Class action settlements are complicated. They often take months to negotiate. The last thing the lawyers or their clients on either side want to happen is for the trial court to deny approval or, even worse, for an appellate court to overturn a decision approving the settlement when an objector appeals. That happened earlier this week in the Ninth Circuit. Its decision provides some guidance on how counsel can help the trial court through the approval process.

The Ninth Circuit is a hotbed of class action litigation, and it seems to apply a higher level of scrutiny than other circuits in reviewing settlement approval decisions. In Roes v. SFBSC Management, LLC, No. 170079 (9th Cir. Dec. 11, 2019), objectors appealed from a Northern District of California decision approving a settlement of an employment class action alleging that exotic dancers were misclassified as independent contractors rather than employees. The Ninth Circuit found problems with both the notice to the class and the extent of the district court’s scrutiny of the settlement terms.

Notice to the Class: Approximately 12% of the notices mailed to class members (560 out of 4,681) were undeliverable, even after the administrator searched for new addresses. The Ninth Circuit concluded that there should have been additional means attempted to try to reach former employees, for whom the only means of notice was by mail. It suggested that some form of electronic notice to the former employees should have been used. The lesson here? If it turns out that notice has not reached more than 10% of the class (depending on the circumstances), consider a supplemental form of notice before final approval is sought.

The Ninth Circuit rejected an argument that the notice to the class should have informed class members about other pending putative class cases against defendants involving the same issues. It found that is simply not required by Rule 23.

Settlement Terms: The Ninth Circuit requires a “higher level of scrutiny” and “a more probing inquiry” by district courts when a settlement is reached before a ruling on class certification (although that is very common). The district court’s opinion, however, did not cite this precedent, and suggested that there was a presumption of fairness. (Slip op. at 26.) The lesson here: the parties should make sure that they are citing the correct standard under the most recent case law in the circuit, and helping the district court apply it.

The Ninth Circuit found that the district court had not adequately explained why $950,000 of attorneys’ fees were justified, where the total available settlement cash was $2 million and the valuation of a $1 million dance fee payment pool for class members was not sufficiently justified in the Ninth Circuit’s view. The court noted that the district court had not made any specific findings regarding that valuation, or regarding why the attorneys’ fees would be reasonable even if the value of that portion of the class relief were disregarded. This is another area where the parties potentially could aid the trial court by proposing such findings.

The Ninth Circuit also found problematic that the settlement provided for $20,000 payments to two named plaintiffs in exchange for a general release. The court expressed concerns about “draw[ing] such large amounts from the common fund to pay the named plaintiffs for what is essentially a side settlement,” further stating that “the handsome amounts of those incentive payments, relative to the size of the cash payments that can be claimed by class members, raise serious red flags . . . .” (Slip op. at 41, 43.) The lesson here: incentive payments should not be a minor afterthought in negotiations; they need to be carefully justified.

The Ninth Circuit also expressed concerns about reversionary aspects of the settlement, where funds would revert to the defendants rather than be distributed to the class in some other manner, or by cy pres relief. This is another area for parties to consider carefully in structuring their deal, and in their briefing to the district court.

The Ninth Circuit noted in an footnote that the Northern District of California has published procedural guidance on class action settlements, which recommends that the parties provide various pieces of information to the district court in seeking settlement approval. (Slip op. at 47 n.22.) Even if you are not in the Northern District of California, that is a useful checklist for what you might need or want to include in your preliminary and final approval papers.

Next time you have a class settlement, don’t just take your last brief in support of preliminary or final approval and reframe it for your newest settlement. Study the most recent authority in your circuit, think through potential objections, and help the trial court through the approval process. That can save you and your client some headaches down the road.

A recent decision by the U.S. Court of Appeals for the Sixth Circuit provides an important reminder that if defendants want absent class members to be bound by a summary judgment ruling in their favor, generally they must insist that notice be given to the class before that ruling is made.

