Regular readers of my blog may recall that my post last week about the ABA Premier Speaker Series webinar on class actions described how Mark Perry had made an interesting point that courts should focus more intently on Rule 23(c)(1)(B). This is a sometimes overlooked subsection of Rule 23 that requires an order certifying a class to “define the class and the class claims, issues, or defenses . . . .” Coincidentally enough, only a few days after Mark Perry’s comments, the Seventh Circuit issued a new decision focusing on this very issue, an issue of first impression in that circuit.
In Ross v. RBS Citizens, N.A., No. 10-3848, 2012 U.S. App. LEXIS 1478 (7th Cir. Jan. 27, 2012), the court strongly enforced Rule 23(c)(1)(B) as written, requiring district courts to specifically and precisely describe each claim, issue or defense to be treated on a class basis. My takeaway is that this decision provides insurers and other defendants with an important angle to focus the court on the importance of specific issues and defenses that they do not believe can be tried on a class basis, and thereby strengthen their arguments in opposition to certification. Andrew Trask made a similar point in a recent post about this case on his Class Action Countermeasures blog. I think this case also demonstrates that the importance of giving careful thought at the class certification stage to how the defendant would try a class action and all of the defenses you would want to raise at trial. There is some risk that if a defense is not included in a class certification order that is detailed as provided for in Rule 23(c)(1)(B), the court might not include the defense in a trial plan or allow it to be presented at trial. This new opinion also had a somewhat troubling footnote regarding the applicability of the “Trial by Formula” portion of the Supreme Court’s opinion in Wal-Mart v. Dukes, which I address below.
Ross was a putative employment class action alleging violations of the Fair Labor Standards Act and Illinois Minimum Wage Law, alleging improper failure to pay overtime compensation. The district court certified a class, and the lead issue raised on appeal was a claimed failure by the district court to comply with Rule 23(c)(1)(B). After Wal-Mart v. Dukes was decided by the Supreme Court, the Seventh Circuit also asked the parties to brief its applicability to the case.
The Seventh Circuit concluded that a “precise definition of the class, claims, issues and defenses” was necessary: (1) under the plain text of Rule 23(c)(1)(B); (2) in order to provide an appropriate basis for appellate review; and (3) so that parties can adequately prepare for a class action trial. The court adopted the Third Circuit’s statement that a decision certifying a class is required to include:
(1) a readily discernible, clear, and precise statement of the parameters defining the class or classes to be certified, and
(2) a readily discernible, clear, and complete list of the claims, issues or defenses to be treated on a class basis.
Id. at *11 (quoting Wachtel ex rel. Jesse v. Guardian Life Ins. Co. of Am., 453 F.3d 179, 187-88 (3d Cir. 2006)).
The Seventh Circuit found this test satisfied in Ross because the district judge had adequately defined the class as everyone who had worked for the defendant bank in Illinois in certain positions over a three-year period, and had adequately defined the issues the plaintiffs sought to pursue regarding an allegedly unlawful overtime policy, and the defense that employees were exempt. The opinion did not describe in much detail what the defendant claimed the deficiencies in the trial court order were, but the Seventh Circuit found the defendant’s contentions to be “merely issues of trial strategy or proof, rather than overall claims or issues necessitating resolution.” Id. at *17.
Wal-Mart v. Dukes
On the issue of whether the district court’s finding on commonality satisfied the new standard in Wal-Mart v. Dukes, the Seventh Circuit held that commonality was satisfied. It explained that the plaintiffs “maintain a common claim that [defendant] broadly enforced an unlawful policy denying employees earned-overtime compensation. This unofficial policy is the common answer that potentially drives the resolution of this litigation.” Id. at *23. Not a surprising result on the facts of this case, a much smaller and much more focused case than Wal-Mart.
I was somewhat troubled, however, by the following footnote in the opinion:
Misreading Dukes, Charter One also contends that it has a statutory right to present its affirmative exemption defenses on an individualized basis, and thus, there is no commonality. However, the Dukes passage the defendant cites in support of its argument discusses how the Ninth Circuit improperly certified a Rule 23(b)(2) class that sought equitable relief. In so ruling, the Court struck down the Ninth Circuit’s attempt to circumvent 42 U.S.C. § 2000e-5(g)(2)(A) by holding that Wal-Mart had a statutory right to avoid equitable damages by showing that “it took an adverse employment action for any reason other than discrimination.” Dukes, 131 S. Ct. at 2560-61 (emphasis added). Charter One has no such statutory right because both classes are seeking only monetary relief through a Rule 23(b)(3) class.
Id. at *21 n.7.
Most commentators have been interpreting this part of the Wal-Mart opinion as having a broader reach than merely applying to equitable claims sought to be certified under Rule 23(b)(2). The Supreme Court wrote that “[b]ecause the Rules Enabling Act forbids interpreting Rule 23 to ‘abridge, enlarge or modify any substantive right,’ a class cannot be certified on the premise that Wal–Mart will not be entitled to litigate its statutory defenses to individual claims.” Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541, 2561 (2011) (citations omitted). As I, and a number of other commentators have read this, the Supreme Court was saying that, because the procedural mechanism of a class action cannot modify substantive rights, a trial court cannot disregard a defendant’s right to present individual defenses where it would have that right under applicable substantive law. The Supreme Court’s rationale did not seem narrowly applicable only to equitable claims. I am not sure if the Seventh Circuit thoroughly considered this Rules Enabling Act issue in its footnote. The issue is likely to arise in a number of future cases, and time will tell.