Posts Tagged ‘Rule 23’

A split panel of the Fourth Circuit has reversed, on interlocutory appeal, the denial of leave to amend a Title VII class action complaint alleging company-wide gender discrimination at  Family Dollar Stores. Judge Gregory wrote the opinion for the court in Scott v. Family Dollar Stores, Inc., in which Judge Keenan (who also wrote a separate concurrence) joined. Judge Wilkinson dissented.

This case is full of issues for proceduralists and class-action lawyers. It is likely to prove a source of significant worry for those defending employment class actions in the Fourth Circuit because it allows plaintiffs to transmute their original class allegations into something substantially different three years into the litigation (after briefing on the defendant’s motion for summary judgment was almost complete). The majority and dissent each think the other misunderstands the meaning of Wal-Mart Stores, Inc. v. Dukes, and this back-and-forth is worth studying. But the majority’s answers to the dissent’s identification of the various problems with allowing leave to amend seem unsatisfactory. One prominent criticism of the Supreme Court’s recent jurisprudence tightening up pleading and class certification requirements has been excessive solicitude for corporate defendants’ costs-of-litigation arguments. This decision seem subject to the mirror-image criticism. 

Judge Wilkinson’s discussion of the shortcomings of the majority’s analysis of prejudice is persuasive, particularly given the “clearly erroneous” standard of appellate review of factual determinations related to prejudice wrapped inside the “abuse of discretion” standard for reversing a denial of leave to amend. Perhaps the most impassioned part of Judge Wilkinson’s dissent, however, is his discussion of bad faith. Here is how that discussion begins:

A district court’s refusal to permit a pleading amendment on bad faith grounds is justified where “the plaintiff’s first theory of recovery is based on his own reading of . . . cases and it turns out that he misinterpreted how that theory would apply to the facts of his case.” [438 F.3d] at 428 (emphasis omitted). That situation is precisely what occurred here. Plaintiffs misinterpreted how certain class action precedents would apply to their case and then sought to construct an entirely new set of facts to overcome their error. Their willingness to adopt contradictory factual positions in order to match their evolving legal theories evidences a degree of bad faith sufficient to warrant denial of leave to amend. To the old-fashioned view that prior representations to a court actually count for something, the majority answers: Not much.

Judge Keenan writes separately “to emphasize that despite the dissent’s dystopian view, the majority has rendered a straightforward and limited decision: that the plaintiffs should be permitted to amend their original complaint after a dramatic shift in the law regarding class action certification.” Judge Keenan also notes that the majority opinion does not dictate that class certification is appropriate, and that “if the allegations included in the amended complaint ultimately are not substantiated, the class simply will not be certified, and the plaintiffs’ case will fail.” This observation, however, only underscores the prejudice that the plaintiffs’ flip imposes on the defendant. As the district court observed, “Plaintiffs wish to pursue extensive discovery to support and clarify their new theories, which will require the parties to re-open and conduct new expert discovery based on plaintiffs’ changed version of the facts.”

A footnote in Judge Wilkinson’s dissent responds to Judge Keenan’s concurrence, using about one-and-a-half times as many words in the footnote as the concurrence itself contained. After reciting a litany of questions assertedly unanswered by the majority, Judge Wilkinson concludes: “Perhaps my fine colleagues will some day provide some answers to some of these questions, but for now they are doing what football teams usually do on fourth down.”

On a different note, this is the second decision I’ve noted this week involving the concept of pendent appellate jurisdiction. The Seventh Circuit’s use of what Stephen Vladeck has described as “pendent appellate bootstrapping” seems to have been at the root of the Supreme Court’s DIG in Madigan v. Levin yesterday. The Fourth Circuit’s decision today was enabled by the court’s decision to use pendent appellate jurisdiction to review the denial of leave to amend on interlocutory appeal of the class certification decision. Unless I missed it, Judge Wilkinson did not take issue with this aspect of the majority’s decision, although doing so might have fit well with one of the primary themes of his dissent, namely that “this is a rude reversal.”

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A couple of weeks ago, I criticized the Third Circuit’s decision in Sullivan v. DB Investments, Inc., which affirmed certification of a nationwide class of indirect purchasers and approved a class settlement that treated identically indirect purchasers who were entitled to pursue damages under state law and those who were not entitled to do so.

Dan Bushell at Florida Appellate Review offers a thoughtful commentary on the decision. Bushell contends that the “main take-away” of the decision is that “there is a real and significant difference between the standard that must be met to certify a settlement class from the standard for certifying a litigation class.”

I agree with Bushell that the best reading of the opinion is that its analysis of certification should be limited to settlement-only classes. Unfortunately, the Third Circuit could not say so explicitly because to do so would be inconsistent with Amchem, in which the Supreme Court stated that, apart from considerations of manageability, the requirements of Rule 23 “demand undiluted, even heightened, attention in the settlement context.”

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In Sullivan v. DB Investments, Inc., the en banc Third Circuit has affirmed the approval of a nationwide class settlement that includes people with no viable claim.

De Beers allegedly broke federal and state antitrust laws in its marketing of diamonds. After a long period of ignoring litigation in the United States, De Beers orchestrated a nationwide class settlement of the claims against it. After receiving district court approval, that settlement was thrown out by the Third Circuit. But now the Third Circuit, sitting en banc, has decided that the class and the class settlement comport with Rule 23.

I need to sit down with the opinions and examine them more closely, but my initial reaction is that the Third Circuit has erred significantly–and not simply by rejecting arguments advanced by Howard Bashman (which is a mark, but not a criterion, of infirmity).

The federal judiciary has no business overseeing conduct that does not involve a claim upon which relief can be granted. And it is hard to see how a federal court could have evaluated the fairness of a settlement that involved parties with no colorable claim to settle. But these are just initial reactions.

My overriding impression in going over the en banc opinion was that it was a throwback to an earlier era (not too long ago) when federal courts were much less careful than they should have been about Rule 23.

(The sense of a throwback was heightened when I saw the appellate court approvingly cite the district court opinion in McCoy v. Health Net, Inc., 569 F. Supp. 2d 448 (D.N.J. 2008), which approved the settlement of a class action previously vacated by the Third Circuit in Wachtel v. Guardian Life Ins. Co. of Am., 453 F.3d 179 (3rd Cir. 2006). While the two cases are different in many respects, it is worth noting that Judge Smith opposed class treatment in both the De Beers case and the Health Net case. Although the Third Circuit’s decision in Wachtel sounded in Rule 23(c), that may have reflected a compromise among the panelists, as there were serious predominance questions in the underlying class as well.)

[UPDATE: Welcome, readers of “How Appealing.” See here for another post on the DeBeers case, contending that a class that contains indirect purchasers with damages claims and indirect purchasers without damages claims fails under the typicality requirement of Rule 23(a)(3).)]

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