In Faber v. Ciox Health, LLC, No. 18-5896, 2019 WL 6596501 (6th Cir. Dec. 5, 2019), the plaintiffs sued a medical-records provider, alleging that it overcharged them for providing copies of their records. Because HIPAA does not provide a private right of action, the plaintiffs brought common-law claims under Tennessee law, and a claim under a Tennessee medical records statute. The plaintiffs moved for class certification and the parties cross-moved for summary judgment, with all three motions pending at the same time. The district court certified a class and then, before ordering notice to the class, granted summary judgment in favor of the defendant. The Sixth Circuit affirmed the district court’s summary judgment ruling, finding that none of the causes of action were viable under state law. But it also ruled that the class certification ruling in effect was a nullity due to the failure to give notice, and the judgment would apply only to the named plaintiffs. The Sixth Circuit rejected the defendant’s suggested approach of remanding so that post-judgment notice could be provided to the class because “post-judgment notice would present no meaningful opportunity for class members to make their case”; rather, it “would only invite parties to enter a fight that they already lost.”  Id. at *7. But what if the district court (or the Sixth Circuit) had vacated the summary judgment ruling too, and then let the class members make whatever additional arguments they wanted to make? It might be difficult to change the district judge’s mind, but the issue could still have gone either way on appeal at that point.

The practice pointer for defendants and their counsel here, in my view, is that if there is both a motion to certify a class and motions for summary judgment pending, you may need to provide a strong recommendation for the district court as to which order the motions should be decided in. If the plaintiff moves for summary judgment, the defendant often will want to invoke the rule against one-way intervention, so the ruling is not binding as to the class unless a class is certified first. With respect to a defendant’s motion for summary judgment, it’s a strategy call as to whether you want to push for class certification to be decided first. And if class certification is granted before your motion for summary judgment is decided, it might make sense to request that notice be given promptly, and your motion be held in abeyance, so it if it is granted you have a judgment against the whole class. But that might not be the best strategy if your argument on the merits is a longshot. And here the ruling in favor of the defendant might well have been perceived as a longshot, given that the Sixth Circuit departed from a Tennessee Court of Appeals decision on the state statutory claim, predicting that the Tennessee Supreme Court would not follow it. These are the kinds of tough calls that defendants in class actions must make in deciding whether to use the class action mechanism as a sword, or just fend it off.

The U.S. Supreme Court held today that a third-party defendant could not remove a class action to federal court under the Class Action Fairness Act (CAFA) because the term “defendant” as used in CAFA refers only to the party or parties sued by the original plaintiff. The Court’s opinion also has implications beyond the class action context because it addresses the scope of removal jurisdiction under 28 U.S.C. § 1441(a). The key implication of this decision in class actions is that a company that regularly brings suit against consumers (typically in collections matters) may be forced to defend a class action counterclaim filed by the consumer in state court, without any opportunity to remove the case to federal court. Companies may be able to avoid this outcome if there is a governing arbitration provision or forum selection clause in the applicable consumer contract.

In Home Depot U.S.A., Inc. v. Jackson, No. 1701471, the lawsuit began as a collections suit by Citibank, N.A. against George Jackson, seeking to recover for an unpaid balance on a Home Depot credit card. Jackson counterclaimed against Citibank, and brought third-party class action claims against Home Depot and Carolina Water Systems, Inc. After Citibank dismissed its claims against Jackson, Home Depot removed the case to federal court. The district court remanded the case on the grounds that Home Depot as a third-party defendant had no right of removal. The Fourth Circuit affirmed, and the Supreme Court affirmed as well.

Justice Thomas wrote the majority opinion, joined by Justices Ginsburg, Breyer, Sotomayor and Kagan. The Court first addressed the scope of the right of removal under 28 U.S.C. § 1441(a), the removal statute enacted long before CAFA, which provides for removal of a civil action “by the defendant or the defendants . . . .” The Court noted that it was plausible that the term “defendant” referred to any person or entity sued in a civil case, but concluded that was not the best interpretation of the statute. Instead, the Court concluded that Section 1441(a) focuses on whether there is jurisdiction over the “civil action,” not particular claims or counterclaims made therein. The Court concluded that “Section 1441(a) thus does not permit removal based on counterclaims at all, as a counterclaim is irrelevant to whether the district court had ‘original jurisdiction’ over the civil action.” Slip op. at 6. The Court also reasoned that: (1) the Federal Rules of Civil Procedure distinguish between “defendants,” “third-party defendants,” and “counterclaim defendants”; (2) other removal statutes in the bankruptcy and patent/copyright context allow “any party” to remove; and (3) the Court held in Shamrock Oil & Gas Corp. v. Sheets, 313 U.S. 100 (1941) that a counterclaim defendant that was the original plaintiff had no right of removal under a predecessor statute to § 1441.

