Inflection Points and Class Action Litigation

Dan Goldfine and Allison Sluga^[1]

A class action defendant^[2] faces a significantly greater magnitude of risk than a typical litigation defendant. The magnitude of risk is greater because a typical class may involve aggregated damages of more than tens of thousands or hundreds of thousands of persons with claims. But this greater magnitude of risk is often counterbalanced by express and implied hurdles, unique to class action plaintiffs, which lower the likelihood the downside risk will occur. These hurdles create more inflection points to resolve a class action favorably for defendants and to facilitate settlements. 

Background

A class action is a form of representative action in which “the court authorizes a single person or small group of people to represent the interests of a larger group.”^[3] The class action tool is meant to be[4] “an exception to the usual rule that litigation is conducted by and on behalf of the individual named parties only.”^[5] Because of this exceptional nature, a class action plaintiff must comply with additional rules and prove factual premises that an individual plaintiff simply does not. The additional hurdles have not appeared to deter putative class counsel from filing class actions and investing tens of millions of dollars into them. After all, “this is America and anyone can sue anyone for anything here.”^[6]

All litigation creates inflection points. An inflection point is a significant change in a situation or a turning point.^[7] In the context of litigation, it is an event that changes the parties’ perspectives on the likelihood of risk, the magnitude of risk, or both. For example, a motion to dismiss might be granted with prejudice. If it is, the litigation risk to the defendant is reduced to near zero. But not to zero, because a dismissal order can be reversed on appeal.

From a tactical perspective, class actions are different because they have more inflection points. For a defendant in a typical litigation, the motion to dismiss and motion for summary judgment are key inflection points (assuming that the defendant does not want to try the case and risk locking in both the magnitude and likelihood of the risk). For a defendant in a typical class action, there are five such inflection points: (1) motion to dismiss; (2) Rule 23 and Rule 12(f) motions to strike class allegations; (3) class certification; (4) petition to appeal order on class certification; and (5) motion for summary judgment. Each inflection point may significantly increase or decrease both the magnitude and likelihood of risk the class action defendant faces.

The additional inflection points present in class actions show that defending a class action is often more tactical than merit-based. Because losing the right to bring a class action does not necessarily mean the individual plaintiff loses the right to vindicate their rights, the class action defense attorney should litigate with tone and consideration that the substance of the claim might be correct. With this tactical approach in mind, class action defense attorneys should be prepared to use every inflection point to lower their client’s risk.

1. Motion to Dismiss

   The additional inflection points present in class actions shed new light on whether to move to dismiss. One approach is a lock-in strategy in which counsel forgoes a motion to dismiss, instead opting to lock-in an inadequate complaint for summary judgment. This approach is favored when the class definition allegations are obviously disconnected or overbroad, making the ascertainability of class members difficult without an individualized analysis.

   Another approach is to utilize every inflection point (including the motion to dismiss) to reduce risk. Attempting to create an inflection point from a motion to dismiss helps a defendant for two reasons. First, a motion to dismiss often prevails. If it prevails with prejudice, nearly all of the defendant’s risk is eliminated. Second, even if the motion to dismiss is unsuccessful, it can still educate the court on how the case will proceed and how a trial might look while also setting up class action scenarios that will favor the defense later. A motion to dismiss can alert the court of issues that should defeat a plaintiff’s impending motion for class certification. For example, a complaint might allege violations of different laws that will have a variable impact on the class plaintiff, making class certification impossible because one or more of the Rule 23 requisites (discussed below) cannot be met^.[8]

   A complaint might create a defense or an affirmative defense. A motion to dismiss can educate the court about why such a defense means that class certification is impossible or likely impossible.^[9]

   Challenging the class representative’s Article III standing or injury in federal class actions is also valuable. This includes standing for absent class members, which poses a real barrier to class certification, both in the litigation and settlement contexts. Absent class members’ standing must be addressed and resolved by the trial court.^[10] Supreme Court precedent,^[11] read together with Rule 23 and the Rules Enabling Act, requires the class representative to prove that issues involving the absent class members’ standing or injury do not defeat the Rule 23 elements (discussed below). If the class representative lacks standing or injury, the claim should be dismissed.^[12] Further, the motion to dismiss might elicit a response from the plaintiff that creates individualized issues later.^[13]

   In some states, motions to dismiss premised on standing or lack of alleged injury arguments, similar to those often seen in federal courts, are gaining traction. At the very least, even in state courts, injury is a substantive element of the claim, and moving to dismiss can highlight class-wide proof issues.

