Dwight Davis Article

A

N

E

W

Y

O

R

K

L

A

W

J

O

U

R

N

A

L

S

P

E

C

I

Class Actions & Complex Litigation

A

L

S

E

C

T

I

O

N

www. NYLJ.com Monday, May 17, 2010

PERSPECTIVE

Stop the Class Action Merry-Go-Round Retention of federal jurisdiction, not remand, is better course after class rejection in CAFA cases.

By Dwight J. Davis, Richard T. Marooney and Zachary A. McEntyre

S

INCE THE Class Action Fairness Act of 2005 (CAFA) was enacted, many federal courts have shown a distinct unwillingness to effect congressional intent that large, interstate class actions be litigated in federal court. Most frequently, courts have imposed obstacles to defendants satisfying the requirement that the amount in controversy in a given class action exceed $5 million. Some federal courts, led by district courts in the Second Circuit, have used a different method to rid their dockets of consumer class actions. After holding that the plaintiff lacks viable class allegations (either by dismissing the class allegations or denying a class certification motion),

those courts have remanded cases on the basis that federal jurisdiction under CAFA has vanished. In many cases, the remanded plaintiff is free to engage in wide-ranging discovery, and file a class certification motion that may be duplicative of what the plaintiff filed in federal court. This result is plainly at odds with the language of CAFA, the unambiguous congressional intent underlying CAFA, and the long-established principle that federal jurisdiction is determined at the time of removal. Nevertheless, federal courts are split on the issue. When Congress passed CAFA, it did so to ensure that class action litigants, and particularly defendants, do not suffer injustice at the hands of state courts that are ill-disposed to handle such cases. Accordingly, the better rule is that federal courts should retain jurisdiction over cases that were filed as class actions even after determining that they may not proceed as such, just as the statute contemplates.

The Reasons Behind CAFA Dwight J. Davis is a senior litigation partner in the Atlanta office of King & Spalding, Richard T. Marooney is a partner in the New York office, and Zachary A. McEntyre is an associate in Atlanta. Jon Chally, a former King & Spalding associate, now with Parker Hudson Rainer & Dobbs, provided considerable assistance in the preparation of this article. Mr. Davis was counsel for General Motors and Home Depot, respectively, in the “Berger v. Home Depot U.S.A.” and “Seyboth v. General Motors Corp.” cases discussed in this article.

Congress passed CAFA for the express purpose of expanding federal diversity jurisdiction to include significant interstate class actions that do not meet the traditional requirements for federal jurisdiction.1 In doing so, Congress repeatedly recognized various state court abuses of the class action device, and designed CAFA to remedy those problems.

For example, in its report encouraging passage of CAFA, the Senate Judiciary Committee noted that the class action device was used in state court as a form of “‘judicial blackmail’ in cases that border on frivolous.” See S. Rep. No. 109-14, p. 20. Even though the class action device was not intended as “a mechanism that affects the substantive outcome of a lawsuit,” the Judiciary Committee concluded that “state court judges often are induced to certify cases for class action treatment not because they believe a class trial would be more efficient than an individual trial, but because they believe class certification will simply induce the defendant to settle the case without a trial.” Id., pp. 20-21. Specifically, the Senate Report criticized both the “‘I never met a class action I didn’t like’ approach to class certification” and the phenomenon of “‘drive-by-class certification’…, in which a class is certified before the defendant has a chance to respond to the complaint, or in some cases, has even received the complaint.” Id., pp. 20-22. The drafters found that state court judges are less careful than federal judges about strictly applying the procedural requirements that govern class actions, and lack the necessary resources to supervise proposed class settlements properly. See Sen. Rep. 109-14, at 14 (2005). The drafters also found that:

Monday, May 17, 2010 (1) lawyers, not plaintiffs, may benefit most from settlements; (2) corporate defendants are forced to settle frivolous claims to avoid expensive litigation, thus driving up consumer prices; (3) constitutional due process rights are often ignored in class actions; and (4) expensive and predatory copy-cat cases force defendants to litigate the same case in multiple jurisdictions, driving up consumer costs. Id. at 14. To address these concerns regarding abuse of the class action device in state court, Congress passed CAFA, which provides that federal courts have jurisdiction over all “class actions” in which (1) any member of the putative class is a citizen of a state different than any defendant and (2) the amount in controversy exceeds $5 million. 28 U.S.C. §1332(d). CAFA defines a “class action” as “any civil action filed under rule 23 of the Federal Rules of Civil Procedure or similar State statute or rule of judicial procedure authorizing an action to be brought by 1 or more representative persons as a class action…” Id., §1332(d)(B) (emphasis added). Thus, an action need only be “filed under Rule 23” to fall within the intentionally expanded jurisdiction of federal courts. The statute makes clear that CAFA applies regardless of whether the action actually satisfies the requirements of Rule 23. CAFA applies “to any class action before or after the entry of a class certification order by the court with respect to that action.” Id., §1332(d)(8).

Post-Removal Events and Jurisdiction Since 1938, the law on removal jurisdiction has been clear: Once a case is properly removed, events occurring following removal do not divest the federal court of jurisdiction. St. Paul Mercury Indem. Co. v. Red Cab Co., 303 U.S. 283, 294 (1938) (“If the plaintiff could, no matter how bona fide his original claim in the state court, reduce the amount of his demand to defeat federal jurisdiction the defendant’s supposed statutory right of removal would be subject to the plaintiff’s caprice”). According to the U.S. Supreme Court, “the claim, whether well or ill founded in fact, fixes the right of the defendant to remove…” Id. Courts following Red Cab have unequivocally held that “[c]hallenges to removal jurisdiction require an inquiry into the circumstances at the time the notice of removal is filed.” Spencer v. U.S. Dist. Ct. for the N. Dist. of Cal., 393 F.3d 867, 871 (9th Cir. 2004); Braud v. Transp. Serv. Co. of Ill., 445 F.3d 801, 808 (5th Cir. 2006) (“The law is clear that, once a federal court properly has jurisdiction over a case removed to federal court, subsequent events generally cannot ‘oust’ the federal court of jurisdiction”); Miedema v. Maytag Corp., 450 F.3d

1322, 1331 (11th Cir. 2006); Sparta Surgical Corp. v. NASD Inc., 159 F.3d 1209, 1213 (9th Cir. 1998); Griffin v. Red Run Lodge Inc., 610 F.2d 1198, 1204 (4th Cir. 1979). This long-standing authority clearly serves judicial economy. A court with jurisdiction over a case at its inception is required oversee a case to its conclusion. There is nothing in the legislative history or the wording of CAFA that suggests that the legislation was intended to change this long line of cases. To the contrary, Congress made clear that under CAFA, the “proper forum” to litigate interstate class actions is federal court. See Sen. Rep. 10914, at 5 (2005) (the drafters of CAFA intended to “place[] the determination of more interstate class action lawsuits in the proper forum—the federal courts”).

After holding that a plaintiff lacks viable class allegations (either by dismissing the class allegations or denying a class certification motion), some federal courts have remanded cases on the basis that federal jurisdiction under CAFA has vanished. In fact, according to the Senate Judiciary Committee, “CAFA was enacted, in part, to ‘restore the intent of the framers of the United States Constitution by providing for Federal court consideration of interstate cases of national importance under diversity jurisdiction.’” Luther v. Countrywide Home Loans Servicing LP, 533 F.3d 1031, 1034 (9th Cir. 2008) (citing Pub. L. No. 109-2, §2(b)(2), 119 Stat. 3, 5).

Remands After Certification Is Denied Despite CAFA’s text, the obvious intent behind it, and traditional principles of determining diversity jurisdiction, some district courts have concluded that federal court jurisdiction over putative class actions under CAFA vanishes when the court determines that the plaintiff’s class allegations are invalid, either by denying class certification or otherwise dismissing the plaintiff’s class allegations. These courts often rely on what they claim to be ambiguous language in CAFA to justify remand following denial of class certification. For example, two district courts have held that remand was required because, while CAFA expressly notes that its jurisdiction extends to any action “before or after the entry of a class certification order” with respect to that action, CAFA defines “class certification order” as an

order “approving the treatment of some or all aspects of a civil action as a class action.” See M.S. Wholesale Plumbing Inc. v. Univ. Sports Publ’ns Co., No. 07CV00730 SWW, 2008 WL 5225823, at *2 (E.D. Ark. Dec. 10, 2008) (emphasis added); Ronat v. Martha Stewart Living Omnimedia Inc., No. 05-520-GPM, 2008 WL 4963214, at *7 (S.D. Ill. Nov. 12, 2008). According to these courts, because a class certification order is not defined to include an order “‘denying’ the treatment of some or all aspects of a civil action as a class action,” CAFA’s text mandates “vanishing jurisdiction.” See M.S. Wholesale Plumbing, 2008 WL 5225823, at *2 (emphasis added); Ronat, 2008 WL 4963214, at *7. Beginning with Falcon v. Philips Elecs. N. Am. Corp., 489 F. Supp. 2d 367, 368-69 (S.D.N.Y. 2007), some courts have remanded cases only after finding that there is no “reasonably foreseeable possibility of subsequent class certification in the future.” See, e.g., Falcon, 489 F. Supp. 2d at 368-69 (denial of class certification deprives the court of CAFA jurisdiction when the denial is premised on a basis that “a class cannot be certified either now or in the foreseeable future of the case”); Clausnitzer v. Federal Express. Corp., 621 F. Supp. 2d 1266, 1270 (S.D. Fla. 2008) (same); Avritt v. Reliastar Life Ins. Co., No. CIV 07-1817 (JNE/JJG), 2009 WL 1703224, at 3 (D. Minn. June 18, 2009) (same); Arabian v. Sony Elecs. Inc., No. 05-1741, 2007 WL 2701340, at *5 (S.D. Cal. Sept. 13, 2007) (same); accord Muehlbauer v. General Motors. Corp., No. 09 C 2676, 2009 WL 874511, at *9 (N.D. Ill Mar. 31, 2009) (remanding case after denying class certification because issues precluding class certification were “incurable”); M.S. Wholesale Plumbing Inc., 2008 WL 5225823, at *2 (remanding case to state court where “there has never been and never will be a ‘class certification order’ entered”). According to these rulings, once there is no possibility of class certification in the future, the case is no longer a “class action” for purposes of CAFA. These courts either remand the matter to the state court from which they were removed or, if filed originally in federal court, dismiss the case entirely. At first blush, these holdings seem sufficiently benign. After all, if a case is unequivocally not a class action, there should be no concern that the “class action device” could be abused in that case. But the federal courts’ decisions that class certification is inappropriate under Rule 23 cannot preclude the state courts to which the cases are remanded from reaching the opposite conclusion. More troubling are the federal court decisions that have ordered remand even without a finding that class certification is not foreseeable in the