The Court then addressed the scope of the right of removal under 28 U.S.C. § 1453(b), part of CAFA, which provides for removal of a putative class action “without regard to whether any defendant is a citizen of the State in which the action is brought, except that such action may be removed by any defendant without the consent of all defendants.” The Court concluded that the use of the words “any defendant” in this statute were simply intended to clarify that the in-state defendant limitation and consent requirement do not apply to a removal under CAFA. The Court noted that, in other contexts, the word “any” is given an “expansive meaning,” but concluded that Congress did not intend an expansive meaning in this context. Slip op. at 10. The Court noted that “[o]f course, if Congress shares the dissent’s disapproval of certain litigation ‘tactics,’ it certainly has the authority to amend the statute. But we do not.” 11.

Justice Alito wrote a lengthy dissent, joined by Chief Justice Roberts and Justices Gorsuch and Kavanaugh. I won’t belabor the dissent here because it does not appear to provide guidance on the scope of the majority opinion that is now the governing law. In brief, the dissent’s key points included: (1) the purpose of CAFA was to expand defendants’ right of removal, contrary to the tactic employed by Jackson’s counsel here; (2) the ordinary meaning of the word “defendant,” i.e., a party being sued, includes a counterclaim defendant or third-party defendant; (3) the word “any” should be given an expansive meaning; and (4) the Court previously stated that there is no anti-removal presumption under CAFA.

This decision upholds prior rulings by some lower courts that counterclaim defendants have no right of removal. In the class action context, the decision is likely to have the most impact on companies that regularly bring suits against consumers that may result in a class action counterclaim, or get brought into such suits as third-party defendants. Other than lobbying Congress to amend CAFA, potential strategic options from the defense perspective may include the use of arbitration provisions in consumer contracts that the Supreme Court’s decisions have upheld, and potentially the use of forum selection clauses that could attempt to restrict the filing of CAFA-eligible class actions to federal courts.

The Supreme Court ruled yesterday, in Nutraceutical Corp. v. Lambert, that the 14-day deadline under Federal Rule of Civil Procedure 23(f) for petitioning a court of appeals to hear a discretionary appeal from a class certification order cannot be equitably tolled. The district court had decertified the class. The plaintiff’s counsel expressed an intent to file a motion for reconsideration of that decision, and a deadline was set for filing that motion. The motion for reconsideration was filed in accordance with that deadline. The petition for permission to appeal was filed within 14 days after the motion for reconsideration was denied. The Ninth Circuit found the petition timely. But the Supreme Court said no.

Justice Sotomayor’s opinion for a unanimous Court explained that “[w]hether a rule precludes equitable tolling turns not on its jurisdictional character but rather on whether the text of the rule leaves room for such flexibility.” Slip op. at 4. “Where the pertinent rule or rules invoked show a clear intent to preclude tolling, courts are without authority to make exceptions merely because a litigant appears to have been diligent, reasonably mistaken, or otherwise deserving.” Id. The Court focused on Federal Rule of Appellate Procedure 26(b)(1), which provides that “the court may not extend the time to file: . . .a petition for permission to appeal . . . .” Id. at 5. The Court found no way around the “clear intent” of this rule.

This case is a good reminder for lawyers that not all deadlines can be extended, even if the trial court wants to grant an extension. The Supreme Court noted that some courts of appeals have concluded that a motion for reconsideration filed within the 14-day period extends the deadline for a petition for permission to appeal, on the theory that the class certification order is not “final.” But the Court did not address that issue, so the safest approach would be to file the petition within the 14 days. (And such petitions are limited to approximately 20 pages of large font text.) The Court also noted that a different result might be reached if the district court had misled the plaintiff’s lawyer, but that did not happen in this case.

