United States: The ERISA Litigation Newsletter (November 2013)

Editor's Overview

This month we look at part one of our three part series on Class Actions. In part one, Robert Rachal, Page Griffin and Madeline Chimento Rea address Rule 23's requirement of commonality and review in-depth the developing body of case law post Wal-Mart and Comcast and how commonality may be applied to eliminate or cabin class actions. Look for part two addressing Rule 23(b) in our December Newsletter.

As always, be sure to review the Rulings, Filings, and Settlement of Interest where we discuss new DOL guidance on HRAs, FSAs and Employer Payment Plans, IRS guidance on electronic Self-Certification for hardship distributions and Post-Windsor guidance, and cases addressing FICA application to severance pay, excessive fees, PBGC administrative deference and the ACA.

Labor and Employment and ERISA Class Actions After Wal-Mart and Comcast — Practice Points for Defendants (Part I – Commonality)*

By Robert Rachal, Page Griffin and Madeline Chimento Rea

In Wal-Mart Stores, Inc. v. Dukes, the Supreme Court made clear that the class action rules apply with full force to employment discrimination cases.1Wal-Mart directs courts to conduct a "rigorous analysis" to determine whether employment discrimination plaintiffs have proven that they meet the requirements of Rule 23. Moreover, the decision breathes new life into the Federal Rules' commonality requirements and the limitations on "mandatory" classes embodied in Rule 23.

After Wal-Mart, the Supreme Court again altered the landscape of class action litigation when in Comcast Corp. v. Behrend 2 the Court applied what it called the "straightforward application of class certification principles" to issues of class damages. Though not a labor and employment case, the import of Comcast is clear: plaintiffs' damages theory must (i) match their class liability theory and (ii) be able to prove damages on a classwide basis, free from taint from individualized harms.3

This Bloomberg BNA Insights article addresses the impact of Wal-Mart, Comcast and the developing body of cases applying them. The article focuses on how they may be used to defend against labor and employment and ERISA class actions. The article also briefly addresses the potential impact of Wal-Mart and Comcast on FLSA and ADEA "collective actions." Some of the key conclusions are:

  • By adopting a dissimilarities analysis to determine whether common questions have common answers, Wal-Mart makes commonality a significant screen to eliminate or cabin many types of labor and employment and ERISA class actions.
  • Wal-Mart's dissimilarities analysis is particularly important (i) to labor and employment class actions involving discretionary or complex multi-level or multi-source decision making, (ii) to ERISA investment cases in 401(k) and similar plans, and (iii) to ERISA (and labor and employment) class actions that depend on allegedly defective or misleading communications.
  • Wal-Mart requires many, if not all, class actions seeking individualized monetary relief to meet Rule 23(b)(3)'s more stringent predominance and superiority requirements before any class can be certified.
  • Comcast's making damages a central part of class analysis is a substantial change in the law, and should bar class actions unless plaintiffs can prove that the alleged class wrong caused a classwide harm. This change is already having a substantial impact in many wage-and-hour cases.
  • Comcast and Wal-Mart both illustrate the importance of expert testimony in class certification, and apply strict standards to that testimony.

This Bloomberg BNA Insight article addresses the impact of Wal-Mart and Comcast in three parts. Part I discusses the Wal-Mart and Comcast rulings, and how commonality may be applied to eliminate or cabin class actions after Wal-Mart. Part I also discusses adequacy and typicality, and how these requirements may be heightened after Wal-Mart and Comcast. Part II addresses the Rule 23(b) principles in Wal-Mart, including defenses to plaintiff's attempts to circumvent Wal-Mart through "issue" or "hybrid" certifications. Part II also addresses the use of trial plans and subclasses as means to limit or defeat class actions, and ends with a brief discussion on using Wal-Mart and Comcast to limit or defeat "collective actions" under FLSA and ADEA. Finally, Part III addresses experts in class actions, and how defendants may use expert analysis to defeat or limit class certification.

The Class and the Substantive Aspects of the Wal-Mart Ruling

Wal-Mart Stores v. Dukes arose out of the largest labor and employment class action ever filed.4 In Wal-Mart, plaintiffs challenged pay and promotion practices on behalf of a proposed class of one and one-half million current and former female employees of Wal-Mart. Plaintiffs claimed that Wal-Mart's supervisors and local managers exercised their discretion on pay and promotions in a way that discriminated against females. Pay was set within bounded ranges, while promotions included both objective and subjective criteria.5 Plaintiffs sought to prove their claim through three forms of proof: (i) a "social framework" analysis that purported to show Wal-Mart had a corporate culture that made it susceptible to gender bias; (ii) a statistical analysis that showed disparities in pay and promotions; and (iii) anecdotal statements claiming discriminatory actions.6

The Wal-Mart Court began its analysis by focusing on the standards applicable to class actions. The Court begin by noting that class actions are exceptions to the rule that litigation is conducted by and on behalf of only individual named parties, and thus plaintiffs bear the burden of proving, not merely pleading, that they satisfied all of Rule 23's requirements. The Court confirmed that lower courts must consider both the merits and the evidence—including the quality of any expert evidence—to determine whether a plaintiff met the requirements of Rule 23.7

