United States: Certification And Its Discontents: Rule 23 And The Role Of Daubert

Keywords: certification motion, Rule 23, class actions, Daubert, class certification,

The certification motion is the make-or-break event of a Rule 23 class action lawsuit. For defendants in particular, a successful motion for class certification can transform a garden-variety lawsuit into a bet-the-company case, dramatically expanding the risks and expenses of continued litigation and creating considerable pressure to settle. As the Seventh Circuit has observed, a class certification ruling "usually is the district judge's last word on the subject" and ordinarily "there is no later test of the decision's factual premises." Szabo v. Bridgeport Machs., Inc., 249 F.3d 672, 676 (7th Cir. 2001). Although the district court has authority to alter or amend a class certification order at any time before final judgment, see Fed. R. Civ. P. 23(c)(1)(C), that possibility often is insufficient to counterbalance the actual costs and potentially ruinous effects of defending a certified class action.

As a result, both parties increasingly bring to bear all the ammunition possible to the class certification hearing, including expert testimony. Over time, a consensus has emerged among the federal circuit courts of appeals that a district court not only may, but must undertake a rigorous factual analysis where necessary to determine whether the class certification elements have been satisfied, including resolution of conflicting expert proof. Where experts appear, however, Daubert issues inevitably surface. What role the Daubert standard for admission of expert opinion should play in class certification remains very much an open question. The Seventh Circuit and the Eleventh Circuit have held that where reliability challenges are raised, the court must conduct a full Daubert analysis of expert testimony presented for or against class treatment. The Ninth Circuit, however, has diverged from this trend, and a decision expected from the United States Supreme Court this term could decide the issue once and for all.

Rule 23

In pertinent part, Rule 23(a) provides:

(a) Prerequisites. One or more members of a class may sue or be sued as representative parties on behalf of all members only if:

  1. the class is so numerous that joinder of all members is impracticable,
  2. there are questions of law or fact common to the class,
  3. the claims or defenses of the representative parties are typical of the claims or defenses of the class; and
  4. the representative parties will fairly and adequately protect the interests of the class.

Fed. R. Civ. P. 23(a). In practice, these are referred to as the "numerosity," "commonality," "typicality," and "adequacy" requirements. Most federal class actions also must meet two additional requirements set out in Rule 23(b): the court must "find[] that the questions of fact or law common to class members predominate over any questions affecting only class members and that a class action is superior to other available methods for fairly and efficiently adjudicating the controversy" – the "predominance" and "superiority" requirements. Fed. R. Civ. P. 23(b)

Eisen and Its Aftermath

Unfortunately, the first toe the Supreme Court dipped into the waters of Rule 23 created significant and lasting confusion about the trial court's role in class certification. In 1974, the Court decided Eisen v. Carlisle & Jacquelin, 417 U.S. 156 (1974). At stake was a then-recent amendment to Rule 23 requiring individual notice to class members (currently codified at Rule 23(c)(2)(B)). After holding a preliminary evidentiary hearing and finding that the plaintiff showed a strong likelihood of success on the merits, the trial court shifted 90% of notice costs to the defendants.

The Supreme Court reversed, holding that Rule 23 placed the procedural and financial burdens of providing notice to absent class members squarely and exclusively on the plaintiff. The Court criticized the district court's assumption that Rule 23 authorized an examination of the plaintiff's likelihood of success, announcing that "[w]e find nothing in either the language or history of Rule 23 that gives a court any authority to conduct a preliminary inquiry into the merits of a suit in order to determine whether it may be maintained as a class action." Id. at 177. Although the Court hardly could have foreseen it, the federal courts proceeded to interpret this single sentence to mean that no analysis of issues going to the merits of the case was permitted at the class certification stage, even if those issues bore directly on whether the Rule 23 requirements had been satisfied. The result was that plaintiffs often had to present little more than facially adequate allegations that class treatment was warranted in order to obtain certification.

The Supreme Court swiftly moved to clarify its holding. Four years after Eisen, the Court ruled in Coopers & Librand v. Livesay, 437 U.S. 463 (1978), that a denial of class certification was not immediately appealable because, among other reasons, "[e]valuation of many of the questions entering into determination of class action questions is intimately involved with the merits of the claims." Id. at 469 n. 12 (quoting 15 C. Wright, A. Miller & E. Cooper, Federal Practice & Procedure § 3911 (1976)). The Court identified "[t]he typicality of the representative's claims or defenses, the adequacy of the representative, and the presence of common questions of law or fact" as "obvious examples." Id.A few years later, in General Telephone Co. of the Southwest v. Falcon, 457 U.S. 147 (1982), the Court confronted the issue head-on, holding that "a rigorous analysis" is required to determine whether the elements of Rule 23 have been satisfied. Id. at 161. The Court instructed that it may be necessary to "probe behind the pleadings" at the class certification stage because "actual, not presumed, conformance" with Rule 23 is required. Id. at 160.