The First Circuit recently addressed an issue of broad significance in class action law. It explained how a class cannot be certified when there are more than a small number of uninjured class members, and how a defendant must be allowed to demonstrate on an individual basis that class members were not injured.

United Food & Commer. Workers Unions & Emplrs. Midwest Health Bens. Fund v. Warner Chilcott Ltd. (In re Asacol Antitrust Litig.), No. 18-1065, 2018 U.S. App. LEXIS 28920 (1st Cit. Oct. 15, 2018), is an antitrust class action alleging that a drug manufacturer withdrew a drug from the market shortly before its patent expired, and then introduced a similar substitute, to preclude competitors from effectively introducing generic versions of the drug. The parties’ experts were largely in agreement that roughly 10% of consumers would still purchase the brand-name drug even if a generic version were available, and thus would not be injured by the allegedly unlawful practice. The district court assumed that this was the case, but nevertheless certified the class, adopting the plaintiffs’ proposal that a claims administrator could eventually remove uninjured persons from the class if plaintiffs prevailed. Id. at *8-9.

The First Circuit granted permission to appeal under Rule 23(f) and reversed the class certification order. It noted that proof of injury-in-fact was a required element of a plaintiff’s case on the claims asserted. Id. at *19. The First Circuit noted that one of its prior decisions, In re Nexium Antitrust Litig., 777 F.3d 9 (1st Cir. 2015), had concluded that “unrebutted testimony” in affidavits of class members potentially could be used to segregate injured from uninjured class members. United Food, at *22. Here, however, the defendants planned to challenge such affidavits, and put forth evidence demonstrating a basis to do so (such as that some class members stopped taking the brand-name product during the time period, others would be concerned about a particular ingredient, and those with no co-pay would not be cost sensitive). Judge Kayatta’s opinion explained how the defendants would have the right to challenge any affidavits, and this would destroy predominance of common issues of law and fact:

Our inability to fairly presume that these plaintiffs can rely on unrebutted testimony in affidavits to prove injury-in-fact is fatal to plaintiffs’ motion to certify this case. Testimony that is genuinely challenged, certainly on an element of a party’s affirmative case, cannot secure a favorable summary judgment ruling disposing of the issue. Fed. R. Civ. P. 56(a). And the affidavits would be inadmissible hearsay at trial, leaving a fatal gap in the evidence for all but the few class members who testify in person. Nor have the plaintiffs provided any basis from which we could conclude that the number of affidavits to which the defendants will be able to mount a genuine challenge is so small that it will be administratively feasible to require those challenged affiants to testify at trial.

We also reject any invitation to rewrite Nexium as sanctioning the use of inadmissible hearsay to prove injury to each class member at or after trial. The fact that plaintiffs seek class certification provides no occasion for jettisoning the rules of evidence and procedure, the Seventh Amendment, or the dictate of the Rules Enabling Act, 28 U.S.C. § 2072(b). See Tyson Foods, Inc. v. Bouaphakeo, 136 S. Ct. 1036, 1048, 194 L. Ed. 2d 124 (2016) (evidence may not be used in a class action to give “plaintiffs and defendants different rights in a class proceeding than they could have asserted in an individual action”). A “claims administrator’s” review of contested forms completed by consumers concerning an element of their claims would fail to be “protective of defendants’ Seventh Amendment and due process rights.” Nexium, 777 F.3d at 19. Plaintiffs’ proposed claims process provides defendants no meaningful opportunity to contest whether an individual would have, in fact, purchased a generic drug had one been available.  A “class cannot be certified on the premise that [the defendant] will not be entitled to litigate its statutory defenses to individual claims.” Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338, 367, 131 S. Ct. 2541, 180 L. Ed. 2d 374 (2011). Here, we have more than a statutory defense; rather, we have a challenge to a plaintiff’s ability to prove an element of liability.

Id. at *24-25.