Applying these standards, the Court first held that Plaintiffs failed to meet the commonality requirement of Rule 23(a)(2). Quoting a now famous article by Professor Nagareda, the Court framed the commonality inquiry as follows:

What matters to class certification ... is not the raising of common 'questions'— even in droves—but, rather the capacity of a classwide proceeding to generate common answers apt to drive the resolution of the litigation. Dissimilarities within the proposed class are what have the potential to impede the generation of common answers.8

The Court thus framed the central question as "why was I disfavored." In so doing, the Court held the evidence set forth by plaintiffs failed to provide the "glue" needed to supply a common answer to that question. First, the Court found plaintiffs' expert's social framework analysis useless for class purposes, since it could not answer whether 0.5% or 95% of the employment decisions at Wal-Mart were determined by stereotyped thinking on gender. The corporate policy granting discretion to local supervisors was the precise opposite of an employment practice that would generate a common answer to the "why was I disfavored" question.9 Tellingly, the Court noted that this granting of discretion "is also a very common and presumptively reasonable way of doing business—one that we have said 'should itself raise no inference of discriminatory conduct.'"10 Recognizing that discretion can be used in a fashion that causes disparities is not the same thing as proving it was exercised in the same common and discriminatory fashion. Rather, it was more plausible to assume managers would follow a company's nondiscrimination policies, and that, in any event, "demonstrating the invalidity of one manager's use of discretion will do nothing to demonstrate the invalidity of another's."11

The Court also found plaintiffs' statistical evidence deficient. The Court noted that the presence of disparities at the national or regional level does not establish the existence of disparities—or discrimination—at the store level where the challenged decisions were made. The statistics' more fundamental flaw was that it failed to address possible sex-neutral reasons, including the relative availability of qualified and interested women at the store level, that would rebut any bottom-line disparities. Proof of bottom-line disparities does not answer the common question. Rather, the plaintiff must identify the particular employment practice causing the disparity and show that it caused the disparity through a common mode of acting.12 Finally, the Court held that the anecdotal evidence, which did not include 90% of the stores and represented only 1 out of every 12,500 proposed class members, failed to show that the entire company operated under a general policy of discrimination.13

The Court also rejected Rule 23(b)(2) certification for plaintiffs' back pay claims. Although a fair reading of Rule 23(b)(2) would preclude its application to a class seeking any form of monetary relief, the Court noted it did not need to reach that issue since Rule 23(b)(2) did not include claims for individualized monetary relief. Rule 23(b)(2) is limited to one final, indivisible injunction for the class as a whole, and precluded claims for individualized monetary relief.14 The history and structure of Rule 23 compelled this holding as it provides for mandatory classes (classes with no notice or opt-out rights) under Rules 23(b)(1) and (b)(2) precisely because these classes have the rule-prescribed characteristics that make them unitary and cohesive.15 The Court thus held claims for individualized monetary relief belong in Rule 23(b)(3), where the procedural protections of predominance, superiority, notice, and opt-out apply.16

The Court then rejected the argument that monetary relief in a Rule 23(b)(2) class action is permitted if the injunctive relief "predominated." The Court noted the perverse incentives this would create to limit monetary claims as well as the unworkable nature of such a test in employment discrimination classes, where the class members lose their right to prospective injunctive relief as they leave employment.17 According to the Court, any individualized monetary relief could not be deemed incidental to injunctive relief. Rather, citing Teamsters18 (which set up a two-phase proceeding for pattern-and-practice cases), the Court held that class analysis must assume defendants will be entitled to litigate their defenses to back pay claims and courts cannot use "trial by formula" or the like to defeat or impair those rights.19

Wal-Mart's impact on class issues is analyzed in the following sections of this article. Of note here, a subtle but important point embedded in Wal-Mart is its ruling on the substantive law of employment discrimination. Class rulings often have a "law declaring" function, as courts have to decide whether the substantive law permits aggregate proof for the claim at issue.20 Rule 23(f) exists to facilitate appellate review of class rulings precisely because these rulings may raise important questions of law.21 Wal-Mart illustrated this: to determine whether commonality was met the Court had to decide what the substantive law required. The majority ruled that a policy granting discretion is "a very common and presumptively reasonable way of doing business" and "should itself raise no inference of discriminatory conduct."22 Proof of disparities from a discretionary practice is not enough, since proof that one or even some supervisors exercised discretion in a discriminatory fashion does not prove others did, particularly when the company's policy prohibits such conduct thus precluding any common answer to the key "why was I disfavored" question.23 In contrast, the dissent believed that if delegated discretion results in discriminatory outcomes, that practice is itself actionable under Title VII, and commonality could be met under such circumstances.24


Practice Pointers:
  • For discrimination claims based on challenges to the exercise of discretionary policies, the substantive rulings in Wal-Mart may be just as important as the class rulings.
  • Experts will often be critical to class certification. At the beginning of the case consider how to attack plaintiff's experts and what expert proof is needed for defendants.

