We close the year with two class-action decisions — not employment lawsuits (the allegations sound in federal antitrust and state consumer protection law), but signposts to where Rule 23 is headed for all of us. And Judge Posner gifts us with a definition of chutzpah.
In re Hydrogen Peroxide Antitrust Litigation, No. 07-1689 (3d Cir. Dec. 30, 2008): In the past decade, and especially in the past five years (since the last amendment of Fed. R. Civ. P. 23), the U.S. Courts of Appeals have gradually tightened the spiquet for plaintiffs seeking class certification. The most prominent of these decisions — In re Initial Pub. Offerings Sec. Litig., 471 F.3d 24, 33 n.3 (2d Cir. 2006) — overturned or reconsidered language in several important Second Circuit decisions and declared an intention to police certification more carefully in the future. Even in a relatively friendly circuit, the panel in the Dukes v. Wal-Mart Stores, Inc., 474 F.3d 1214 (9th Cir. 2007), was compelled to rewrite significant sections of its decision affirming class certification to avoid drawing a conflict in the circuits (509 F.3d 1168 (9th Cir. 2007)), and a petition for rehearing en banc remains pending over one year later.
So the Third Circuit, unsurprisingly, uses the occasion of this immense antitrust case to take stock of its own decisional law under Rule 23, and redirect the district courts and counsel for the future. The court winds up vacating the decision below certifying the class as an abuse of discretion and declares standards that track In re Initial Pub. Offerings Sec. Litig.:
“[B]ecause each requirement of Rule 23 must be met, a district court errs as a matter of law when it fails to resolve a genuine legal or factual dispute relevant to determining the requirements. . . .
“Factual determinations necessary to make Rule 23 findings must be made by a preponderance of the evidence. In other words, to certify a class the district court must find that the evidence more likely than not establishes each fact necessary to meet the requirements of Rule 23. . . .
“It is incorrect to state that a plaintiff need only demonstrate an ‘intention’ to try the case in a manner that satisfies the predominance requirement. Similarly, invoking the phrase ‘threshold showing’ risks misapplying Rule 23. A ‘threshold showing’ could signify, incorrectly, that the burden on the party seeking certification is a lenient one (such as a prima facie showing or a burden of production) or that the party seeking certification receives deference or a presumption in its favor. So defined, ‘threshold showing’ is an inadequate and improper standard. . . .
“Although the trial court has discretion to grant or deny class certification, the court should not suppress ‘doubt’ as to whether a Rule 23 requirement is met-no matter the area of substantive law. Accordingly, Eisenberg [v. Gagnon, 766 F.2d 770 (3d Cir. 1985)] should not be understood to encourage certification in the face of doubt as to whether a Rule 23 requirement has been met. Eisenberg predates the recent amendments to Rule 23 which, as noted, reject tentative decisions on certification and encourage development of a record sufficient for informed analysis. See Fed. R. Civ. P. 23 advisory committee’s note, 2003 Amendments (‘A court that is not satisfied that the requirements of Rule 23 have been met should refuse certification until they have been met.’). . . . .[I]t does not follow that a court should relax its certification analysis, or presume a requirement for certification is met, merely because a plaintiff’s claims fall within one of those substantive categories. . . .
“Like any evidence, admissible expert opinion may persuade its audience, or it may not. This point is especially important to bear in mind when a party opposing certification offers expert opinion. The district court may be persuaded by the testimony of either (or neither) party’s expert with respect to whether a certification requirement is met. Weighing conflicting expert testimony at the certification stage is not only permissible; it may be integral to the rigorous analysis Rule 23 demands. . . .
“Like any evidence, admissible expert opinion may persuade its audience, or it may not. This point is especially important to bear in mind when a party opposing certification offers expert opinion. The district court may be persuaded by the testimony of either (or neither) party’s expert with respect to whether a certification requirement is met. Weighing conflicting expert testimony at the certification stage is not only permissible; it may be integral to the rigorous analysis Rule 23 demands.”
Such rules demand (as a practical matter) that nearly all merits discovery proceed upfront, thus (1) tightening the pressure on class action attorneys to budget their cases for the long haul, knowing (2) that a district court may not consider the class certification issues for years to come.