The First Circuit further concluded that the use of an aggregate classwide damages award would not render class certification appropriate because “here, the aggregate damage amount is the sum of damages suffered by a number of individuals, such that proving that the defendant is not liable to a particular individual because that individual suffered no injury reduces the amount of the possible total damage.” Id. at *30-31. The First Circuit concluded by explaining that “a class cannot be certified based on an expectation that the defendant will have no opportunity to press at trial genuine challenges to allegations of injury-in-fact,” “[a]nd to determine whether a class certified for litigation will be manageable, the district court must at the time of certification offer a reasonable and workable plan for how that opportunity will be provided in a manner that is protective of the defendant’s constitutional rights and does not cause individual inquiries to overwhelm common issues.” Id. at *37.

This opinion thoroughly addresses an important issue that is present in many consumer class action suits. I expect it will be cited and likely followed by other circuits.


The U.S. Supreme Court recently granted certiorari in Home Depot U.S.A. Inc. v. Jackson, No. 17-1471 to decide whether a defendant to a class-action counterclaim can remove the case to federal court under the Class Action Fairness Act (CAFA) where the jurisdictional requirements under CAFA are otherwise satisfied. At one level, the dispute involves the meaning of “any” versus “the,” an esoteric battle that only a lexicographer or civil procedure nerd would find interesting. At another level, the dispute is over whether plaintiffs can strategically avoid federal jurisdiction by filing class action counterclaims or claims against third-party defendants in small suits, typically debt collection suits. When the big corporation sues for $5,000 in some little state court, it gets hit with a $50 million putative class action that courts have held cannot be removed to federal court.

This case was originally filed in North Carolina state court as a debt collection suit by Citibank against the plaintiff, George W. Jackson. Perhaps because his lawyer recognized that the best defense is a big offense, Jackson filed a counterclaim against Citibank, and also brought class action claims against Home Depot and Carolina Water Systems as third-party defendants. Home Depot removed the case to federal court under CAFA, and moved to realign the parties.  Citibank voluntarily dismissed without prejudice its original debt collection claims. The district court remanded the case on the grounds that Home Depot was not a “defendant” under CAFA, and denied the motion to realign. The Fourth Circuit granted permission to appeal, and affirmed.

The Fourth Circuit’s decision noted that Shamrock Oil & Gas Corp. v. Sheets, 313 U.S. 100 (1941) held that an original plaintiff could not remove a counterclaim under a predecessor statute to 28 U.S.C. § 1441, which only authorized removal by a “defendant.” The Fourth Circuit explained that courts have reached the same result under the current version of § 1441, which is similarly allows removal by “the defendant or the defendants.” CAFA, in section 1453(b), permits removal by “any defendant,” and otherwise broadens the scope of removal in other respects (such as by eliminating the one-year rule, and allowing a defendant to remove in its home state). The Fourth Circuit had previously held that the use of the word “any” defendant rather than “the” defendant did not expand the scope of removal to encompass counterclaim defendants, and thus held that only an original defendant can remove. The Fourth Circuit rejected Home Depot’s argument that the Supreme Court’s decision in Dart Cherokee Basin Operating Co., LLC v. Owens, 135 S. Ct. 547 (2014), which noted that there is no antiremoval presumption under CAFA, warranted a different outcome. The Fourth Circuit noted that only the Supreme Court could overrule Shamrock Oil, and it would leave to the Supreme Court whether “defendant” means something different in CAFA than it does in § 1441. The Fourth Circuit also rejected Home Depot’s argument that it was no longer truly a defendant because Citibank had voluntarily dismissed its claims.

The petition argued that, although there is no circuit split, that is because the courts of appeals have consistently, but erroneously, interpreted Shamrock Oil, and only the Supreme Court can clarify Shamrock Oil.  The petition also highlighted the practical problem this creates for defendants like Home Depot, where they lose federal jurisdiction under CAFA simply because the class action claim is filed as a tag-along to a run-of-the-mill collections suit brought by another company.

The Court’s order granting certiorari also asked the parties to brief the following question: “Should this Court’s holding in Shamrock Oil & Gas Corp. v. Sheets, 313 U. S. 100 (1941) that an original plaintiff may not remove a counterclaim against it extend to third-party counterclaim defendants?” This suggests that the Court will be considering whether third-party defendants should have the right to remove cases not only under CAFA, but also under traditional diversity jurisdiction.