Monday, May 17, 2010

future. See Ramirez v. Dollar Phone Corp., 668 F. Supp. 2d 448, 468 (E.D.N.Y. 2009); Brennan v. Rite-Aid Corp., 263 F.R.D. 176, 176 (E.D. Pa. 2009); Atkinson v. Wal-Mart Stores Inc., No. 8:08-cv-691T-30TBM, 2009 WL 1458020, at **4-5 (M.D. Fla. May 29, 2009); Jin v. Bin-Bridge Jeweler Inc., No. 2:07-cv-1587, 2009 WL 981600, at *1 (E.D. Cal. April 9, 2009); Bishop’s Prop. & Inv., LLC v. Protective Life Ins. Co., No. 05-CV-126(CDL), 2009 WL 362116, at *1 (M.D. Ga. Feb. 10, 2009); Ronat, 2008 WL 4963214, at *7; Nash v. The New School, No. 05 Civ. 7174(KMW)(FM), 2009 WL 1159166 (S.D.N.Y. April 29, 2009) (“Because the Court denied Plaintiffs’ motion for class certification, Plaintiffs must now establish the Court’s jurisdiction over their state law claims”). In still other cases, courts have remanded while expressly noting the possibility of class certification in state court. See Berger v. Home Depot U.S.A., Case No.: CV 08-00692 SJO (“The Court does not opine on whether Plaintiff can pursue class-wide claims in state court”)2; see also, Seyboth v. General Motors Corp., No. 07-CV-2292T-27TBM, 2008 WL 1994912, at *2 (M.D. Fla. May 8, 2008). In both Berger and Seyboth, the class certification denial was based on the plaintiff’s failure to comply with a local rule requiring the plaintiff to file a class certification within the time allotted. These courts denied class certification and ordered remand even without ruling on the merits of the class certification question. Thus, federal courts have held that they lack jurisdiction over cases, even if such cases could later be certified as a class action in state court. In so holding, the courts have opened the door for procedural gamesmanship. In cases where courts remand after dismissing class allegations because of plaintiff’s failure to comply with procedural requirements, plaintiffs are rewarded by obtaining the state court forum they typically prefer. By remanding cases in which the class allegations have been stricken or class certification has been denied, federal courts subject class action defendants to the very same dangers from which Congress sought to protect them. Once a case is remanded, there is nothing to prevent the plaintiff from re-asserting the previously rejected class allegations. Moreover, because plaintiffs typically prefer to prosecute class actions in state court, they may view “losing” in federal court as “winning” in the long run. Plaintiffs in remanded class actions can drive up the costs of litigation for corporate defendants and extract artificially inflated settlements from them. Surely, CAFA was not intended to incentivize plaintiffs to fail to comply with procedural requirements relating to class certification or to sabotage their own class certification efforts. On the other hand, if a plaintiff actually obtains

favorable a class certification decision from a state court judge, the defendant may well remove the case again, thus triggering another round of expensive litigation relating to jurisdiction. In any event, the defendant ultimately expends more resources defending itself in a case it thought it had already won, and both state and federal courts are forced to bear the burden of unnecessary litigation.

The Better Rule: Retain Jurisdiction Remand is not the universal result when a federal court denies class certification. In fact, while no district court in the Second Circuit has exercised jurisdiction even after concluding that the claims at issue could not be maintained on a class-wide basis, numerous other district courts have done so. These courts usually rely upon both the explicit text of CAFA and the Supreme Court’s holding in Red Cab. See Genenbacher v. CenturyTel Fiber Co., II, LLC, 500 F. Supp. 2d 1014, 1015 (C.D. Ill. 2007); In re Welding Fume Prods. Liab. Litig., 245 F.R.D. 279, 317 & n.195 (N.D. Ohio 2007); Kitts v. Citgo Petroleum Corp., No. 07-CV-1151, 2009 WL 192550, at *3 (W.D. La. Jan. 23, 2009); Colomar v. Mercy Hosp. Inc., No. 05-22409, 2007 WL 2083562, at *2-3 (S.D. Fla. July 20, 2007). The only circuit courts of appeal to have addressed this issue reached the same conclusion. In Vega v. T-Mobile, the Eleventh Circuit noted that removal is based on the claims alleged at the time of removal and that later developments in a case, including those that render class certification inappropriate, do not divest federal courts of jurisdiction. 564 F.3d 1256, 1268 n.12 (11th Cir. 2009). More recently, the Seventh Circuit joined the Eleventh Circuit in squarely rejecting the vanishing jurisdiction cases, holding that denial of class certification does not deny federal courts of jurisdiction. Cunningham Charter Corp. v. Learjet Inc., 592 F.3d 805, 806 (7th Cir. 2010).3 In reaching its decision, the court expressly acknowledged the potential for gamesmanship that arises when district courts remand cases after denying class certification. Id. at 807. For example, the court noted that if the state court to which the case was remanded applied different criteria in evaluating the propriety of class certification, the federal court’s remand order could ultimately result in the case proceeding as a class action in state court. Id. Such a result, the Seventh Circuit, reasoned, “would be contrary to [CAFA’s] purpose of relaxing the requirement of complete diversity of citizenship so that class actions involving incomplete diversity can be litigated in federal court.” Id. The court also predicated its holding on the long-established

principle that jurisdiction, “once properly invoked,” does not vanish as a result of postfiling events. Id. The decisions in Vega and Learjet are consistent with both settled pre-CAFA law on federal jurisdiction and Congress’s clear intent in enacting CAFA. They also acknowledge the practical reality ignored by cases reaching the opposite conclusion: when a federal court denies a class certification motion or strikes a plaintiff’s class allegations and then remands the case to state court, the federal court leaves open the possibility that the plaintiff will re-assert its class allegations in state court, which was likely the plaintiff’s forum of choice from the start.

Conclusion District courts in the Second Circuit helped to create the “vanishing jurisdiction” phenomenon in class actions removed under CAFA, based on a mistaken reading of the statute itself and without adequate consideration of congressional intent, pre-CAFA law, and public policy. Now, other district courts have followed this reasoning. For CAFA to serve the purpose it was intended to serve, however, the Second Circuit should step in at the first opportunity, follow the lead of the Seventh and Eleventh circuits, and eradicate the phenomenon of vanishing jurisdiction in CAFA cases.

••••••••••••••••

•••••••••••••

1. 28 U.S.C. §1332(d) provides expanded jurisdiction over “class actions” and is the primary section relevant to this article. 2. The case is continuing in California state court, where Mr. Davis represents Home Depot. 3. And most recently, the Ninth Circuit joined the Seventh and Eleventh Circuits in rejecting the “vanishing jurisdiction” phenomenon in CAFA cases, holding that “[i]f the putative class action was properly removed to begin with, the subsequent denial of Rule 23 class certification does not divest the district court of jurisdiction.” United Steel, Paper Forestry, Rubber, Mfg., Energy, Allied Indus. Serv. Union, AFL-CIO, CLC v. Shell Oil Co., __ F.3d __, No. 10-55269, 2010 U.S. App. LEXIS 8208, at *1 (9th Cir. Apr. 21, 2010).

Reprinted with permission from the May 17, 2010 edition of the NEW YORK LAW JOURNAL© 2010 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited. For information, contact 877-257-3382 or reprints@ alm.com. # 070-05-10-32

Business Litigation and International Arbitration Practice Groups May 4, 2010

Stolt-Nielsen S.A. v. Animalfeeds International Corp.: Important Supreme Court Ruling Concerning Class Action Arbitrations and the Scope of Judicial Review in the Context of Domestic and International Arbitrations

For more information, contact: R. Doak Bishop +1 (713) 751 3205 [email protected] Dwight J. Davis +1 (404) 572 4791 [email protected] Barry Goheen +1 (404) 572 4618 [email protected] S. Stewart Haskins, II +1 (404) 572 4687 [email protected] Edward G. Kehoe +1 (212) 556 2246 [email protected] Eric Schwartz +33 (0)1 7300 3905 [email protected] Brian A. White +1 (404) 572 4739 [email protected] www.kslaw.com

On Tuesday, April 27, 2010, the United States Supreme Court issued a ground-breaking decision in Stolt-Nielsen S.A. v. Animalfeeds International Corp., No. 08-1198. The Court considered the question “whether imposing class arbitration on parties whose arbitration clauses are ‘silent’ on that issue is consistent with the Federal Arbitration Act.”1 The Court held that, in this case, the arbitrators had exceeded their authority in permitting class arbitration. As a consequence, the Court took the unusual step of vacating the arbitration award. The Court further held that class arbitration was not permitted under these facts and reversed the result. Stolt-Neilson is a significant decision for corporations who rely on arbitration agreements in standard form contracts and who prefer to avoid class-action arbitrations. It will be of particular interest to non-U.S. corporations selling goods or services into the U.S. It also breaks new ground on the issue of when and on what grounds courts in the U.S. may vacate arbitration awards and revisits the Court’s landmark ruling in Green Tree Financial Corp. v. Bazzle.2 Class Arbitration Prior to Stolt-Nielson Since the Supreme Court’s 2003 decision in Bazzle, class arbitration has become increasingly common in the U.S. In a class arbitration, a law firm (or group of law firms) brings claims against a corporate defendant on behalf of an individual or small group who purport to represent a large group of other individuals. The claimants allege that all members of the “class” have suffered similar injuries as a result of wrongdoing by a corporate defendant. The issue presented in Bazzle was whether an arbitration agreement permitted a claimant to bring claims in arbitration on behalf of a class. Bazzle involved a large number of identical contracts between a commercial lender and its customers. The standard form contract contained an arbitration clause. The arbitrator proceeded to hear the case as a class action and ultimately entered a final award in favor of

