They Don’t Call It the Wild West for Nothing: The Ninth Circuit Reverses Denial of Class Certification because Trial Court Kept out Inadmissible EvidenceThe Ninth Circuit’s decision not to grant en banc rehearing in Sali v. Corona Regional Medical Center should all but guarantee that the issue of expert testimony at the class certification stage is heading to the Supreme Court.

Sali involved a declaration that was created by a paralegal at one of the firms representing the plaintiffs and then offered to establish typicality under Rule 23(a)(3). The paralegal purported to analyze various time entries, and offered opinion testimony that the named plaintiffs’ claims were typical of the class members’ claims. Everyone agreed that the declaration was not admissible. The district court kept the spreadsheet out and, because the plaintiffs had no other evidence of typicality, declined to certify the class. The plaintiffs appealed.

The Ninth Circuit reversed. Instead of engaging directly on the issue of whether the declaration was inadmissible, it decided that the district court should not have considered the question of admissibility at all, stating “[i]nadmissibility alone is not a proper basis to reject evidence in support of class certification.” In place of the bright-line rule of admissibility, the Ninth Circuit proposed a sliding scale where the district court should consider whether the evidence could conceivably be offered in admissible form at trial—but that at the class certification stage, admissibility problems merely go to the weight of the evidence, not whether it should be considered.

The Ninth Circuit frequently referred to the admissibility standard as “formalistic” or overly restrictive. For example, in noting that the paralegal declaration was the only evidence of typicality, the Ninth Circuit called the district court’s evidentiary standard “narrow” and said the remaining evidence “tells us nothing about the satisfaction of the typicality requirement”—which is why the district court denied class certification for lack of evidence of typicality.

This decision has far-reaching consequences.

  • First, the practice-point takeaway is that defendants in the Ninth Circuit cannot rely on evidentiary objections alone to avoid class certification. Instead, they must engage on the merits of the plaintiff’s evidence while simultaneously pointing out any admissibility problems that exist. Defendants must also consider making their own record affirmatively showing that the class cannot be certified.

 

  • Second, allowing inadmissible evidence tilts what are supposed to be the neutral scales of justice decidedly in favor of class certification. By expanding the relevant record to include matters that could never be admitted as evidence or as expert testimony, the Ninth Circuit’s rule all but invites plaintiffs to rely on unfounded theories, unsupportable conclusions, or incompetent witnesses. While it is hoped that district courts will continue to use their discretion to certify only such classes as are supported by sufficient evidence, the Ninth Circuit’s decision will of course lead to more classes being certified in that circuit, particularly when that court seems to believe that the Rules of Evidence and Rules of Civil Procedure are excessively “formalistic” and “narrow” and therefore to be applied sparingly.

 

  • Third, this issue is now likely to head to the United States Supreme Court because the circuits have irreconcilably split on this issue. The Ninth Circuit has adopted the loosest rule of admissibility, while the Eighth Circuit has also held evidence need not be admissible to be considered at class certification (In re Zurn Pex Plumbing Prods. Liab. Litig., 644 F.3d 604, 611 (8th Cir. 2011)). On the other side, the Third, Fifth, and Seventh Circuits have required district courts to decide admissibility questions at class certification—at least when it is critical to certification issues (In re Blood Reagents Antitrust Litig., 783 F.3d 183, 187 (3d Cir. 2015) — “We join certain of our sister courts to hold that a plaintiff cannot rely on challenged expert testimony, when critical to class certification, to demonstrate conformity with Rule 23 unless the plaintiff also demonstrates, and the trial court finds, that the expert testimony satisfies the standard set out in Daubert”; Unger v. Amedisys Inc., 401 F.3d 316, 325 (5th Cir. 2005) — “When a court considers class certification based on the fraud on the market theory, it must… base its ruling on admissible evidence”; Messner v. Northshore Univ. Health Sys., 669 F.3d 802, 812 (7th Cir. 2012) — requiring a district court to make “a conclusive ruling on any challenge to that expert’s qualifications or submissions before it may rule on a motion for class certification” when the expert’s testimony is “critical”). Unpublished opinions from the Sixth and Eleventh Circuits also require admissibility as a threshold (see In re Carpenter Co., 2014 WL 12809636, at *3 (6th Cir. 2014); Sher v. Raytheon Co., 419 F. App’x 887, 890 (11th Cir. 2011)). Given that the Ninth Circuit’s opinion candidly acknowledges that “[o]ther circuits have reach varying conclusions” on this issue and that the dissent from the denial of en banc rehearing notes that Sali “puts our court on the wrong side of a lopsided circuit split,” this circuit split calls for resolution. Indeed, the Ninth Circuit appears to have split with itself in Sali, given that a different panel of the court had previously held that evidence must be admissible to be considered at class certification in Ellis v. Costco Wholesale Corp., 657 F.3d 970 (9th Cir. 2011).