Despite the seemingly clear directives of Coopers & Lybrand and General Telephone, the federal courts labored for years in confusion over the scope of a court's evidentiary inquiry on a class certification motion. A wide spectrum of opinions emerged, with some courts interpreting Eisen as effectively imposing a requirement that the judge take the substantive allegations in the complaint as true (see, e.g., Edwards v. City of Long Beach, 467 F. Supp. 2d 986, 991 (C.D. Cal. 2006)), other courts concluding that class certification was appropriate as long as the plaintiff made "some showing" beyond the face of the complaint (see, e.g., In re Natural Gas Commodities Litig., 231 F.R.D. 171, 181 (S.D.N.y. 2005)), and still other courts holding that the Supreme Court's holdings in Coopers & Lybrand and General Telephone meant that the court must make whatever factual determinations were necessary to find whether the Rule 23 requirements had been met Wright v. Circuit City Stores, Inc. 201 F.R.D. 526, 534 (N.D. Ala. 2001).

The Use of Experts in Class Certification Proceedings

Since General Telephone instructed courts to "probe behind the pleadings" to ensure conformance with Rule 23, parties have made increasing use of experts at the class certification stage to demonstrate that class claims are susceptible to resolution by common proof (according to plaintiffs) or, to the contrary, that individualized factors trump any commonalities among class members (according to defendants). Not surprisingly, the federal courts' struggle as to the general boundaries of class certification review extended to consideration of expert opinions, and in particular to the treatment of conflicting expert testimony.

Initially, the prevailing view was that that "a district court may not weigh conflicting expert evidence or engage in 'statistical dueling' of experts." In re Visa Check/MasterMoney Antitrust Litig., 280 F.3d 124, 135 (2d Cir. 2001). But over the past decade, this stance has been repudiated in favor of a consensus that any factual disputes concerning the Rule 23 factors, including disputes created by dueling certification experts, must be resolved before a class can be certified.

The Seventh Circuit was in the vanguard of this trend, issuing an influential pair of opinions in 2001 and 2002. Szabo v. Bridgeport Machines, Inc., vacated an order certifying a nationwide class, ruling that the district court erroneously had concluded that it had no authority to investigate the merits of the class certification allegations. The Seventh Circuit admonished that "[t]he proposition that a district judge must accept all of the complaint's allegations when deciding whether to certify a class cannot be found in Rule 23 and has nothing to recommend it" and that "[p]laintiffs cannot tie the judge's hands by making allegations relevant to both the merits and class certification." Id., 249 F. 3d at 675, 677. The following year, in West v. Prudential Securities, Inc., 282 F.3d 935, 938 (7th Cir. 2002), the Seventh Circuit applied this holding to the question of expert testimony, reversing the district court's conclusion that a clash of experts was "enough by itself to support class certification." In no uncertain terms, West rejected this approach as "amount[ing] to a delegation of judicial power to the plaintiffs" and made clear that "[a] district judge may not duck hard questions by observing that each side has some support, or that considerations relevant to class certification also may affect the decision on the merits." Id. at 938.

The jurisprudential turning point was the Second Circuit's decision in In re Initial Public Offering Securities Litigation ("In re IPO"), 471 F.3d 24 (2d Cir. 2006), which expressly repudiated an influential line of prior decisions that had established a lenient standard for class certification and held instead that a district court must resolve conflicting evidence, including conflicting expert testimony, in order to certify a class action. Id. at 41-42. The Second Circuit placed particular significance on the 2003 amendments to Rule 23, which appeared to endorse this standard by removing a provision for conditional class certification and changing the time frame for a certification decision from "as soon as practicable" to "an early practicable time" to allow "discovery into the 'merits' * * * relevant to making the certification decision on an informed basis." Fed. R. Civ. P. 23(c)(1)(A) & 23(c)(1)(C) Adv. Comm. Notes; see also In re IPO, 471 F.3d at 39. Following In re IPO, other federal circuits have fallen in line.

Most recently, the Ninth Circuit adopted In re IPO's reasoning in Dukes v. Wal-Mart Stores, Inc., 603 F.3d 571, 582 (9th Cir. 2010) (en banc), observing that courts had "myopically invoked Eisen to avoid considering facts properly relevant to the Rule 23 determination because the facts happen to be relevant to the later merits inquiry as well."

Daubert's Role in Class Certification: American Honda and Dukes

Less well-established is how a district court should handle a Daubert challenge to expert opinion offered at the class certification stage. In Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993), the Supreme Court set a new standard for admission of expert testimony in federal proceedings, overruling the then-prevailing "general acceptance" admissibility standard advanced by Frye v. United States, 293 F. 1013 (D.C. Cir. 1923). Daubert concluded that a district court faced with a proffer of expert testimony must exercise a gatekeeping role, scrutinizing the testimony carefully, and, if the opinions are not grounded on a reliable foundation or do not help the factfinder to understand the actual issues in the case, excluding the testimony. Id. at 592-93. In Kumho Tire Co. v. Carmichael, 526 U.S. 137 (1999), the Court made clear that the Daubert analysis is not limited to scientific testimony, but must be undertaken when any kind of "technical" or "specialized" expert testimony is offered. Id. at 147.