A recent decision by the Eighth Circuit in a Telephone Consumer Protection Act (TCPA) class action provides an important pointer for defendants and their counsel with respect to strategy in defending a putative class action. The key takeaway is to take into consideration whether the case was originally filed in federal court or removed from state court, and consider whether you want to raise lack of standing as an issue in federal court if a successful outcome in the applicable federal circuit is likely to result in a remand to state court.

In St. Louis Heart Center, Inc. v. Nomax, Inc., No. 17-1794, 2018 WL 3719694 (8th Cir. Aug. 6, 2018), the plaintiff brought suit alleging that the defendant violated the TCPA by transmitting faxes without a proper opt-out notice. The faxes had an opt-out notice on them, it just did not satisfy all of the requirements of regulations implementing the TCPA. The plaintiff conceded that consent was not an issue. The Eighth Circuit affirmed the district court’s conclusion that the plaintiff lacked Article III standing because the plaintiff could have opted out and simply chose not to, and “[a]ny technical violation in the opt-out notices thus did not cause actual harm or create a risk of real harm.” Id. at *4.

But the Eighth Circuit vacated the district court’s dismissal of the lawsuit and remanded with direction to remand the case to state court. It explained that “the lack of federal jurisdiction does not obviate the remand requirement of § 1447(c), because state courts are not bound by the limitations of an Article III case or controversy.” Id.

The lesson here for defendants is that in cases removed to state court, it might not be worth raising a standing issue in federal court if the outcome is likely to be a remand and state law on standing is not favorable. Courts can and do raise standing issues sua sponte, so you may want to keep that possibility in mind as well.

The Third Circuit’s new opinion on class certification issues in Mielo v. Steak ‘N Shake Operations, Inc., No. 17-2678 (3d Cir. July 26, 2018) provides helpful guidance for district courts and class action lawyers on both sides. The case alleged violations of the Americans with Disabilities Act (“ADA”) at the defendant’s restaurants. In brief, here are my takeaways from it:

  • Standing: In prior opinions, the Third Circuit has taken the view that the standing inquiry focuses only on the named plaintiffs, not on the class members. That’s an issue ripe for the Supreme Court to tackle. In this case, the Third Circuit found it sufficient for standing purposes for the named plaintiffs to allege that they had personally encountered difficulties with parking facilities that they alleged violated the ADA. Whether the plaintiffs could pursue claims involving restaurants they never visited was an issue the court viewed as a Rule 23 issue rather than an Article III standing issue, in the Third Circuit’s view.
  • Numerosity: The Third Circuit explained how “[i]n recent years the numerosity requirement has been given ‘real teeth.’” (Slip op. at 35.) It requires real evidence, not speculation. Merely because there are millions of persons with mobility disabilities in the United States and it might be fair to assume that at least 40 of them experienced the alleged access issues at the defendant’s restaurants was not enough. The court noted that the numerosity requirement is not “relaxed” in any sense when certification is sought for declaratory or injunctive relief under Rule 23(b)(2). The lesson for defendants here? Think twice before you give up on numerosity.
  • Commonality: This is the most significant part of the opinion, in my view. The court focused on how, although the case plainly focused on a common legal issue involving one ADA provision, that was not enough for commonality. The class definition encompassed various different types of alleged ADA violations under the same statutory provision and regulations, from parking lots to bathrooms to water fountains. The court said that “the collective claims are so widely divergent that they would be better pursued on either an individual basis or by a sufficiently numerous lass of similarly-aggrieved patrons,” and “[w]ith such a potentially wide array of different claims by members of the class,” commonality was not satisfied. (Slip op. at 51.) Defendants can use this decision effectively in lots of cases that involve similar alleged statutory violations or contract claims. In a footnote, the court suggested (but did not decide) that a very narrowly-pled case might satisfy commonality. But that might make numerosity a challenge, and could make a class case much less attractive for plaintiffs’ counsel to pursue. It will be interesting to see if (and how) the plaintiffs continue to pursue this case on remand.
  • Rule 23(b)(2): The court did not reach any issue under Rule 23(b)(2). But footnote 24 of the opinion provides some important guidance, reminding the district court that: (1) subsection (b)(2) applies only if a “single” injunction or declaratory judgment would apply to the entire class; and (2) Rule 65 requires specificity and detail in any proposed injunction.