Page 1 of 5

Business Litigation and International Arbitration Practice Groups the consumers. The lender challenged the award in the state courts of South Carolina. After noting that the arbitration clause was “silent regarding class-wide arbitration”—an issue that was not considered by the arbitrator—the South Carolina Supreme Court affirmed the award.3 When Bazzle reached the United States Supreme Court, the Court considered three questions: (1) whether the court or the arbitrator should decide whether the arbitration agreement was “silent” as to class arbitration; (2) what standard the decision maker should apply in determining whether the contract allowed for class arbitration; and (3) whether under the appropriate standard it was appropriate to conduct a class arbitration.4 A plurality of the Court decided only the first question, writing that the arbitrator and not the court should determine whether a contract is “silent” as to the issue of class arbitration.5 The plurality stated that the South Carolina Supreme Court’s decision should be vacated and the case remanded to the arbitrator to determine this threshold issue.6 Justice Stevens, while concurring in the judgment reversing and remanding, wrote separately stating that he did not endorse the plurality’s rationale. Justice Stevens’ opinion did not address the first question before the Court, but rather looked to the second and third questions and wrote that “the decision to conduct a class-action arbitration was correct as a matter of law.”7 Despite the absence of a majority opinion, Bazzle had a significant impact. Many arbitration specialists concluded that the Supreme Court had endorsed class arbitration and the American Arbitration Association (the “AAA”) promulgated new rules to deal with class arbitrations. Numerous arbitration panels were called upon to determine whether parties had consented to class arbitration and a number of class arbitrations ensued. Most of these cases involved consumer class actions, in which large numbers of consumers purchased commodity goods or services pursuant to adhesion contracts and many of whose claims had negative value (i.e., the cost of pursuing arbitration on an individual basis greatly outweighed that individual’s potential recovery). Background and Question Presented in Stolt-Nielsen In Stolt-Nielsen, the question presented to the Supreme Court was “whether imposing class arbitration on parties whose arbitration clauses are ‘silent’ on that issue is consistent with the Federal Arbitration Act (FAA), 9 U.S.C. § 1 et seq.”8 Stolt-Nielsen involved charter party contracts between shipping companies and customers who charter for the use of parcel tankers, i.e. vessels with compartments that are separately chartered to customers. Charter party contracts are commonly used in shipping agreements and generally include standard form clauses. Unlike consumer adhesion contracts, however, charter party contracts generally are entered into by sophisticated parties who are repeat players in this business. The Petitioners were Stolt-Nielsen and other shipping companies (collectively, “Stolt-Neilsen”). The Respondent, AnimalFeeds International Corp. (AnimalFeeds) was a customer who shipped its goods pursuant to a charter party contract that included an arbitration clause.9 In 2003, the US Department of Justice concluded a criminal investigation that revealed that Petitioner and its competitors had engaged in a price-fixing conspiracy in violation of US antitrust law. As is common following a criminal antitrust proceeding, AnimalFeeds filed a purported class-action antitrust suit against Petitioners in a United States District Court. Stolt-Nielsen successfully moved to compel arbitration citing the arbitration provision in the charter party agreement.

Page 2 of 5

Business Litigation and International Arbitration Practice Groups Relying on the plurality opinion in Bazzle, the parties agreed to submit the class arbitration question to a panel of three arbitrators. The parties further stipulated that the arbitration clause was “silent” as to class arbitration. AnimalFeeds made three arguments to the arbitrators in support of class arbitration: (1) because the arbitration agreement was silent on the issue, it should be presumed that class arbitration was permitted; (2) public policy as reflected in post-Bazzle arbitration awards supports class arbitration; and (3) the arbitration clause would be unconscionable and therefore unenforceable if it forbade class arbitration. The arbitrators found for Stolt-Neilson on the first and third arguments but, after analyzing postBazzle arbitration awards, concluded that public policy reasons militated in favor of finding that a “silent” arbitration clause permits class arbitration.10 Petitioners filed an application in the United States District Court for the Southern District of New York to vacate the award pursuant to 9 U.S.C. § 10(a)(4). The District Court found that the award was made in “manifest disregard of the law” because the arbitrators failed to conduct a choice-of-law analysis.11 The United States Court of Appeals for the Second Circuit reversed, holding that the decision was not in “manifest disregard of the law” because Petitioners cited no authority prohibiting class arbitration.12 AnimalFeeds raised the same three arguments before the Supreme Court. Summary of the Opinion Grounds to vacate the Award Petitioners’ challenge was based on 9 U.S.C. § 10(a)(4), which permits the courts to vacate an arbitration award where the arbitrators “exceeded their powers.” Petitioners argued that the Court should determine whether the arbitration award was the result of a “manifest disregard of the law.” This raised the controversial question whether the Supreme Court would endorse the “manifest disregard” standard as a basis for vacating an arbitration award. The Court sidestepped the issue of whether the manifest disregard test is valid under the FAA by stating in a footnote that, “[a]ssuming arguendo, that such a standard applies, we find it satisfied for the reasons that follow.”13 The Court held that the arbitration panel had exceeded its powers by imposing its own public policy because “the task of an arbitrator is to interpret and enforce a contract, not to . . . impose its own view of sound policy regarding class arbitration.”14 The Court found that it was inappropriate for the panel to look to post-Bazzle arbitration decisions and to “proceed[] as if it had the authority of a common-law court to develop what it viewed as the best rule to be applied in such a situation.”15 The arbitrators should have identified the rule of law from the FAA, federal maritime law, or New York law to determine whether the parties intended to permit class arbitration. Ultimately, the Court rejected the reliance by the arbitrators on public policy stating that the “panel simply imposed its own conception of sound policy.”16

Page 3 of 5

Business Litigation and International Arbitration Practice Groups Grounds to Reform the Award Section 10(b) of the FAA permits the federal courts to remand the case to the arbitrator(s) or to reform the Award. 9 U.S.C. § 10(b). Here, the Court went on to reach the ultimate issue because it found that there could be “only one possible outcome” -- i.e, that class arbitration was not permitted on the facts of this case.17 The Court held that because the parties stipulated that their agreement was “silent,” the arbitrators should have identified the rule of law that would govern that situation, looking to the FAA, to federal maritime law or New York law. The Court found that, under both New York and general maritime law, where the contract is ambiguous, evidence of “custom and usage” is relevant and admissible to determine the parties’ intent. Stolt-Neilson submitted (apparently undisputed) evidence that the settled expectation in the shipping industry was that class arbitration would not be permitted. In particular, the Court referenced an expert declaration stating that the “prospect of a class action in a maritime arbitration would be ‘quite foreign’ to overseas shipping executives and charterers.”18 Notwithstanding the Court’s rejection of the arbitrators’ reliance on public policy, the Court discussed the policy reasons why class arbitration in the maritime context would be inappropriate. The Court first addressed the fundamental principle that arbitration “is a matter of consent, not coercion,” and that the “central or ‘primary’ purpose of the FAA is to ensure that ‘private agreements to arbitrate are enforced according to their terms.’”19 Ultimately, the parties’ intentions control and courts and arbitrators must give effect to those expectations. It follows, the Court held, that arbitrators cannot compel class arbitration unless a contractual basis exists to conclude that the parties to the agreement agreed to class arbitration. Here, the parties agreed that they reached no agreement as to class arbitration. A party cannot implicitly agree to class arbitration because the very nature of the arbitration proceeding is fundamentally changed with the process of class arbitration. Further, as the Court noted, these parties are sophisticated and there was substantial testimony concerning the absence of class proceedings in both foreign courts and maritime arbitrations. Accordingly, the “panel’s conclusion [was] fundamentally at war with the foundational FAA principle that arbitration is a matter of consent.”20 Implications and Limitations of Stolt-Nielsen Stolt-Neilsen can be read broadly for the proposition that class arbitration is never appropriate when the arbitration agreement is silent on this issue. It provides the basis for an argument that the only time class arbitration is appropriate is when the arbitration agreement expressly provides for class arbitration. The counter-argument likely will be that this holding applies only to maritime transactions where there is testimony that the regular players in the industry have a settled expectation that they will not be exposed to class arbitration. A second argument likely will be that contracts of adhesion involving consumers can be distinguished from charter party contracts involving sophisticated parties. The Court’s ruling also raises the issue of whether a state law creating a presumption in favor of class arbitration would be pre-empted by Federal law.

Page 4 of 5

Business Litigation and International Arbitration Practice Groups Next, Stolt-Neilsen is notable for the fact that the US Supreme Court showed substantial deference to the norms of international commerce. The Court rejected public policy arguments in favor of making arbitration more like US-style litigation in part based on the expectations of the international shipping community. Finally, Stolt-Neilsen is a rare case in which the US Supreme Court vacated an arbitration award. The Court intentionally side-stepped the question of whether the manifest disregard standard may be applied by courts reviewing arbitration awards; thus, there will continue to be litigation over this issue. And, while the Court vacated the Award on the grounds that the arbitrators exceeded their powers, it formulated no clear test for the lower courts to use in analyzing this issue in future cases.

Celebrating 125 years of service, King & Spalding is an international law firm with more than 800 lawyers in Abu Dhabi, Atlanta, Austin, Charlotte, Dubai, Frankfurt, Houston, London, New York, Paris, Riyadh (affiliated office), San Francisco, Silicon Valley and Washington, D.C. The firm represents half of the Fortune 100 and, according to a Corporate Counsel survey in August 2009, ranks fifth in its total number of representations of those companies. For additional information, visit www.kslaw.com.. This alert provides a general summary of recent legal developments. It is not intended to be and should not be relied upon as legal advice.

1

Stolt-Nielsen S.A. v. AnimalFeeds International Corp., 559 U.S. ___, 2010 WL 1655826, at *4 (2010). 539 U.S. 444 (2003). 3 Bazzle v. Green Tree Financial Corp., 351 S. C. 244, 569 S.E. 2d 349 (2002). 4 Green Tree Financial Corp. v. Bazzle, 539 U.S. 444, 447, 123 S. Ct. 2402, 2404 (2003). 5 Id. at 452. 6 Id. at 452-54. 7 Id. at 455. 8 Stolt-Nielsen S.A. v. AnimalFeeds International Corp., 558 U.S. ___, 2010 WL 1655826, at *4. 9 Id. at *4-5. 10 Id. at *5-6. 11 Stolt-Nielsen S.A. v. AnimalFeeds International Corp., 435 F. Supp. 2d 382, 384-385 (S.D.N.Y. 2006). 12 Stolt-Nielsen S.A. v. AnimalFeeds International Corp., 548 F.3d 85, 91-98 (2nd Cir. 2008). 13 Stolt-Nielsen S.A. v. AnimalFeeds International Corp., 2010 WL 1655826, at *7, n.3. 14 Id. at *7. 15 Id. at *8. 16 Id. 17 Id. at *9. 18 Id. at *8, n.6. 19 Id. at *11. 20 Id. at *13. 2

Page 5 of 5

Frederico v. Home Depot: The Third Circuit Clarifies the Removal Burden for CAFA Defendants, But Is the Burden Still Too High? By

C

Dwight J. Davis, Jonathan R. Chally, and Zachary A. McEntyre

ONGRESS passed the Class Action Fairness Act of 2005 (“CAFA”) with the express aim of making federal courts the preferred venue for large, multi-state class actions.1 To effect that purpose, CAFA expanded federal diversity jurisdiction, allowing putative class action lawsuits to be litigated in federal court if (1) the parties are minimally diverse;2 (2) the putative class contains at least 100 members;3 and (3) the aggregate amount in controversy exceeds $5 million.4 Moreover, CAFA provided, for the first time, a procedure for interlocutory review of remand orders.5 While CAFA’s basic principles were both well-known and clearly described in the terms of the statute, certain courts have shown a surprising hostility to CAFA cases. The initial battle to narrow the scope of CAFA involved whether CAFA altered traditional rules regarding which party had the burden of proof to establish federal jurisdiction after a case was removed. The Senate Judiciary Committee’s Report, admittedly inserted into the record after CAFA’s passage, specifically absolved

