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.

Last week the Eleventh Circuit addressed an issue that many class action practitioners probably haven’t thought much about: whether approval of a class action settlement requires that each class member obtaining relief have Article III standing to sue. Defendants typically want a broad class definition because they are focused on finality and buying peace. Plaintiffs are more concerned about the relief class members are getting than whether everyone falling within the class definition would have standing. But the Eleventh Circuit vacated and remanded a settlement because a relatively small part of the class as defined would not have standing.

In Drazen v. Pinto, No. 21-10199, — F.4th –, 2022 WL 2963470 (11th Cir. July 27, 2022), the Eleventh Circuit heard an appeal by an objector from a final approval of a class action settlement in a case under the Telephone Consumer Protection Act (TCPA). The issue raised by the objector was whether the settlement qualified as a “coupon settlement” under the Class Action Fairness Act and therefore required that the request for attorneys’ fees be analyzed differently. But the Eleventh Circuit never reached that issue, instead raising on its own and deciding a separate question: whether all class members had Article III standing.

The issue arose because a prior Eleventh Circuit decision had held that receiving a single unwanted text message is not a sufficiently concrete injury to establish standing under Supreme Court precedent. Approximately 7% of the class fell in that category, along with potentially those class members who received only a single unwanted telephone call. (Members of Congress who enacted the TPCA in 1991, in the days of landlines, wasted fax paper and unwanted interruptions during family dinnertime, surely did not expect that three decades later millions of dollars of attorneys’ fees and hundreds of hours of judicial time would be spent on resolving just how many unwanted texts or cell phone calls labeled “potential spam” are necessary for standing to sue). Under the Supreme Court’s decision in TransUnion LLC v. Ramirez, 141 S. Ct. 2190 (2021), “[e]very class member must have Article III standing in order to recover individual damages.” But some lower courts have concluded that this does not need to be determined at the pleadings stage and can potentially be addressed at class certification, or perhaps even later than that but it must happen before damages are recovered. Applying this principle to a class action settlement, the Eleventh Circuit held that “when a class seeks certification for the sole purpose of a damages settlement under Rule 23(e), the class definition must be limited to those individuals who have Article III standing.” This is because “[o]therwise, individuals without standing would be receiving what is effectively damages, in violation of TransUnion.” So those who were hoping for potentially $35 (depending on how many class members make claims) as compensation for an unwanted text message will be out of luck. The case returns to the district court for redefinition of the class, including resolution of the nettlesome question of “whether a single cellphone call is sufficient to meet the concrete injury requirement,” an issue on which the Eleventh Circuit had not yet opined, and so it left that to the district court to resolve.

So what is the lesson for lawyers settling class actions in federal court? Don’t forget to think about whether everyone in the class will have standing, along with everything else.

The Ninth Circuit recently addressed an issue that tends to arise frequently in class certification motion practice: how trial courts should apply the predominance requirement where appellate decisions have said that the need to calculate individualized damages generally is not sufficient on its own to defeat class certification, but some putative class members likely have no damages. On these types of issues, plaintiffs often try to characterize defendants’ arguments in opposition to class certification as raising mere “damages issues” that can be addressed individually at the end of a class case, and defendants often respond that the issues they raise go to liability, not merely damages, and in any event the damages trials would be too complicated and impractical. The Ninth Circuit recently clarified that if determining liability requires highly individualized inquiries, a class should not be certified, and any individualized damages trials would have to be feasible.

In Bowerman v. Field Asset Services, Inc., Nos. 18-16303, 18-17275, — F.4th –, 2022 WL 2433971 (9th Cir. July 5, 2022), the plaintiffs contracted with the defendant to perform preservation services on properties being foreclosed on. They claimed that they should have been classified as employees rather than independent contractors under California law, and therefore should have been paid overtime and reimbursed for business expenses. The district court certified a class, decided certain issues on partial summary judgment in favor of the class, and left for a later damages trial whether a class member worked overtime (and to what extent) and whether the class member was entitled to reimbursement for business expenses (and the amount thereof).

