In analyzing class certification issues, courts have said that common issues may predominate in some cases even though damages would have to be determined individually for each class member. But what about where some class members have no damages? Recent federal appellate decisions have said that situation presents an issue of liability, not damages. A subtle distinction, but one that can make all the difference. Where liability cannot be determined class-wide, courts have held that the predominance requirement is not satisfied.

Sampson v. United Services Automobile Association, — F.4th –, 2023 WL 6533181 (5th Cir. Oct. 6, 2023), is one of a series of cases brought against auto insurers challenging how they value vehicles that are total losses. The plaintiffs alleged that the insurer’s use of a software product called CCC violated a Louisiana statute because CCC was not a “generally recognized motor vehicle industry source” within the meaning of the statute. The district court certified a class, and the Fifth Circuit agreed to hear an interlocutory appeal from that ruling.

In seeking class certification, the plaintiffs proposed to use National Automobile Dealers Association (NADA) guidebook values, although there were other options that undisputedly would comply with the statute, including Kelley Blue Book (KBB). The insurer presented evidence that 9.2% of claims were valued less than the NADA value, but above the KBB value, so if KBB was chosen, there would be no recovery. The Fifth Circuit vacated the class certification decision, agreeing with a Ninth Circuit decision in a similar case last year (see my blog post here), which held that where vehicles would have to be valued individually, and on some claims there would be no injury, the predominance requirement for class certification was not satisfied. The Fifth Circuit explained that “a district court’s wide discretion to choose an imperfect estimated-damages model at the certification stage does not carry over from the context of damage to the context of liability.” Where the plaintiffs’ evidence could not establish liability (injury) on a class-wide basis, that was insufficient.

A recent Ninth Circuit decision highlights the importance of the defendant clearly pleading the basis for alleging the amount in controversy in a notice of removal under the Class Action Fairness Act (CAFA). In this case, after the defendant prevailed on a summary judgment motion and the plaintiff appealed, the Ninth Circuit vacated and remanded for the district court to determine the amount in controversy.

In Moe v. GEICO Indemnity Co., — F.4th –, 2023 WL 4483690 (9th Cir. July 12, 2023), the plaintiff filed a putative statewide class action in Montana against GEICO. He alleged that GEICO improperly failed to pay him, and other third-party claimants injured in accidents for which GEICO drivers were determined to be responsible, collection fees and interest on medical bills, and lost wages. In removing to federal court, GEICO’s notice of removal relied on a declaration from an employee stating “that he ‘generated data and can state that the claims paid by GEICO Indemnity Co., and the damage exposure, not liability, to the potential members of the putative class proposed by Plaintiff exceeds the sum or value of $5 million in the aggregate.’” No further explanation of the data and no calculations were provided. At the district court level, neither the plaintiff nor the district court challenged the propriety of removal. The district court granted summary judgment on the named plaintiff’s claim, and he appealed.

On appeal, the Ninth Circuit questioned sua sponte whether the $5 million threshold for the amount in controversy was satisfied. While the Supreme Court has held in Dart Cherokee Basin Operating Co. v. Owens, 574 U.S. 81 (2014), that evidence supporting the amount in controversy is not required to accompany a notice of removal, a “plausible assertion of the amount at issue” is required. Here, the Ninth Circuit found GEICO’s notice of removal and accompanying declaration to be lacking. It explained that the plaintiff’s “claimed damages in his individual claim are under $1,000,” “there is little indication what the average amount of damages the purported class members may have suffered,” and “it is unclear how large the purported class may be.” 2023 WL 4483690, at *3. The Ninth Circuit therefore vacated the summary judgment ruling (without addressing its merits), and remanded for the district court to determine whether the amount in controversy requirement was satisfied.

As I see it, a key practice pointer here for defense counsel is to include enough allegations in the notice of removal (and if desired, although not required, an accompanying declaration) to demonstrate how the amount in controversy is being estimated. Here, a conclusory assertion that data existed to support it was not enough. Some specifics as to the nature of the data and what it reflected might have been enough to avoid a remand, and then presumably another appeal. Sometimes it can be helpful to offer the court more than one method of calculation.

