The class action world is abuzz with discussion of Judge Posner’s recent opinion for the Seventh Circuit in Butler v. Sears, Roebuck & Co., Nos. 11-8029, 12-8030, 2012 U.S. App. LEXIS 23284 (7th Cir. Nov. 13, 2012).  This decision, finding class certification appropriate in a product defect case, could have reverberations beyond the products liability arena, particularly in cases where liability potentially can be established without a showing of individual harm.  

Butler involved two alleged defects in front-loading washing machines:  (1) a problem that allegedly caused the formation of mold in the drum; and (2) a problem with the control unit that allegedly caused the machines to shut off when nothing was wrong with them.  The district court certified a class on the control unit claim but denied certification on the mold claim.  Both sides petitioned for permission to appeal under Rule 23(f).  The Seventh Circuit ruled for the plaintiffs, affirming the certification of the class on the control unit claim and reversing the denial of certification on the mold claim, finding certification of that claim was also appropriate.  Notably, the Supreme Court currently has a petition for certiorari before it in a case from the Sixth Circuit involving mold issues in front-loading washing machines, in which class certification was affirmed by the Sixth Circuit.  See In re Whirlpool Corp. Front-Loading Washer Prods. Liab. Litig., 678 F.3d 409 (6th Cir. 2012), cert. petition pending, No. 12-322 (docket).  In Butler, the Seventh Circuit expressly agreed with this decision by the Sixth Circuit.

The focus of the Butler opinion was on predominance.  Judge Posner noted that “[w]e accepted the appeals in order to clarify the concept of ‘predominance’ in class action litigation.”  Id. at *2.  He explained that, where there are common issues that satisfy the commonality requirement, the predominance requirement “requires ‘weighing’ unweighted factors, which is the kind of subjective determination that usually – including the determination whether to certify a class – is left to the district court, subject to light appellate review.”  Id. at *3.  Nonetheless, here this light form of appellate review resulted in a reversal of the denial of certification on the mold claim.

The heart of the court’s analysis on predominance was as follows:

Predominance is a question of efficiency. See Amchem Products, Inc. v. Windsor, 521 U.S. 591, 615-16 (1997); Committee Notes to 1966 Amendment to Fed. R. Civ. P. 23; Jackson v. Motel 6 Multipurpose, Inc., 130 F.3d 999, 1005 n. 12 (11th Cir. 1997); William B. Rubenstein, 2 Newberg on Class Actions § 4:49 (5th ed. 2012). Is it more efficient, in terms both of economy of judicial resources and of the expense of litigation to the parties, to decide some issues on a class basis or all issues in separate trials? A class action is the more efficient procedure for determining liability and damages in a case such as this involving a defect that may have imposed costs on tens of thousands of consumers, yet not a cost to any one of them large enough to justify the expense of an individual suit. If necessary, a determination of liability could be followed by individual hearings to determine the damages sustained by each class member (probably capped at the cost of replacing a defective washing machine—there doesn’t seem to be any claim that the odors caused an illness that might support a claim for products liability as distinct from one for breach of warranty). But probably the parties would agree on a schedule of damages based on the cost of fixing or replacing class members’ mold-contaminated washing machines. The class action procedure would be efficient not only in cost, but also in efficacy, if we are right that the stakes in an individual case would be too small to justify the expense of suing, in which event denial of class certification would preclude any relief.

Sears argues that most members of the plaintiff class did not experience a mold problem. But if so that is an argument not for refusing to certify the class but for certifying it and then entering a judgment that will largely exonerate Sears—a course it should welcome, as all class members who did not opt out of the class action would be bound by the judgment.

In two states . . . or possibly three . . . of the six states in which members of the class reside, a defective product can be the subject of a successful suit for breach of warranty even if the defect has not yet caused any  harm.

. . .

Sears does not contend that any of Whirlpool’s design changes eliminated the odor problem but only that they reduced its incidence or gravity. The number of buyers of each design of the Kenmore-brand machine who encountered mold would have been large even if those who bought later in the product cycle were less likely to encounter the problem. Should it turn out as the litigation progresses that there are large differences in the mold defect among the five differently designed washing machines, the judge may wish to create subclasses; but that possibility is not an obstacle to certification of a single mold class at this juncture.

Id. at *4-8 (emphasis added).

With respect to the control unit claim, the Seventh Circuit explained as follows:

The principal issue is whether the control unit was indeed defective. The only individual issues—issues found in virtually every class action in which damages are sought—concern the amount of harm to particular class members. It is more efficient for the question whether the washing machines were defective—the question common to all class members—to be resolved in a single proceeding than for it to be litigated separately in hundreds of different trials, though, were that approach taken, at some point principles of res judicata or collateral estoppel would resolve the common issue for the remaining cases.

Again the district court will want to consider whether to create different subclasses of the control unit class for the different states. That should depend on whether there are big enough differences among the relevant laws of those states to make it impossible to draft a single, coherent set of jury instructions should the case ever go to trial before a jury.

Id. at *9-10 (emphasis added).

It appears that a key turning point of this decision was that there could be liability under state law even where putative class members sustained no harm.  If that had not been the case, the court may not have reached the same result.  Judge Posner’s opinion also seems to merge predominance to some extent with superiority, which is also part of Rule 23(b)(3), but courts have typically treated it as a separate inquiry from predominance.  There are plenty of cases where a class action would be more efficient than individual trials in terms of resolving a central issue or two, but individual issues would still predominate in the litigation as a whole.  To the extent that Judge Posner suggests that Sears should welcome certification of a class because it might largely prevail at trial, that seems somewhat inconsistent with Judge Posner’s prior commentary acknowledging that class actions almost never go to trial because the large exposure in certified class actions tends to force a settlement.  See, e.g.Creative Montessori Learning Ctr. v. Ashford Gear LLC, 662 F.3d 913, 915 (7th Cir. 2011) (Posner, J.) (“Certification as a class action can ‘coerce the defendant into settling on highly disadvantageous terms, regardless of the merits of the suit,’ and in this case is ‘highly likely to because of the magnitude of the potential damages.’”).  Until our system finds a mechanism for resolving class cases that does not place the fate of a company or a massive liability in the hands of a single jury, class action trials will remain rare.  It also appears that in this case the potential for differences in state law on the control unit issue were not fully explored, at least not in the opinion.  Other Seventh Circuit opinions, including some by Judge Posner, focus heavily on differences in state law in finding certification inappropriate.

So how could this new decision affect insurance class actions?  I would not be too concerned about cases involving adjustment of insurance claims where each claim really must be resolved on its own facts.  The Seventh Circuit has rejected certification of that kind of case, for example, in Kartman v. State Farm Mut. Auto. Ins. Co., 634 F.3d 883 (7th Cir. 2011) (blog post).  This decision is more likely to affect insurance cases where liability potentially can be established without a showing of individual harm, such as some cases alleging statutory violations.