The Ninth Circuit reversed the class certification order. It explained that “We need not decide whether common evidence can prove that [defendant] has a uniform policy of misclassifying its vendors” because “[defendant’s] liability to any class member for failing to pay them overtime wages or to reimburse their business expenses would require highly individualized inquiries on whether that particular class member ever worked overtime or ever incurred any ‘necessary’ business expenses.” (Emphasis in original.) The plaintiffs had “mischaracterize[d] an issue of individualized liability as an issue of individualized damages.” (Emphasis in original.) The Ninth Circuit explained that if the question involves the existence of damages, that is a liability issue, not a damages issue.

The Ninth Circuit also concluded that, under its interpretation of the Supreme Court’s decision in Comcast Corp. v. Behrend, 569 U.S. 27 (2013), the plaintiffs had failed to demonstrate that damages were “capable of measurement on a classwide basis” because they could not “show that the whole class suffered damages traceable to their alleged misclassification as independent contractors,” even if the amounts of those damages would need to be proven individually. In addition, determining damages would require “excessive difficulty” because there was little documentary evidence, and “using the individual testimony of self-interested class members to calculate the overtime hours they worked and the business expenses they incurred isn’t easy.” In a bellwether trial conducted by the district court, eight trial days had been required to determine damages for a sample of only eleven class members.

This decision helpfully clarifies the perennial debate between what constitutes a “damages” issue versus a “liability” issue. As I’ve often written on this blog, it can be helpful to think about the class certification analysis by analyzing how the named plaintiffs’ or putative class members’ claims would be tried in an ordinary individual case, and what evidence the defendant would be entitled to introduce. Here, the bellwether trial helped the Ninth Circuit determine that this case could not be litigated on a class basis.

I used to say that denials of class certification on numerosity grounds were rare and that usually it was futile to oppose class certification on that ground. That’s becoming less true as some circuits, including the Third Circuit, have adopted a stricter approach to how plaintiffs must establish numerosity. If Plaintiffs are using an estimate of the number of class members, the estimate may have to be closely tailored to the precise parameters of the proposed class to pass muster. Following these recent decisions, defendants should carefully evaluate whether to contest numerosity.

Allen v. Ollie’s Bargain Outlet, Inc., No. 21-2121, — F.4th –, 2022 WL 2284654 (3d Cir. June 24, 2022) is a putative nationwide class action under the Americans with Disabilities Act (ADA), alleging that Ollie’s, an operator of retail stores, had a practice of placing merchandise and other items in aisles, obstructing access for wheelchair users. The district court certified a class, but the Third Circuit, after accepting an interlocutory appeal, vacated the class certification order on numerosity and commonality grounds.

Plaintiffs attempted to establish numerosity in three ways: (1) using a national survey of persons with mobility disabilities, along with census data to estimate regional numbers; (2) having someone record on video 16 customers using wheelchairs during a seven-day period at two of the defendant’s stores where the plaintiffs shopped; and (3) submitting written complaints received by the defendant from 12 customers. The Third Circuit found all of these approaches insufficient.

As to the survey and census data, the court found it speculative to extrapolate data from a nationwide survey to the plaintiffs’ region, and “[e]ven if that extrapolation is accurate … we would still be left with no basis to determine what portion of those one hundred wheelchair-bound residents of Monaca are customers of Ollie’s, let alone what portion have suffered a common ADA injury.” As to the video recording, while the Third Circuit found that more probative, it was still insufficient. The court emphasized that some people who use wheelchairs are not “disabled” under the ADA. And the video recordings did not establish that the wheelchair users encountered an ADA violation, i.e., the alleged obstructions in aisles.  The customer complaints were also insufficient because, assuming they were admissible, one of them was actually a compliment about how accessible one of the stores was for a wheelchair user, and the remaining eleven were too few to demonstrate numerosity.

The Third Circuit also found that commonality was lacking, finding the case analogous to Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338 (2011). The court reasoned that the only evidence of inaccessible aisles was limited to Pennsylvania, and there was no evidence to support a nationwide practice that could justify certifying a nationwide class. The Third Circuit also concluded that the evidence did not support commonality with respect to a proposed class broadly encompassing all kinds of “access barriers.”  However, the Third Circuit left open the possibility that the district court could certify a narrower class on remand.