A recent Ninth Circuit decision clarified that the benefit to the class is the “touchstone for determining the reasonableness of attorneys’ fees in a class action.” Under this decision, the fee should not be based on the maximum potential class recovery (as some courts have held for many years), or a lodestar amount that bears no relationship to the actual class recovery. It will be interesting to see how this decision impacts settlement negotiations in putative class actions in the Ninth Circuit and beyond.

In Lowery v. Rhapsody International, Inc., — F.4th –, 2023 WL  3857499 (9th Cir. June 7, 2023), a putative class action was filed against a music streaming service, Rhapsody, on behalf of copyright owners whose music was played on the service without a license. About 98% of the putative class members accepted a settlement that was negotiated with the National Music Publishers Association outside of this case, leaving a small number of putative class members remaining. A settlement of this putative class action was negotiated early in the case. Under the terms of the settlement, putative class members were required to make claims to receive compensation, and the total amount potentially available was $20 million. But because so few claims were made (in large part because of the prior settlement), Rhapsody paid only $52,841.05 to the putative class. The plaintiffs’ attorneys nevertheless claimed $2.5 million in fees on a lodestar basis. A magistrate judge recommended a fee award of $860,000 but the district judge rejected that and awarded $1.7 million. These numbers surprise me given what the opinion says about how the settlement was reached early in the case, with most of the efforts focused on negotiating the settlement, not litigation activities. But the opinion doesn’t delve into how those large lodestar numbers were reached.

The Ninth Circuit reversed, instructing the district court on remand to determine the “actual value to the class members and then award attorneys’ fees proportional and reasonable to the benefit received by the class.” The court explained that “courts must consider the actual or realistically anticipated benefit to the class—not the maximum or hypothetical amount—in assessing the value of a class action settlement.” While a lodestar cross-check was appropriate, where the lodestar amount “will greatly exceed 25% of the value of the settlement … that is a major red flag that signifies that lawyers are being overcompensated and that they achieved only meager success for the class.” The court emphasized that “[t]he key factor in assessing the reasonableness of attorneys’ fees is the benefit to the class members.” The court noted that there may be some circumstances where other factors come into play, such as civil rights cases or even some copyright cases where there is a societal benefit or “substantial nonmonetary relief.” 

This is arguably something of a sea change for class action settlements. For many years, courts have regularly approved attorneys’ fee awards based on the maximum potential recovery. Some judges or commentators might assume that this will simply result in plaintiffs’ attorneys accepting lower compensation in lower value cases. But such deals are never easy to negotiate. The plaintiffs’ bar tries to get the same or better hourly rates as the defense bar. Will defendants be forced to pay more because that is the only way a settlement can be reached? Or will defendants force more cases through class certification, summary judgment or trial? Or will there be more settlements that include no agreement on the fee, instead having the court decide the fee on a disputed application? That can be risky for the defendant, but maybe not so much now in the Ninth Circuit. Will nonmonetary relief be negotiated and relied upon more often in seeking settlement approval? In my mind, all of these may happen depending on the circumstances of the case.

Federal courts of appeals have disagreed on whether a named plaintiff in a proposed class action can sue defendants who have not injured that plaintiff but allegedly have injured putative class members.  This is not an uncommon scenario. Plaintiffs often attempt to bring putative class actions that are broader than their own claims, suing defendants that did not injure them. The Sixth Circuit recently weighed in on this issue, rejecting the “juridical link” doctrine and holding that a named plaintiff has no standing to sue a defendant that did not injure that plaintiff. This is a thorough opinion that will be useful for defendants on this issue.

In Fox v. Saginaw County, – F.4th –, 2023 WL 3143922 (6th Cir. Apr. 28, 2023), a Michigan County foreclosed on the plaintiff’s property because he failed to pay property taxes. The county sold the property for much more than the amount of back taxes owed but the plaintiff did not receive any of the surplus. In other litigation, this practice has been held to be an unconstitutional taking. (Coincidentally, the U.S. Supreme Court heard oral argument on Friday regarding whether an essentially-identical practice in Minnesota is unconstitutional, with SCOTUSblog reporting that the justices appeared inclined to rule for the homeowner). The plaintiff in this case sued not only the county that had taken his property but also 26 other Michigan counties that allegedly had harmed putative class members in substantially the same manner. The district court certified that entire class, and the Sixth Circuit accepted an interlocutory appeal under Rule 23(f).

