Posts belonging to Category Caselaw Developments

The Supreme Court’s Dukes v. Wal-Mart decision has garnered a great deal of attention in the popular press, likely due to the prominence of the defendant and the allegations that Wal-Mart systematically discriminated against female employees.  In addition to introducing a more onerous commonality standard, Dukes entailed at least two other issues bearing on the mechanics of class actions: (1) that individualized money damages cannot be awarded in Rule 23(b)(2) class actions; and (2) that affirmative defenses must be assessed in individualized hearings, seemingly precluding the sampling and survey methods that buttress class actions’ essential efficiencies.

Professor John C. Coffee, who holds the Adolf A. Berle Professorship at Columbia Law School, has suggested how these more complex Dukes issues might play out.  In a recent National Law Journal article, Professor Coffee suggested that the post-Dukes realities might not be as bleak as has been projected for plaintiffs, so long as plaintiffs’ lawyers advocate, and federal district court judges adopt, innovative procedural methods and intellectually cutting-edge approaches.

No Individualized Money Damages Under 23(b)(2).  With the Dukes holding that Rule 23(b)(2) injunctive actions can no longer commingle with Rule 23(b)(3) actions seeking monetary damages, class actions seeking monetary damages must be certified under Rule 23(b)(3).  However, the latter rule’s severe “predominance” requirement makes it ill-suited to the natural diversities that arise in cases against large defendants, such as violations occurring across multiple employment locations.  While Rule 23(b)(2) injunctive actions remain an option, the lack of certain methods for valuing such relief, and thus establishing fee awards, will continue to function as a disincentive.  Moreover, “claim splitting” prohibitions (exacerbated by the 23(b)(2) no-opt-out provision) and conflict arguments have typically been seen as insurmountable obstacles to bringing separate class actions for injunctive and monetary relief.  Not so, argues Professor Coffee.  First, federal courts can certify (and have certified) parallel (b)(2) and (b)(3) cases, each with their own class representatives.  Second, courts have ruled that the Due Process Clause trumps Rule 23(b)(2)’s mandatory provision proscribing opt outs, thereby obviating the claim splitting impediment.  Finally, Professor Coffee suggests that the pure muscle of legal argument may provide a solution: because Dukes prohibits monetary damages in (b)(2) classes, there is no overlap with (b)(3) classes.  Thus, the essence of claim splitting—failure to raise an argument in one case that could have been raised in the other case—is altogether avoided.

Rejection of Sampling Procedures.   Professor Coffee offers several possible solutions for dealing with Dukes’ holding permitting individualized hearings as to affirmative defenses.  First, he suggests challenging whether the affirmative defenses are pleaded with sufficient particularity, using the heightened pleading standards of Ashcroft v. Iqbal, 129 S. Ct. 1937 (2009), and Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007).  While this tool is most often employed by defendants to challenge the particularity of complaints, it is equally applicable to Rule 12 challenges to affirmative defenses.  Second, plaintiffs can concede the necessity of individualized hearings and take the initiative to propose pragmatic ways for those hearings to take place, such as before a special master or magistrate judge.  Finally, Professor Coffee suggests decoupling the liability determination from affirmative defenses by using the much-neglected Federal Rule 23(c)(4).  This would permit plaintiffs to adjudicate only liability on a class-wide basis, and, thereafter, resolve affirmative defenses and determine damages in individual actions.  The “issue certification” authorized by Rule 23(c)(4) has so thin a record in reported caselaw that, perhaps fortunately for plaintiffs’ counsel contemplating this innovative use, there is little pre-existing guidance.

 At a minimum, Dukes implies that the trial plans long encouraged by federal courts and practical treatises such as the Manual for Complex Litigation must now become more detailed in addressing the requirements and challenges imposed by Dukes.  As such, some or all of Professor Coffee’s suggested innovations will perhaps turn up, first in trial plans, and later in reported cases.  Already, Dukes has been cited more than 50 times and distinguished in 23 of those cases, suggesting that the new strictures are just as navigable as Professor Coffee suggests.

In a published opinion, California’s Second Appellate District has circumscribed the boundaries of trial court discretion in denying class certification where there is an allegation of class-wide reliance on a material misrepresentation.  See Marler v. E. M. Johansing, LLC, No. B229445, 2011 Cal. App. LEXIS 1314 (Cal. Ct. App. Oct. 19, 2011) (available here).

The plaintiffs, elderly mobile home park residents, alleged that the defendant developer made material misrepresentations about a condominium conversion proposal, suggesting that the lots would be priced between $110,000 and $150,000 for purchase by the residents.  See id. at *1-2, 4-5.  Based on these representations, the residents voted to approve the conversion; however, the defendant subsequently notified the residents that the purchase prices would be substantially greater than previously stated: $198,000 to $240,000.  Id. at *6. 

The trial court denied the plaintiffs’ class certification motion, finding that the class was not ascertainable and lacked the requisite community of interest.  Id. at *9.  The Court of Appeal reversed, holding that the certification analysis was not a particularly close call, and that the trial court’s legal analysis was flawed.  See id. at *10-11.

