Financial Negligence Claim Reversed in Mississippi Supreme CourtIn Gloria Baker, et al. v. Raymond James & Associates Inc., et al., the Mississippi Supreme Court on March 4 reinstated a trial court ruling that Mississippi’s latent-injury discovery-rule exception to the catch-all, three-year limitations period did not apply where the lay plaintiffs, though inexperienced and unsophisticated investors, received monthly account statements showing “substantial losses” on their managed retirement investments. Bradley was part of the team that assisted Raymond James in this signal victory.

The plaintiffs filed suit in 2017, alleging, among other things, a negligence claim against their financial advisor and the advisor’s then-employer Morgan Keegan (now Raymond James). The advisor invested the plaintiffs’ retirement assets from 2002 to 2013. During those years, the plaintiffs received monthly account statements showing substantial losses. The defendants moved for summary judgment based on the three-year statute of limitations, arguing the cause of action accrued at the latest in 2008, when each plaintiff had received written confirmation that one of each of their “investments had sustained a 90 percent loss.” The plaintiffs asserted that their losses were latent injuries. In Mississippi, a latent injury tolls the limitations period if the injury is inherently undiscoverable in nature or when it is unrealistic to expect a layman to perceive the injury. The trial court rejected the latent-injury theory and entered summary judgment in favor of Raymond James and the other defendants. The court concluded that “[t]o discover their injuries, Plaintiffs simply had to glance at their account statements, which would have alerted them to the substantial losses about which they now complain.” The court emphasized that it “does not require advanced degrees or financial backgrounds to realize that those statements showed investment activity inconsistent with their objectives.”

The Mississippi Court of Appeals reversed the trial court, finding that a genuine issue of material fact existed as to whether the plaintiffs’ injury was latent considering the complexity of financial investment, the plaintiffs’ financial inexperience, the fact that the plaintiffs at all times received a monthly retirement check, and the advisor’s reassurance when the plaintiffs questioned him about their losses. Judge David McCarty dissented, joined by Presiding Judge Jack Wilson and Judge Sean Tindell, and wrote “[i]f someone plunges a knife into your belly and you start to bleed, you know you have been injured. Each month, the retirees were jabbed by the clearly shown losses in their accounts… [T]hey knew… it was not getting better—no matter what [their advisor] told them.” Judge McCarty concluded, “the wound was apparent.”

After agreeing to hear the case, the Mississippi Supreme Court reversed the Court of Appeals and reinstated the trial court’s judgment. The court agreed with the reasoning in both the trial court’s ruling and Judge McCarty’s dissent. The court also distinguished Bennett v. Hill Boren P.C., 52 So. 3d 364 (Miss. 2011), in which the court found a latent injury in legal malpractice due to active concealment. The plaintiffs relied on Bennett to recast their negligence claim as a claim for “stockbroker malpractice,” a claim not recognized in Mississippi. Regardless of how the plaintiffs labeled their claim, the court held that the financial advisor’s repeated assurances that their investments were okay “is not—by itself—evidence of any active concealment” where their monthly account statements indicated that the financial advisor made “bad or risky investments… not in line with their investment growth objectives.”

The court’s decision is important for two key reasons. First, the decision reaffirms the importance of financial institutions providing clear, monthly account statements to their clients — a good paper trail is crucial to establishing a limitations defense, particularly when a plaintiff relies on alleged oral representations by a defendant, and can be an important part of any defense on the merits as well. Second, the decision acts as a barrier to countless stale financial-negligence claims that could have been resurrected had the Mississippi Court of Appeals’ decision stood.

Setting Boundaries for the Field of Discretion: Fifth Circuit Clarifies that Daubert Standard Applies to Expert Opinions at Class CertificationIn a decision that narrows the path to class certification in federal court, the Fifth Circuit has held that a plaintiff must clear the Daubert hurdle when expert evidence is relevant to the decision of a federal court to certify a class. The decision in Prantil v. Arkema Inc. cements the Fifth Circuit’s viewpoint that applying Daubert at the certification stage is required in order to ensure a proposed class’s conformity with Rule 23. The Fifth Circuit noted that this adoption is a natural extension of recent Supreme Court precedent in Wal-Mart Stores, Inc. v. Dukes and Comcast Corp. v. Behrend — but not all circuits necessarily agree on how to square these precedents with Daubert, creating a circuit split. We have previously discussed the implications of the ongoing circuit split on this blog in 2018.