Comcast and Classwide Proof of Damages

In Comcast Corp. v. Behrend,25 the Court addressed the proof of harm and damages required for Rule 23 class certification. Comcast arose out of an antitrust claim based on the notion Comcast had acquired monopolistic power over the Philadelphia. Plaintiffs proffered four theories of antitrust injury that they argued drove up cable subscription rates.26 The judge found only one of these, the "deterrence of overbuilding" theory, capable of classwide proof, and that the others could not be determined in a manner common to the class.27 Plaintiffs' economics expert calculated damages by comparing the current market to one without Comcast's alleged anti-competitive activity.28 Plaintiffs' economic expert admitted that he had not isolated the damages resulting from the different theories of antitrust impact.29

The Court concluded plaintiffs failed to satisfy Rule 23's requirements. The Court held that regardless whether defendants challenged its admissibility, expert evidence used to prove class certification requirements are met must be persuasive, and must carry plaintiff's burden of proof at the class stage.30 To this end, the Court found plaintiffs failed to satisfy the predominance requirements of Rule 23(b) (3) because they could not show damages capable of classwide proof.31 Specifically, the Court held that the damages model must be consistent with the liability model. Any model purporting to serve as evidence of damages in a class action must measure only damages attributable to the classwide theory of harm.32 In contrast, the plaintiffs' damages model included the impact of the claims that supported only individualized damages.33 Thus, plaintiffs proffered no "but for" damages model limited to the class claim—and likewise provided no requisite proof that the claimed damages were caused by the classwide wrong.34

Justice Ruth Bader Ginsburg's dissent illustrates the importance of Comcast. Justice Ginsburg noted that before Comcast, courts often held damage issues could be ignored at the class certification stage.35 Although the dissent argued Comcast should be limited to its facts to avoid any change in the law,36 the majority opinion explicitly stated it was setting forth the "straightforward application of class-certification principles."37 Notably, the Court vacated a wage-and-hour ruling to be reconsidered in light of its Comcast ruling.38

Of equal importance, the back-and-forth between the majority and dissent on the expert evidence reveals Comcast's holding as to class proofs. In the view of the dissent, the expert evidence tendered was sufficient for class purposes since it purported to show that Comcast's conduct resulted in higher prices even though it failed to show causation.39 The majority imposed a far more rigorous standard: plaintiffs must prove the claimed class wrong caused the injury classwide, free of taint from individual factors. Absent such proof, plaintiffs cannot satisfy Rule 23's requirements that common issues predominate for class claims seeking damages.40

Comcast has obvious import to labor and employment cases, and for certain claims in ERISA cases. For example, on discrimination claims, Comcast should directly bar use of bottom-line statistics to prove class damages. Comcast further supports the notion that such statistics cannot be used to show a class claim of liability since liability and damages must sync up to satisfy Rule 23. In ERISA cases, disclosure and investment claims may raise Comcast issues on whether there is classwide proof of damages. Finally, as discussed in Part II of this article, defendants are applying Comcast in wage-and-hour claims to defeat or limit class on issues such as whether eligibility for overtime can be determined classwide, and to determine whether there is a classwide method to prove damages.


Practice Pointers:
  • Comcast supports that there cannot be a class certified unless plaintiffs can prove a classwide theory of harm, uninfected by individual issues. In discrimination claims challenging complex decisions or actions, e.g., multistep hiring procedures or compensation claims, this may be difficult for plaintiffs to do. The same analysis may apply in ERISA disclosure or investment claims.
  • Comcast provides grounds to attack economic experts' class analysis since (i) it held that what those models prove are not "questions of fact," and (ii) those models must show the asserted class claim caused the harm or disparities across the proposed class.
  • In wage-and-hour cases, anything that would make classwide liability or damages non-mechanical are possible grounds to defeat class certification, e.g., whether each person's actual job duties qualify for overtime and whether actual time worked can be calculated without individualized inquiries.

Commonality After Wal-Mart

Commonality and Discrimination Claims Challenging Discretionary Conduct

In Wal-Mart the Court noted that an employer's policy of granting discretion to supervisors is "a very common and presumptively reasonable way of doing business" and "should itself raise no inference of discriminatory conduct."41 Moreover, the mere existence of disparities from a discretionary practice is not enough for class certification since proof that one or some supervisors exercised that discretion in a discriminatory fashion does not prove that others did-particularly when company policy prohibits such conduct.42 For example, in Wal-Mart, regional and national disparities could not demonstrate the uniform store-by-store disparity required for a claim premised on discriminatory decision making by store-level managers.43 Prior decisions of the Supreme Court, notably Watson v. Fort Worth Bank & Trust44 and Wards Cove Packing Co., Inc. v. Atonio,45 require that a plaintiff identify the specific employment practice causing the disparity. Wal-Mart recognized this rule when it found reliance on bottom-line disparities arising out of a discretionary system insufficient,46 a point further buttressed by Comcast.