The Seventh Circuit has held that under the “juridical link” doctrine a proposed class representative can sue defendants that did not injure the class representative if the class members would have standing and the named plaintiff can otherwise satisfy the requirements for class certification. But the Second and Eighth Circuits have rejected that theory (see my blog post on the Second Circuit decision).

In Fox, the Sixth Circuit addressed this issue thoroughly, rejecting the “juridical link” doctrine as contrary to Supreme Court precedent for three reasons. First, the Supreme Court has generally rejected the notion that standing should be evaluated differently in a putative class action as compared with an individual suit, requiring that named plaintiffs establish a personal, individual injury and generally limiting the scope of any class claims consistent with the named plaintiff’s claim. Second, given that standing must be established at the outset of litigation before a class has been certified, logically standing cannot depend on injuries to putative class members that are not yet parties when the case is brought. Third, the efficiency rationale for the “juridical link” doctrine cannot override the separation-of-powers rationale for Article III standing requirements.

Given the Supreme Court’s decisions looking to historical practice in evaluating standing issues, the Sixth Circuit’s opinion included an interesting discussion of some of the historical predecessors of the modern class action in English courts, including “bills of peace,” whereby, for example, “[t]he named tenants of a manor might represent all of the tenants in a dispute against the manor’s lord over hunting rights on manorial lands.” This did not support the “juridical link” doctrine because no historical evidence was found of “bills of peace in which, say, named tenants sued not just the lord of their own manor on behalf of their cotenants but also the lords of all other manors.”

The Sixth Circuit also noted some problems that might be encountered on remand. While the plaintiff might be able to find 26 other named plaintiffs from the other counties to join him, thereby avoiding the standing problem, he would face other obstacles that the district court had not addressed. Proving the fair market value of every putative class member’s property could potentially overwhelm any common questions. The district court also would have to address whether individualized defenses could be litigated in a manageable way, and how mortgages and other liens would be addressed. If class certification were sought again, the district court would have to “forecast how the parties will conduct the litigation from the certification stage through the trial to the final judgment.”

Last week the Second Circuit issued a new decision affirming, with one exception, the approval of a $5.6 billion revised class action settlement in the long-running Visa/Mastercard antitrust litigation. (See my blog post on the Second Circuit’s reversal of a prior settlement in 2016.)  The opinion and two concurrences in Fikes Wholesale, Inc. v. HSBC Bank USA, N.A., — F.4th –, 2023 WL 2506455 (2d Cir. Mar. 15, 2023) addressed various issues, two of which I’ll discuss here.    

First, objectors to the settlement challenged service awards to the named plaintiffs totaling $900,000, including two awards of $200,000 each, approximately 100 times the amount they would get as part of the settlement. I don’t think I’ve seen a case with service awards anywhere near that high, but this settlement was obviously of extraordinary size. The majority opinion concluded that named plaintiff awards were “likely impermissible” under a Supreme Court decision from 1881. In that case, which long predates the creation of the modern class action, the Supreme Court concluded that a creditor bringing suit on behalf of others could not be compensated for services and expenses in bringing suit. In 2020, the Eleventh Circuit held that the Supreme Court decision precluded the use of named plaintiff service awards in class actions (see my blog post) but other circuits have disagreed (see, for example, my summary of a Ninth Circuit decision on this issue). In Fikes Wholesale, the Second Circuit panel concluded that, while it agreed with the Eleventh Circuit, it was bound by two prior Second Circuit decisions upholding named plaintiff awards, although without analyzing the old Supreme Court case in any detail. We might well see a petition for rehearing en banc (but those are very rarely granted in the Second Circuit) or a petition for certiorari to the Supreme Court on that issue. The Second Circuit did find the service awards to be excessive in one respect—to the extent the amount awarded was based on work performed by the plaintiffs lobbying for legislative reform, the district court was instructed to reduce the award accordingly.  