1

Pub. Law 109-2 § 2(b)(2). 28 U.S.C. § 1332(d)(2)(A) (defining minimal diversity as when any member of the putative class defined in the complaint is a citizen of a different state than any named defendant). 3 28 U.S.C. § 1332(d)(5)(B). The number of putative class members is determined by the class definition in the complaint. See Strawn v. AT&T Mobility LLC, 530 F.3d 293, 298 (4th Cir. 2008) (holding that the number of putative class members is to be determined by allegations in the complaint, not the plaintiff's later characterizations of the complaint). 4 28 U.S.C. § 1332(d)(2). 5 28 U.S.C. § 1453(c). 2

Dwight Davis is a senior partner in the Litigation Practice Group at King & Spalding. He is one of the nation’s leading authorities in consumer class actions. In addition to his class action expertise, Mr. Davis has litigation and trial experience in a wide range of civil matters including insurance coverage, RICO, securities fraud, antitrust, and consumer fraud, and has more than 25 years of experience as a trial lawyer defending corporations in numerous jurisdictions across the country. Mr. Davis is a Fellow in the American College of Trial Lawyers, an AV rated lawyer, and is listed in The Best Lawyers in America, Georgia Super Lawyers and Georgia's Legal Elite. Jon Chally is an associate in the Litigation Practice Group at King & Spalding. His practice focuses on class action lawsuits involving claims of consumer or securities fraud. He has additional experience in other forms of complex litigation, including sophisticated commercial disputes and real estate litigation. Zach McEntyre is an associate in the Litigation Practice Group at King & Spalding. His practice focuses

on

complex

commercial litigation, including consumer class actions, insurance coverage disputes, healthcare litigation, and contract disputes.

Frederico v. Home Depot

removing defendants from submitting evidence demonstrating that the removal requirements were satisfied.6 Relying on this legislative history, defense lawyers argued that they need not “prove” any of CAFA’s jurisdictional facts (minimal diversity, one hundred class members, or amount in controversy exceeding $5 million) to support a CAFA removal, and that remand would be appropriate only if plaintiffs could prove, at least by a preponderance of the evidence, that these jurisdictional facts did not exist. Although some district courts initially accepted this argument,7 every circuit court that confronted the issue ultimately rejected it because (1) the statute did not expressly reverse the well-established burden under existing law and (2) the committee report was inserted into the record after CAFA’s passage and was, therefore, irrelevant.8 With that issue settled, courts began wrestling with the standard a removing party must meet to discharge its burden of proof. Most courts—including the Second, Sixth, Seventh, Ninth, and Eleventh Circuits—have concluded that a removing defendant must show CAFA’s jurisdictional elements by a preponderance of the evidence.9 To the contrary, until very recently, the Third Circuit stood alone in imposing on the removing defendant, in all cases, the substantially more stringent burden of showing the elements of CAFA jurisdiction to a “legal certainty.”10 In 6

S. Rep. No. 109-14, at 42 (2005). E.g., Berry v. American Express Publishing Corp., 381 F. Supp. 2d 161 (C.D. Cal. 2005). 8 See, e.g., Smith v. Nationwide Prop. & Cas. Ins. Co., 505 F.3d 401, 404 (6th Cir. 2007); Miedema v. Maytag Corp., 450 F.3d 1322, 1328 (11th Cir. 2006); Blockbuster, Inc. v. Galeno, 472 F.3d 53, 58 (2d Cir. 2006); Abrego Abrego v. Dow Chem. Co., 443 F.3d 676, 678 (9th Cir. 2006); Brill v. Countrywide Home Loans, Inc., 427 F.3d 446, 448 (7th Cir. 2005). 9 Blockbuster, 472 F.3d at 58; Smith, 505 F.3d at 404; Miedema, 450 F.3d at 1328; Abrego, 443 F.3d at 686; Brill, 427 F.3d at 448, respectively. 10 Morgan v. Gay, 471 F.3d 469, 474 (3d Cir. 2006). 7

Page 359

Morgan v. Gay, the court imposed this requirement on a defendant struggling to demonstrate at the earliest stages of the litigation that the amount in controversy exceeded $5 million. While the plaintiff in Morgan had expressly disclaimed damages in excess of CAFA’s amount in controversy requirement, Morgan appeared to require that in all cases, regardless of whether a plaintiff makes such a disclaimer, removing defendants must establish to a legal certainty that CAFA’s jurisdictional elements are satisfied at the time of removal. In Frederico v. Home Depot,11 the Third Circuit clarified the holding in Morgan and held that the stringent “legal certainty” test applied only in cases “where the plaintiff’s complaint specifically (and not impliedly) and precisely (and not inferentially) states that the amount sought in a class action diversity complaint . . . shall not exceed $5 million. . . .”12 In all other cases involving factual disputes as to the jurisdictional amount, the “preponderance of the evidence standard would be appropriate.”13 By limiting the application of Morgan’s “legal certainty” test, the Third Circuit joined every other circuit which has addressed the issue and abandoned an evidentiary burden that is inconsistent with (1) the express intent of Congress to federalize multi-state class actions, (2) the removal standards applied by other appellate courts, and (3) the plain language of CAFA itself. Unfortunately, in dicta, the Third Circuit in Frederico reaffirmed that the “legal certainty” standard will apply when a named plaintiff expressly states in the complaint, purportedly on behalf of the alleged class, that damages do not exceed $5 million. Yet, given Congress’ expressed demand that large, multi-state class actions be in federal court, neither the Third Circuit 11 507 F.3d 188 (3d Cir. 2007). The authors are counsel of record for Home Depot, the removing defendant in Frederico. 12 Frederico, 507 F.3d 196 (3d Cir. 2007), 13 Id.

Page 360

nor any other court has yet expressed a logical reason why the stringent “legal certainty” standard should apply even if an express disclaimer is present in the complaint. At the time that the named plaintiff would make such a disclaimer, typically in the complaint before any discovery, the named plaintiff simply cannot have sufficient information about the alleged class to disclaim damages on behalf of that class. The fact that a named plaintiff attempts to disclaim damages on behalf of such a class without any discovery could indicate that the plaintiff is inadequate to represent the class or, in representing it, is deliberately seeking to avoid federal jurisdiction. Further, if the parties conduct discovery on the amount in controversy and there is evidence that the $5 million threshold has been met, what public policy is furthered by requiring the defendant to meet the higher standard? In short, a class-wide disclaimer of damages at the initial stages of a lawsuit should not be sufficient to avoid federal court jurisdiction. The Third Circuit’s reliance on such a disclaimer and its requirement that a defendant demonstrate to a legal certainty that such a disclaimer is incorrect is, arguably, inconsistent with United States Supreme Court precedent,14 and is certainly inconsistent with Congress’s express intent that large, multistate class actions be tried in federal court. Because the holding in Frederico clearly went beyond the issues raised in that case, perhaps this anomaly can be corrected in a future case. In this article, we will trace the history of the burden of proof imposed on removing parties both before and after CAFA was enacted and suggest that, based on that history, the language of CAFA itself, and Congress’s express intent in enacting it, courts should abandon the legal certainty 14

See McNutt v. General Motors Acceptance Corp. of Indiana, 298 U.S. 178, 189 (1936) (concluding that jurisdictional facts must be established only by a preponderance of the evidence); see also Section IV, infra.

DEFENSE COUNSEL JOURNAL–October 2008

standard altogether as a burden on removing parties; both, like the Frederico court, when a complaint is unclear regarding the amount in controversy and, contrary to the dicta in Frederico, when a named plaintiff expressly disclaims damages in excess of $5 million. I. Morgan v. Gay A. Background In Morgan, the plaintiff, a New Jersey purchaser of skin cream, filed suit in New Jersey state court asserting violations of the New Jersey Consumer Fraud Act and a variety of common law claims arising from the defendant’s allegedly false advertising.15 In a clear attempt to avoid removal under CAFA, the plaintiff specified in her complaint that “the total amount of . . . monetary relief for the class as a whole shall not exceed $5 million in sum or value.”16 Invoking CAFA, the defendants nonetheless removed the action to federal court. The defendants did not “offer any factual support” for their assertion that the damages sought by the plaintiff would “far exceed the $5 million mark.”17 The plaintiff then filed a motion to remand, arguing that the federal court lacked subject matter jurisdiction because the defendant had failed to prove the requisite amount in controversy. The district court granted the plaintiff’s motion, and the defendant appealed to the Third Circuit.18 B. The Third Circuit’s Opinion On appeal, the defendant in Morgan first argued that CAFA did not require it to prove the elements of removal jurisdiction, but rather required the plaintiff to disprove 15 471 F.3d at 471. Neither the Third Circuit nor the district court recited the specific factual allegations underlying the plaintiffs’ claims. See Morgan v. Gay, Civ. No. 06-1374(GEB), 2006 WL 2265302, at *1 (D.N.J. Aug. 7, 2006). 16 Morgan, 2006 WL 2265302, at *1. 17 Id. at *5. 18 Id. at *1-2, 6.


those elements.19 Like all other circuit courts to consider the issue, the court in Morgan concluded that CAFA did not alter the traditional rule that the party invoking federal court jurisdiction (here, the removing defendant) bore the burden of proof for jurisdictional elements.20 The court then addressed what a removing defendant must show to discharge its burden under CAFA. The court began its analysis by stating that the Third Circuit’s pre-CAFA rule was that “a defendant will be able to remove the case to federal court by ‘show[ing] to a legal certainty that the amount in controversy exceeds the statutory minimum.’”21 The court did not stop there, however, and next considered other appellate courts’ decisions discussing the standard borne by a removing defendant under CAFA, implicitly recognizing that CAFA’s purpose of easing the way for defendants to remove class actions to federal court could suggest a departure from prior precedent.22 The court closely analyzed—to the point of deconstruction—the Seventh Circuit’s decision in Brill and the Ninth Circuit’s decision in Abrego.23 In both Brill and Abrego, the courts concluded that CAFA had not altered the burden of proof and that a removing defendant under CAFA had to show CAFA’s jurisdictional elements by a preponderance of the evidence.24 Nevertheless, the Third Circuit in Morgan, while purporting to rely on Brill, concluded that removing defendants must prove to a “legal certainty” that the aggregate amount in controversy exceeds $5 million.25 Because the evidence regarding the amount in controversy in Morgan was inconclusive, 19

Morgan, 471 F.3d at 473. Id. 21 Id. at 474 (quoting Samuel-Bassett v. KIA Motors Am., Inc., 357 F.3d 392, 398 (3d Cir. 2004)). 22 Id. 23 Id. at 474-75. 24 Brill, 427 F.3d at 448-49; Abrego, 443 F.3d at 683. 25 Morgan, 471 F.3d at 474-75. 20

Page 361

the court held that the defendants had failed to discharge their burden and affirmed the district court’s remand decision.26 II.

