General Publications January 21, 2015

“8th Circ. Continues Trend of Rigorous Rule 23 Analysis,” Law360, January 21, 2015.

Extracted from Law360

Last week, the Eighth Circuit strongly rebuked a Nebraska district court, reversing the certification order in a Fair Debt Collection Practices Act class action. The decision continues a positive trend for class action defendants following the lead of the U.S. Supreme Court. Federal appellate courts across the country are increasingly demanding that trial courts conduct the required thorough, rigorous analysis of class certification motions to make sure that plaintiffs meet their burden under Rule 23.

The recent opinion — Powers v. Credit Management Services Inc., No. 13-2831 (8th Cir.) (Jan. 13, 2015) — stemmed from allegations that CMS’ standard-form pleadings and discovery requests in Nebraska state court collections actions violated various provisions of the FDCPA. The district court agreed with Powers that the predominant common question was whether CMS sent each class member standard collection complaints and discovery requests.

The Eighth Circuit reversed because the district court abused its discretion by failing to conduct the required “rigorous analysis ... of what the parties must prove” under Rule 23. The district court glossed over Rule 23(a)’s commonality requirement, under which the district court should have reviewed every Nebraska state court collection suit to determine whether CMS’ claims were “unfair or unconscionable,” as the FDCPA requires. And on Powers’ claim based on standard discovery requests, the Eighth Circuit noted that the district court had completely failed to consider how those claims could be properly analyzed on a class-wide basis.

The Eighth Circuit’s Powers opinion is consistent with a recent trend of requiring more from trial courts and plaintiffs — a trend that started with Wal-Mart Stores Inc. v. Dukes, 131 S. Ct. 2541, 2551 (2011). Dukes reversed class certification and held that “Rule 23 does not set forth a mere pleading standard,” but requires “[a] party seeking class certification” to “affirmatively demonstrate his compliance with the Rule — that is, he must be prepared to prove that there are in fact sufficiently numerous parties, common questions of law or fact, etc.” Two years later, in Comcast Corp. v. Behrend, 133 S. Ct. 1426, 1433, 185 L. Ed. 2d 515 (2013), the Supreme Court reversed class certification because the trial and appellate courts had not conducted a “rigorous analysis” of whether Behrend’s damages evidence was sufficient to prove predominance of common issues regarding damages. And last year, in Halliburton Co. v. Erica P. John Fund Inc., 134 S.Ct. 2398, 189 L.Ed.2d 339 (2014), the Supreme Court reversed class certification in an antitrust class action, holding that class action plaintiffs must present sufficient evidence to meet their burden of proving each of the prerequisites for the “fraud-on-the-market” reliance presumption.

Along with the Eighth Circuit, other federal courts of appeals have heeded the Supreme Court’s direction. As the following opinions show, class action defendants are more regularly receiving a fair shake from federal courts during class certification.

St. Stephens School v. PricewaterhouseCoopers Accountants

The district court certified a class of investors in four funds created and managed by the Fairfield Greenwich Group seeking damages for billions of dollars in lost value following the collapse of the Madoff Ponzi scheme. The Second Circuit reversed the district court’s class certification order, noting that Rule 23 does not set forth a pleading standard and that a district court may only certify a class if it is satisfied, after a rigorous analysis, that the requirements of Rule 23 are met. The Second Circuit held that the district court’s order did not indicate how common evidence could demonstrate the existence of a duty of care applicable to the class or how common evidence could demonstrate reliance by the class on alleged misrepresentations.

EQT Production Co. v. Adair

Adair sued two Virginia coalbed methane gas producers concerning unpaid royalties. On appeal of the district court’s order granting class certification, the Fourth Circuit concluded that the district court abused its discretion in two ways. First, it failed to perform a “rigorous analysis” to ensure that the prerequisites for class certification had been satisfied. According to the Fourth Circuit, the district court never analyzed whether the administrative burden of identifying class members would render the class proceedings too onerous. Second, the district court had improperly lowered Adair’s burden of proof in establishing commonality under Rule 23(a). Citing Dukes, the court of appeals held that while Rule 23 speaks in terms of common questions, “what matters to class certification is the capacity of a classwide proceeding to generate common answers apt to drive the resolution of the litigation.” The problem with the classes that the district court certified was that Adair had not identified such a question.

Parko v. Shell Oil Co.

An Illinois property owner filed suit against several oil companies seeking to recover for diminution in property value as a result of a benzene leak. In reversing the district court’s class certification order, the Seventh Circuit emphasized that the district judge did not explore any of the issues that could impact predominance and instead “treated predominance as a pleading requirement.” Specifically, the district court did not consider that class members could have experienced different levels of contamination caused by different polluters, thus implying different damages. The Seventh Circuit also noted that because the value of properties varied significantly, the diminution would vary by property. Finally, the Seventh Circuit found it significant that the groundwater was not being used as a drinking water supply — a fact that undercut the argument that the contamination caused diminution in property value. Because none of these issues were considered by the district court, the Seventh Circuit had no choice but to reverse.

Bussey v. Macon County Greyhound Park Inc.

The district court certified a class of individuals who lost money playing electronic bingo machines at a dog racing facility and gaming park in Alabama. On appeal, the Eleventh Circuit found that the district court failed to conduct the “rigorous analysis” required by Comcast and instead deferred the resolution of important questions bearing on the class certification analysis to the merits stage of the case. Bussey had not identified a method for quantifying losses and had not identified any definite method for allocating damages among the various defendants. According to the Eleventh Circuit, these failures made it unclear how the district court would ever be able to allocate liability and damages among the various defendants. And this was enough to reverse the district court’s certification decision.

Conclusion

While the trend is positive for class action defendants, these decisions also result in an increased practical burden for these same defendants. The enhanced evidentiary requirements for plaintiffs force defendants to develop their own robust class certification evidence at an earlier phase, and class certification proceedings are, as a result, becoming more complicated and expensive. But holding plaintiffs to the Rule 23 the bar is undoubtedly a welcome development for class action defendants, who should continue to monitor these decisions in order to gain an edge at class certification.

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