The majority did not address an evidentiary issue regarding whether the Federal Rules of Evidence apply to class certification decisions, and thus whether the customer complaints were admissible. Judge Porter, however, wrote a thorough concurring opinion highlighting a circuit split on that issue and concluding that under Federal Rule of Evidence 1101 (probably not one you’ve read recently, and which several circuits apparently had overlooked), the rules of evidence apply in full to class certification proceedings (except that Federal Rule of Civil Procedure 43(c) allows courts deciding motions to accept affidavits or declarations in lieu of live testimony). Judge Porter’s concurring opinion is well worth reading and citing if you are faced with attempts to use hearsay or other inadmissible evidence to certify a class.

A recent Sixth Circuit case addressed an issue that tends to arise frequently in various types of class actions, such as property insurance and environmental cases: whether property valuation issues are appropriate for class treatment. The answer here was “no,” and the opinion could be useful to defendants in other contexts.

Tarrify Properties, Inc. v. Cuyahoga County, — F.4th –, 2022 WL 2128816 (6th Cir. June 14, 2022) involved a constitutional challenge to a tax foreclosure procedure in Ohio that allowed a county to place foreclosed properties into a “land bank” without allowing the property owner to receive any excess equity. The plaintiff filed a putative class action challenging this foreclosure procedure under takings clauses in the federal and state constitutions. The district court denied class certification, and the Sixth Circuit affirmed.

The proposed class was defined as owners of relevant tax-foreclosed properties who had excess equity at the time of the foreclosure. That was likely the only viable way to define the proposed class because if there was no excess equity, the property owner would have no claim. But this posed what the Sixth Circuit concluded was an insurmountable problem for ascertainability (identifying the class members) and predominance. Class members could not be identified without determining the fair market value of their property at the relevant time, and experts on both sides agreed that this would depend on many factors. And if the defendants’ expert was correct, the named plaintiff had no excess equity, presenting an adequacy of representation problem as well.

The plaintiff argued that this problem could be overcome by relying on the properties’ assessment values, or on the basis that the county was bound by the value it had used for foreclosure purposes under collateral estoppel or judicial estoppel. The Sixth Circuit rejected these arguments, explaining that, although the assessment values were a “default valuation,” they were not “unrebuttable” or a “conclusive answer.” The assessments were up to six years old, and in any event could be challenged in the litigation. As to estoppel, the county board had not made findings on the fair market value of properties in its foreclosure order.

The plaintiff also suggested that the valuation issues could be resolved by a special master, subclasses or through a new “mass appraisal” for litigation purposes. The Sixth Circuit rejected those options as well because they would still require “mini-trials over each property’s value.”

This decision seems helpful to defendants faced with class actions in other contexts where the claims involve property values, such as property insurance cases, and cases alleging that an environmental nuisance such as an odor or dust from a facility has impacted property values in the area.

The Fifth Circuit recently addressed the scope of appellate jurisdiction under the Class Action Fairness Act (CAFA). CAFA allows federal courts of appeals to hear, on a discretionary basis, appeals from “an order of a district court granting or denying a motion to remand a class action.” 28 U.S.C. § 1453(c)(1). The Fifth Circuit has held, contrary to some other circuits (such as the Seventh Circuit), that on such an appeal it can only consider whether federal jurisdiction exists under CAFA, not any other basis for the district court’s order. The Fifth Circuit recently maintained the same position notwithstanding a recent Supreme Court decision reaching a different outcome under an analogous statute.