   Key Takeaway 1: Settlement Consideration

   Class action defendants can move to dismiss without altering the settlement calculus. The defendant can still dispose of the class action at class certification and, like any other case, at summary judgment.

   Key Takeaway 2: Tactical Consideration

   Class action defendants can use motions to dismiss to reduce their risk. If the motion is granted, the risk is reduced to almost zero. If the motion is denied, it can still preview other arguments identifying flaws in the putative class’s claims that can dispose of the claims later. For a defendant, losing a motion to dismiss should not alter the settlement calculus. 

2. Rule 23 and Rule 12 Motions to Strike Class Allegations

   Both Rule 12(f) and Rule 23 allow class action defendants to strike class allegations and accordingly reduce the magnitude and likelihood of risk they face. Because each rule can be a distinct inflection point, class action defendants should be prepared to exploit, or at least explore both opportunities.

   Rule 12(f) provides that the trial “court may strike from a pleading . . . any . . . immaterial . . . matter.”^[14] Rule 12(f) motions to strike must be filed within 21 days of pleading service. If the class allegations are facially-deficient and cannot be cured, a motion to strike may be sensible. While a successful Rule 12(f) motion to strike will not eliminate the case, it can reduce a class defendant’s exposure by limiting it to only the class representatives’ claims.

   Despite its benefits, a motion to strike under Rule 12(f) may be counterproductive. First, courts generally disfavor motions to strike under Rule 12(f). Second, a Rule 12(f) motion to strike imposes a heightened standard of proof relative to Rule 23—that class certification is impossible—and shifts the burden of proof from the plaintiff to the defendant.^[15] A defendant must prove that the class allegations are “immaterial”—that the plaintiff cannot prove one or more of the Rule 23(a) and 23(b) required elements.

   As a backstop and an interim tool, if the 21-day period under Rule 12 has passed, some courts have used Rule 23(d)(1)(D) to strike class allegations which are facially-deficient and cannot be cured. This rule provides that the trial “court may issue orders that . . . require that the pleadings be amended to eliminate allegations about representation of absent persons[.]”^[16] The Sixth Circuit has upheld pre-certification motions to strike under Rule 23 where the “defect in the proposed class turned on the application of laws of different states, which no amount of discovery could change.”[^17] District courts have subsequently decided certification issues in circumstances involving “purely legal questions or those resolved with little factual development;”^[18] “where it is facially apparent from the pleadings that class claims cannot satisfy one or more of Rule 23’s requirements;”^[19] or “where the complaint itself demonstrates that the plaintiff cannot meet the requirements for maintaining a class action.”^[20] A pre-certification motion to strike class allegations under Rule 23 is appropriate “where the complaint shows that maintaining a class is not possible.”^[21] This might be a more appealing approach because unlike a Rule 12(f) motion to strike, Rule 23 keeps the burden of proof on the plaintiffs to prove all the Rule 23(a) and 23(b) required elements by a preponderance of the evidence.

   The timing of a motion to strike is elusive. Rule 12(f) instructs that the motion to strike must be filed when the pleadings are challenged. Rule 23(d)(1)(D) provides for a later-filed motion to strike. Assuming the motion to strike is based solely on the pleadings, the better practice would be move to strike in that initial 21-day period. Assuming the motion to strike is based on impossibility discovered later, the better practice is to file near in time to that discovery. But regardless of when the motion to strike is filed, Rule 23 “demands rigorous analysis and proof sufficient for Plaintiffs to carry their burden of meeting the requirements for class certification.^[22] A class defendant cannot side-step this rigorous analysis with a pre-certification motion to strike.[^23]

   Key Takeaway #3: Tactical Consideration

   Given the burden of a motion to strike, class action defendants should acknowledge the risk that losing the motion locks the trial court into believing class certification. But besides knocking out the class claims, the motion to strike can provide early education to the court that these allegations are not appropriate for class treatment.

   Key Takeaway #4: Tactical Consideration

   Given the different burdens present in Rule 23 and Rule 12(f) motions to strike, class action defendants should use both rules as additional inflection points, but should tailor arguments according to the standards imposed by each rule.