Mirfasihi v. Fleet Mortgage, No. 07-3402 (7th Cir. Dec. 30, 2008): In its third appearance before the Seventh Circuit, and after three fairness hearings, this long-running class settlement comes to an end. The panel opinion (authored by Judge Posner) spares the objectors, their counsel and even the district court no mercy, finding that the relative low-dollar settlement per capita (for over a million class members) was amply supported by the record and that the objectors’ attempts to expand the case were frivolous.
The allegations, in a nutshell —
“The complaint charges that without their permission Fleet transmitted information about these persons’ finances (plus personal information such as phone numbers), obtained from their mortgage files, to telemarketing companies which then, in conjunction with Fleet, used that information and deceptive practices to try to sell them financial and other services that they otherwise would not have been interested in. Fleet’s transmission of the information to the telemarketers was alleged to violate, among other laws, the federal Fair Credit Reporting Act and state consumer protection statutes. Two plaintiff classes were proposed-a ‘pure’ ‘information-sharing’ class of 1.4 million customers of Fleet whose financial information Fleet transmitted to the telemarketers but who did not buy anything from them, and a separate ‘telemarketing’ class composed of 190,000 customers of fleet who made purchases from the telemarketers.”
Although settlement was first reached in 2002 and approved by the district court, it was initially tossed out on appeal because the judge below did not make adequate findings and because the settlement “gave nothing to the information-sharing class, while barring its members from bringing individual suits.” A second settlement was also approved (by a different judge), which awarded a quarter-million dollars to not-for-profits concerned with consumer privacy, but still awarding nothing to the class. The settlement, too, was vacated and remanded because the district court “had not made an adequate effort to value the claims of the information-sharing class.” On the final go, the district court continued to assess damages to the class as zero
The panel, affirming the final settlement, criticizes the district court for taking seriously a federal law claim already waived in the initial complaint and on remand from the court of appeals (citation omitted):
“On remand, the district judge nevertheless discussed (and rejected) the applicability of the Act to the class. She should not have wasted her time on the issue. The objectors argue that the scope of the remand was ambiguous; it was not; but if the objectors thought it was, or, more plausibly, wanted us to reconsider the scope of the remand, they should have petitioned us for clarification or reconsideration, and they did not. Had they done so, the parties to the settlement would have argued forfeiture and lack of merit, and we would have ruled against the objectors and cut off further litigation on the issue, saving the district judge time and the parties cost. For besides having been forfeited, the claim that Fleet violated the Fair Credit Reporting Act has no possible merit, and in fact is frivolous.”
The panel also criticized the passage of time and obstreperousness of all of the litigants:
“We are disheartened that the litigation by the information-sharing class has been allowed to drag on for eight years, when it had no merit-and that as a matter of law, without need to take evidence. It is an example of the typical pathology of class action litigation, which is riven with conflicts of interest, as we discussed recently in Thorogood v. Sears, Roebuck & Co., supra, 547 F.3d at 744-46. The lawyers for the class could not concede the utter worthlessness of their claim because they wanted an award of attorneys’ fees. The lawyers for Fleet were reluctant to argue the utter worthlessness of the claim because they were able to negotiate a settlement that cost their client virtually nothing-provided they did not take such a strong stand that it jeopardized the class lawyers’ shot at a generous award of attorneys’ fees, and hence the settlement. And the objectors were motivated to exaggerate the value of the claim of the information-sharing class so that they could get a generous award of attorneys’ fees. At the very outset of the case, before certifying the class, the district court should have required the parties to present the belatedly presented survey of the consumer protection laws of the 50 states, plus argument concerning the scope of the Fair Credit Reporting Act, to demonstrate the existence of a colorable claim.”
The panel reserves its harshest words for the objectors’ counsel, who in the panel’s lights defined “chutzpah”:
“With what can only be described as chutzpah, defined by Leo Rosten as ‘gall, brazen nerve, effrontery, incredible ‘guts,’ presumption plus arrogance such as no other word and no other language can do justice to,’ the objectors ask us to substitute them for the lawyers for the information-sharing class and award them the entire $750,000 in attorneys’ fees that the district judge awarded those lawyers; in other words, the objectors are asking us for 40 times the $18,750 attorneys’ fee that she awarded them. The request is preposterous.”