The federal circuits are only beginning to grapple with whether the Daubert standard applies to expert opinions submitted in connection with class certification. Initial post-Daubert jurisprudence concluded that "a motion to strike expert evidence pursuant to [Daubert] involves a inquiry distinct from that for evaluating expert evidence in support of a motion for class certification," and the district court's only task was to ensure that "the basis of the expert opinion [wa]s not so flawed that it would be inadmissible as a matter of law." In re Visa Check/MasterMoney Antitrust Litig., 280 F.3d at 132 n.4, 135. Recently, however, two of the federal circuit courts have undertaken to reexamine that view.

In American Honda Motor Co. v. Allen, 600 F.3d 813 (7th Cir. 2010) (per curiam), the Seventh Circuit ruled that "when an expert's report or testimony is critical to class certification," courts must "perform a full Daubert analysis before certifying [a] class." Id. at 815-16. American Honda states in no uncertain terms that a district court is obligated to "resolve any challenge to the reliability of information provided by an expert if that information is relevant to establishing any of the Rule 23 requirements for class certification." Id. at 816. Recently, the Eleventh Circuit adopted the standard set forth in American Honda, vacating a certification order and instructing the district court to conduct a Daubert review of the admissibility of conflicting expert testimony. Sher v. Raytheon Co., No. 09- 15798, 2011 WL 814379, at *3 (11th Cir. Mar. 9, 2011).

Just three weeks after American Honda, however, the Ninth Circuit came to a contrary conclusion in Dukes, creating a circuit split. In Dukes, the Ninth Circuit affirmed the certification of a nationwide class of as many as 1.5 million female Wal-Mart employees alleging gender discrimination based on pay.

The plaintiffs sought to prove the Rule 23 "commonality" requirement through the opinions of a sociologist who opined that Wal-Mart's decision-makers are "likely influenced by" gender stereotyping, although he "conceded that he could not calculate whether 0.5 percent or 95 percent of the employment decisions at Wal-Mart might be determined by stereotyped thinking." Dukes v. Wal-Mart Corp., 222 F.R.D. 189, 192 (N.D. Cal. 2004).Wal-Mart moved to strike the expert's opinions as unreliable and inadmissible under Daubert, but the district court declined to conduct a Daubert hearing. In a sharply divided (6 to 5) opinion, the Ninth Circuit affirmed en banc.As discussed, the Ninth Circuit expressly repudiated any use of Eisen to limit a district court's inquiry at the class certification stage. But Dukes also concluded that the district court had not erred in refusing to test the reliability of plaintiffs' expert's methodology, finding that because "Daubert does not require a court to admit or exclude evidence based on its persuasiveness," a Daubert hearing "would not have addressedWal-Mart's objections." Id. at 602. In a footnote, the majority further remarked that it was "not convinced" that "Daubert has exactly the same application at the class certification stage as it does to expert testimony at trial." Id. at 602 n.22. The dissent took the majority to task for failing to "explain why the district court can rely on an expert's testimony that is not reliable, at the class certification stage or any other," and argued that the purposes of the Daubert inquiry – "to ensure that proffered expert testimony is relevant and reliable" – were "equally applicable in the class certification context." Id. at 639.

On December 6, 2010, the Supreme Court granted Wal-Mart's petition for certiorari, directing the parties to address whether the certification order "was consistent with Rule 23(a)." Wal-Mart Stores, Inc. v. Dukes, 131 S.Ct. 795 (2010). Argument was conducted on March 29, 2011, with a ruling expected by June.

Approximately twenty-nine amicus curiae briefs have been filed, including briefs that specifically urge the Court to find that the "rigorous analysis" required by General Telephone demands nothing less than a full Daubert analysis when expert testimony is offered in support of or against class certification. Those amici have argued that the Ninth Circuit's opinion prejudices defendants who expend the resources necessary to reach the merits phase only to have the court de-certify the class upon Daubert review, and can have significant adverse consequences for absent class members who may lose their rights if a class is certified on the basis of ultimately excluded expert testimony. See, e.g., Briefs of Amici Curiae Washington Legal Foundation, Atlantic Legal Foundation, and New England Legal Foundation.


In American Honda, the Seventh Circuit presented a simple and pragmatic solution to the problem of how expert proof presented in connection with certification proceedings should be reviewed: the Daubert standard. Despite the Dukes majority's suggestion to the contrary, there is no evident reason why expert testimony presented at the class certification stage should be reviewed with lesser scrutiny than the same testimony would be at trial. Indeed, a more lenient standard presents the serious risk that classes will be certified on the basis of opinions that prove to be inadmissible at trial, wasting time, money, and judicial resources. Dukes presents an opportunity for the Supreme Court to establish a clear and comprehensive rule; hopefully, the Court will take advantage of that opportunity to cement the position of American Honda.

Originally published by The Circuit Rider.

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