 

  • Fourth, when the time comes, we anticipate that the Supreme Court will reject the Ninth Circuit rule. Analagous dicta from Wal-Mart Stores, Inc v. Dukes already signaled which way the court is likely leaning: “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….” Moreover, the Comcast decision turned on the evidentiary value of expert testimony admitted by the District Court. If the Supreme Court shared the Ninth Circuit’s view, it likely would not have attached such significance to the scope of the expert’s opinion in that case. Indeed, the Supreme Court has repeatedly stated that Rule 23 is not a mere pleading standard, yet the Ninth Circuit has effectively converted it to such.

 

  • Lastly, hiding beneath the larger issues in this case is a lesson about the importance of local rules. It is possible that the Ninth Circuit’s analysis in this case is driven by the Central District of California’s local rules that require a plaintiff to move for class certification within 90 days of commencing a putative class action. That compressed timeline does not allow for much discovery on the evidence supporting the class certification prerequisites, and virtually requires a truncated evidentiary record. While Rule 23 requires deciding class certification as soon as practicable, 90 days is too fast for most cases, particularly those of any complexity. Class certification can be dipositive of a case in practice and so should not be rushed. Had the local rules allowed adequate time for discovery, the District Court could have relied on a more mature record and applied evidentiary standards more akin to summary judgment.

Supreme Court to Review Whether Third-Party Defendants May Remove Class Action Counterclaims under CAFAThese are interesting times at the Supreme Court for class certification defendants—and we aren’t talking about the Kavanaugh confirmation process. No, late last week, in Home Depot USA Inc. v. George Jackson*, the Supreme Court took the rare step of granting cert to visit an issue on which the circuit courts, to date, have been in agreement: whether class action counterclaims asserted against a third-party counterclaim defendant are removable if those claims meet the removal requirements of the Class Action Fairness Act of 2005 (CAFA).

In terms of traditional diversity and federal question removal, it has been settled law since the Supreme Court’s decision in Shamrock Oil & Gas Corp. v. Sheets that counterclaims asserted against an original plaintiff are not removable, even if they would have been removable had they been asserted in a separate action against the original plaintiff. In Shamrock Oil, the Supreme Court explained that the use of the phrase “defendant or defendants” in the traditional federal removal statute, 28 U.S.C. § 1441, applied only to original defendants, not to original plaintiffs who become defendants to a counterclaim. Shamrock Oil’s logic was subsequently applied to class action counterclaims asserted by the original defendant against the original plaintiff and to third-party counterclaims asserted against new defendants who were not the original plaintiff, including class action claims. Only in the relatively rare circumstance where a third-party defendant was able to successfully realign the parties did courts allow removal of counterclaims against a third-party defendant (see Hickman v. Alpine Asset Mgmt. Grp., LLC).

With the passage of CAFA, however, there was initially some hope that Shamrock Oil would no longer apply to class action counterclaims that met CAFA’s removability requirements. By enacting CAFA, Congress sought to curb abuse by plaintiffs’ attorneys who had sought to “game the system” by filing large, interstate class actions in favorable state courts where, often, the interests of class counsel were given priority over the interests of both defendants and the class. To accomplish this goal, CAFA broadly enables removal by “any defendant” of any sufficiently large class action ($5 million amount in controversy) that meets minimal diversity. Because the goal of CAFA is to enable more class actions to be removed to federal court, the Supreme Court has made clear that CAFA has no “antiremoval presumption.”