Analytical Flaws in Morgan

In attempting to create a bright-line rule (one which arguably is impossible to meet), the Morgan decision was far too ambitious. Had the Third Circuit reached the same result on narrower legal or factual grounds, its decision would still be inconsistent with the express purpose of CAFA but would be at least analytically sound. The plaintiff in Morgan expressly pled that the aggregate amount in controversy was less than $5 million. As the Morgan court itself observed, in this narrow circumstance where a plaintiff disclaims damages, courts in pre-CAFA cases regularly required that removing defendants prove to a legal certainty that, despite the plaintiff’s disclaimer, the amount in controversy exceeded the jurisdictional minimum.27 Therefore, the court in Morgan could have narrowly held, consistent with its own precedent and that of other circuits, that the defendant was required to show to a “legal certainty” that the plaintiff’s damages allegation was false.28 Instead, the Morgan court appeared to take a much broader and much less defensible approach. The Morgan opinion could fairly have been read to say that, under pre-CAFA and post-CAFA 26

Id. at 475, 477. 471 F.3d at 474; see also Delph v. Allstate Home Mortg., Inc., 478 F. Supp.2d 852, 854 (D. Md. 2007) (holding that removing defendant must demonstrate to a legal certainty that the plaintiff’s claimed damages, which were less than the jurisdictional minimum, actually exceeded $75,000, and noting that defendant’s evidence was insufficient even under the more lenient preponderance of the evidence standard). 28 As discussed in Section IV, infra, however, even in this circumstance, it is not clear that a “legal certainty” standard is appropriate in light of Congress’s express intent in enacting CAFA that large, multi-state class actions be litigated in federal court. 27

Page 362

jurisprudence, a removing defendant is always required to show to a “legal certainty” that the amount in controversy requirement is met, regardless of what the plaintiff actually pled in the complaint. That holding is flawed in light of pre-CAFA precedent, the plain language of CAFA itself, and the holdings of every other circuit court that has considered the issue under CAFA. Indeed, not only does the Third Circuit’s conclusion contravene its sister courts’ conclusions, it misinterprets the very post-CAFA cases it claims to rely upon. A. Pre-CAFA Law Although the Morgan court claimed to draw from its own precedent in applying the “legal certainty” standard to removing defendants regardless of the plaintiff’s damages allegations, that blanket “legal certainty” test is at odds with the Third Circuit’s own pre-CAFA precedent. In Samuel-Bassett, the Third Circuit attempted to resolve the conflict among district courts within the Third Circuit regarding a defendant’s burden of proof on removal.29 The Samuel-Bassett court concluded that in resolving factual disputes—the typical circumstance in which diversity jurisdiction is challenged—the “preponderance of the evidence standard would be appropriate.”30 In the narrow circumstance in which there are no disputes as to factual matters, the court held that the appropriate standard is “legal certainty.”31 The distinction discussed in SamuelBassett between cases that involve factual disputes and those that do not seems blurry at best. It suggests that even when a plaintiff does not challenge a removing defendant’s allegations regarding the amount in controversy and a court raises the issue sua sponte, the defendant must still establish jurisdictional elements to a legal certainty. Nevertheless, the court in Samuel29

See Samuel-Basset, 357 F.3d at 396-398. Id. at 398. 31 Id. 30


Bassett undeniably concluded that when disputed factual matters are at issue—the typical circumstance in which jurisdictional elements are challenged— a removing defendant must prove those elements only by a preponderance of the evidence.32 In fact, the court cited a Seventh Circuit case in support of its reasoning in which the Seventh Circuit unambiguously endorsed a “reasonable probability” standard and rejected “more stringent tests.”33 Moreover, the Samuel-Bassett court recognized “that requiring a defendant to show to a legal certainty that the amount in controversy exceeds the statutory minimum may lead to For somewhat bizarre situations.”34 example, the court in Samuel-Basset discussed a “comic scene,” where “a plaintiff’s personal injury lawyer protests up and down that his client’s injuries are as minor and insignificant as can be, while attorneys for the manufacturer paint a sob story about how plaintiff’s life has been wrecked.”35 Other circuit courts in pre-CAFA cases have approached the issue with clarity, uniformly applying the “preponderance of the evidence” or “reasonable probability” standard to removing defendants. For example, the Fifth Circuit has clearly stated that “[w]hen the plaintiff’s complaint does not allege a specific amount of damages, the removing defendant must prove by a preponderance of the evidence that the amount in controversy exceeds” the The Sixth,37 statutory minimum.36

32

Id. Id. (citing Shaw v. Dow Brands, Inc., 994 F.2d 364, 366 n.2 (7th Cir. 1993) (holding that a removing defendant must show a “reasonable probability” that the amount in controversy requirement is satisfied)). 34 Id. 35 Id. (citing Shaw, 994 F.3d at 366). 36 De Aguilar v. Boeing Co., 11 F.3d 55, 58 (5th Cir. 1993) (emphasis added); accord Garcia v. Koch Oil Co. of Texas, 351 F.3d 636, 638-39 (5th Cir. 2003). 37 Hayes v. Equitable Energy Resources Co., 266 F.3d 560, 572 (6th Cir. 2001). 33


Seventh,38 Eighth,39 Ninth,40 Tenth,41 and Eleventh Circuits42 applied the same test. Similarly, the Second Circuit required removing defendants to demonstrate the amount in controversy to a “reasonable probability.”43 Thus, the overwhelming weight of authority in pre-CAFA cases merely requires removing defendants to show by a preponderance of the evidence that the elements of diversity jurisdiction exist. The court in Morgan was simply wrong in suggesting otherwise. B. Post-CAFA Cases Similarly, since CAFA was enacted, the Third Circuit stands alone in imposing a “legal certainty” burden on removing defendants. The Second, Sixth, Seventh, Ninth, and Eleventh Circuits have uniformly concluded that a removing defendant must show CAFA’s jurisdictional elements only by a preponderance of the Interestingly, the court in evidence.44 Morgan based its decision primarily on a strained construction of the Seventh Circuit’s decision in Brill and the Ninth Circuit’s ruling in Abrego.45 Neither case specifically held that a “legal certainty” standard was required in all cases. 38 Oshana v. Coca-Cola Co., 472 F.3d 506, 512 (7th Cir. 2006). 39 James Neff Kramper Family Farm P’ship v. IBP, Inc., 393 F.3d 828, 831 (8th Cir. 2005). 40 Cohn v. PetSmart, Inc., 281 F.3d 837, 839 (9th Cir. 2002); Singer v. State Farm Mut. Auto. Ins. Co., 116 F.3d 373, 376 (9th Cir. 1997). 41 Martin v. Franklin Capital Corp., 251 F.3d 1284, 1290 (10th Cir. 2001). 42 Williams v. Best Buy Co., 269 F.3d 1316, 1319 (11th Cir. 2001). 43 Mehlenbacher v. Azko Nobel Salt, Inc., 216 F.3d 291, 296 (2d Cir. 2000). 44 Smith v. Nationwide Prop. and Cas. Ins. Co., 505 F.3d 401, 404 (6th Cir. 2007); Blockbuster, Inc. v. Galeno, 472 F.3d 53, 58 (2d Cir. 2006); Countrywide Home Loans, Inc. v. Brill, 427 F.3d 446, 448 (7th Cir. 2005); Abrego Abrego v. Dow Chem. Co., 443 F.3d 676, 686 (9th Cir. 2006); Miedema v. Maytag Corp., 450 F.3d 1322, 1328 (11th Cir. 2006). 45 See Morgan, 471 F.3d at 474-75.

Page 363

1. Countrywide Home Loans, Inc. v. Brill In Brill, the plaintiff filed suit in state court alleging that the defendant violated the Telephone Consumer Protection Act (“TCPA”) by sending fax advertisements.46 For each proven violation, the TCPA allows a plaintiff to recover $500, and if the violation is “willfull[] or knowing[],” those damages can be trebled.47 On removal, the defendant conceded that it sent at least 3,800 allegedly inappropriate faxes and argued that if the penalty is trebled, there was at least $5.7 million in controversy.48 Nevertheless, the district court remanded the case because the defendant had not submitted “competent proof” that it could be found liable for a willful or knowing violation of the TCPA, thereby allowing treble damages, and, therefore, the statutory threshold on the amount in controversy had not been met.49 On appeal, the Seventh Circuit reversed, concluding that the defendant “did all that is necessary by admitting that one of its employees sent at least 3,800 fax ads.”50 The panel issuing this decision, comprised of Judges Easterbrook, Posner, and Rovner, concluded that removing defendants cannot be held to an insurmountable burden of demonstrating the amount in controversy at the initial stages of a lawsuit, “long before ‘evidence’ or ‘proof’ have been adduced.”51 The court correctly held that “[t]he question is not what damages the plaintiff will recover, but what amount is ‘in controversy’ between the parties. That the plaintiff may fail in its proof, and the judgment be less than the threshold (indeed, a good chance that the plaintiff will fail and the judgment will be zero) does not prevent removal.”52 Accordingly, the court concluded that so 46

Brill, 427 F.3d at 447. Id. 48 Id. at 449. 49 Id. 50 Id. 51 Id. at 448. 52 Id. 47

Page 364

long as a removing defendant’s allegations concerning the amount in controversy demonstrate that it is more likely than not that the amount in controversy exceeds $5 million, removal is appropriate.53 Morgan characterizes Brill as “instruct[ing]” that a defendant must prove jurisdictional facts to a “legal certainty.”54 But the court in Brill actually stated that “the removing litigant must show a reasonable probability that the stakes exceed the minimum.”55 As the Brill court noted, the showing “concerns what the plaintiff is claiming (and thus the amount in controversy between the parties), not whether the plaintiff is likely to win or be awarded everything he seeks.”56 Contrary to the Third Circuit’s interpretation, the Brill court concluded that the legal certainty standard applied only to a plaintiff who seeks remand after a defendant demonstrates that the jurisdictional minimum has been satisfied.57 In reaching this conclusion, the Brill court relied on the Supreme Court’s seminal decision in Red Cab,58 which the Third Circuit also cited in Unlike the Third Circuit, Morgan.59 however, the Seventh Circuit correctly construed Red Cab as imposing the legal certainty standard only upon parties seeking to avoid federal court jurisdiction—as in Red Cab, plaintiffs seeking remand—who claim that, despite a party’s allegation that the jurisdictional minimum is satisfied, the amount in controversy is less than the statutory minimum.60 53 Id. at 449; see also Meridian Sec. Ins. Co. v. Sadowski, 441 F.3d 536, 542 (7th Cir. 2006) (refining Brill, concluding that “the burden rests on the defendant in a removal action to prove that the amount in controversy is sufficient. Defendants seeking removal may meet that burden by a preponderance of the evidence.”) 54 Morgan, 471 F.3d at 474. 55 427 F.3d at 449 (emphasis added). 56 Id. (emphasis added). 57 Id. at 448-49. 58 Brill, 427 F.3d at 448-49 (citing St. Paul Mercury Indem. Co. v. Red Cab Co., 303 U.S. 283 (1938)). 59 Morgan, 471 F.3d at 474. 60 Brill, 427 F.3d at 449.


