Judge Posner has been quite prolific in writing opinions on class certification. His latest one addresses under what circumstances a Rule 23(b)(2) class can seek “incidental” monetary relief after Wal-Mart v. Dukes.
In Johnson v. Meriter Health Servs. Employee Retirement Plan, No. 12-2216, 2012 U.S. App. LEXIS 24854 (7th Cir. Dec. 4, 2012), the Seventh Circuit reviewed on an interlocutory appeal the certification of a class action in an ERISA case. The case involved some relatively complicated issues (at least mathematically) about the calculation of pension benefits, principally for early retirees, under an employee benefit plan. The district court certified 10 subclasses, each of which sought “a declaration of the rights of its members under the plan and an injunction directing that the plan’s records be reformed to reflect those rights.” Id. at *3. In affirming the certification order, Judge Posner made several points that potentially could have broader applicability:
- The Seventh Circuit concluded that it was permissible to seek declaratory relief in this case even where it could be characterized as equivalent to seeking damages. Judge Posner wrote that “a declaration is a permissible prelude to a claim for damages, that is, monetary relief for a concrete harm already suffered.” Id. at *12. In addition, class members could “seek reformation of the Meriter plan as a basis for claiming additional pension benefits” and “[t]hese benefits would not be damages. They would be the automatic consequence of a judicial order revising the Meriter plan to make it more favorable to participants.” Id. This seems contrary to some other cases that have refused to allow certification under Rule 23(b)(2) when the declaratory or injunctive relief being sought is essentially equivalent to a damages claim in disguise.
- Judge Posner read Wal-Mart as allowing “incidental” monetary damages under Rule 23(b)(2), although he recognized it was not entirely clear whether the Supreme Court would allow them. He concluded that Wal-Mart articulated two limitations on monetary damages. The first one is that the rule “does not authorize class certification when each individual class member would be entitled to a different injunction or declaratory judgment against the defendant.” Id. at *14 (quoting Wal-Mart, 131 S. Ct. at 2557). This limitation, however, was “inapplicable to a subclass all of whose members have the same claim,” which was largely the case in Johnson. Id. at *15.
- The second limitation Wal-Mart places on Rule 23(b)(2) is that “it does not authorize class certification when each class member would be entitled to an individualized award of monetary damages.” Id. at *14-15 (quoting Wal-Mart, 131 S. Ct. at 2557). The Seventh Circuit found this limitation inapplicable in Johnson because the subclasses were seeking reformation of the plan, and after that was obtained (if it were obtained), it would simply be a relatively ministerial task of applying the terms of the reformed plan to the individual class member’s employment records in order to compute monetary relief. The court concluded that this would be sufficiently “incidental” to the declaratory relief to be permissible under Rule 23(b)(2). Id. at *18. On this point, I’m not sure that the Supreme Court majority who signed onto the Wal-Mart opinion would agree that Judge Posner’s formulation is something different from an “individualized award of monetary damages.” Even if it is a relatively straightforward calculation, isn’t that still “individualized”?
- The Seventh Circuit also concluded that, because of potential harm to class members if averaging was used rather than individual determinations, either: (a) notice should be provided with an opportunity to opt out (notice is optional under Rule 23(b)(2)); or (b) there should be bifurcation, with the (b)(2) proceeding on liability first, and the (b)(3) proceeding on damages second. Id. at *19. Judge Posner noted that, under the Seventh Amendment, such bifurcation might not be appropriate in a case in which a jury trial was demanded, but was proper where the case was set for a bench trial. Id. at *20.
So what does this mean for insurance class actions? In insurance cases it is not uncommon to see claims for injunctive and declaratory relief under insurance policies or with respect to insurance practices, and occasionally claims for reformation are made. So to the extent this opinion suggests that such declaratory relief can be sought as a “prelude” to damages, we might see more plaintiffs’ attorneys taking that kind of approach in an insurance case. But there are other cases that disagree with this approach. Where the rubber is likely to meet the road is on the issue of whether the declaratory or injunctive relief being sought would apply across an entire class or subclass, or instead would require individual application, and how individualized that analysis would need to be.