   Key Takeaway #5: Settlement Consideration

   Like a motion to dismiss, losing a motion to strike probably does not change the settlement calculus because other opportunities to defend remain.

3. Class Certification

   The third inflection point in class actions is the motion to certify the class itself. This phase of litigation contains multiple opportunities to change the defendant’s magnitude of risk and, potentially, the outcome of case. If a plaintiff’s motion to certify the class is denied, a defendant’s litigation risk is substantially reduced from the aggregate exposure of all class members’ claims to only the exposure of the named class representative’s claims. Significant changes to the class definition that undermine the plaintiff’s ability to certify the class may also reduce the magnitude of risk. A successful class certification should affect a class action defendant’s outlook on the likelihood of a bad outcome.

   Unlike losing a motion to dismiss, if a putative class’ motion to certify the class is granted, a significant shift to the settlement calculus occurs. The magnitude of exposure is more concrete. The risk from a class trial is more obvious, along with how that trial might be executed. Discovery is likely to be broadened exponentially, if efforts to avoid class discovery before class certification were successful. 

               A Rigorous Analysis Must Be Applied

   Because class actions are exceptional, “a party seeking to maintain a class action must affirmatively demonstrate his compliance with Rule 23.”^[24] “To determine whether there is actual compliance with Rule 23, a district court must conduct a ‘rigorous analysis’ of the evidence.”^[25] While it is often said that the court should not address the merits of claims at class certification, “Rule 23 gives no license to shy away from making factual findings that are necessary to determine whether the Rule’s requirements have been met.”^[26]

   While the concept of the rigorous analysis is vague, the Supreme Court has described it as  more than a “mere pleading standard.”^[27] Because the putative class has the burden to demonstrate Rule 23 compliance, it must prove each Rule 23 element by a preponderance of the evidence.^[28] Sometimes, educating the court on the severity of this burden of proof is task-one of a defendant’s opposition to class certification.

   What is a rigorous analysis? It is not resolving the merits or addressing competing expert opinions. But how deep into the evidence and merits at trial does the rigorous analysis require? When confronted, lower courts give two answers. One view is quite deferential to the allegations and putative class counsel’s assertions, leading to holdings and dicta that any “valid” or “colorable” method proving each of the Rule 23 requirements suffices.^[29]  The other view of the rigorous analysis—which has become stronger over the last decade or so^[30]—requires a deeper dive, including the following:

   • An assessment of all evidence, including expert evidence, both sides will present at trial to understand the claims, defenses, relevant facts, and applicable substantive law.
   • In light of that assessment, evaluate how that trial will actually play out.
   • Findings of facts and conclusions of law regarding each Rule 23 requisite element.
   • As to each Rule 23 requisite element, factual disputes must be resolved.
   • If relying on expert evidence to find for or against one of the Rule 23 elements, address the admissibility of the expert evidence.

   If the court defers to putative class allegations and assertions of counsel or applies a shortcut around the rigorous analysis required by Rule 23, it is likely running afoul of the Rules Enabling Act and Supreme Court precedent. The Rules Enabling Act, cited by the Supreme Court when applying the rigorous analysis, provides that the Supreme Court can adopt federal rules (including Rule 23) but only so as long as the rules do not “abridge, enlarge, or modify any substantive right.”^[31] A class defendant should be vigilant to guard against such shortcuts that could affect the defendant’s right to litigate statutory defenses to individual claims.^[32]

   One way to ensure that the court confronts the necessary rigorous analysis is to identify how the putative class will try the merits of its claims. For example, how will the putative class and defendant prove each element of its claims and affirmative defenses, respectively? How will each party controvert that evidence? As a general rule, under the express terms Rule 23(a) and Supreme Court precedent since Dukes, every putative class must prove (1) numerosity (2) commonality, (3) typicality and (4) adequacy. For class actions that seek some form of monetary damages, a putative class must also prove predominance and superiority. Many courts have held that Rule 23 also implicitly requires proof of ascertainability. Class defendants should be prepared to attack each element, as each provides a separate opportunity to block the class certification.

