First Circuit Restricts Class Certification of Classes Containing Uninjured PersonsIn recent years, courts have reached divergent conclusions about the circumstances in which a damages class containing uninjured persons can be certified. Although there is some room to debate what constitutes injury, it is well established that individual litigants who have not suffered any injury at all should not recover; after all, injury in fact is a bedrock element of standing, and it is well-settled that the purely procedural class action device cannot be used to expand existing substantive rights or create new substantive rights that did not otherwise exist. However, in class cases, there is considerable dispute among circuit courts as to when courts should deal with the presence of uninjured persons in the putative class, and how uninjured persons should factor into the class certification decision.

On the one hand, the Seventh and Ninth Circuits have held that the presence of some—but not “a great many”—uninjured persons in the putative class is not a bar to class certification. Instead, these courts have sanctioned the use of the post-judgment claims administration process to identify and remove uninjured class members. Neither court has yet attempted to explain exactly how many uninjured members constitute “a great many,” nor have they provided much clarity on exactly how to sort it all out at the end.

On the other hand, the majority of courts to consider the issue, including the Second, Fifth, Eighth, and D.C. Circuits, have broadly held that “no class may be certified that contains members lacking Article III standing,” and required that classes “be defined in such a way that anyone within it would have standing.” These courts have placed the burden squarely on plaintiffs to show that “they can prove, through common evidence, that all class members were in fact injured” by the alleged misconduct.

Previously, the First Circuit had attempted to carve out somewhat of a middle ground. In In re Nexium Antitrust Litigation, the court acknowledged that each absent class member must have suffered an injury in fact to recover, but nevertheless affirmed certification of a class that “probably” contained “a de minimis number of uninjured parties.” The court reasoned that defendants’ mere speculation that a few members of the class may have been uninjured was insufficient to rebut the plaintiffs’ showing that for the vast majority of class members, injury in fact could be proven by class-wide proof. The defendants also failed to show that it would be difficult to identify the handful of hypothetically uninjured persons.

Last month, however, the First Circuit came more in line with the majority view. In In re Asacol Antitrust Litigation, the court reversed certification of a consumer class that included a significant number (approximately 10 percent) of uninjured persons. In Asacol, the defendant manufacturer of a drug used to treat ulcerative colitis was accused of violating the Sherman Act by pulling Asacol from the market shortly before the drug’s patent was set to expire and replacing it with two similar, patent-protected drugs. The theory of liability was that by prematurely pulling Asacol from the market, the defendant had precluded entry of lower-cost, generic alternatives in the treatment of ulcerative colitis. The plaintiff class in Asacol comprised consumers who had purchased Asacol before it was taken off the market and who then had purchased at least one of the two replacement drugs after Asacol was taken off the market.

At the class certification stage, the evidence showed that approximately 10 percent of the putative class members would not have switched from Asacol to a generic even if the defendant had not adopted its allegedly anticompetitive strategy and generic versions of Asacol had been available. The district court concluded that persons who would not have switched to a generic did not suffer any injury from the alleged anticompetitive conduct. Yet, the district court certified a class containing those uninjured persons anyway, reasoning that the uninjured class members could be removed post-judgment during the claims administration process and that the total amount of the damages award could be reduced to account for the removal of uninjured class members.

In reversing certification, the First Circuit rejected the district court’s position that it would be appropriate to remove uninjured class members post-judgment during the claims administration process. As the court explained, to move the adjudication of injury-in-fact to the claims administration process would deprive the defendant of its fundamental Seventh Amendment right to a trial by jury on all of the elements of the plaintiffs’ causes of action. Moreover, the defendant had introduced substantial evidence showing that identifying the uninjured class members would require precisely the sort of individualized inquiries antithetical to both the predominance and superiority requirements of Rule 23(b)(3). As a result, the court reasoned that class certification would be inappropriate. The court distinguished its Nexium decision for two reasons: (1) unlike in Nexium, in Asacol a more than “de minimis” number of class members were uninjured; and (2) unlike in Nexium, in Asacol the defendant came forward with substantial evidence both of the number of uninjured persons and the difficulty of proving injury on a class-wide basis – and made clear that it intended to present that evidence at trial.

There are several important takeaways for class action defendants in courts that follow the Asacol rationale:

1. Asacol’s impact will likely be broader than antitrust cases. Although there is some language in the Asacol opinion that purports to limit its holding to antitrust or similar claims, in which “injury in fact” is an affirmative element of the cause of action, Asacol will likely have a much broader application. That is because Article III itself requires that every federal plaintiff have suffered an “injury in fact” to have standing to recover in federal court, and it is unlikely that the current Supreme Court will allow Rule 23 to serve as an end-run on that constitutional requirement.

2. Defendants should introduce evidence at class certification concerning the number of uninjured class members and the difficulty of identifying them. Asacol reinforces the importance to class action defendants to introduce substantial evidence at the class certification stage of the number of uninjured absent class members and the difficulties in proving injury on a class-wide basis. Although plaintiffs bear the burden of proving that the requirements of Rule 23 have been met, as a practical matter, defendants will likely have to level a genuine challenge to allegations of injury in fact and to the plaintiffs’ ability to prove injury on a class-wide basis to defeat class certification because of the presence of uninjured class members. Speculation or unsubstantiated theories that the class may contain uninjured persons probably won’t cut it. Expert testimony will often be required to meet this practical burden.

