United States: The 2nd Circuit Clarifies That Administrative Feasibility Is Not A Requirement For Class Certification

Key Points

  • The U.S. Court of Appeals for the 2nd Circuit joined the 6th, 7th, 8th and 9th Circuits in expressly declining to adopt an "administrative feasibility" requirement for plaintiffs seeking to certify a class under Federal Rule of Civil Procedure 23 ("Rule 23"). In doing so, the 2nd Circuit departed from the approach adopted by the 3rd, 4th, and 11th Circuits.
  • While the 2nd Circuit's opinion prevents defendants from opposing class certification based on an independent "administrative feasibility" requirement, the ruling does not prohibit defendants from raising similar challenges under Rule 23's enumerated requirements.
  • The 2nd Circuit's opinion adds another voice to the circuit split regarding whether Rule 23's ascertainability requirement requires proof of administrative feasibility at the class certification stage, increasing the likelihood of Supreme Court review.

On July 7, in In re Petrobras Securities, the 2nd Circuit declined to adopt an independent "administrative feasibility" requirement for class certification under Rule 23. In so holding, the 2nd Circuit joined the 6th, 7th, 8th and 9th Circuits, and expressly disagreed with the 3rd Circuit, which has taken the lead in holding that class action plaintiffs must satisfy a "heightened ascertainability" requirement by showing that there is an administratively feasible mechanism to determine whether an individual meets the class definition. The 2nd Circuit ruled that class action plaintiffs may satisfy the ascertainability requirement by showing that class membership may be determined using objective criteria.

Background

During December 2014 and January 2015, a group of Petrobras's investors filed a series of putative class actions against Petrobras and related defendants that were eventually consolidated. Plaintiffs alleged defendants engaged in a conspiracy to grossly inflate the prices of Petrobras's bids and kickback the excess funds to Petrobras's executives and co-conspirators.

In February 2016, the District Court for the Southern District of New York certified two classes of Petrobras investors under Rule 23(b)(3)—one class asserting claims under the Securities Exchange Act of 1934 and the other class asserting claims under the Securities Act of 1933. On August 2, 2016, district court proceedings were stayed pending resolution of defendants' interlocutory appeal of the district court's order certifying the two classes. On appeal, Defendants argued inter alia that the class definitions failed to satisfy the "heightened" ascertainability requirement, which requires proof of administrative feasibility because it is not clear whether each investor acquired its securities in a domestic transaction. According to defendants, the 2nd Circuit's 2015 opinion in Brecher v. Republic of Argentina endorsed the administrative feasibility requirement.

The 2nd Circuit's Opinion

On appeal, the 2nd Circuit rejected Petrobras's argument, holding that plaintiffs may satisfy the ascertainability requirement implicit in Rule 23 by showing "objective criteria that are administratively feasible" and that "identifying members would not require a mini-hearing on the merits of the case." The court concluded that both class definitions satisfied these requirements because class membership could be determined using objective criteria, namely whether an individual owned Petrobras securities and acquired them via a domestic transaction. The 2nd Circuit remanded the matter back to the district court for further proceedings.

The 2nd Circuit claimed that its decision in Petrobras is not inconsistent with its prior ruling in Brecher. In Brecher, plaintiffs did not meet the ascertainability requirement because they failed to set the outer boundary of class membership using objective criteria. According to the 2nd Circuit, Brecher's references to "administrative feasibility" and "mini‐hearings" were "not strictly part of the holding" and were "not intended to create an independent element of the ascertainability test; rather, that language conveyed the purpose underlying the operative requirements of definiteness and objectivity" (emphasis in original). 

The 2nd Circuit reasoned that requiring plaintiffs to show administrative feasibility at the class certification stage would upset the "careful balance of competing interests" codified in Rule 23's express requirements. A separate feasibility requirement would be duplicative of Rule 23's requirement that district courts consider the likely difficulties in managing a class action. Moreover, such a requirement would encroach upon the Rule 23(b)(3) requirements that class treatment be the best way to adjudicate the action and that classwide claims predominate over individualized inquiries (commonly known as the "superiority" and "predominance" requirements). 

Thus, the 2nd Circuit departed from the approach taken by the 3rd Circuit and instead joined the 6th, 7th, 8th and 9th Circuits in holding that proof of administrative feasibility is not required to obtain class certification.

Takeaways

While the 2nd Circuit's ruling precludes class action defendants in the 2nd Circuit from challenging class certification based on an independent administrative feasibility requirement, the decision leaves the door open for defendants to make similar arguments through Rule 23's enumerated requirements. In particular, the decision recognized that defendants retain the ability to challenge certification by arguing that administrative difficulties in determining class membership would create significant difficulties in maintaining a class action, that a class action would not be a superior method of resolving the dispute and that individualized issues may predominate over common ones. 

The 2nd Circuit's decision further highlights the circuit split on this divisive issue in class action jurisprudence and further increases the likelihood that the Supreme Court will weigh in. 

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.