In analyzing the class’ ascertainability, the Court of Appeal concurred with the trial court that the class definition was overbroad and potentially confusing.  However, the unanimous three-judge panel concluded that denying certification was not the proper response to overbreadth.  Rather, “[o]verbreadth may be cured by modifying the class definitions.”  Id. at *15.  Striking a pragmatic note, the Marler court added that “[b]ecause there is an identifiable class, plaintiffs’ rights should not be forfeited because of counsel’s choice of words in the complaint or class certification motion.”  Id. at *16-17.

 As to the community of interest issue, the Court of Appeal found fault with the trial court’s denial of certification based on variances in individual damages, contrary to long-established class action jurisprudence to the effect that different damages among class members does not preclude certification.  See id. at *18-19 (citing Sav-On Drug Stores, Inc. v. Super. Ct., 34 Cal. 4th 319, 334 (2004)).  The Court of Appeal also rejected the trial court’s position that individual proof was needed to show reliance on the defendants’ allegedly fraudulent statements.  Instead, the Marler panel underscored that where fraud is alleged, class-wide reliance may be inferred when a misrepresentation is shown to be material.  See id. at *20-21.

The Ninth Circuit has revived a prospective nationwide class action in which the plaintiffs allege that developers knowingly marketed properties in the plaintiffs’ neighborhoods to high-risk borrowers, decreasing both the resale value and desirability of the plaintiffs’ properties.  See Maya v. Centex Corp., 2011 U.S. App. LEXIS 19344 (9th Cir. Sept. 21, 2011) (available here).  Last year, the district court granted the defendants’ Rule 12 motion to dismiss, holding that the plaintiffs had failed to allege an “injury” as required by Article III.  Id. at *3-4.  In reversing the district court, the unanimous three-judge panel found that “decreased economic value and desirability are cognizable injuries.”  Id. at 28 (referencing Maya v. Centex Corp., 2010 U.S. Dist. LEXIS 44829 (C.D. Cal. Mar. 31, 2010)).

 The appellate court specifically rejected the district court’s analysis that the plaintiffs’ proffered injuries were too speculative, even if the “plaintiffs will not realize any decrease in the value of their property until they attempt to sell.”  Id. at *23.  Instead, the Ninth Circuit held that “[a] current reduction in the economic value of one’s home is a cognizable injury for constitutional standing purposes.”  Id. at *21. 

 The court also held that the plaintiffs had alleged a separate “injury” because the defendants’ lending practices made the plaintiffs’ properties “less desirable.”  Id. at *24.  The resulting decrease in the plaintiffs’ quality of life is adequate to support standing.  Id.

While this ruling helps homeowners seeking redress for decreased home value and neighborhood desirability, Maya will likely also be extended to other contexts in which the plaintiffs allege a harm that has not yet been realized through a formal economic transaction.

A district court has granted final approval of a remarkable $42 million settlement against J.P. Morgan Chase bank.  In Davis v. J.P. Morgan Chase & Co., the plaintiffs alleged that the defendant had misclassified loan underwriters as “managers,” and thus impermissibly failed to pay them overtime wages as required by the federal Fair Labor Standards Act (FLSA).  Davis v. J.P. Morgan Chase & Co., No. 01-CV-6492L, 2011 U.S. Dist. LEXIS 117082 (W.D. N.Y. Oct. 11, 2011) (available here).  Class members now stand to recover as much as $94,625 each in compensation from the settlement.  The Court also approved attorneys’ fees in the amount of $14 million dollars, or one-third of the $42 million common fund.  Id. at *10-11.

Emphasizing that class counsel obtained a “very sizable” recovery for the class, the Court found that the $14 million award was justified.  Id. at *33.  The parties relied upon the “percentage method” for awarding fees, “i.e., basing the calculation of attorneys’ fees on a percentage of the fund secured by counsel, rather than using the traditional ‘lodestar’ approach of multiplying an hourly rate by the number of hours reasonably expended.”  Id. at *26-29.  Though the percentage method is commonly used in the Second Circuit, the Court cross-checked the requested attorneys’ fees “’by dividing the proposed fee award by the lodestar calculation, resulting in a lodestar multiplier.’”  Id. at *26-29 (citing In re AT & T Corp., 455 F.3d 160, 164 (3d Cir. 2006)).  Finding a multiplier of 5.3, the Court acknowledged that this is “toward the high end of acceptable multipliers,” but “not atypical.”  Id. 

The Court further observed that any reduction in attorneys’ fees would not benefit the class.  Id. at *24.  “[I]f the Court awards less than one third of the settlement fund as attorney’s fees, that will not increase the amount paid to class members; it will simply decrease the amount paid by defendants.”  Id.  The Court took a similarly pragmatic view in rejecting any analysis of class members’ maximum potential recovery.  The Court wrote that “any dollar figure assigned as the maximum potential aggregate recovery by plaintiffs would mean little, and would not provide a particularly useful benchmark for measuring the reasonableness of the settlement,” because plaintiffs may have had little realistic chance of actually recovering that theoretical sum.  Id. at *12-14.

In approving this settlement, the Davis court substantially deferred to the parties’ negotiated settlement terms, and took a pragmatic, real-world approach.  The Court also underscored the value of the percentage method in tying the recovery of class counsel to that of class members.