Recent surveys confirm that the most important trend in litigation impacting corporate America is the increasing number of class action lawsuits. Class action filings, together with reported damages and settlement figures, continue to rise. But this trend may soon be subject to dramatic changes in the form of significant court rulings and new procedural rules.
The U.S. Supreme Court’s new term, which begins on Oct. 5, is expected to bring rulings on several issues of importance to the class actions bar. Simultaneously, the U.S. Judicial Conference’s Rule 23 Subcommittee is considering changes to Federal Rule of Civil Procedure 23, which governs class actions practice in the federal courts. Corporate counsel should pay close attention to these developments and assess the potential implications for avoiding, preparing for and defending against class action lawsuits.
Here are previews of some of the issues:
Three Supreme Court Cases that Could Reshape Class Action Law
1. Can a class action proceed in a federal court where the plaintiff has suffered no harm? In Spokeo v. Robins, the court will consider whether courts have Article III standing to hear a plaintiff’s claim when the plaintiff suffered no concrete harm but asserts a private right of action based on the bare violation of a federal statute. The plaintiffs in the underlying case alleged that Spokeo’s “people search engine” provided consumer reports in violation of the Fair Credit Reporting Act, but the plaintiffs suffered no concrete harm. Resolution of this case will have broad implications for class actions asserting violations not only of the Fair Credit Reporting Act but also potentially the Telephone Consumer Protection Act, the Federal Debt Collection Practices Act and other consumer protection laws that provide for automatic statutory damages without any showing of concrete harm. Oral argument is scheduled for November 2.
2. Does an offer of full judgment to a named plaintiff moot a class action? In recent years, several federal courts of appeal have addressed the question of whether a defendant can moot individual claims – and therefore the class actions asserted by such individuals – by making an offer of complete relief under Federal Rule of Civil Procedure 68, or otherwise, to the named plaintiff. Many courts have held that an offer of complete relief to an individual named plaintiff is not enough to moot a class action, but the circuit courts have not reached consensus. Now the Supreme Court seems poised to definitively decide this issue. The court granted certiorari in Campbell-Ewald v. Gomez to determine, among other things, (1) whether a case becomes moot, and thus beyond the judicial power of Article III, when the plaintiff receives an offer of complete relief on his or her individual claim; and (2) whether the answer to this question remains the same if the plaintiff has asserted a claim on behalf of a purported class but receives the offer of settlement before the class is certified. Oral argument is scheduled for October 14.
3. Statistical evidence and “no injury” classes. The Supreme Court also granted certiorari in Tyson Foods Inc. v. Bouaphakeo, a case in which a class of hourly workers has alleged that Tyson Foods did not compensate them for the time they spent getting in and out of protective equipment and walking to and from their work stations. The class certified by the lower court included hundreds of employees who spent no uncompensated time on these tasks at all, and the plaintiffs relied on statistical models to prove liability and damages based on the experience of a hypothetical “average” employee. As a result, the court has granted review on two issues: (1) whether differences among individual class members may be ignored and a class action certified under Federal Rule of Civil Procedure 23(b)(3), or a collective action certified under the Fair Labor Standards Act, where liability and damages will be determined with statistical techniques that presume all class members are identical to the average observed in a sample; and (2) whether a class action may be certified or maintained under Rule 23(b)(3), or a collective action certified or maintained under the Fair Labor Standards Act, when the class contains hundreds of members who were not injured and have no legal right to any damages. Oral argument is set for November 10.
Each of these cases presents issues that could shape class actions practice in a significant way. In combination, their impact could be the most meaningful Supreme Court term on class actions practice in years.
Possible Changes to Rule 23
The U.S. Judicial Conference is debating significant changes to Federal Rule of Civil Procedure 23. The Rule 23 Subcommittee recently identified “conceptual sketches” for possible rule changes. The Subcommittee met on September 11 and anticipates presenting its findings to the Advisory Committee on Rules of Civil Procedure during its fall meeting – scheduled for November 5–6. Any proposed rule changes would require several levels of approval within the Judicial Conference, and would be open to public comment before they could go into effect.
The Rule 23 subcommittee has identified the following issues as possibly meriting rule changes:
· Class definitions: One of the hottest topics in current class actions practice is the extent to which a plaintiff must show that a class is sufficiently ascertainable to warrant class certification. To address this issue, the Subcommittee is considering a rule modification that would require class certification orders to define the class so that members can be identified and ascertained, when necessary, in an administratively feasible manner.
· Issue classes: Proposed amendments to Rule 23(b)(3) would make the predominance requirement “subject to Rule 23(c)(4),” which permits certification of issue classes. This proposal has drawn criticism from commentators who suggest that the change would be unclear and would render Rule 23(b)(3) obsolete by authorizing issue classes even where a common issue does not predominate over individual ones. Relatedly, the subcommittee also suggests amending Rule 23(f) to permit an immediate interlocutory appeal from an order deciding an issue that was certified as a class under Rule 23(c)(4) without the need to resolve all other issues in the case.
· Notice: The subcommittee proposes revising Rule 23(c)(2) to explicitly make “electronic or other means” of notice permissible for classes certified under Rule 23(b)(3). It further recommends consideration of whether the notice requirement for Rule 23(b)(1) and Rule 23(b)(2) classes should be mandatory rather than permissive as under the current Rule 23(c)(2).
· Rule 68 offers and mootness: Three alternative rule changes have been drafted to prevent defense counsel from making a Rule 68 offer or some other settlement offer to the class representative in order to “pick off” the class action. The Supreme Court’s anticipated ruling in Campbell-Ewald, however, likely will influence the Subcommittee’s views on what, if any, change is appropriate.
· Class settlement issues:
o Settlement certification: Proposed language would allow courts to certify a settlement class without a finding that common issues predominate over individual issues as required for certifying a class under Rule 23(b)(3). Instead, the emphasis would be on confirming the superiority of the class action and that the settlement meets certain criteria. This is a development that could prove to be attractive to defendants and thereby encourage more class-wide settlements.
o Settlement approval criteria: The Subcommittee suggests harmonizing the criteria that courts use to determine whether a proposed settlement is “fair, reasonable, and adequate.”
o “Frontloading” information to the court in support of a class action settlement: The Subcommittee is considering rule changes that would require parties to present more specific information to the court about a proposed settlement when the parties seek approval to notify the settlement class.
o Cy pres: The Subcommittee recommends developing language that would establish criteria to determine whether a cy pres award is appropriate and reflect a preference for distributing full settlement proceeds to the class members when individual distributions are economically viable.
The next 12 to 18 months promise to be a significant time in the world of federal class actions. Corporate counsel should monitor carefully the potential changes on the horizon that could significantly impact fundamental aspects of how class actions are litigated and resolved.