Yet, to date, the hope that CAFA would trump Shamrock Oil has been unfulfilled. Even after CAFA’s enactment, lower courts readily applied Shamrock Oil to bar CAFA removal of class action counterclaims. First, in Progressive West Insurance Co. v. Preciado, the Ninth Circuit held that original plaintiffs could not remove class action counterclaims under CAFA. A year later, in Palisades Collections LLC v. Shorts, the Fourth Circuit held that third-party counterclaim defendants—i.e., counterclaim defendants who were not the original plaintiff—also could not remove class counterclaims under CAFA. The only other circuits to address the issue—the Sixth, Seventh, and Ninth Circuits—have all concurred with the Fourth, and twice SCOTUS has denied cert. Therefore, it has been considered settled law that no counterclaim defendant, whether or not an original plaintiff, may remove a class action counterclaim under CAFA.

But with the Supreme Court’s grant of cert in Home Depot despite the complete absence of a circuit split, there is reason to believe that this “settled” law may be about to change. In Home Depot, Citibank filed a collection action against a consumer in state court. In response, the consumer filed class action counterclaims against original plaintiff Citibank, as well as additional third-party defendants Home Depot and Carolina Water Systems, Inc. (CWS), neither of which had been a party to the original collection action. Thereafter, Citibank dismissed its claim, and Home Depot removed the case to federal court, arguing that because it had never been anything but a defendant, it was entitled to remove under CAFA, given that CAFA allows “any defendant” to remove applicable class actions. Post-removal, the original defendant then dismissed his counterclaim against Citibank, leaving Home Depot and CWS as the only defendants in the case. Yet, in affirming the district court’s remand to state court, the Fourth Circuit disagreed with Home Depot’s argument that CAFA entitles third-party defendants who have never been plaintiffs to remove class counterclaims, explaining that under Fourth Circuit precedent and the unanimous precedent of other circuits, counterclaims are not removable, even under CAFA and even when the counterclaim defendant was not an original plaintiff.

Despite the unanimity among the circuits, the Supreme Court has chosen to take up this issue. Moreover, in granting cert, the Supreme Court made clear that it will address not only the question specifically presented in Home Depot—whether CAFA allows a third-party counterclaim defendant who is not an original defendant to remove a class action counterclaim—but also the broader question of whether such a third-party counterclaim defendant may remove any counterclaim, whether or not brought on behalf of a class.

Reading the tea leaves, the Supreme Court’s grant of cert despite circuit agreement seems to strongly suggest that the Supreme Court disagrees with—and will overturn—settled law. How things ultimately shakeout will depend upon a number of factors, not the least of which is who may ultimately end up being confirmed to fill Justice Kennedy’s vacated seat on the Supreme Court. Nevertheless, it seems prudent for any counterclaim defendants (whether original plaintiffs or third-party defendants) to consider removing any qualifying class counterclaims (and class third-party claims) under CAFA. Only by doing so may that defendant preserve the issue, because even if the Supreme Court ultimately decides that such claims are removable, it is unlikely that the Supreme Court would revive time periods for removal that have already lapsed or that may lapse pending its decision. Such removing counterclaim and third-party claim defendants should also consider seeking to stay any motion to remand pending a ruling in Home Depot.

We will continue to monitor this case.

*Bradley provided input on an amicus brief submitted by the Defense Research Institute in support of Home Depot’s petition for cert. Larry Ebner of Capital Appellate Advocacy PLLC was principal draftsman of that brief.

A Brief Look at Justice Kennedy’s Rule 23 RecordWhile he often kept us guessing about how he might vote in politically significant cases, retiring Justice Anthony Kennedy was far more predictable on class action issues over the course of his 30-year tenure on the Supreme Court. This post briefly analyzes Justice Kennedy’s voting record in class action-related cases.

In cases involving class certification, Justice Kennedy has consistently voted in favor of more stringent application of Rule 23 requirements. He sided with the majority in AmChem Products, Inc. v. Windsor (1997), a Rehnquist Supreme Court decision holding that all Rule 23(b)(3) requirements except trial manageability must be satisfied for settlement class certification in Rule 23(b)(3) cases. Justice Kennedy also voted with the majority in Wal-Mart Stores, Inc. v. Dukes (2011) and its beefed-up commonality requirement; and again two years later in Comcast Corp. v. Behrend (2013), which required class-wide theories of damages to be logically tethered to the class claims and supported by class-wide proof.