In Stewart v. Entergy Corporation, No. 22-30177, — F.4th –, 2022 WL 1711659 (5th Cir. May 27, 2022), the defendant argued that in a CAFA appeal, the court of appeals could consider an additional ground for federal jurisdiction (bankruptcy jurisdiction), relying on BP P.L.C. v. Mayor of Baltimore, 141 S. Ct. 1532 (2021). In BP P.L.C., the Supreme Court addressed 28 U.S.C. § 1447(d), which permits appellate review of a remand “order” if the removal was under Section 1442 (applicable to suits against federal officers or agencies) or Section 1443 (applicable to certain federal civil rights claims). The Supreme Court held that under the plain text of Section 1447(d), the entire “order” is appealable, not merely the part of it that addresses Section 1442 or 1443. The Court has reached the same result under Section 1292(b), which allows interlocutory appeals from an “order” certified by the district court as involving a “controlling question of law” on which there is a “substantial ground for difference of opinion.” Under that statute, the Court previously held that the entire order is appealable, not merely the question(s) identified.

In Stewart, the Fifth Circuit concluded that B.P. P.L.C. had not “unequivocally overruled our precedent or established a law inconsistent with it,” and thus the panel was bound by prior circuit precedent limiting CAFA appeals to CAFA issues. The Fifth Circuit also reasoned that CAFA’s requirement that petitions for permission to appeal be filed within 10 days, and that appeals be decided within 60 days of permission to appeal being granted, would make it difficult, as a practical matter, to decide appeals involving multiple issues. The Fifth Circuit also noted that appeals are discretionary under CAFA, unlike under the statute construed by the Supreme Court in B.P. P.L.C.

I have doubts about whether Stewart will hold up if reviewed en banc or if this issue reaches the Supreme Court. Distinguishing CAFA from other statutes that allow appeals from an “order” is difficult. Although not addressed in Stewart, Section 1453(c)(1) allows appeals from remand orders in a “class action”; it does not exclude bases other than CAFA for jurisdiction in a class action. Given that CAFA appeals are discretionary, a court of appeals might have discretion to limit the issues to be addressed in an order granting leave to appeal, as the Supreme Court does sometimes when granting certiorari. It may not be easy for defendants to obtain interlocutory appellate review of issues unrelated to CAFA jurisdiction in a class action, but it seems a stretch to conclude that CAFA makes that impossible.

A recent Sixth Circuit decision caught my eye because it addressed an important issue on which I have not seen any other appellate decisions (and none were cited in the opinion). The plaintiff argued that the Class Action Fairness Act (CAFA) should be interpreted as overriding the Federal Arbitration Act (FAA), effectively precluding the enforcement of class action waiver provisions in consumer contracts. The Sixth Circuit rejected the argument, finding no clear congressional intent to displace the FAA.

In Adell v. Cellco Partnership, No. 21-3570, 2022 WL 1487765 (6th Cir. May 11, 2022), the plaintiff brought a putative class action involving a Verizon Wireless mobile phone contract, claiming that a monthly administrative charge of about $1 was not permitted by the contract. The defendant filed a motion to compel arbitration, which the district court granted. The arbitrator ruled for the defendant, the district court confirmed the award, and the plaintiff appealed.

The plaintiff argued that “CAFA guaranteed her right to federal adjudication of her claim,” asserting support for this position in the statutorily-expressed purpose of CAFA and its legislative history. She also argued that Epic Systems Corp. v. Lewis, 138 S. Ct. 1612 (2018), which held that the National Labor Relations Act did not displace the FAA in the employment context, supported her position.

The Sixth Circuit rejected the argument, noting that courts construing two statutes should give effect to both when possible. Construing one statute as displacing another is generally appropriate only if there is “clear and manifest congressional intention” to do so. The Sixth Circuit explained that “CAFA undoubtedly discusses class actions, but it neither mentions arbitration nor offers the ‘clear and manifest congressional intention’ signaling FAA displacement.” While CAFA’s “findings and purposes” “express the importance of class action lawsuits … [t]hese are not clear statements displacing the FAA.” The court also found no support for the plaintiff’s position in CAFA’s legislative history.