Wal-Mart thus clarifies the difference, from a class perspective, between a policy that grants discretion to individual managers, which plaintiffs claim is implemented in a discriminatory way, and a policy (such as a test) that itself has a disparate impact. In the case of the discretionary policy, the class claim must focus on the implementation, not the overarching lawful policy of granting discretion. But when the claim is that a test causes disparate impact without business justification, the claim is based on the test itself, and whether it is being used in an unlawful manner.47 Notably, even before Wal-Mart, many courts recognized that employment discrimination claims that depend on managerial discretion (even when exercised in the context of common policies) are not proper for class certification.48

In contrast, in McReynolds v. Merrill Lynch, Pierce, Fenner & Smith, Inc.,49 the Seventh Circuit held post-Wal-Mart that an otherwise lawful policy permitting discretion can be the basis for a class claim if the policy "influences" the managers' exercise of discretion in a discriminatory manner. McReynolds' "influences" theory arguably contradicts Wal-Mart's pronouncement that the alleged discriminatory act is the exercise of discretion and not the otherwise lawful policies that typically bound and channel—and thus "influence"—that discretion. Wal-Mart further held that (at least absent compelling proofs) a court cannot presume discretion by the individual actors is exercised in a common and discriminatory manner, particularly when the corporate policy is to the contrary.50

McReynolds appears to be developing into an outlier. For an excellent illustration of Wal-Mart's limitations on class claims when discretion is involved see Tabor v. Hilti Inc.,51 in which the Tenth Circuit considered sex discrimination challenges to the promotion of inside sales representatives to account managers. The defendant had a facially neutral policy with some objective criteria but also allowed managers substantial discretion in employee evaluation.52 Records showed managers used their discretion to constantly override the objective criteria.53 Plaintiffs claimed the managers exercised their discretion in a way that favored males; plaintiffs also had anecdotal evidence that males were favored in promotions.54

The Tenth Circuit found that only one of the plaintiffs raised a triable issue of intentional discrimination and disparate impact.55 On the disparate impact claim, the court found that in light of the discretionary nature of the policy and, in particular the consistent promotion of unqualified candidates under the policy, the statistics showing stark "bottom line" disparities between male and female sales representatives was sufficient to identify the employment practice—management discretion—and make out the claim.56 However, the court agreed this was not a class claim.57 Referring to Wal-Mart, the court noted that considerations on the validity of a disparate impact claim is different from the considerations of whether it is a proper class claim—namely, uniformity.58 The court also held that there was no commonality regarding promotions under such a haphazard policy, as illustrated by the two named plaintiffs.59 One appeared qualified and had a valid claim but the other was subject to numerous defenses based on poor performance.60 Also, there was no predominance under Rule 23(b) (3) because a court would have to look at the individual circumstances and defenses tendered as to both claims.61

The Third Circuit came to a similar conclusion in a race discrimination claim involving discretionary decisions.62 And following in the footsteps of Wal-Mart and Tabor, the Sixth Circuit also recently denied class certification in a gender discrimination case.63 In Davis, the plaintiff was twice denied employment as a sales representative.64 She alleged that the defendant's hiring practices were discriminatory and moved for class certification.65 While the defendant had a well-defined companywide hiring policy, local managers made the final hiring decisions based on the needs of the individual location.66 The Sixth Circuit noted that "bottom line" hiring disparities did not prove that there was a common question because the disparities did not demonstrate the existence of a uniform companywide exercise of discretion in a way that favored men over women.67 Tellingly, there were also disparities between offices, with some underhiring and some overhiring women during the class period.68 Citing Wal-Mart extensively, the Sixth Circuit affirmed the district court's determination that the class could not be certified pursuant to Rule 23(a)(2) because the plaintiff could not show that the proposed class of women "who failed to obtain employment at many places, over a long time, under a largely subjective hiring system, shared a common question of law or fact."69 As in Wal-Mart, the Sixth Circuit also denied certification pursuant to Rule 23(b)(2) because the requested individualized monetary relief was not incidental to the injunctive and declaratory relief sought.70


Practice Pointers:
  • Demonstrate that your client has a facially neutral policy that is communicated to supervisors and managers. Evidence on monitoring and enforcement of that policy may also be helpful.
  • Show business reasons for the challenged policy and that, under Wal-Mart, a policy of granting discretion is not inherently suspect, and is not sufficient to show a common mode of acting for class certification.
  • Show that any discretion is exercised in the context of anti-discrimination policies and that discretion exercised in a discriminatory fashion is prohibited and punishable.
  • Attack plaintiffs' use of statistics that do not match the decisional unit, e.g., use of regional or national statistics when the decisions are made at the store level like in Wal-Mart.
  • Consider putting on affirmative proof of statistics and anecdotes to rebut any claims that there was a common mode of exercising the challenged discretion in a discriminatory fashion.
  • Consider using Comcast to show how individual choices defeat any classwide proof of damages, and break the required connection between the class liability and class damages theories.

