An analysis of the Supreme Court’s class action decisions from the 2010-2011 Term

J. Russell Jackson is a partner in the Mass Torts Group at Skadden, Arps, Slate, Meagher & Flom LLP and the author of a 2010 ABA Journal Blawg 100 legal blog, www.consumerclassactionsmasstorts.com. 

                        The Supreme Court’s 2010-2011 Term was a particularly instructive one for class action practitioners.  The Court reversed certification of the largest-ever employment discrimination class in Wal-Mart Corp. v. Dukes, held that the Federal Arbitration Act preempts state laws prohibiting class action waivers in arbitration in AT&T Mobility v. Concepcion, and, in Smith v. Bayer Corp., reversed an injunction against filing copycat class actions issued by a federal court that had denied class certification.

                        Each of these decisions is important, but the Dukes decision is likely to have the most far-reaching impact because it addressed so many issues that arise in different types of cases – not just employment discrimination suits.  Concepcion is the decision that is generating the most immediate motion practice in trial courts.  And although Smith seems to have established that – without notice and an opportunity to opt out – absent class members are not bound by a court’s decision to not certify a class action because they are not parties to the case, the Supreme Court may yet confront the issue of whether a court may rein in a lawyer who serially files vexatious class actions after having lost the certification issue.

                        Dukes

                        The Court’s decision in Dukes is rich with holdings that apply far beyond the employment discrimination context.

                        First, a unanimous Court backed a simple holding of tremendous importance:  because the Rules Enabling Act forbids interpreting Rule 23 to alter a substantive right, class certification cannot be based on any sort of trial plan that – for the sake of “convenience” – ties the defendant’s hands behind its back and precludes it from presenting individual defenses for each class member, if the law provides for them.  This is particularly important in consumer fraud class actions, where the defendant has the right to challenge each consumer’s reliance (or, in some states, whether the fraud “caused” the claimant’s injury).  The Dukes Court unanimously held that the law is the law, and the class procedure cannot change it.

                        Second, the majority made it clear that trial courts must use the “rigorous analysis” standard established in General Telephone Co. v. Falcon (1982) to determine whether each element of Rule 23 is met.  It rejected the idea that a trial court can never touch the merits of the case in deciding class certification, thereby sticking a fork in the old Eisen [v. Carlisle & Jacquelin (1974)] canard.  It’s done.  If deciding class certification requires the court to reach merits issues, “[t]hat cannot be helped,” the Dukes Court instructed.  I would have preferred a sentence or two about what rigorous analysis practically entails – many courts require a trial plan that shows how the elements of the claims and defenses will be proved – but it is enough that the Court interred once and for all the fable that courts cannot touch the merits on class certification.

                        Third, a unanimous Court rejected what it called “trial by formula”:  substituting statistical models that estimate damages across a class for proof of individual class members’ actual damages.  For years courts have held that the need for damages calculations does not preclude class certification.  That is now open to fair debate where the law requires individual proof of damages and the class is particularly large.

                        Fourth, a unanimous Court rejected the use of mandatory Rule 23(b)(2) class actions where monetary relief is sought that will require individualized determinations.  The Court’s holding makes it impossible for plaintiffs to dress up a “damages” class in “equitable relief” drag.  Additionally, in analyzing this issue, the Court had some strong dicta on claim preclusion that should strengthen classic adequacy-of-representation challenges based on claim splitting.

                        Fifth, the majority reinvigorated the commonality requirement, requiring the proponent of class certification to identify at least one contention common to all class members that is capable of classwide resolution.  No longer is it enough to simply parrot the elements of Rule 23; trial courts must identify common questions that can generate a common answer applicable to all class members that will substantially advance the litigation.

                        Sixth, the Court gave a strong hint that expert testimony at the class certification stage deserves the same scrutiny that such testimony would receive at trial.  Interestingly, the Eighth Circuit already has rejected the hint that Daubert applies to class certification experts, reasoning that it is not binding.  I expect other courts, however, to require greater scrutiny of the opinions of class certification experts and probe behind their conclusions that certain factual issues are subject to classwide proof.

                        None of the issues identified above are unique to employment discrimination cases.  Indeed, they can apply to a wide variety of class actions.  I expect that plaintiffs will fight hard to limit Dukes to its employment discrimination context.  It remains to be seen how broadly courts will be willing to apply the basic class action principles articulated in Dukes.