With Judge Brett Kavanaugh’s nomination to the Supreme Court, one question to ask is whether, if he is confirmed, that will move the Court to any degree in class action cases. Unfortunately, we don’t have much to look at. The D.C. Circuit, with its small geographic footprint, is not a hotbed of class action filings. I could not find any opinion written, or even joined by Judge Kavanaugh, that squarely reviewed a class certification decision. But a few insights might be gleaned from the following three cases:

  • In re District of Columbia, 792 F.3d 96 (D.C. Cir. 2015): Here, Judge Kavanaugh was the presiding judge on the panel but assigned the opinion to Judge Wilkins. The court denied the District of Columbia’s petition for permission to appeal the district court’s order certifying a class. The plaintiffs alleged that the District failed to provide adequate community-based care for Medicare beneficiaries requiring long-term care. In denying permission to appeal, the court held that the District had failed to satisfy the D.C. Circuit’s criteria for granting Rule 23(f) review where the only argument made by the District was that the district court’s decision was “manifestly erroneous.” The court of appeals made clear that the “manifest error” standard was a “high bar,” the court was not deciding the merits of the class certification issues, and it had serious doubts about the district court’s decision. The central question (not decided) was whether there was “a policy or practice affecting all members of the class in the manner Wal-Mart requires for certification.” at 100. I don’t think this case suggests that Judge Kavanaugh would be reluctant to grant certiorari on class action issues, given the nature of the case and the limited basis on which the District sought review.
  • Mills v. Giant of Md., LLC, 508 F.3d 11 (D.C. Cir. 2007): Judge Kavanaugh wrote this opinion about a year after he joined the D.C. Circuit. It was a class action in which the plaintiffs claimed that sellers of milk should be required to put warning labels on containers advising consumers that some people are lactose intolerant. The court of appeals affirmed the district court’s dismissal of the case on the grounds that District of Columbia tort law did not protect against such a “widely known” risk. Judge Kavanaugh explained that “[a] bout of gas or indigestion does not justify a race to the courthouse,” “30 to 50 million Americans suffer from some level of lactose intolerance,” “products targeted to lactose-intolerant individuals are now commonplace,” and “the problem of lactose intolerance has received an extraordinary amount of attention in the media and in the medical community.” He wrote a short opinion, noting that “[w]e will not belabor the obvious.” The outcome here is not remarkable. The opinion suggests that Judge Kavanaugh is unlikely to use the more colorful language than Justices Scalia or Kagan might use in deciding such a case.
  • Cohen v. United States, 650 F.3d 717 (D.C. Cir. 2011): This is an en banc decision in which Judge Kavanaugh wrote a dissenting opinion. It involved a class action in which the plaintiffs challenged the sufficiency of a refund procedure created by the IRS to refund excessive taxes collected on long-distance telephone calls (remember those days when long-distance calls were more expensive?). The majority opinion focused on jurisdictional issues and the Administrative Procedure Act, concluding that the plaintiffs could pursue their suit without having to file refund claims or individual tax refund suits. Judge Kavanaugh wrote a dissent that focused on how the refund procedure was relatively simple, and the plaintiffs could have filed refund claims or brought individual tax refund suits. He wrote that: “Plaintiffs’ ultimate objectives are class certification and a court order that the U.S. Government pay billions of dollars in additional refunds to millions of as-yet-unnamed individuals who never sought refunds from the IRS or filed tax refund suits. It seems that plaintiffs have deliberately avoided filing individual refund claims with the IRS and filing tax refund suits because they think they have a better chance of obtaining class certification if they don’t take those steps. And class certification is a necessary prerequisite to the class-wide jackpot plaintiffs are seeking here.” at 737 (Kavanaugh, J., dissenting). Judge Kavanaugh and the judges who joined his opinion would have held that individual tax refund suits would be an adequate forum for plaintiffs to pursue their claims. This opinion seems to demonstrate that Judge Kavanaugh has a good handle on the reality and practicalities of modern class action litigation and might be persuaded, at least in some circumstances, that under the superiority requirement for certification under Rule 23(b)(3), individual suits and/or a voluntary refund process are a superior means of resolving class claims.