Prantil involved the fallout of Hurricane Harvey: Record floods caused volatile chemicals to combust at a facility in Crosby, Texas, releasing toxic ash and smoke into the environment and triggering evacuations of nearby residents. Local residents sought redress from the physical and financial effects of the incident against the chemical facility’s owner, Arkema, and filed a putative class action. The district court credited three of the plaintiffs’ experts, excluded the plaintiffs’ damages expert, and ultimately granted the plaintiffs’ motion for class certification. In reaching its decision, the district court voiced uncertainty as to whether the Daubert analysis applied at the class certification stage. The defendants sought interlocutory review under Rule 23(f).

The Fifth Circuit reversed, focusing on the plaintiffs’ failure to submit “evidentiary proof” of their compliance with Rule 23. The court found that the class certification inquiry “must be made based on adequate admissible evidence to justify class certification,” and therefore if “an expert’s opinion would not be admissible at trial, it should not pave the way for certifying a proposed class.” The Fifth Circuit’s admonition wasn’t that the district court hadn’t performed any analysis at all, but that the district court’s opinion “reflect[ed] hesitation to apply Daubert’s reliability standard with full force.” This hesitation resulted in the district court not being “as searching in its assessment” of the expert evidence’s reliability as it would have been “outside the certification setting.” The Fifth Circuit emphasized that assessing the reliability of expert evidence cannot wait for trial — instead such an assessment is warranted and required at the class certification stage. Therefore, the court required the district court to “exercise its gate-keeping role” through utilizing the “full force” of Daubert. In short, given that a standard for admissibility for scientific evidence exists, the Fifth Circuit will require courts to apply — and parties to meet — that standard at the class certification stage.

Prantil agrees with a growing number of federal circuits — namely the Third, Seventh, and Eleventh — that have required a full Daubert analysis at the class certification stage. But other circuits disagree (i.e., the Ninth Circuit).

Requiring a full Daubert analysis has far-reaching implications. Expert testimony plays a critical role at the class certification stage in many putative class actions, and the class certification decision is often dispositive of the case as a practical matter. Trials in class actions are vanishingly rare, so class certification is often the only time for the district court to test the reliability of a plaintiff’s expert. Given the stakes, class certification should not rise or fall on junk science.

In due time, the Supreme Court will have to decide whether to embrace the Fifth Circuit’s rule. It has already signaled in dicta in Wal-Mart Stores, Inc. v. Dukes — dicta that the Fifth Circuit expressly incorporated into their opinion in Prantil — which way it leans: “The District Court concluded that Daubert did not apply to expert testimony at the certification stage of class-action proceedings. We doubt that is so….” What is more, the court’s decision in Comcast turned on the evidentiary value of expert testimony admitted by the district court. The momentum towards applying Daubert at class certification seems overwhelming. The Supreme Court has repeatedly stated that Rule 23 is not a mere pleading standard, and this anodyne statement carries with it a strong likelihood that Daubert is coming for class actions.

We close with a word of warning. Prantil may prove a double-edged sword: Just as plaintiffs will have to satisfy Daubert to use their experts at class certification, defendants will have to satisfy Daubert to resist those experts. Developing a full arsenal of rebuttal experts requires aggressively front-loading the development of class-certification defenses. Because many class certification defenses may overlap with the merits, instead of waiting for summary judgment, class certification will become the practical deadline to have experts retained, educated, and prepared. And, as a result, the fact discovery necessary for those experts’ opinions may not be able to wait until after class certification. Decisions about the scope and bifurcation of discovery must be made with Daubert in mind.