2. Abrego Abrego v. Dow Chemical Co. The Morgan court also cited the Ninth Circuit’s decision in Abrego, in which the court concluded that removing defendants bear the burden of proving CAFA’s jurisdictional elements by a preponderance of the evidence.61 The Morgan court, however, dismissed Abrego as “ducking the issue”.62 In Abrego, over one thousand Panamanian banana plantation workers brought a purported mass action against the defendant for alleged exposure to chemical The plaintiffs sought pesticides.63 unspecified damages including compensatory and punitive damages, attorney's fees and costs.64 After removal, the district court issued a show-cause order, requiring the defendant to demonstrate that the amount in controversy exceeded $5 million and that the case otherwise met the definition of a “mass action” as contained in 28 U.S.C. § 1332(d)(11).65 The district court and the Ninth Circuit concluded that the defendant had not met its burden to show that the case fit CAFA’s definition of a “mass action,” and clearly provided that the defendant’s burden was merely to show “by a preponderance of the evidence” the jurisdictional facts necessary to support removal.66 The Abrego court did not, as the court in Morgan asserted, “duck the issue” at all, but rather squarely held that “[w]here the complaint does not specify the amount of damages sought, the removing defendant must prove by a preponderance of the

61

Abrego, 443 F.3d at 683. Morgan, 471 F.3d at 474. 63 Id. at 678. A “mass action,” as that term is defined in CAFA, is removable to federal court similar to a class action, and the $5 million amount in controversy requirement applies. 64 Id. 65 Id. 66 Id. at 683. 62


evidence that the amount in controversy requirement has been met.”67 3. Other Circuits While not cited in Morgan, both the Eleventh and Second Circuits have reached the same conclusion as the Seventh and Ninth Circuits.68 In Miedema, the Eleventh Circuit affirmed the district court’s decision to apply the “preponderance of the evidence” test “[w]here . . . the plaintiff has not pled a specific amount of damages.”69 The Miedema court also impliedly disapproved of using a “certainty” standard in such a case, noting that the district court had applied the proper test when it used preponderance of the evidence, rather than requiring the defendant to “prove the requisite amount in controversy ‘with certainty.’”70 Likewise, in Blockbuster, the Second Circuit held that a defendant need

Page 365

only show a “reasonable probability” that the amount in controversy exceeds $5 million to defeat a motion to remand.71 Finally, in Smith, the Sixth Circuit held that a defendant must prove that damages are “more likely than not ‘to meet the amount in controversy requirement,’” and that this standard applies even when the complaint contains “[a] disclaimer . . . regarding the amount of recoverable damages.”72 Morgan thus stood alone in requiring defendants removing under CAFA to prove, in all circumstances, the amount in controversy to a “legal certainty.” III.

In late 2007, the Third Circuit acknowledged the confusion that had resulted from Morgan and in Frederico v. Home Depot chose to clarify the rule on CAFA removal. A. Background

67

Id. at 683 (emphasis added). The Ninth Circuit subsequently revisited this issue, confirming that the “preponderance of the evidence” standard applies when the plaintiff fails to plead a specific amount in controversy and that the “legal certainty” standard applies to a removing defendant when the plaintiff actually pleads damages less than the statutory amount in controversy. Lowdermilk v. U.S. Bank Nat’l Assoc., 479 F.3d 994, 998-99 (9th Cir. 2007). 68 See, e.g., Lowery v. Ala. Power Co., 483 F.3d 1184, 1208 (11th Cir. 2007); Miedema, 450 F.3d at 1330. While the Eleventh Circuit affirmed the “preponderance of the evidence” in standard in Lowery, other aspects of the opinion appear to attempt to limit federal court jurisdiction under CAFA much more significantly than Congress intended. See Lowery, 483 F.3d at 1211 (describing application of “preponderance of the evidence” standard in CAFA context as “forcing a square peg into a round hole.”). Indeed, the Lowery court went so far as to state that counsel for a removing defendant risks violating obligations imposed by Rule 11 if the defendant removes a case without discovery and on the basis of “bare pleadings containing unspecified damages.” Id. at 1213 n.63. 69 Miedema, 450 F.3d at 1330 (quoting Williams v. Best Buy Co., 269 F.3d 1316, 1319 (11th Cir. 2001)). 70 Id.


In Frederico, the plaintiff rented a flatbed truck from a New Jersey Home Depot store, agreeing to return the truck to Home Depot within seventy-five minutes of taking possession.73 The plaintiff alleged that, while she attempted to return the truck on the same day that she obtained it, albeit after the seventy-five minutes had elapsed, Home Depot refused to allow her to return the truck because the rental department was closed at the time.74 The plaintiff then returned the truck the next morning and incurred a late-fee of $269.00 for the additional thirteen hours during which she had possession of the vehicle.75 The plaintiff filed suit in state court, challenging these rental fees and claiming that by charging these late fees, Home Depot 71

Blockbuster, Inc., 472 F.3d at 58 (citing Mehlenbacher v. Azko Nobel Salt, Inc., 216 F.3d 291, 296 (2d Cir. 2000)). 72 Smith, 505 F.3d at 407. 73 Frederico, 507 F.3d at 191-92. 74 Id. 75 Id. at 192.

Page 366

breached its contract with the plaintiff, violated the New Jersey Consumer Fraud Act, and committed common law fraud.76 The plaintiff sought to represent a class of allegedly similarly situated individuals who “rented a vehicle from a Home Depot store with no after-hours rental return facilities or procedures, . . . were unable to return the vehicle to Home Depot after-hours, and . . . were charged ‘late’ rental return fees for the after-hours period during which no vehicles could have been returned.”77 Home Depot removed the case to federal court, invoking CAFA. In its notice of removal, Home Depot relied exclusively on the plaintiff’s allegations in the complaint to establish the amount in controversy. The plaintiff had alleged that her claim against Home Depot was similar to the claims of the class members she sought to represent and further that there were “thousands if not . . . tens of hundreds of thousands, [sic] of individuals” within the class.”78 Relying on the plaintiff’s claimed compensatory and punitive damages, and with simple math, Home Depot determined that the proposed class need only contain 2,903 class members for the amount in controversy to exceed $5 million. Home Depot then accepted for purposes of removal the plaintiff’s allegation of “thousands if not . . . ten of hundreds of thousands” of class members to demonstrate the requisite amount in controversy.79 The plaintiff did not challenge Home Depot’s notice of removal and did not seek remand.80 The trial court raised the 76

Id. Id. 78 The plaintiff alleged that her damages claim for $1722.84, compensatory damages of $287.50 plus punitive damages of five times the amount of compensatory damages, was similar to the claims of the class members. Id. at 197. Dividing $5 million by $1722.84, Home Depot determined that the class need only contain 2,903 members for the amount in controversy to exceed CAFA’s jurisdictional minimum. Id. 79 Frederico, 507 F.3d at 192. 80 Id. at 197-98. 77


jurisdictional amount at the hearing and was satisfied with Home Depot’s explanation of the amount in controversy. The plaintiff thus never alleged or introduced any evidence that the amount in controversy was less than $5 million. However, on appeal of the district court’s order dismissing the plaintiff’s complaint for failure to state a claim, the Third Circuit sua sponte raised the issue of subject-matter jurisdiction. The Third Circuit requested that the parties “address whether the allegations in the complaint and the notice of removal that the matter in controversy exceeds the sum or value of $5 million dollars, exclusive of interest and costs, vested the District Court with jurisdiction. . . .”81 In its opinion, the Third Circuit squarely addressed Morgan. B. Morgan Holding Clarified The Third Circuit began its opinion by noting the confusion and disagreement that the Morgan opinion had generated and set forth the Court’s intent to clarify its prior holdings regarding a removing defendant’s burden to demonstrate the amount in controversy. As an initial matter, the Third Circuit made clear that all disputes as to factual matters related to removal jurisdiction should be resolved using the preponderance of the evidence standard. This, of course, aligned the Third Circuit with all other courts to have addressed the issue and removed the nearly insurmountable burden that the Court established in Morgan. While resolution of this issue abated much of the difficulty created by Morgan, the Third Circuit did not stop by merely addressing the standard applicable to resolve factual disputes. On the contrary, the Court clarified that this standard only applies to resolve disputes as to factual matters. Thus, when there are no such disputes because, like in Frederico, the defendant introduced evidence showing that the amount in controversy exceeded $5 81

Id. at 192.


million but the plaintiff introduced no evidence to the contrary, the preponderance of the evidence standard does not apply. The defendant had discharged its burden by presenting evidence that the amount in controversy was met, while the plaintiff introduced none. In that situation, the Third Circuit, relying on pre-CAFA precedent, concluded that remand is only appropriate if the Court determines to a legal certainty that the amount in controversy does not meet the jurisdictional minimum (e.g., because the defendant’s calculation of the amount in controversy was based on a legally erroneous interpretation of a statutory damages provision). According to the Third Circuit, this rule applies in all cases where the plaintiff does not specifically disclaim damages above the jurisdictional threshold; but where the plaintiff does disclaim such damages, Morgan applies and the defendant can remain in federal court only by demonstrating to a legal certainty that the amount in controversy exceeds the jurisdictional minimum. Accordingly, the Third Circuit concluded that the defendant in Frederico had properly removed the case. There was no dispute as to factual matters because Home Depot accepted the plaintiff’s allegations of class members and the individual plaintiff’s damages estimate. Since the plaintiff did not dispute any jurisdictional facts and certainly did not demonstrate to a legal certainty that the amount in controversy was less than $5 million, the removing defendant was entitled to remain in federal court. To the extent the Third Circuit clarified that defendants need not satisfy the legal certainty standard in all situations, its holding in Frederico is consistent with both the clear wording and intent of CAFA that large multi-state class actions should be litigated in federal court. By noting in dicta that the legal certainty standard applies when plaintiffs expressly disclaim damages above the jurisdictional minimum, however, the Third Circuit left it to other courts to

Page 367

more fully effectuate Congress’s clear intent in enacting CAFA. IV.

Why Use the “Legal Certainty” Standard Against Any Removing Defendant in CAFA Class Actions?