Commonality and Claims Challenging ERISA Disclosures

Commonality issues can arise in many contexts in ERISA cases, including even on claims involving plan terms.71 ERISA disclosure claims often raise issues of reliance and causation and, at a minimum, they can raise issues as to whether there is a common answer to the questions of what each participant knew, whether he was misled, and on what he relied. As Professor Nagareda notes in his seminal article relied on in Wal-Mart, even claims predicated on common and single classwide misrepresentation do not necessarily prove classwide reliance; in addition to issues of whether each proposed class member actually read the claimed misrepresentation, there are, absent compelling facts, typically individualized issues on whether and why each proposed class member acted.72 These are the types of dissimilarities that can defeat class certification for disclosure claims.73 In ERISA cases there are also often multiple representations, individual and group, over the proposed class period that individually and collectively call into question what each participant knew and upon what he relied. Thus if, for example, a participant understood the matter at issue, he cannot prove a material misrepresentation for purposes of sustaining a claim for fiduciary breach.74

Consistent with Wal-Mart, courts have declined to certify class actions in ERISA communication suits when individualized issues regarding the class member knowledge and understanding impact the outcome of the underlying legal issues.75 Likewise, causation and reliance cannot be presumed classwide in ERISA cases, at least absent unusual and compelling circumstances.76 Plaintiffs sometimes argue their cases raise compelling circumstances warranting a form of presumed reliance, or that their case fits within the Affiliated Ute presumption of reliance for omissions.77 But as a court recently held in Bacon v. Stiefel Labs., Inc.,78 such forms of presumed reliance are unlikely to apply in ERISA contexts, as the reasons why participants make decisions on benefits (in that case selling their shares back to an ESOP) are typically complex and often individualized. Similarly, the Court, in Cigna Corp. v. Amara, rejected a form of presumed reliance (i.e., assumptions of "likely prejudice") for claims based on defective SPDs, and instead required proof of actual harm and causation to warrant monetary relief.79

Thus, the absence of common answers to the questions of knowledge or reliance often means there is no common answer to key questions such as "was I misled" or "did I rely" or "was I harmed." These dissimilarities should typically defeat class certification.


Practice Pointers:
  • For ERISA disclosure claims, one key way to defeat class certification is to focus on the dissimilarities, since often there will be multiple "plan wide" and individual communications at issue.
  • Anecdotal and documentary evidence of different communications and of different understandings or choices help to show dissimilarities.
  • Expert evidence, including statistical evidence, can often show there is no factual basis to assume classwide reliance, common actions, or common harms.

Typicality and the Importance of Considering the Impact of Defenses on Class Claims

Commonality is a meaningful and appropriate focus of many class claims and issues in the post-Wal-Mart landscape. However, even when some claims have at least one major common issue and common answer, typicality may be a material issue because defenses, or the varying circumstances of the named plaintiffs and class members, make the claims atypical of each other. Of import here, Wal-Mart held that the class analysis must assume that defendants will be entitled to litigate their defenses, and that plaintiffs cannot use "trial by formula" or similar assumptions to impair those rights.80

Thus, if the facts show that the named female plaintiffs have better pay than average males in the same office, these facts can create unique defenses that make their claims atypical of the class and them inadequate class representatives.81 Likewise, weaknesses in plaintiffs performance or claims can defeat typicality.82 Accordingly, analysis of named plaintiffs' claims may show that success or failure of the claims depends on facts unique to the named plaintiffs, raising issues of commonality, typicality, and adequacy.83

Further, individualized issues with respect to defendants' affirmative defenses, such as the statute of limitations defense, can preclude a finding of commonality and typicality.84 Contractual agreements, such as releases or agreements to arbitrate, can bar named plaintiffs from pursuing their claims, and make their claims atypical of the class.85


Practice Pointers:
  • Affirmative defenses (e.g., statute of limitations, releases, arbitration) can defeat typicality or limit classes.
  • Defects or weaknesses in the merits of plaintiff's claims can also be grounds to defeat typicality. If this is the case, it may be better to put off class certification until summary judgment motions are filed so that the court will have the factual record needed, such as in Tabor.

Adequacy and Class Conflicts

Wal-Mart's discussion of the "predominance" test, and how the test created perverse incentives for named plaintiffs to forgo monetary claims of absent class members, illustrates the type of conflicts that often lurk in class actions.86 Manipulating a class to exclude these claims of absent class members may confirm – not absolve – the conflict.87 Further, under Rule 23(a)(4), a plaintiff cannot adequately represent a class if there are conflicting interests with or among the proposed class members. For example, factual investigation or expert analysis may show a substantial number of class members benefitted from the challenged policies or practices. As discussed in Part II of this article, conflicts can arise over prospective relief, particularly if some of the absent class members are benefitting from the policy or practice at issue. Conflicts can also arise because the claims of different groups are of different relative strengths. Thus, at a minimum, subclasses may need to be created to represent and protect the interests of each discrete group.88

Further, it is a core requirement of Rule 23 and due process (albeit sometimes forgotten) that absent class members are entitled to have named plaintiff and putative class lawyers not make arguments—or take positions or bring claims—that conflict with the absent class members' interests.89 Thus, no class should be certified when the proposed class members have different financial interests as to the claims or the relief sought, or where some of the proposed class members benefit from the very program or practice the plaintiffs are challenging.90 For example, conflicts can arise in the labor and employment area over the proposed goals and remedies sought in the litigation.91 These conflicts can arise in ERISA cases over, e.g., whether the litigation may be harming current participants' investments in an ESOP,92 or where there are different interests as to who benefitted and who lost, or over who may want to keep the challenged investments.93


Practice Pointers:
  • Investigate whether there are any tensions or conflicts between what plaintiffs want and the interests of the various class members. It is not unusual for plaintiffs to challenge policies or practices that benefit a large number of class members.
  • Conflicts are more likely to arise when plaintiffs plead broad classes or try to include in one class those that may have differing interests, such as former versus current employees.
  • Experts can be very useful to develop data showing class conflicts, such as members who benefitted |from challenged policies or practices.