From the defense perspective, I’m not sure there is much that can be done here other than to negotiate the best deal you can, and have a provision in the settlement agreement that the amount of the award is solely in the district court’s discretion and if a lower amount (or even nothing) is awarded, the settlement remains fully enforceable.

Second, in Fikes Wholesale, objectors challenged the fairness of the settlement for newer merchants, who would get minimal monetary payments but release their claims going forward for five years into the future. The Second Circuit declined to reach this issue because the settlement agreement had a severability provision stating that the release “extend[s] to, but only to, the fullest extent permissible by federal law.” So even if part of the release was not enforceable, the settlement remained fully enforceable. The question of whether the release of future claims is enforceable will have to be decided in a future case, when a new suit is filed and then one or more defendants seek to enforce the release.

The release language here is an interesting technique that might be worth considering in some class action settlements. It prevented a possible (and it appears serious) concern about the scope of the release from derailing the enforceability of this settlement. But the defendants will likely have to deal with that in future litigation, and Judge Jacobs’s concurrence casts doubt on whether the release of future claims will be enforceable as to the newer merchants. Defendants trying to buy complete peace in entering into a class settlement may not want to agree to this type of severability clause and leave an issue like that for another day.

A recent Ninth Circuit decision illustrates how defendants can use evidence on an individualized defense to potentially defeat class certification.

In Van v. LLR, Inc., — F.4th –, 2023 WL 2469909 (9th Cir. Mar. 13, 2023), the defendant allegedly charged sales tax that was not owed by Alaska purchasers on online purchases. While the defendant later refunded the amounts, it did not pay interest on the amounts refunded. The Ninth Circuit concluded that, even if this interest was a fraction of a cent for some class members, that was sufficient for Article III standing. However, the Ninth Circuit vacated and remanded the district court’s certification of the class because the defendant had introduced evidence of eighteen examples of discounts to class members that offset the sales tax. Given that a total of 13,680 class members had received discounts, “an inquiry into the circumstances and motivations behind each of the 13,680 discounts might be necessary … which could potentially involve up to 13,680 depositions and months of trial.”

The Ninth Circuit explained that “[w]hen a defendant substantiates such an individualized issue in this way,”  in evaluating predominance, “the district court must determine … whether a class-member-by-class-member assessment of the individualized issue will be unnecessary or workable.”

This case is a good example of how a defendant can potentially defeat class certification by developing, through analysis of its own records, an individualized defense to a substantial number of putative class members’ claims.

A sometimes-overlooked aspect of class action law is how class certification rules interact with the Rules Enabling Act, which provides that rules of procedure and evidence “shall not abridge, enlarge or modify any substantive right.” 28 U.S.C. § 2072(b). Some class actions attempt to use the class action device to evade obstacles to obtaining individual relief under the applicable substantive law, or to short circuit the substantive law where it requires individualized proof. The Ninth Circuit recently focused on the Rules Enabling Act in reversing (in large part) a class certification order.

In Wit v. United Behavioral Health, — F.4th –, 2023 WL 411441 (9th Cir. Jan. 26, 2023), the plaintiffs brought claims under the Employee Retirement Income Security Act (ERISA), asserting that the defendant utilized internal guidelines for reviewing claims  for behavioral health services under health benefit plans that were allegedly more restrictive than the terms of the plans. The plaintiffs attempted to avoid individualized issues by seeking as their remedy an order requiring the defendant to “reprocess” claims of putative class members, without the court deciding whether there was an actual entitlement to benefits. The district court certified a class on this theory. It reasoned that to order “reprocessing” it would not have to make determinations about entitlement to benefits (which would implicate “a multitude of individualized circumstances” regarding each class member’s medical condition). After a bench trial, the district court issued declaratory and injunctive relief in favor of the class, including ordering the defendant to utilize new guidelines, ordering “reprocessing” of claims in accordance with the new guidelines, and appointing a special master to oversee compliance for ten years. Some might characterize that as a court effectively overseeing the operations of an insurer.