Overall, we have few data points to draw from, but I found no reason to think that a Justice Kavanaugh would consistently vote differently in class action cases as compared with Justice Kennedy.

After a decades-long drought, the Supreme Court recently decided a case involving the Contracts Clause of the Constitution. You might not recall that provision because it is so rarely invoked in modern-day litigation (due to how it has been construed). It provides that “[n]o state shall . . . pass . . . any Law impairing the Obligation of Contracts.” U.S. Const. art I, § 10, cl. 1. Given that many class action suits involve contracts with consumers and state laws applicable thereto, I thought this case was worthy of mention on my blog.

Sveen v. Melin involved a Minnesota statute providing that a divorce automatically revokes a prior beneficiary designation by the insured under a life insurance policy that designated the former spouse as a beneficiary. The ex-spouse whose rights were divested by the statute argued that applying the statute to a life insurance policy that was issued and beneficiary designation that was executed before the statute was enacted was a violation of the Contracts Clause. The Eighth Circuit found a violation of the Contracts Clause. But the Supreme Court reversed, in an 8-1 decision by Justice Kagan.

The Court’s test for whether the Contracts Clause applies has two parts: (1) whether the state law affects a “substantial impairment” of the contractual relationship, taking into account whether it “undermines the contractual bargain, interferes with a party’s reasonable expectations, and prevents the party from safeguarding or reinstating his rights”; and (2) “whether the state law is drawn in an ‘appropriate’ and ‘reasonable’ way to advance ‘a significant and legitimate public purpose.’” (Slip opinion, at 7.)

In Sveen, the Court found no “substantial impairment” because the Minnesota law was “designed to reflect a policyholder’s intent,” was “unlikely to disturb any policyholder’s expectations,” and “supplies a mere default rule.” (Id. at 7-8.) The Court reasoned that most people who get divorced generally do not want to maintain their former spouse as the beneficiary of their life insurance policy (unless otherwise agreed or ordered by the court in the divorce settlement, which were carveouts in the Minnesota statute). And it would be quite easy to reestablish prior intent simply by re-executing another beneficiary designation form. Justice Kagan described this as a mere “paperwork obligation” of the type the Court had long held does not violate the Contracts Clause.

Justice Gorsuch was the sole dissenter. He argued that there was a “substantial impairment” here because the designation of the beneficiary is the “whole point” of a life insurance policy. It appears that he also would have been inclined to change the Court’s prior precedent because the requirement of a “substantial impairment” seems inconsistent with the text of the Contracts Clause and some indications of its original purpose. He noted that “Many critics have raised serious objections” to the Court’s Contracts Clause jurisprudence, citing several law review articles, and “[t]hey deserve a thoughtful reply, if not in this case then in another.” (Gorsuch, J., dissenting, at 4.) He also would have found the second part of the test not satisfied in this case because there are various other means by which a state could achieve its goal of informing people of their right to change the beneficiary following a divorce without retroactively changing the contract.

To make this case more interesting for what I deal with on a regular basis, let’s turn things around a bit. The Court’s principles presumably work both ways. From the insurer’s perspective, it’s fairly common for an insurance statute to be contrary to the insurer’s intent and interfere with the insurer’s reasonable expectations under preexisting policies. Is that enough to move the analysis to the second part of the Contracts Clause test? And if so, would the Court consider abandoning or modifying the second part of its test to reform its jurisprudence closer to the original meaning of the clause? (See footnote 2 of the Court’s opinion, finding that the Court did not need to reach that issue here.) Justice Gorsuch’s dissent makes it pretty clear that he would grant certiorari to take those issues up in the right case. Would there be four justices willing to take such a case?