The Third Circuit’s clarification that the “legal certainty” standard does not apply in most cases resolves much of the confusion regarding the Morgan opinion. But, by embracing the holding of Morgan when the plaintiff disclaims damages of more than $5 million in the complaint, admittedly an issue that the Third Circuit did not have to reach to resolve the Frederico case, the Third Circuit is still falling short of effectuating CAFA’s intent. In Lowdermilk v. U.S. Bank National Ass’n, the Ninth Circuit reached the same conclusion as the Third Circuit in Morgan; namely that “legal certainty” is the proper test where a plaintiff disclaims an amount in controversy in excess of the jurisdictional minimum.82 Similar to Morgan, the Ninth Circuit’s decision was predicated on two principles: (1) federal courts, as courts of limited jurisdiction, should strictly construe their jurisdiction; and (2) “the plaintiff is the ‘master of the complaint’ and can plead to avoid federal jurisdiction.”83 Neither of those rationales apply in the context of removal under CAFA. First, when Congress enacted CAFA, it expressed its intent that federal jurisdiction over large, multi-state class actions be expansive.84 Second, the traditional rule that the plaintiff is the “master of the complaint” is inapplicable in CAFA cases. A named plaintiff attempting to disclaim aggregate damages in excess of $5 million must disclaim damages allegedly suffered by the class that the plaintiff seeks to represent, not merely the damages that the plaintiff herself suffered. It is unlikely that a named 82

479 F.3d 994, 999-1000 (9th Cir. 2007). Id. at 998-99. 84 Pub. Law 109-2 § 2(b)(2). 83

Page 368

plaintiff could ever have sufficient knowledge of the damages allegedly suffered by the putative class so that such a disclaimer could be accurate. Moreover, disclaiming class-wide damages at the initial stage of a lawsuit would be inconsistent with the plaintiff’s dual obligations both to the court and to the class. Any plaintiff attempting to disclaim class-wide damages before conducting any formal investigation into the extent of the class members’ claims cannot be considered an adequate representative as required for the named plaintiff to maintain her claims on a class-wide basis. Putting aside the simple incongruity of applying these rationales in putative class actions, the Third Circuit reached its conclusion in Morgan by incorrectly construing the Supreme Court’s decision in Red Cab. Morgan relies on Red Cab for the proposition that “plaintiffs may limit their claims to avoid federal subject matter jurisdiction.”85 But the plaintiff in Red Cab had not disclaimed any amount of damages in its complaint.86 In fact, the Red Cab plaintiff, while filing its suit in state court, had expressly claimed damages in excess of the amount-in-controversy requirement.87 In this context, the Supreme Court held that the plaintiff’s initial allegation that the amount in controversy was satisfied must control unless it appears to a legal certainty that the plaintiff is incorrect.88 Crediting the plaintiff’s allegation in this context makes good sense, as a plaintiff in state court pleading an amount in controversy over the 85

Morgan, 471 F.3d at 474, 475 (citing Red Cab and later noting that “the defendants bear the burden to prove to a legal certainty that the complaint exceeds the statutory amount in controversy requirement”); see also Frederico, 507 F.3d at 194 (noting that in Red Cab, “[t]he Supreme Court articulated what has become known as the ‘legal certainty test,’ observing that when a case is brought in federal court, ‘the sum claimed by the plaintiff controls if the claim is apparently made in good faith’”). 86 Red Cab, 303 U.S. at 285. 87 Id. 88 Id. at 288-89.


jurisdictional minimum for federal courts is clearly not attempting to protect its choice of venue in state court. A plaintiff pleading an amount in controversy in state court less than the jurisdictional minimum for federal courts, like the allegation at issue in Morgan, is clearly attempting to thwart the congressional intent that such cases proceed in federal court. A court should not so blindly rely on the plaintiff’s self-serving allegations in such a situation. Finally, requiring a removing defendant at the pleadings stage to prove to a “legal certainty” that a plaintiff’s damages exceed $5 million erects a nearly insurmountable hurdle for the removing defendant to reach federal court and is flatly inconsistent with CAFA’s intent. Such a standard of proof is certainly unique in civil practice, and there is no public policy furthered by such an anomaly. Although the Frederico court could not eliminate completely the “legal certainty” standard without setting the case up for en banc review,89 the issue is nevertheless ripe to be revisited. To fully recognize Congress’s intent that all multistate class actions be litigated in federal court, both Morgan and Lowdermilk should be overruled. V.

Conclusion

In Frederico, the Third Circuit narrowed the over breadth of Morgan by clarifying that the legal certainty standard does not uniformly apply in ascertaining whether a defendant has satisfied CAFA’s amount in controversy requirement. That holding is consistent with pre-CAFA precedent regarding a removing defendant’s burden, the opinions of every other circuit court to have addressed the issue postCAFA, and the congressional intent in enacting CAFA. However, by noting in dicta that the legal certainty test applies 89

See Omnipoint Communications Enters, L.P. v. Zoning Hearing Bd. of Easttown Township, 331 F.3d 386, 396 (3d Cir. 2003) (reasoning that “a panel cannot overrule existing Third Circuit precedent.”).


when a plaintiff expressly disclaims damages above the jurisdictional minimum, the Frederico court left it to another court to fully effectuate the important public policy underlying the enactment of CAFA; that large, multi-state class actions should be tried in federal court. The Third Circuit and the Ninth Circuit should, at the first opportunity, reconsider their positions on the legal certainty standard.

Page 369

Use and Misuse of Expert Opinions at the Class Certification Stage Use of expert opinions should not be permitted, but if courts continue to do so, defendants must attack the expert’s qualifications and present their own By Dwight J. Davis and By Karen R. Kowalski

A

S THE number of class actions in the United States increases, so does the device of employing expert witnesses to give opinions at the class certification stage as to the ultimate legal issues of manageability, predominance and superiority, the elements required in federal court by Rule 23 of the Federal Rules of Civil Procedure. The use of experts at this stage of class litigation is inappropriate. They should be prohibited from testifying on the legal propriety of class certification, but there are ways of effectively countering their opinions if they are allowed to testify. USING EXPERT TESTIMONY TO ESTABLISH PROPRIETY OF THE CLASS Although case law has established that the proponent of class certification has the heavy burden of proving the elements of Rule 23 and that the decision to certify a class should be made only after the district court has conducted a “rigorous analysis,” courts have provided little guidance on how a district court should conduct such an analysis.1 In recent years, U.S. federal court judges have allowed class proponents to meet this burden by proffering any and all evidence or witnesses, including experts, into the class certification record.2 Plaintiffs’ attorneys are not the only ones offering experts’ opinions at this stage. Many defendants are beginning to do the same to demonstrate that certification is inappropriate. Generally, plaintiffs and defendants use experts at the class certification stage in two particular areas. First, whether varia-

IADC member Dwight J. Davis is a partner in the New York office of King & Spalding and has litigated many class actions. He is a graduate of The Citadel (B.A. 1975) and Mercer University (J.D. 1982). An associate in the New York office, Karen R. Kowalski is a graduate of Gonzaga University (B.A. 1997) and St. John’s University (J.D. 2001). The authors thank Kara Ong, an associate in the Atlanta office of King & Spalding, for her assistance in the preparation of this article.

tions of state substantive law will hinder a court’s ability to manage a multistate class action, and second, whether the underlying facts of the claims common to the entire class predominate over individual claims in Rule 23(b)(3) class actions. A. Rule 23 Rule 23(a) provides that a class action may be maintained only if the proponent establishes that (1) the class is so numerous that the joinder of members is impracticable; (2) there are questions of law or fact common to the entire class; (3) the claims or defenses of the representative parties are typical of those of the class; and (4) the representative parties will fairly and adequately protect the interests of the class. If the proponent establishes each of these 1. Gen. Tel. Co. S.W. v. Falcon, 457 U.S. 147, 161 (1982); Castano v. Am. Tobacco Co., 84 F.3d 734, 740 (5th Cir. 1996). See also Lorna G. Schofield & Jeffrey S. Jacobson, Circuits Split on Factual Disputes in Class Actions, N.Y. L.J., Oct. 23, 2001, at 1 (hereinafter “Circuits Split”). 2. Linda S. Mullenix, Certification Burdens, NAT’L L.J., July 3, 2000, at A14 (hereinafter “Certification Burdens”).

Page 286

four factors, the district court directs its inquiry into the propriety of the class under one of the subsections of Rule 23(b).3 In the usual case, plaintiffs will attempt to proceed under either Rule 23(b)(2) if they seek injunctive and declaratory relief, or Rule 23(b)(3) if they seek monetary damages. Sometimes both are employed. While there is some overlap between the elements of Rule 23(a) and (b)(3), the plaintiff must meet the heavy burden under Rule 23(b)(3) of showing that the class action is the “superior” means of adjudicating the dispute and that common issues of law and fact “predominate” over individual issues.

DEFENSE COUNSEL JOURNAL—July 2002

In putative nationwide class actions, variations in state law often prevent a federal district court from finding the action manageable, which results in a denial of class certification. 4 The U.S. Supreme Court has cautioned that a district court “may not take a transaction with little or no relationship to the forum and apply the law of the forum in order to satisfy the procedural requirements that there be a common question of law.”5 Often, courts find that any variations among state laws defeat the predominance of common legal issues and render a

23(b)(3) multistate class action unmanageable.6 Defendants regularly defeat class certification on a showing that divergent state laws present “insuperable obstacles” because the federal district court would be required to apply different states’ laws to the claims of class members and to instruct jurors so that they will know which laws apply to which claims.7 As a result, plaintiffs have employed experts to opine that the variation among the laws of some 50 jurisdictions fail to predominate over common legal issues, therefore making the legal differences manageable—or even non-existent.8 For example, in In re Bridgestone/ Firestone Inc. Tires Products Liability Litigation in the U.S. District Court for the Southern District of Indiana, plaintiffs’ experts opined that the divergent laws of the states did not impinge on the manageability of the class action.9 In this class action, customers brought a nationwide class action alleging that tires on sport utility vehicles were defectively designed or manufactured. The named plaintiffs were residents of 27 different states, and they sought to represent two classes: (1) the “tire class,” persons and entities in the United States who own or lease or had owned or leased vehicles that are or were equipped with certain Firestone-brand tires; and (2) the “Explorer diminution class,” those who own or lease or had