               The Rule 23 Requisite Elements

   To prove numerosity, the putative class must show “the class is so numerous that joinder of all members is impracticable.”[33] Evidence of exact class size or identity of class members is not required to satisfy the numerosity requirement. Rather, a district court must make a factual finding as to the approximate size of the class based on the evidence presented. The evidence need not demonstrate that joinder is impossible but just difficult or inconvenient when compared to a class action.

   The numerosity element is often ignored. Putative classes will assert—with no supporting evidence—that the size of the class is sufficiently numerous. Many class action defendants fear challenging this element because of credibility concerns, but it should not be ignored. Challenging numerosity can emphasize that the putative class must prove this element with evidence. Failure to support a numerosity assertion with proof can educate the court about both the burden and the nature of supporting evidence that can spillover to other more contentious Rule 23 elements.

   To prove commonality, the putative class must establish the capacity of a class-wide proceeding to generate common answers apt to drive the resolution of the litigation.[34] A trial court must determine whether the defendant breached the same duty or did the same wrong and whether the absent class members have all suffered the same injury caused by the same breach or wrong. The court must resolve the commonality issue even if its resolution overlaps with the merits of the case.^[35]

   Commonality is the most misunderstood Rule 23 element.^[36] Parties and courts often misstate the nature of commonality or conflate the Rule 23(a) commonality element with the separate Rule 23(b) element. They are mistaken. The first mistake flows from the text of Rule 23(a)(2), which provides that a representative class action can be certified “only if,” among other elements, the putative class proves “there are questions of law or fact common to the class.” This textual approach often leads to the argument that the burden is only to provide evidence of one question of law or one question of fact common to the class—but under this approach this element would be proven every time and has been rejected by the Supreme Court.^[37] Class defendants should be prepared to address this confusion and reframe commonality as requiring a common question answered by common evidence at trial providing common answers apt to resolve an issue central to the case.^[38]

   Establishing what amounts to common questions answered by common evidence at trial apt to resolve an issue central to the case spills over to two other elements: typicality and, in Rule 23(b)(3) class actions, predominance. Class defendants should capitalize on differences among the putative class and inform the court that individualized determinations can trump common questions in the context of a plaintiff’s elements of proof when the case functionally turns on a defendant’s affirmative defenses. This is the case even in a Rule 23(b)(2) class action where predominance is not an element of proof under Rule 23. With liability and injury issues (including Article III standing), case law largely holds that commonality and predominance are paramount. But to meet commonality for the amount of damages, the putative class must at least present a measure of damages theory that fits their liability theory.^[39]

   Rule 23 instructs that typicality requires the claims or defenses of the representative parties to be typical to those of the absent class members. Some courts merge commonality and typicality, but the two are distinct. Commonality tests the definition of the class itself, whereas typicality tests how close the class representatives’ claims and defenses are to absent class members’ claims and defenses. Typicality ensures that class representatives have the incentive to prove all the elements of the cause of action and controvert any defenses that would be presented by the individual members of the class were they initiate individualized actions. Class action defendants should highlight this distinction and use the typicality element to bring additional challenges to class certification, not otherwise included in a commonality challenge.

   The adequacy requirement is similar to the typicality requirement. To prove adequacy, a putative class must prove that (1) the class representative’s claims are not antagonistic to any of the absent class members’ claims, and (2) the putative class counsel are qualified, experienced and able to conduct the litigation.

   As a threshold matter, a class representative is not deemed adequate unless it is a member of the class it purports to represent. Once the threshold showing is made, a three-part test must be met. First, plaintiff must demonstrate that class counsel is qualified, experienced generally, able to conduct the litigation, and that no fundamental conflicts exist that might impair its representation. Second, the named plaintiff must show there is no conflict of interest between the named plaintiffs and other members of the plaintiff class. Third, a named plaintiff must exhibit enough integrity and credibility to convince the court that the named plaintiff will diligently perform its fiduciary duties to the class. Class certification may properly be denied where the class representatives have so little knowledge of and involvement in the class action they would be unable or unwilling to protect the interests of the class against the possibly competing interests of the attorneys. Class defendants should thoroughly investigate each named plaintiff and their attorneys, and capitalize on any potential conflicts of interest.

