certification, the court held that the plaintiff was not an adequate class representative under Rule 23(a)(4) because his decision to abandon emotional distress claims created an “insurmountable conflict between his own interests and that of the class” in that class members would be bound by the plaintiff’s decision not to bring emotional distress claims in the event of a later final judgment.  The court also held that there were individualized causation issues as well, including the need to evaluate whether any individual was treated with Teva’s propofol, the injection practices used to administer the propofol to each person, and whether the person was actually exposed to a blood-borne pathogen. 

Ratliff v. Merck & Co., Inc.

On February 10, 2012, a Kentucky Appellate Court reversed the certification of a class of Vioxx purchasers who alleged that the drug’s manufacturer, Merck, falsely advertised Vioxx’s safety to doctors when it knew the drug was dangerous.  Ratliff v. Merck & Co., Inc., 2012 Ky. App. LEXIS 31 (Ky. Ct. App. Feb. 10, 2012).  The plaintiff sought a class consisting of Kentucky residents “who have purchased and taken Vioxx and who, upon recommendation of the FDA, have contacted or will contact their physician seeking advice regarding their use of Vioxx.”  The proposed class sought to assert claims for violation of the Kentucky Consumer Protection Act and for fraud and unjust enrichment. 

Merck challenged the trial court’s decision to certify a class because, among other reasons, damages for fraud could not be determined without individualized fact finding.  The plaintiffs argued that the trial court had correctly applied a “fraud upon the market” theory wherein certain elements of fraud, including “reliance, ascertainable loss and causal nexus,” could be presumed.  Merck argued that this theory did not apply in the prescription drug context. 

The Court of Appeal agreed with Merck.  The court rejected the application of the fraud-on-the-market theory in the context of a prescription drug case.  It also held that common issues did not predominate because each Vioxx purchaser’s claim required individualized proof of liability and damages, stating that “if the action were tried as a class, after the common questions of Merck’s representations in its marketing campaign were decided, the case would essentially fragment into a series of amalgamated ‘mini-trials’ on each of these individualized questions.”  The court also found that each plaintiff had a different experience with his or her doctor and “may have experienced different effects from the drug as compared to its risks,” which meant that “individualized questions would substantially overtake the litigation.” 

This decision is significant for defendants in prescription drug actions both in its rejection of the fraud-on-the-market theory and its conclusion that generalized evidence could not be used to establish class-wide liability. 

Brandner v. Abbott Laboratories, Inc.


The U.S. District Court for the Eastern District of Louisiana recently denied a motion to certify a class in a products liability action concerning allegedly contaminated baby formula.  Brandner v. Abbott Laboratories, Inc., 2012 WL 195540 (E.D. La. Jan. 23, 2012).  The plaintiff sued Abbott Laboratories after it recalled Similac baby formula following its discovery of beetles in a finished batch of formula.  The plaintiff alleged that her child suffered gastrointestinal problems after ingesting formula from the recalled batch.  She sought certification of a class of Louisiana residents who had purchased Similac during the recall period.   

In denying class certification, the court made three holdings on the issue of predominance that are important to defendants in products liability actions.  First, it held that under the Louisiana Products Liability Act, the plaintiff had to show that “the product was unreasonably dangerous when it left the manufacturer’s control,” which could not be done on a class-wide basis notwithstanding the existence of the recall notice.  Second, the court found that proximate cause could not be proved with general evidence because in order to know whether a particular child was injured as a result of drinking the formula, a “highly individualized” assessment of factors such as “family and medical history; age; gender; [and] diet” was required, which was incompatible with class litigation.  Finally, as to damages, it noted that putting a value on the request for emotional distress damages would require the type of “mini-trials” that the Fifth Circuit advised against in Bell Atlantic Corp. v. AT&T Corp., 339 F.3d 294 (5th Cir. 2003). 

In addition to her claims under the Louisiana statute, the plaintiff also brought a redhibition claim under Louisiana law, which allows a plaintiff to recover economic losses if a product was useless for its intended purpose at the time of sale.  The court found that the redhibition claim failed the predominance and superiority requirements of Rule 23(b)(3) because it required a showing that each class member purchased a contaminated product, which could not be determined without individualized fact finding. 

In re Ford Motor Co.
--Kyle Tayman

In In re Ford Motor Co. E-350 Van Products Liability Litigation (No. II), 2012 WL 379944 (D.N.J. Feb. 6, 2012), the court refused to certify a putative class of individuals who sought damages because their vans were allegedly defective due to the risk of rollover.  The plaintiffs asserted claims for breach of express and implied warranties, violation of state consumer fraud statutes, and unjust enrichment.  In a lengthy opinion, relying in part on Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011), the court held that individual issues predominated and denied class certification under Rule 23(b)(2) and (b)(3). 