The Ninth Circuit reversed the class certification order to the extent it was based on the “reprocessing” remedy (but not with respect to a breach of fiduciary duty claim). The Ninth Circuit reasoned that, under ERISA, “reprocessing is not truly the remedy that Plaintiffs seek, it is the means to the remedy that they seek,” i.e., entitlement to benefits. The district court thus “improperly allowed Plaintiffs to use Rule 23 as a vehicle for enlarging or modifying their substantive rights where ERISA does not provide reprocessing as a standalone remedy.”

The Ninth Circuit also held that the district court erred in excusing absent class members from complying with the requirements under their benefit plans that they exhaust administrative remedies, including pursuing an administrative appeal. This was likewise inconsistent with the Rules Enabling Act because “the district court abridged [defendant’s] affirmative defense of failure to exhaust and expanded many absent class members’ right to seek judicial remedies under Rule 23(b)(3).” It noted that the Supreme Court has held that a class cannot be certified by effectively depriving the defendant of its individualized defenses.

I see potential implications here beyond ERISA plans, to putative class actions involving other contractual and statutory rights. Defendants often can argue that the terms of the contract or other applicable substantive law require an individualized analysis, or that the putative class members must take individualized steps to establish their rights. Under this decision, a court cannot ignore those obstacles to class certification.

One of the first significant class certification-related decisions of 2023 comes from the Fifth Circuit. While some trial courts hesitate to strike class action allegations on the pleadings, the district court here concluded very early in the case that it was clearly inappropriate for class certification. The Fifth Circuit agreed, in a published opinion that will be helpful to defendants in that circuit and elsewhere.

Elson v. Black, — F.4th –, 2023 WL 111317 (5th Cir. Jan. 5, 2023) was much like many putative class actions brought against product manufacturers challenging representations about their products. The plaintiffs alleged that the manufacturer of a massage device, described in the opinion as “a two-foot stick with hard prongs,” misrepresented its potential health benefits. The defendant allegedly represented that the device could “‘virtually eliminate cellulite,’ help with weight loss, and relieve pain.” Most prospective purchasers would probably take such statements with a grain of salt (or many). But the plaintiffs here claimed they were duped. They sued under the Magnuson-Moss Warranty Act, various state statutes and for unjust enrichment. They sought a nationwide class and alternatively seven statewide subclasses.

The district court struck the class allegations in a single paragraph, focusing on reliance being an individualized issue and concluding that commonality was not satisfied. But the Fifth Circuit wrote considerably more. It focused on predominance, finding that common issues of law and fact did not predominate for two reasons. First, there were differences in state law. Even at the pleadings stage, the plaintiff was required to provide the district court with “an extensive analysis of state law variations,” and failed to do so. Their appellate brief demonstrated substantial variation in state law on reliance.

Second, it was clear that the plaintiffs and the putative class members relied on different misrepresentations about different potential health benefits of the product. “[T]he possibility of class analysis disintegrates because the members did not rely on the same alleged misrepresentations.” Plaintiffs’ proposal of subclasses did not solve this problem because “‘subclass’ is not a magic word that remedies defects of predominance”; “[t]he burden is on Plaintiffs to demonstrate to the district court how certain proposed subclasses would alleviate existing obstacles to certification,” which they failed to do.

Not every putative class action is appropriate for this type of challenge on the pleadings. There are strategic reasons why defendants often do not file a motion to strike. But the lesson here is that, at least in some circuits, plaintiffs’ class allegations will not survive this type of motion, particularly if they allege a nationwide or multistate class involving significant differences in state law, or multiple alleged misrepresentations.

When negotiating a class action settlement, lawyers on both sides may need to consider whether subgroups within the class need to be separately represented by different counsel. The First Circuit recently reached that conclusion in Murray v. Grocery Delivery E-Services USA Inc., 2022 WL 17729630 (1st Cir. Dec. 16, 2022).