   In class actions expressly seeking damages or where a monetary award is impliedly sought, there are two more elements: predominance and superiority. Predominance requires the putative class to prove the questions of law or fact common to class members predominate over questions affecting only individual members of the putative class. This is the core of the rigorous analysis. While there are a number of factors^[40] the court must consider, they only provide context.

   Actually, cataloging the common proof leading to common answers apt to resolve a class action at trial is quite a significant task. Many courts treat “common questions of law and fact” as a much lower burden of proof in the predominance context than the Supreme Court treated the identical term in the commonality context in Dukes.^[41] These decisions give “the fact of common questions” presumptive weight, which hardly follows a rigorous analysis. The preliminary task of the defendant in addressing the predominance equation is to advocate that the trial court must only include and give weight to those purported common questions of law or fact that actually meet the Dukes standard (common evidence leading to common answers apt to resolve the case), for which the putative class bears the burden of proof.

   Identifying what the individualized proof will be at trial is also an enormous task. Because the putative class has the burden of proof under Rule 23, it should have the initial burden to establish for the trial court what the individualized proof at trial will be. Putative class counsel will likely assert there is no individualized proof or the proof is not applicable. The class action defendant’s task is to identify the quantum and categories of individualized proof that will be presented at trial, and characterize that proof as what will predominately drive the litigation.

   A rule of thumb has developed for the impact of individualized proof on whether the class is certified: if there is meaningful individualized proof tending to prove duty or breach, the class is likely not certified; if there is meaningful individualized proof tending to prove whether absent class members are injured-in-fact, the class is probably not certified; if the only meaningful individualized proof tends to prove an affirmative defense, the class is likely certified; if the only meaningful individualized proof tends to prove the amount of damages, the class is likely certified.^[42] In light of this rule of thumb, a class action defendant should seek to characterize the individualized proof as tending to prove duty or breach or tending to prove injury-in-fact, preferably the latter. If the individualized proof deals with a defense, attempting to characterize that defense as controverting the putative class’ proof of duty or breach rather than an affirmative defense is critical. Regardless, explaining to the court how the parties will try this class action claim and cataloging the individualized proof that trial will require is critical to developing the right-side of the predominance equation.

   Superiority must also be proven by a putative class to succeed on a motion to certify a class, where the putative class is seeking a monetary award. The standard for proving superiority is whether the putative class action will achieve economies of time, effort, and expense and whether the putative class action will promote uniformity of decisions as to persons similarly situated. The standard also asks whether these goals can be achieved without sacrificing procedural fairness to both the defendants and absent class members. Again, the typical putative class will assert that the putative class action will achieve economies, judicial economy and promote uniformity, but will not introduce supporting evidence tending to prove these economies. A class action defendant seeking to defeat class certification on grounds of superiority should address these purported economies with controverting evidence, the rights of absent class members, other rulings related to the absent class members, variation in laws, ascertainability of class members and issues of individualized proof.

   Most courts impose ascertainability as an implicit requirement of Rule 23.^[43] Some circuits consider ascertainability to be encompassed in superiority, asking whether problems with ascertaining class members makes a class action unmanageable.^[44] Other Circuits look at the factors of ascertainability in the context of class definition or an issue of individualized proof of liability or injury.^[45]

   At least one Circuit considers ascertainability as a wholly separate element that a putative class must prove.^[46] In this Circuit, the putative class representative must prove that class members are currently and readily ascertainable based on objective criteria. Regardless of the label, approach or category, whether the class is ascertainable is something a class action defendant must consider. Even in courts that do not require ascertainability at the time of class certification, a class defendant would be prudent to argue that the putative class must demonstrate that it can prove who the absent class members are before judgment is entered.^[47] Failure of this minimal element of proof should render any putative class action a nullity and thus substantially reduce the magnitude of a defendant’s risk.

   For federal class actions and possibly some state class actions, Article III standing of the absent class members and whether absent class members suffered an injury are often argued by class action defendants as a key reason to deny a putative class’ motion for certification. Many tactics employ Article III standing issues that flow from failing to prove injury. But following Supreme Court guidance, a class action defendant should raise, within the context of the Rule 23 required elements (primarily commonality and predominance), how the putative class will prove at trial that each absent class member suffered an injury-in-fact and how each absent class member’s injury-in-fact amounts to an injury cognizable for Article III purposes.^[48]

   Key Takeaway #6: Tactical Consideration

   No defendant-client should permit its attorney not to oppose class certification.

