The Seventh Circuit has started 2012 off with a significant class certification opinion.  Messner v. Northshore Univ. Healthsystem, No. 10-2514, 2012 U.S. App. LEXIS 731 (7th Cir. Jan. 13, 2012) was an antitrust case alleging that a merger of two hospitals violated federal antitrust laws, but the opinion speaks to several broader issues regarding class certification that are important for many putative class actions, including insurance cases: 

  • A Full Daubert Analysis Is Required On Both Sides If The Expert Testimony Is Important For A Class Certification Issue:  The Seventh Circuit reaffirmed its prior holding that “[w]hen an expert’s report or testimony is ‘critical to class certification’ . . . a district court must make a conclusive ruling on any challenge to that expert’s qualifications or submissions before it may rule on a motion for class certification.”  Id. at *15.  This is contrary to the Eighth Circuit’s view that only a focused, limited Daubert analysis is required.  (For more on that, see my prior post about In re Zurn Pex Plumbing Prods. Liab. Litig., 644 F.3d 604 (2011).)  The Seventh Circuit further elaborated that the word “critical” should be interpreted “broadly to describe expert testimony important to an issue decisive for the motion for class certification.  If a district court has doubts about whether an expert’s opinions may be critical for a class certification decision, the court should make an explicit Daubert ruling.”  Messner, at *16.  The Seventh Circuit held that where the testimony of the defendant’s expert “laid the foundation” for the opposition to certification, a full Daubert analysis was required.  The court rejected arguments that Daubert standards should only apply to plaintiffs because they bear the burden of proof on class certification, reasoning that a class certification ruling is important to both sides and Rule 702 applies to both sides regardless of who bears the burden of proof.  This is not an unanticipated outcome but it stresses the importance for defendants and their counsel of fully vetting their expert testimony used at class certification, just as they would in preparing experts for use at trial.  Defendants should not focus on attacking the plaintiffs’ expert without taking care to ensure that their own expert’s analysis will withstand a rigorous Daubert inquiry. 
  • Lack of Injury to Some Class Members:  The court drew what it described as a “critical” distinction between cases where it is shown that a large part of the class has suffered no injury as a factual matter, and cases where a large number of class members could not possibly have been harmed.  It said only the latter are inappropriate for certification: 

[I]f a proposed class consists largely (or entirely, for that matter) of members who are ultimately shown to have suffered no harm, that may not mean that the class was improperly certified but only that the class failed to meet its burden of proof on the merits.  If, however, a class is defined so broadly as to include a great number of members who for some reason could not have been harmed by the defendant’s allegedly unlawful conduct, the class is defined too broadly to permit certification.  . . . There is no precise measure for “a great many.”  Such determinations are a matter of degree, and will turn on the facts as they appear from case to case. 

Id. at *53-55.  This seems to be a new and notable holding.  It could potentially apply to insurance class actions given that it is common for some part of the proposed class in an insurance class action to have sustained no injury.  The court here creates a standard that likely will be difficult for district courts to apply and there likely will be inconsistency in application of this new standard.  I’m not aware of any other circuit articulating this standard.  But class certification decisions in this area tend to focus more on whether individualized inquiries (and how many of them) are required to determine whether individuals fall within a class definition or were harmed.  Class actions that might meet this new Seventh Circuit standard still may fail to satisfy the predominance requirement.  The Supreme Court also will say something this Term about what kind of injury to a named plaintiff (and perhaps class members, at least by extension) is necessary to establish Article III standing, in a case under the Real Estate Settlement Practices Act, see First American Fin. Corp. v. Edwards, No. 10-708 (check out SCOTUS blog’s recap of the oral argument for more on that case and speculation on possible outcomes).  This Supreme Court opinion might impact the kind of issue the Seventh Circuit dealt with in Messner, but that will depend largely on how broadly or narrowly the opinion is written. 

  • Fail-Safe Classes and Class Definitions:  The Seventh Circuit further discussed “the problem of the fail-safe class: one that is defined so that whether a person qualifies as a member depends on whether the person has a valid claim.  Such a class definition is improper because a class member either wins or, by virtue of losing, is defined out of the class and is therefore not bound by the judgment.”  Messner, at *55-56.  This is also an issue that frequently comes up in insurance class actions because some plaintiffs’ lawyers define their proposed classes in this fashion.  The court further explained that “[d]efining a class so as to avoid, on one hand, being overinclusive and, on the other hand, the fail-safe problem is more of an art than a science.  Either problem can and often should be solved by refining the class definition rather than by flatly denying class certification on that basis.”  Id. at *56-57.  This comment poses a practical problem for case management by district courts that seems to be ignored here.  The scope of a class definition is often essential for framing the discovery that is taken on class certification issues and also for developing expert testimony on class certification.  While a plaintiff is not completely locked into a class definition drafted prior to any discovery, there needs to be a point at which the proposed class definition is established and class certification is decided on that definition, up or down, otherwise the defendant and the judge are trying to constantly deal with a moving target.  I don’t think the court is saying here that the trial judge should do the plaintiffs’ work for them and come up with his or her own definition that satisfies class certification standards; that would eviscerate the plaintiffs’ burden of proof and almost convert the judge into an advocate for the plaintiffs making their best arguments for them.  District courts, at least in the Seventh Circuit, will have to sort out how to address this new commentary, which appears to be dicta.