Likewise, Justice Kennedy’s record in cases in which the Federal Arbitration Act (FAA) was invoked to oppose collective redress under class action procedures reveals a justice uniformly defending the FAA.  Justice Kennedy voted with the majority in Stolt-Nielsen S.A. v. Animal Feeds Int’l Corp. (2010), ATT&T Mobility v. Concepcion (2011), and American Express Co. v. Italian Colors (2013), all decisions either upholding class action waivers or declining to allow class litigation in arbitration unless the parties expressly allow for the same in their agreement. He likewise sided with the majority in Epic Systems v. Lewis (2018), a 5-4 decision issued this term, holding that the National Labor Relations Board could not, consistent with the FAA, invalidate arbitration provisions and class action waivers in employment agreements. Even Justice Kennedy’s vote as part of the unanimous decision in Oxford Health Plans, LLC v. Sutter (2013), holding that an arbitrator did not exceed his powers in interpreting an arbitration agreement to authorize class-wide arbitration even though the agreement did not expressly address the subject, is (in our view) rightly viewed as less a pro-class action vote and more a pro-arbitration one. The general sentiment of that opinion is that if the parties give the arbitrator the authority to decide the meaning of an arbitration clause, and do not expressly preclude class arbitration in the agreement, the parties have chosen to have the arbitrator be the final word.

Justice Kennedy also sided with the majority in a variety of other cases significant to class action defendants, including:

  • Bristol-Myers Squibb Co. v. Superior Court (2017), holding in a mass action that a district court lacks personal jurisdiction over a defendant with respect to claims by out-of-state mass tort claimants who sustained no injury in the forum state;
  • Spokeo v. Robins (2016), holding that a plaintiff’s allegation of a defendant’s statutory violation without accompanying concrete harm fails to satisfy Article III’s case or controversy requirement;
  • Standard Fire Ins. Co. v. Knowles (2013), a 9-0 decision holding that a class representative cannot stipulate that the class will seek less than $5 million in damages, so as to defeat federal jurisdiction under the Class Action Fairness Act (CAFA); and
  • Clapper v. Amnesty International (2013), a 5-4 decision holding that class plaintiffs have no Article III standing in the absence of injuries that are not concrete, particularized, and actual or imminent.

The justice did, on rare occasions, side with the Supreme Court’s more liberal wing in cases involving class action issues. Perhaps the most notable is Tyson Foods, Inc. v. Bouphakeo (2016), the lone class action-related opinion authored by Justice Kennedy. In Tyson Foods, an FLSA overtime pay class and collective action, the Court declined to adopt a rule prohibiting statistical or “representative” evidence to prove class certification. Justice Kennedy’s opinion held that such evidence’s admissibility depends on its reliability and on whether such evidence would be admissible in an individual action to prove or disprove an element of a plaintiff’s claim. The 7-2 decision noted that the ruling did not deprive (on the facts of the case) the defendant of the ability to litigate individualized defenses, thus hinting that the decision may not have significant applicability apart from specific fact patterns in FLSA cases.

Another example of Justice Kennedy aligning with the more liberal wing of the Court is Campbell-Ewald Co. v. Gomez (2016), a 6-3 decision holding that an unaccepted offer of judgment did not moot the claims of a class action plaintiff. (Campbell-Ewald contrasts with Genesis HealthCare Corp. v. Symczyk (2013), where Justice Kennedy sided with the majority in a 5-4 decision upholding a similar “pick off move” by a collective action defendant.) Justice Kennedy joined the 9-0 Court in Smith v. Bayer Corp. (2011), holding that a denial of class certification by a federal court was not res judicata so as to allow the federal court to enjoin a subsequent class action in state court by putative members of the first class action. It might be observed that any contrary holding would have required a fairly aggressive interpretation of both federal preclusion law and the Anti-Injunction Act. Mississippi ex rel. Hood v. AU Optometrics Corp. (2014), holding that a parens patriae claim by the State of Mississippi did not qualify as a “mass action” for removal purposes, could hardly be viewed as class action-friendly activism given the 9-0 vote, and rather involved an uncomplicated application of the mass action provisions of CAFA.

All in all, in class action-related cases, Justice Kennedy’s voting record does not vary significantly from that of any of the conservative justices on the Rehnquist or Roberts Courts.  Whatever pronouncements or predictions one might wish to make about the jurisprudential leanings of Judge Brett Kavanaugh (recently nominated by President Trump to fill Justice Kennedy’s seat), it would be a challenge for him to be markedly more conservative or more favorable to business than Justice Kennedy has been on Rule 23 issues.