   Key Takeaway #7: Tactical Consideration

   When opposing the putative class’s motion or ability to certify a class, defendants should focus on the elements of Rule 23 rather the merits of the claim.

   Key Takeaway #8: Settlement Consideration

   Winning or losing the putative class’s motion to certify the class alters the magnitude and likelihood of a defendant’s exposure. If the class is certified, opportunities to defend remain.

4. Petition to Appeal Order in Class Certification

   After a class certification decision, two appeal routes exist, each of which can change the magnitude of risk. First, Rule 23(f) allows parties to immediately appeal a class certification determination. Second, at the conclusion of the case, class representatives can appeal the denial of class certification as a matter of right. Waiting until the conclusion of the case changes the settlement calculation because, as a practical matter, a class representative’s failure to certify the class will dispose of the class action lawsuit.

   As an initial matter, under Rule 23(f), the petitioning party has only 14 days to file a petition for appeal; a timeline that cannot be tolled or extended.^[49] Second, Rule 23(f) petitions and related appeals are rarely granted (although data is scarce). 

   For example, between 2013 and 2017, the Ninth Circuit granted only 18% of Rule 23(f) petitions—the second lowest rate of all the circuits and a statistically significant gap compared to the “most generous Rule 23(f) court (the Fifth Circuit, with a grant rate of 50%.)”^[50] Of the Rule 23(f) appeals actually considered by the Ninth Circuit between 2013 and 2017, only 37% were reversed.^[51] This is noticeably lower than the national average of 54% for the same time period.^[52] Combining the low grant rate and the relatively low reversal rate, very few Rule 23(f) appeal are successful in the Ninth Circuit.[^53] But because permitting an immediate appeal of class certification is permissive, appellate courts have “unfettered discretion” as to whether to permit such appeal.^[54] Moving parties must convince the court to exercise its discretion to take up the appeal and convince the court to overrule the certification while adhering to the abuse of discretion standard. The brief should be tailored to standards adopted by the appropriate circuit. Considering the difficulty of bringing a successful Rule 23(f) appeal and the unlikelihood of a stay, defendants should be prepared to litigate the case with the certification order intact.

   Key Takeaway #9: Tactical Consideration

   Because class certification profoundly affects the magnitude of a defendant’s risk, defendants should utilize every opportunity to defeat certification. Thus when facing a successful class certification, class action defendants should promptly move for a Rule 23(f) appeal, while remaining active in the ongoing litigation.

5. Motion for Summary Judgment

The final major inflection point before pretrial practice (e.g., motions in limine and Daubert motions) and a trial covered in this paper is the motion for summary judgment. Class action defendants can move for summary judgement before or after class certification, both of which can reduce the litigation risk to near zero. Even an order granting a partial summary judgment motion may significantly reduce the magnitude of a defendant’s risk.

A successful pre-certification motion for summary judgment will result in a final judgment only against the named plaintiff. This reduces the defendant’s risk by practically ending the litigation unless the putative class can find a new class representative, which can be difficult and costly. The order can also persuade future courts to rule against similarly situated plaintiffs or educate the court on issues that may prevent class certification. A defendant may choose a pre-certification motion for summary judgment where there is a strong case against the individual plaintiff.^[55] Or that motion might elicit a fact-specific defense making clear that the putative class cannot meet its Rule 23 requisite elements.^[56]  A successful post-certification summary judgment motion, on the other hand, binds all class members. This practically eliminates defendant’s risk for all class or subclass members, unless the order is reversed on appeal.

Key Takeaway #10: Tactical Consideration

Class defendants should evaluate defenses against the class representative, absent class members, and sub-classes and then determine whether a pre- or post- certification motion for summary judgment would be more advantageous.

Conclusion

Class actions present significantly more opportunities and inflection points for defendants and defense counsel to alter the course of litigation than a typical individual action, and change the settlement calculus. Defense counsel should be prepared to capitalize on all five major inflection points addressed herein. Defense counsel and clients should formulate overall tactics and settlement considerations in the context that these additional inflection points provide. By understanding how these inflection points can alter litigation strategy and settlement position, as compared to typical litigation, class action defense counsel will maximize their ability to reduce both the magnitude and likelihood of their client’s risk.