                        Concepcion

                        The Supreme Court’s holding in Concepcion – that California common law could not require, as a precondition to a valid arbitration clause in a consumer contract, that the consumer retain the right to arbitrate on behalf of a class – is really just a natural extension of the Court’s holding the previous Term in Stolt-Nielsen S.A. v. AnimalFeeds International.  In Stolt-Nielsen, the Court had explained that arbitration is so fundamentally different from litigation that one cannot presume that just because a defendant agreed to arbitrate a dispute individually, it would agree to arbitration on a classwide basis.  Arbitration is a trade-off of formal procedural protections in exchange for a faster (and presumably more efficient) resolution of a dispute.  Arbitration affords only limited discovery and severely restricts the right to appeal.  And yet in the class action context, fundamental fairness to absent class members and to defendants requires the imposition of procedural protections that are antithetical to arbitration.

                        In Concepcion, the Court explained that requiring the availability of classwide arbitration “interferes with the fundamental attributes of arbitration and thus creates a scheme inconsistent with” the Federal Arbitration Act.  Thus, the Court held that the FAA preempted California’s common law requirement.

                        Concepcion is the decision that has launched a thousand motions.  Particularly in California – where the common law had long required a classwide arbitration right as a precondition to enforcing an arbitration clause in a consumer contract – defendants have moved to compel arbitration of individual claims.  These motions often present thorny issues, as the cases may have been proceeding for some time prior to the motion being filed.  It appears that most courts to have considered the question have reasoned that the delay in filing a motion does not amount to a waiver of the right to compel arbitration because Concepcion represented a fundamental change in the law; prior to its issuance, the motion to compel would have been futile.

                        Some courts, however, have sought to restrict Concepcion to its facts.  For example, one California Court of Appeal has refused to apply Concepcion to claims arising under California’s Private Attorney General Act of 2004.  The court reasoned that a PAGA action is not a class action, but instead is a “statutory representative action” that is a means of enforcing California law and providing the state with monies from statutory penalties.  Accordingly, the court held that an arbitration provision that included a waiver of the right to pursue a representative PAGA action was unenforceable.

                        Given the sheer number of motions spawned by Concepcion, we can expect to see in the near future a number of appeals on issues involving class action waivers.  For the most part, such appeals should not be expected to present disputes worthy of Supreme Court review – except in instances where courts have conditioned a defendant’s right to invoke arbitration of individual claims on a requirement that the defendant also agrees to arbitration of collective or group claims.

                        Smith v. Bayer Corp.

                        In Smith, two putative class actions were filed by different plaintiffs (and different law firms) in different courts.  The first court to reach class certification refused to certify a class.  It then granted an injunction against the prosecution of the other action, reasoning that the plaintiffs there were members of the putative class the court had refused to certify and thus should not be able to relitigate the issue of class certification.  The Smith Court reversed, holding that the “relitigation exception” of the Anti-Injunction Act did not apply because the absent class members were not parties to the original action and thus were not bound by its decision.  Due process requires at least notice and an opportunity to opt out in order to bind absent class members in a damages action, the Smith Court instructed.

                        Smith hardly represents a sea change in class action jurisprudence.  Few courts were willing to enjoin nonparties from litigating in other courts in the first place.  And, as the Smith court noted, the Class Action Fairness Act allows for the removal of most class actions, and federal courts should give comity to the decisions of other federal courts denying class certification.

                        But Smith did not present the Supreme Court with the problem that increasingly is facing class action defendants:  namely, the lawyer who – after losing class certification in one action – files copycat cases on behalf of other plaintiffs in different courts, seeking either to extort a settlement from the defendant or find a court that will be more lenient and certify a class.  I expect defendants to continue to seek relief from serial filers of copycat class actions.  Now, however, they will have to couch their requests for relief in the district court’s power to enjoin attorneys appearing before it from engaging in vexatious litigation.

Conclusion

                        The Supreme Court’s class action cases this Term were marked by a clear understanding of the limited power of Rule 23 as a procedural rule, the importance of the due process rights of absent class members and the defendants, and the need for courts to give serious consideration to how a case can be tried manageably on a classwide basis.  These are fundamental issues, and do not vary based on the type of action being alleged.  If the lessons from Dukes, Concepcion, and Smith are applied uniformly, fewer class actions may be certified, but those that are should have a clear roadmap for how a classwide trial will be managed to adjudicate everyone’s claims.