Federal district court orders remanding cases to state court are generally not appealable, as provided by 28 U.S.C. § 1447(d). One exception to this is that the Class Action Fairness Act (CAFA) allows a court of appeals, in its discretion, to accept an appeal from an order granting or denying a motion to remand a putative class action. 28 U.S.C. § 1453(c). The courts of appeals can decline to hear an appeal under § 1453(c), and they are selective about hearing these appeals, particularly because if they accept one, they have to rule within 60 days (subject to an extension of time if either agreed by the parties or limited to ten days). A recent Eleventh Circuit decision pointed out, however, that there are narrow circumstances where a party can appeal as of right from a remand order in a putative class action — where the order is based on CAFA’s “local controversy” or “home state” exception.

In Simring v. Greensky, LLC, — F.4th –, 2022 WL 894206 (11th Cir. Mar. 28, 2022), the district court remanded a putative class action based on the “local controversy” exception, which provides that a district court shall decline jurisdiction where more than two-thirds of the members of all proposed classes are citizens of the state where suit is filed and certain other requirements are satisfied (there is at least one in-state defendant from which significant relief is sought and whose contact forms a significant basis for the claims alleged, the principal injuries were incurred in that state, and no other class action asserting the same or similar factual allegations against any of the defendant has been brought within the last three years). 28 U.S.C. § 1332(d)(4). In Simring, the district court interpreted the complaint as limiting the proposed class to Florida citizens, and because the other requirements for the “local controversy” exception applied, remanded the case to state court.

The Eleventh Circuit held that the district court’s decision was appealable as of right because “CAFA’s local controversy exception does not implicate subject matter jurisdiction” and thus 28 U.S.C. § 1447(c) and (d), which generally prohibit appeals of remand orders, were not applicable. Rather, “the local controversy exception is ‘akin’ to abstention,” a basis for remand that is appealable, “because it requires courts to decline jurisdiction that otherwise exists.”

The Eleventh Circuit went on to reverse the district court’s order because the class definition was not limited to Florida citizens, despite the fact that other allegations in the complaint indicated that suit was being brought “on behalf of all other Floridians similarly situated.” The plaintiff had the burden of proof on the applicability of the local controversy exception, and did not present any evidence of the citizenship of the putative class members.

The key point here for class action practitioners is that there are circumstances where a remand order is appealable as of right under CAFA. Where that is the case, you would not want to file a petition for permission to appeal, which could be denied for any number of reasons. This decision is also significant in emphasizing that the definition of the class, rather than other allegations in the complaint, may control the analysis of whether the local controversy (or home state) exception applies.

A recent Seventh Circuit decision makes an important point about how the principle that a court generally need not resolve the merits to decide class certification is bilateral – it applies to both affirmative claims and defenses. The plaintiff argued that the district court erred in denying class certification because there was one key defense that was central to the case, and the defendant had not established that it had a viable defense to even a single class member’s claim. But that made no difference because the evidence showed that the process for resolving the defense would require individualized adjudication.

Gorss Motels, Inc. v. Brigadoon Fitness, Inc., No. 21-1358, — F.4th –, 2022 WL 872639 (7th Cir. Mar. 24, 2022), was brought under the Telephone Consumer Protection Act (TCPA), seeking to hold the defendant liable for sending unsolicited advertisements by fax. (One would think these cases would come to an end given that fax machines seem like ancient technology that is hardly ever used today. But these cases live on.) The key issue here, as in many TCPA cases, was consent—whether class members had provided prior express permission for the ads. The defendant or relevant third parties from which it obtained the fax numbers had different agreements with the class members who received the faxes, and some fax numbers were obtained through personal contact. The district court denied class certification because common issues of law or fact would not predominate over individual issues with respect to this key defense at the heart of the case.

On appeal, the plaintiff argued primarily that the defendant had failed to establish consent by even a single class member, pointing to a district court opinion in another case that had focused on whether there was permission given for the fax advertisements by a “significant percentage” of the class. The Seventh Circuit rejected that argument, explaining that “it is not the final merits of the permission inquiry that matter for Rule 23(b)(3) purposes; it is the method of determining the answer and not the answer itself that drives the predominance consideration.” Moreover, “[t]his analysis applies not only to the elements that plaintiffs must prove but also to affirmative defenses like prior express permission.” Regardless of whether the defendant could establish the merits of its defense, the district court reasonably concluded that it could not be resolved with “generalized proof.”