3. Consider challenging certification even where the number of uninjured class members seems de minimis. One of the stated bases for the court’s decision in Asacol was the fact that the number of uninjured class members was not de minimis. As the court explained, it would have had far fewer concerns if the class had contained just a few uninjured members who could have easily been “picked off” by the defendant “in a manageable, individualized process at or before trial.” This seems to us to be a point of internal inconsistency in the court’s rationale. The Seventh Amendment does not have a “de minimis number of litigants” exception, yet the First Circuit’s approach arguably still seems to.

Assuming the de minimis exception continues to survive to some degree, this does not necessarily mean that defendants should not challenge certification where it appears that only a de minimis number of class members were uninjured. Most importantly, to the extent a court adopts a procedure that contemplates identifying and removing the de minimis number of uninjured class members post-judgment, we believe, as the First Circuit seemed to also conclude, that such a procedure would violate the Seventh Amendment, the Rules Enabling Act, and Article III, none of which have a de minimis exception. We think it likely that the Supreme Court will soon make that clear, perhaps even in a petition for certiorari in this very case should one be filed.  Therefore, we recommend persistently raising and preserving the argument that certification of a damages class is inappropriate unless each and every class member has suffered injury. Unless a class defendant makes that argument, it may be deemed to have forfeited its Seventh Amendment rights, given that those rights can always be waived.

In addition, even if the court attempts to mitigate Seventh Amendment concerns by adopting a process that would allow the jury to identify the uninjured persons at trial, that still does not necessarily mean that class certification would be appropriate. On the contrary, if the process by which uninjured persons are identified would require highly individualized—and likely unmanageable—factual inquiries, then Rule 23(b)(3)’s predominance and superiority requirements might be defeated. That arguably was the case in Asacol, where injury turned on an individualized, subjective inquiry of each putative class member’s purchasing decisions.

Must Class Counsel’s “Proof” that Rule 23 Is Met Satisfy the Rules of Evidence?

All class-action practitioners understand the importance of a court’s decision to certify a class—the pivotal point at which a putative class action can transform into a reality, promising vast settlement pressure on the defendant, even over potentially meritless claims. A cert petition filed with the Supreme Court on September 14 in Taylor Farms Pacific v. Pena could impact future class-certification battles.

The petition asks the Court to decide whether a district court may rely on “proof” that does not comport with the Federal Rules of Evidence and Civil Procedure to certify a class action. The Court previously granted certiorari on this question in Comcast Corp. v. Behrend, but did not end up answering it, because the defendant failed to preserve its evidentiary objection below.

Unlike in Comcast, the issue is now fully preserved for the Court’s review in Taylor Farms Pacific. The underlying case involves a group of employees claiming meal- and rest-break violations under California labor law. In an effort to show a common meal-break policy and demonstrate that damages could be calculated using common proof, plaintiffs’ counsel submitted a somewhat baffling, 9,000-page spreadsheet. The spreadsheet lists and tallies thousands of alleged meal-break violations. Although plaintiffs’ counsel claimed to have pulled these allegations from time records produced by the employer, no description of the underlying data or methodology—no authentication—accompanied the plaintiffs’ motion for class certification.

Over defense objection, the Eastern District of California considered and relied on the document to certify a wage-and-hour class action, holding that the Federal Rules of Evidence do not apply during class certification. In an unpublished opinion, the Ninth Circuit affirmed this rule through a blanket adoption of the district court’s reasoning. That decision is cert-worthy for two reasons.

First, the Ninth Circuit’s decision deepens a circuit split. The Second, Third, Fifth, Seventh, and D.C. Circuits all require some scrutiny over facts offered in support of a motion for class certification to determine whether the proffered proof is indeed “evidence.” In contrast, the Eighth Circuit and now the Ninth do not require the plaintiffs’ “proof” to be admissible evidence in order to sway a court’s certification decision under Rule 23.

Second, the decision ignores the Supreme Court’s most recent discussions about what Rule 23 requires at the certification stage: a rigorous analysis, affirmative demonstration, and evidentiary proof. In fact, the plaintiffs’ spreadsheet of the employer’s alleged meal-break violations in Taylor Farms Pacific is more akin to pleading than evidence. Yet the court has required more than pleadings to satisfy Rule 23 since deciding General Telephone Co. v. Falcon in 1982.

While admissibility issues usually arise over expert evidence during class certification, such as in Comcast, the question presented by Taylor Farms Pacific has even broader implications.  The Ninth Circuit’s rule, if left unreviewed, will open the door throughout the circuit to allow the plaintiffs’ bar to rely on any unauthenticated “facts”—expert, lay, and even attorney-created—to reach certification in future class actions.  It is tantamount to returning the Rule 23 inquiry back into a mere pleading standard. On behalf of DRI, Bradley attorneys Scott Smith, Mike Pennington and Angela Schaefer co-authored an amicus brief with the U.S. Supreme Court in support of the petitioner’s request for a writ of certiorari in Taylor Farms Pacific, Inc. v. Pena.