Please click here to read the full text and footnotes of this article.

Footnotes

* Originally published by Bloomberg, BNA. Reprinted with permission.

  1. 131 S. Ct. 2541 (2011).
  2. 133 S. Ct. 1426, 1433 (2013).
  3. Id.at 1433-35.
  4. 131 S. Ct. 2541 (2011).
  5. Id. at 2547.
  6. Id. at 2553-56.
  7. Id. at 2550-52.
  8. Id. at 2551 (emphasis added) (quoting Richard A. Nagareda, Class Certification in the Age of Aggregate Proof, 84 N.Y.U. L. Rev. 97, 132 (2009) (internal quotations omitted).
  9. Id.at 2553-54.
  10. Id.at 2554 (quoting Watson v. Fort Worth Bank & Trust, 487 U.S. 977, 990, 108 S.Ct. 2777, 101 L.Ed.2d 827 (1988)).
  11.  Id.
  12. Id. at 2555-56.
  13. Id. at 2556.
  14. Id. at 2557.
  15. Id. at 2557-58.
  16. Id.at 2558-59.
  17. Id.at 2559-60.
  18. Int'l Bhd. of Teamsters v. United States, 97 S. Ct. 1843 (1977).
  19. Wal-Mart, 131 S. Ct. at 2560-61.
  20. Richard A. Nagareda, Class Certification in the Age of Aggregate Proof, 84 N.Y.U. L. Rev. 97, 98-108 (2009).
  21.  See Fed. R. Civ. P. 23(f) advisory committee's note to 1998 amends., subdiv. (f) (discussing use of interlocutory appeals to decide novel or unsettled questions of law). See also, e.g., Langbecker v. Elec. Data Sys. Corp., 476 F.3d 299, 306-07 (5th Cir. 2007) (noting in a rule 23(f) appeal that the court must consider and decide substantive law to the extent it impacts class certification issues).
  22. Wal-Mart, 131 S. Ct. at 2554 (internal quotation marks and citation omitted).
  23. Id. at 2555-56.
  24. Id. at 2565, 2567 (Ginsburg, J., dissenting).
  25. 133 S. Ct. 1426 (2013).
  26. Id. at 1430-31.
  27. Id. at 1431 & n.3.
  28. Id. at 1432.
  29. Id.
  30. Id. at 1433-35. See also, e.g., Ellis v. Costco Wholesale Corp., 657 F.3d 970, 982 (9th Cir. 2011) (finding that an expert's testimony must be admissible under Daubert and persuasive on the class issues under the "rigorous analysis" standard applied to class certification).
  31.  Comcast, 133 S. Ct. at 1433.
  32. Id.
  33. Id. at 1433-34.
  34. Id. at 1433-35.
  35. Id. at 1437 (Ginsburg, J., dissenting).
  36. Id.
  37. Id. at 1433.
  38. See Ross v. RBS Citizens, N.A., 667 F.3d 900 (7th Cir. 2012), vacated, 133 S. Ct. 1722 (2013) (vacating and remanding in light of Comcast).
  39. Id. at 1441.
  40. Id.at 1433-35.
  41. Wal-Mart, 131 S. Ct. at 2554.
  42. Id.at 2554-56. see also, e.g., Bolden v. Walsh Constr. Co., 688 F.3d 893, 896-97 (7th Cir. 2012) (applying same to decertify discrimination class).
  43. 131 S. Ct. at 2554-56.
  44. 108 S. Ct. 2777 (1988).
  45. 109 S. Ct. 2115 (1989).
  46. Wal-Mart, 131 S. Ct. at 2555-56.
  47. Thus, testing cases can be distinguished based on the unique characteristics of the claim. See, e.g., Gulino v. Bd. of Educ. of City Sch. Dist. of City of New York, 907 F. Supp. 2d. 492, 505-09 (S.D.N.Y. 2012) (using Rule 23(c)(4) to certify a class of teachers for declaratory and injunctive relief in a discriminatory impact testing claim).
  48. See, e.g., Gaston v. Exelon Corp., 247 F.R.D. 75, 87 (E.D. Pa. 2007) (holding that certification pursuant to Rule 23(b)(2) would be inappropriate in this case involving facially neutral practices because "this case, in very large measure, turn[ed] on the individual determinations of autonomous managers rather than on common questions of fact and law").
  49. 672 F.3d 482, 490 (7th Cir. 2012), cert. denied, 133 S. Ct. 338 (2012).
  50. See, e.g., Bolden v. Walsh Constr. Co., 688 F.3d 893, 896-97 (7th Cir. 2012) (applying same to decertify discrimination class); Bell v. Lockheed Martin Corp., No. 08-6292 (RBK/AMD), 2011 WL 6256978, at *6-7 (D.N.J. Dec. 14, 2011) (applying Wal-Mart to conclude that there was no class based on objective policies that gave managers discretion within certain boundaries).
  51. 703 F.3d 1206, 1211 (10th Cir. 2013).
  52. Id.at 1212.
  53. Id.
  54. Id. at 1212-13.
  55. Id. at 1216-26.
  56. Id. at 1219-26.
  57. Id. at 1230.
  58. Id. at 1222.
  59. Id.at 1229-30
  60. Id.
  61.  Id.
  62. See Rodriguez v. National City Bank F3d, 2013 WL 4046385 at *8 to *111 (3d Cir. Aug. 12, 2013) (applying Wal-Mart to refuse to certify a class challenging discretionary mortgage charges applied in an alleged discriminatory fashion to minorities).
  63. Davis v. Cintas Corp., 717 F.3d 476, 479-80 (6th Cir. 2013).
  64. Id. at 479.
  65. Id.
  66. Id. at 480-81.
  67. Id. at 487-88.