Eleventh Circuit Rejects Administrative Feasibility as a Requirement for Class ActionsCan a plaintiff represent a class without showing that there’s a feasible way to identify the absent class members? In its recent decision in Cherry v. Dometic Corp., the Eleventh Circuit has become the latest circuit to answer that question with a “maybe.” Although the court noted that the “feasibility” of identifying absent class members was relevant to the “superiority” and “manageability” considerations of Rule 23(b)(3), the court rejected the argument that proving that absent class members could be identified in an “administratively feasible” manner was a prerequisite to class certification. In so holding, the court departed from at least three of its own unpublished decisions from the 2010s that previously held that “administrative feasibility” was a part of the “ascertainability” analysis.

Cherry is just the latest case to grapple with Rule 23’s sometimes slippery ascertainability requirement. Although the term does not show up in the text of the rule, it is now well settled that classes must be “ascertainable” to be certified. As the Eleventh Circuit noted in Cherry, the text includes “what is implicit.”

But courts have diverged on precisely what it means to be ascertainable. Most courts agree that, at a minimum, ascertainability requires that the class be defined according to objective, determinable criteria. In other words, membership in the class must be objectively capable of determination. So, no classes of “attractive people” or “nature lovers.”

In a significant minority of circuits, ascertainability also requires a showing that there is an administratively feasible way to identify the absent class members. In other words, the plaintiff has to show that identifying class members is a “manageable process” without much, if any, individual inquiry. This has been the rule in the First, Third, and Fourth Circuits, and, until Cherry, was also the rule in the Eleventh, at least by virtue of unpublished decisions.

The core holding of Cherry is that administrative feasibility is not part of the ascertainability analysis at all, and is not, by itself, a requirement for class certification. The Eleventh Circuit’s reasoning started by looking to its prior reported cases, which had required plaintiffs to prove that their class is “adequately defined and clearly ascertainable.” But the court, for the first time, took a generous approach to what “clearly ascertainable” means: “A class is ‘clearly ascertainable’ if we are certain that its membership is ‘capable of being’ determined.” To emphasize the point, the court continued: “[M]embership can be capable of determination without being capable of convenient determination.” Instead of a part of ascertainability, the Eleventh Circuit views administrative feasibility as a component of the manageability prong of Rule 23(b)(3).

This decision makes class certification easier and makes class litigation more difficult for defendants. If the Eleventh Circuit means that ascertainability is purely a rhetorical exercise to determine whether a class definition is capable of being ascertained, then defining a class could be reduced to a game of words. A needle can be found in a haystack, after all, and the difficulties in doing so could be reduced to mere administrative hurdles.

Doubly confusing is the Eleventh Circuit’s refusal to engage with the practicalities imbedded throughout the text of Rule 23. Indeed, the court was willing to write out the requirement that a class be “adequately defined” as a redundant doublet. But, in Wal-Mart Stores, Inc. v. Dukes, the United States Supreme Court emphasized that interpretation of Rule 23 should focus on practical realities: “What matters to class certification … is not the raising of common ‘questions’—even in droves—but rather, the capacity of a class-wide proceeding to generate common answers apt to drive the resolution of the litigation.” The Cherry opinion lightheartedly dismisses how inconvenient identifying members might be, but somebody must deal with administrative headaches. District courts should be allowed to consider those headaches when determining whether to certify a class in the first place, although we aren’t sure the Eleventh Circuit was saying otherwise.

In fact, two considerations mitigate the effects of Cherry. First, the problems of administrative feasibility do not go away just because those problems are not part of the ascertainability analysis.  Those same real and practical problems can be recast as part of commonality, predominance, and superiority — to say nothing of manageability. If class members cannot be found without undue individualized inquiries, the need for those inquiries will affect the whole class analysis.  Moreover, district courts are unlikely to exercise their discretion to certify a class when doing so will mire the courts in an unmanageable slop.

Second, we suspect that the Eleventh Circuit had its eye on another practical reality — namely, that very few class actions go to trial and nearly all of them settle if certified. Viewed through the lens of settlement, administrative feasibility falls away completely because manageability is irrelevant to certifying a class for settlement purposes. Thus, while Cherry may make class certification easier for plaintiffs, it certainly makes settlement easier.

We continue to watch the development of ascertainability doctrine closely. Cherry highlights an existing split between the circuits on this issue, and the deepening doctrinal disagreements invite the Supreme Court to bring clarity.