Murray involved three different types of claims under the Telephone Consumer Protection Act that, at first blush, seem similar. They alleged: (1) improper phone calls to class members using an auto-dialer; (2) calling people who were on the national do-not-call registry; or (3) calling people who were on the defendant’s internal do-not-call list. The settlement proposed that all class members would receive equal payments, regardless of which category they fell in. Examining the claims in detail, the First Circuit found that the three different categories of claims involved different elements of proof and different defenses. The auto-dialer claim became relatively worthless following a recent Supreme Court decision issued after the negotiations. The First Circuit concluded that it was procedurally unfair for settlement negotiations to be conducted by one set of plaintiffs’ counsel representing the entire class, rather than having each subgroup separately represented. While “[a]rms-length negotiations might assess the differences in claim value as too insignificant to warrant the delay, expenses, and risk of foregoing a global settlement,” the First Circuit concluded that a district court should not evaluate a proposed settlement until such “arms-length” negotiations with separate counsel had occurred.

The First Circuit also agreed with the consensus of most other circuits that have approved named plaintiff incentive awards. It rejected an Eleventh Circuit decision (see my blog post) holding that two 19th century Supreme Court decisions (prior to the advent of modern class actions) prohibited such awards. The First Circuit reasoned that such awards must be fair and reasonable, that named plaintiffs must “bear the brunt of litigation,” and that “incentive payments remove an impediment to bringing meritorious class actions and fit snugly into the requirement of Rule 23(e)(2)(D) that the settlement ‘treats class members equitably relative to each other.’”

A recent Ninth Circuit decision on a class action settlement, In re Apple Inc. Device Performance Litigation, 2022 WL 4492078 (9th Cir. Sept. 28, 2022), received significant attention in the legal media. It addressed several issues of significance to lawyers negotiating class settlements: (1) class representative incentive awards; (2) a requirement that class members attest to having experienced the harm at issue to obtain relief; (3) notice to class members that are legal entities; and (4) the legal standard for settlements negotiated prior to class certification. Here are my thoughts on the court’s treatment of each of these issues:

Incentive Awards: The Ninth Circuit approved incentive awards of $1,500 for named plaintiffs who were not deposed and $3,000 for those who were. It noted that it had previously rejected or criticized awards of $20,000 and $30,000. The Ninth Circuit reiterated its prior position that an incentive award should be consistent with the time and effort spent by the plaintiff, the benefit to the class and any risks taken by the plaintiff. But the award should not put the plaintiff in a “preferred position in the settlement.” The Ninth Circuit rejected the Eleventh Circuit’s view that two 19th century Supreme Court cases prohibit these awards (see my blog post on that), an issue that might reach the Supreme Court. While defendants often view these awards as immaterial from a financial perspective, ensuring smooth sailing of a settlement may warrant researching how they’ve been treated in the circuit before agreeing to a specific amount.

Attestation Requirement: The plaintiffs brought statutory and other claims based on allegations that Apple’s updated version of iPhone software slowed the phones’ performance without disclosing this at the time it released the updates. The settlement class was defined as all owners of certain iPhones at the relevant time, but cash payments were made available only to class members who attested under penalty of perjury that they experienced the diminished performance during the relevant timeframe. The Ninth Circuit found this appropriate because a class member who could not attest to this would have a “valueless claim.” The Ninth Circuit rejected an argument that class members who did not experience (or notice) the problem lacked standing because it concluded that allegations that all putative class members experienced the problem were sufficient where the case settled at the pleading stage.

Notice to Non-Individual Class Members: Some class members were businesses that bought iPhones for their employees. Apple told the district court it did not have contact information for corporate purchasers, so notice was given to all individuals who had registered iPhones through Apple, including individual employees of businesses. The Ninth Circuit found this sufficient.

Legal Standard for Settlements: The Ninth Circuit vacated and remanded the district court’s approval of the settlement because the district court’s order, while thorough, stated that it had presumed that the settlement was fair and reasonable. This was contrary to Ninth Circuit precedent that such a presumption must not be applied for settlements reached prior to class certification. There isn’t much that practitioners can do to avoid this except make sure that any proposed order submitted to the trial court recites the latest legal standards in the circuit. Perhaps you could request correction of an order after it is issued if it does not recite the correct standard and an objector is likely to appeal.