  68. Id.
  69. Id. at 487-89. See also In re Countrywide Fin. Corp. Lending Practices Litig., 708 F.3d 704, 706, 708-10 (6th Cir. 2013) (holding that there was no commonality even though there were bottom-line statistics showing minority borrowers paid more than white borrowers).
  70. Davis, 717 F.3d at 490-91.
  71. See, e.g., Lipstein v. United Health Group, 2013 U.S Dist. LEXIS 138045 at *15 to *33 (Sept. 26, 2013) (applying Wal-Mart to conclude there was no commonality for a proposed class of plans challenging how Medicare offsets were calculated; plans had different language on the issue and different standards of review).
  72. E.g., Poulos v. Caesars World, Inc., 379 F.3d 654, 667-68 (9th Cir. 2004) (noting cannot assume classwide reliance unless it is the only common sense or logical behavior of the class in response to the claimed misrepresentation, and that in the case at issue people gambled for a myriad of reasons and motivations).
  73. Richard A. Nagareda, Class Certification in the Age of Aggregate Proof, 84 N.Y.U. L. Rev. 97, 131-32 (2009).
  74. See Bell v. Pfizer, Inc., 626 F.3d 66, 75-76 (2d Cir. 2010) (holding there is "no sustainable claim," in an ERISA disclosure case, if the participant was not misled); Ballone v. Eastman Kodak Co., 109 F.3d 117, 125 (2d Cir. 1997) (explaining that materiality of ERISA misrepresentations is "fact-specific and will turn on a number of factors" including what each employee knew and understood).
  75. See Groussman v. Motorola, Inc., No. 10 C 911 (N.D. Ill. Nov. 15, 2011) (denying ERISA disclosure class for lack of commonality, typicality, and adequacy due to "difference[s] as to what each Plaintiff understood ... and ... rel[ied] upon"); Carr v. Int'l Game Tech., Nos. 3:09- cv-00584, 0585 (D. Nev. Mar. 16, 2012) (holding no typicality due to individualized issues of reliance on alleged misrepresentations and defenses).
  76. E.g., Walsh v. Principal Life Ins. Co., 266 F.R.D. 232, 259-60 (S.D. Iowa 2010) (no proof common letters drove 401(k) roll-over decisions, and the evidence offered for each individual plan participant regarding their reliance on the letters and any misrepresentations and omissions that continued through the phone calls differs, strongly suggesting that the Court would have to engage in extensive individualized inquiries regarding causation if this case proceeded as a class action); Heffner v. Blue Cross & Blue Shield of Ala., Inc., 443 F.3d 1330, 1344-45 (11th Cir. 2006) (holding that class certification was inappropriate because the ERISA breach of fiduciary duty claim would require each class member to show that he or she relied on the "no deductible" term when purchasing their prescription drugs).
  77. See, e.g., Rogers v. Baxter Int'l, Inc., 521 F.3d 702, 705 (7th Cir. 2008) (Easterbrook, J) (cautioning plaintiffs not to conflate securities and ERISA litigation; declining to apply Affiliated Ute presumption); Heffner v. Blue Cross & Blue Shield of Ala., Inc., 443 F.3d 1330, 1344-45 (11th Cir. 2006) (noting importance of proof of individualized reliance when pleading classwide claim of misrepresentation and therefore not allowing for Affiliated Ute's presumed reliance); Kenney v. State Street Corp., No. 09-10750-DJC (D. Mass. Sept. 15, 2011) (considering Amara and rejecting the import of a presumed reliance theory from securities litigation); Stanford v. Foamex L.P., No. 07-4225 (E.D. Pa. Aug. 20, 2008) (rejection of presumed reliance); In re Elec. Data Sys. Corp. "ERISA" Litig., 224 F.R.D. 613 (E.D. Tex. Nov. 8, 2004), vacated on other grounds sub nom. Langbecker v. Elec. Data Sys. Corp., 476 F.3d 299 (5th Cir. 2007) (rejecting the "fraud on the market" theory and presumed reliance and holding that reliance must be established). But see Harris v. Amgen, Inc., 717 F.3d 1042, 1058-59 (9th Cir. 2013) ("We see no reason why ERISA plan participants who invested in a Company Stock Fund whose assets consisted solely of publicly traded common stock should not be able to rely on the fraud-on-the-market theory in the same manner as any other investor in publicly traded stock.").
  78. 275 F.R.D. 681, 698-99 (S.D. Fla. 2011).
  79. 131 S. Ct. 1866, 1880-82 (2011).
  80. Wal-Mart, 131 S. Ct. at 2560-61.