In conducting a “rigorous analysis” of the Rule 23(b)(3) requirements, the court considered the substantive elements of the causes of action and found that each van owner’s claim raised individualized issues as to the representations the person received, reliance, causation and damages.  For instance, the court found that the rollover risk disclosed in manuals varied throughout the class period so that different van owners received different disclosures and relied on different information; certain plaintiffs knew about the rollover risk and therefore could not prove causation; and the injury requirement could not be proven on a class-wide basis for certain claims.  The court also said that the claims of many van owners were likely time-barred or would require individualized inquires to determine whether the applicable limitations period was equitably tolled, which weighed against class certification. 

The court applied these same findings to deny certification of a class seeking injunctive relief under Rule 23(b)(2). 

In re Smith & Wesson Holding Corp. Securities Litigation

The U.S. Court of Appeals for the First Circuit recently affirmed the grant of summary judgment in favor of a defendant in a securities class action, holding that the allegation that it had made false or misleading statements was not supported by the evidence.  In re Smith & Wesson Holding Corp. Sec. Litig., 2012 U.S. App. LEXIS 3259 (1st Cir. Feb. 17, 2012).  The class of stock purchasers claimed that Smith & Wesson falsely implied through various public statements that its reported sales figures were supported by strong existing demand.  Although the District Court had certified the class, it rejected the claims on summary judgment.

In affirming the District Court’s ruling, the First Circuit began by observing that “[p]urely forward looking statements … enjoy considerable protection” under the safe harbor provisions of the Private Securities Litigation Reform Act.  This did not end the court’s inquiry, however, because the public statements implied “that the sales numbers represented market demand at the time of the sales, which concerned past factual conditions.”

Nevertheless, the court held that there was insufficient evidence on two of the required elements for a Section 10(b) and Rule 10b-5 claim:  (i) a misrepresentation or omission and (ii) scienter.  First, it explained that using discounts and promotions is “neither inherently fraudulent nor always innocent; size, design, purpose, transparency, and history are all relevant.”  In this case, the class introduced no credible evidence showing that Smith & Wesson’s sales methods were “unusual, represented a significant percentage of the reported sales for the quarter, or were otherwise suspect.”  Indeed, the court observed that the class was “surprisingly light in quantitative evidence that the discounts exceeded what was traditional.”

Second, as to the allegation that the defendant delayed disclosing a change in demand, the court concluded that “Section 10(b) is primarily a fraud provision and a showing of either conscious intent to defraud or a high degree of recklessness is required.”  The class was required to, but could not, offer “evidence of subjective bad intent, or, alternatively, misstatements or omissions so blatantly improper that bad intent or recklessness can be inferred.”

Jamie S. v. Milwaukee Public Schools
--Shanna M. Ramsower

The U.S. Court of Appeals for the Seventh Circuit recently vacated a trial court’s order certifying a class in an action under the Individuals with Disabilities Education Act (IDEA).  Jamie S. v. Milwaukee Public Schools, 2012 U.S. App. LEXIS 2089 (7th Cir. Feb. 3, 2012).  The plaintiffs sued the Milwaukee Public Schools and the Wisconsin Department of Public Instruction, alleging that the school district failed to identify disabled children in need of special education, and to tailor individualized education programs for such children as required by the IDEA.  The District Court certified a class of students eligible for special education in the district “who are, have been, or will be” denied or delayed participation in the individualized education process. 

The Seventh Circuit reversed, finding the case unsuitable for class certification because the class was indefinite, the claims lacked the requisite commonality, and no injunctive or declaratory relief could be ordered that would provide final relief on a class-wide basis.  Because some of the class was comprised of students who had never been identified, the court found that “there is no way to know or readily ascertain who is a member of the class.”  It also held that because the claims were not based upon any illegal policy, but rather allegations of a failure to abide by a policy in a variety of circumstances, the plaintiffs could not meet the commonality requirement of Rule 23(a)(2) because resolving any individual class member’s claim would require inquiry into each child’s circumstances. 

The court finally held that the class could not be certified as an injunction class under Rule 23(b)(2).  Because the injunctive relief ordered by the District Court was to initiate a process for individualized determinations of liability and the appropriate remedies, the Seventh Circuit found that the class did not meet the requirement of Rule 23(b)(2) that any injunctive or declaratory relief must be appropriate as to the class as a whole.