  81. Cf., e.g., Randall v. Rolls-Royce Corp., 637 F.3d 818, 823-24 (7th Cir. 2011) (noting that named plaintiffs' pay in several years exceeded that of men and that such unique defenses made them inadequate class representatives and their claims atypical of the class).
  82. E.g., Drake v. Morgan Stanley & Co., Inc., No. CV 09-6467 ODW (RCx)(C.D. Cal. Apr. 30, 2010) (holding, in state law wage claim for financial assistants at Morgan Stanley, that named plaintiffs' claims were atypical and they were inadequate representatives because they were subject to unique defenses on performance issues and counterclaims for expenses due).
  83. E.g., Tabor v. Hilti, Inc. 703 F.3d 1206, 1229 (10th Cir. 2013) (finding commonality requirement not met when courts have to look at circumstances of individual claims-the two named plaintiffs illustrated this because one had a much weaker claim).
  84. See Novella v Westchester Cnty., 661 F.3d 128, 148-49 (2d Cir. 2011) (noting statute of limitations defense often precludes certification of an ERISA class); In re Unisys Corp. Retiree Med. Benefits Litig., No. 969 (E.D. Pa. Feb. 4, 2003) (decertifying class for ERISA fiduciary breach claim based on misrepresentations because statute of limitations defense would require "myriad of individual determinations").
  85. The Supreme Court's embrace and enforcement of arbitration agreements may make them more common in the employment context. See, e.g., Am. Express Co. v. Italian Colors Rest., 133 S. Ct. 2304 (2013) (holding that arbitration agreements can bar class arbitration even if a party cannot effectively vindicate his federal rights absent a class action).
  86. See Wal-Mart, 131 S. Ct. at 2559-60.
  87. See, e.g., Beyond Knowles: Fairness to Absent Class Members and the Manipulation of Class Action Claims, BNA Class Action Litig. Rep. (Sept. 13, 2013) (discussing conflicts brought about by claims splitting); see also discussion in forthcoming Part II discussing claims splitting issues arising from hybrid or issue certification.
  88. E.g., In re Literary Works Copyright Litig., 654 F.3d 242, 249-52 (2d Cir. 2011) (creating subclasses to represent each group because of differences in relative strengths of claims).
  89. E.g., Langbecker v. Elec. Data Sys. Corp., 476 F.3d 299, 317-18 (5th Cir. 2007) (holding intra-class conflict negated adequacy under Rule 23(a)(4)); Cent. States Se. & Sw. Areas Health & Welfare Fund v. Merck-Medco Managed Care, L.L.C., 504 F.3d 229, 246 (2d Cir. 2007) (finding antagonistic interests and refusing to certify the class where the interests of the class representatives would not advance the interests of class members who participated in self-funded ERISA plan).
  90. E.g., Langbecker, 476 F.3d at 317-18 .
  91.  See Gilpin v. Am. Fed'n of State, County, & Mun. Employees, AFL-CIO, 875 F.2d 1310, 1313 (7th Cir. 1989) (affirming decision to refuse certification when different groups of employees had differing interests as to the remedies to be sought from a union); United Indep. Flight Officers v. United Air Lines, 756 F.2d 1274, 1284 (7th Cir. 1985) (affirming refusal to certify class when members had divergent and antagonistic interests regarding the goals of the lawsuit and benefits sought).
  92. See, e.g., Hans v. Tharaldson, No. 3:05-cv-115, 2010 WL 1856267, at *6-8 (D.N.D. May 7, 2010), amended by 2010 WL 4723008 (D.N.D. Aug. 27, 2010).
  93. See, e.g., Langbecker, 476 F.3d at 316 n.28, 318 (stating "[a] few class members cannot hijack litigation 'on behalf of the plan' to pursue their preference at the expense of others," and holding plan claims could not proceed without class procedural safeguards in light of the class conflicts); Spano v. The Boeing Co., 633 F.3d 574, 586-87 (7th Cir. 2011) (named plaintiffs did not satisfy adequacy of representation requirement in action claiming fiduciaries caused plan to pay excessive fees and maintained imprudent investment options, where many members of proposed class had no complaint about investment options offered by employer, in light of dates when they first invested and date when they exited, and would be harmed by the relief sought by named plaintiffs); cf. Abbott v. Lockheed Martin Corp., __ F. 3d __, 2013 WL 4010226 at *9 to *10 (7th Cir. Aug. 7, 2013) (narrowing a prudent investment class to those in stable value fund that underperformed against benchmark should sufficiently limit or eliminate intra-class conflicts).

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