3. Amchem Prods. v. Windsor, 521 U.S. 591, 613-14 (1997). 4. See, e.g., Castano, 84 F.3d 734. 5. Phillips Petroleum Co. v. Shutts, 472 U.S. 797, 821-23 (1985). 6. See, e.g., Amchem, 521 U.S. at 624; Zinser v. Accufix Research Inst. Inc., 253 F.3d 1180, 1189 (9th Cir. 2001) (differences in state law compound disparities among class members from different states), opinion amended, 273 F.3d 1266 (9th Cir. 2001); In re Ford Motor Co. Ignition Switch Prods. Liab. Litig., 194 F.R.D. 484, 490 (D. N.J. 2000); Castano, 84 F.3d at 741. 7. See In re Sch. Asbestos Litig., 789 F.2d 996, 1010 (3d Cir. 1986), cert. denied, 479 U.S. 852 (1986) (granting conditional certification in spite of state law variations, while noting the problem of manageability); In re Gen. Motors Corp. Pick-Up Truck Fuel Tank Prods. Liab. Litig., 55 F.3d 768, 815 (3d Cir. 1995), cert. denied, 516 U.S. 824 (1995) (overturning nationwide class settlement but

noting that courts have certified nationwide class actions relying on capacity for court to decertify or redefine class subsequently if case becomes unmanageable). These cases, however, are the exception rather than the norm. Courts overwhelmingly reject any assurances by counsel that problems with predominance or superiority caused by the application of various state laws could simply be overcome. Ignition Switch, 174 F.R.D. at 350; Castano, 84 F.3d at 742. Accord Andrews v. Am. Tel. & Tel. Co., 95 F.3d 1014, 1023 (11th Cir. 1996). 8. Joel S. Feldman et al., Expert Witnesses in Insurance Class Actions and Individual Cases—Defense Perspective, 80 A.L.I. 249, 271 (2000). 9. 155 F.Supp.2d 1069 (S.D. Ind. 2001) (granting in part and denying in part defendants’ motion to dismiss). In a separate order and opinion the same day, the court ruled that the plaintiffs’ state-lawbased claims seeking a judicial recall of tires were pre-empted by the Motor Vehicle Safety Act, 49 U.S.C. § 30101 et seq. 153 F.Supp.2d 935.

B. Used to Establish that Variations in State Laws Does Not Create Manageability Problems

Use and Misuse of Expert Opinions

owned or leased Ford Explorer sport-utility vehicles, regardless of the tires with which they were equipped. Given that the classes encompassed persons from numerous states with varying laws, the court invited the parties to present any facts relevant to the choice of law analysis for class certification. The plaintiffs offered the testimony of two experts, both of whom allegedly were legal scholars. One opined “that there [was] sufficient uniformity across the states in order to try the class claims in a singular proceeding.”10 The defendants sought to strike the experts’ declarations, contending that it was “improper to offer ‘expert’ opinions on legal issues relevant to class certification.”11 The district court ruled that the motion to strike was moot, since the court had established “sufficient boundaries” around the proffered experts’ opinions, in order to prevent the submissions from “imping[ing] on [its] judgments or usurp[ing] [its] own application of legal principles to the facts and the issues.”12 The court ultimately concluded that the plaintiffs had met their burden under Rule 23.13 Fortunately, however, the Seventh Circuit overruled the district court’s decision to certify the classes, holding that the matter was unmanageable as a nationwide class action.14 But unfortunately, while roundly criticizing the trial court, the court of appeals failed to address the use of experts at this phase of the case. In an opinion by Judge Easterbrook, it held that the district court erred in granting class certification, finding that Indiana’s choice-of-law 10. 205 F.R.D. 503, 511 (S.D. Ind. 2001); id. (citing Pl. Mem. at 9 n.4). 11. In re Bridgestone/Firestone, Inc. Tires Prods. Liab. Litig., No. IP 00-9373-C-B/S, MDL No. 1373 (S.D. Ind.), Defendants’ Memorandum of Law to Strike the Declarations of Samuel Issacharoff and E. Hunter Taylor (quoting Issacharoff Decl. ¶ 23), April 3, 2001. 12. Bridgestone/Firestone, No. IP 00-9373-C-B/ S, MDL No. 1373, Transcript of the Hearing on Plaintiffs’ Motion for Class Certification, at 7-8, Nov. 16, 2001. 13. 205 F.R.D. at 503 (S.D. Ind. 2001) (certifying tire class, Explorer class, and Explorer subclass), rev’d 2002 WL 831990 (7th Cir.) (single nationwide class not manageable because claims must be adjudi-

Page 287

rule selects the laws of the 50 states and multiple territories where the buyers reside and not the place of the defendant’s headquarters. Thus, the court rejected the trial court’s application of one state’s law to claims by plaintiffs throughout the nation. The claims, the court stated, must be adjudicated under the laws of several jurisdictions, thereby rendering the class unmanageable. C. Used to Establish that Common Issues Predominate Another significant hurdle to class certification in a 23(b)(3) class action is whether one set of underlying facts predominates over individual facts that may be relevant to a particular claim. As with the case when legal variations exist, parties have employed the testimony of experts to opine on whether the facts underlying the cause of action are common to each plaintiff. A split among the federal courts of appeals has developed as to whether and how courts are to resolve factual disputes that may affect a given case’s suitability for class treatment.15 For example, the Second Circuit has adopted an extremely liberal construction of Rule 23, accepting plaintiffs’ factual allegations as true and refusing to sift through disputed factual issues when considering class certification. In In re Visa Check/MasterMoney Antitrust Litigiation,16 for example, the court articulated this principle. In the district court, both parties introcated under law of so many jurisdictions, and not manageable even on statewide basis). See also 184 F.Supp.2d 826 (denying motion of Louisiana plaintiffs to remand to Mississippi state court in which they filed); 205 F.R.D. 535 (compelling deposition of William Clay Ford Jr., chairman of board and chief executive officer of Ford); and 2002 WL 463275 (denying defendants’ motion to dismiss Colombian and Venezuelan actions of ground of forum non conveniens). 14. 2002 WL 831990 (7th Cir. May 2, 2002). The court also concluded that the class could not be certified with subclasses in each of the 50 states. 15. Circuits Split, supra note 1, at 1. 16. 192 F.R.D. 68 (E.D. N.Y. 2000).

Page 288


duced expert reports to support their respective positions in favor of and in opposition to class certification. The experts gave competing views on whether a method could be devised to litigate the plaintiffs’ complex antitrust claims, thus avoiding individualized trials. The court disregarded the fact that the experts who testified offered opposing views on whether the facts of the case were susceptible to class-wide proof. Instead, it held that the expert testimony offered by the plaintiffs was admissible for the “narrow purpose” of supporting their class certification motion. Moreover, the court stated, simply because the defendants and their expert disagreed with the plaintiffs’ expert conclusions was not a basis for denying class certification.17 The Second Circuit agreed with the district court, holding that a district court may not weigh the conflicting expert evidence at the class certification stage.18 Rather, at that stage, the district court needs to inquire only “whether plaintiffs’ expert evidence is sufficient to demonstrate common questions of fact warranting certification of the proposed class.” The court also rejected the defendants’ contention that the plaintiffs’ expert evidence failed to provide a reliable basis for class certification. It concluded that on a finding that an expert’s methodology is not fatally flawed, it is “sufficiently reliable for class certification purposes.” The court neither defined “fatally flawed” nor provided an analysis as to how a district court should make such a determination. This Second Circuit opinion leads one to believe that all a plaintiff needs to do to get a class certified is to show up at the courthouse with a witness who will parrot the right phrases.

Other U.S. courts of appeals have not been so lenient to class action plaintiffs in deciding a class certification motion. The Third19 and Fifth20 circuits have concluded that when parties dispute the facts central to class certification, judges “must make a preliminary inquiry into the merits . . . to determine whether the alleged claims can be properly resolved as a class action.”21 This reasoning is consistent with the U.S. Supreme Court’s holding in General Telephone Co. Southwest v. Falcon.22 For example, in Newton v. Merrill Lynch, Pierce, Fenner & Smith Inc., the Third Circuit affirmed a district court’s finding that the plaintiffs had failed to prove the predominance and superiority requirements of subsection 23(b)(3).23 Thousands of investors sued their broker-dealers for securities fraud in “breaching their duty of best execution” under Rule 10b-5 of the Securities and Exchange Act. The parties disputed whether the elements of reliance and economic loss under 10b-5 were unique or common to each investor. The plaintiffs’ expert provided a sworn declaration predicting that he could devise a formula that would measure the amount of damages among the class members and also serve as a plan for allotment. Defendants contended that economic loss could not be presumed across the entire class given that reliance and economic loss were linked with each trade and/or would require individual treatment given that hundreds of trades occurred everyday. The Third Circuit rejected the plaintiffs’ expert’s testimony that a formula could be developed. It agreed with the district court’s finding that the individual question of whether each class member suffered economic injury was an “insurmountable obstacle” to certification. Thus, it denied

17. Id. at 74-76, 78. 18. 280 F.3d 124 (2d Cir. 2001). 19. See, e.g., Johnston v. HBO Film Management Inc., 265 F.3d 178 (3d Cir. 2001) (reaffirming that courts must base certification decisions on underlying facts and not solely on plaintiffs’ allegations). 20. See, e.g., Castano, 84 F.3d 734 (decertifying class and finding little support in plaintiffs’ evidence that district court would be able to manage divergent

state laws and that common facts predominated over individual ones). 21. Newton v. Merrill Lynch, Pierce, Fenner & Smith Inc., 259 F.3d 154, 166 (3d Cir. 2001); Johnston, 265 F.3d at 186; Szabo v. Bridgeport Machines Inc., 249 F.3d 672, 676 (7th Cir. 2001). 22. 457 U.S. 147, 160 (1982). 23. 259 F.3d 154 (3d Cir. 2001).


class certification, concluding that “actual economic loss on the part of each investor would involve individual questions that predominate over common ones.”24 D. A “Rigorous Analysis” Does Not Require Expert Testimony Courts have broad discretion in deciding whether to certify a class.25 Nevertheless, the discretion must be exercised within the framework of Rule 23.26 The U.S. Supreme Court has not given any guidance on the “rigorous analysis” of the Rule 23 prerequisites that should be applied by district courts.27 As a result, district courts have developed varying processes, often involving evidentiary hearings before determining whether the action demands class action treatment.28 It is important to note that Rule 23 does not specifically provide for or require a certification hearing. The problem with district courts having broad discretion in determining whether to certify a class does not lie with the development of sophisticated processes, such as elaborate evidentiary hearings, but rather with allowing expert testimony to be offered as part of the certification record. In some cases, the issues may be plain enough from the pleadings to determine that the plaintiffs have met the burden of proof and established that the class satisfies the mandates of Rule 23. More often than not, however, the issues are not so apparent, so that a district court is forced to look beyond the pleadings to “understand the claims, defenses, relevant facts, and applicable substantive law in order to make a meaningful determi24. Id. at 188. 25. See, e.g., City of New York v. Int’l Pipe & Ceramics Corp., 410 F.2d 295, 300 (2d Cir. 1969). 26. Gulf Oil Co. v. Bernard, 452 U.S. 89, 100 (1981). 27. Gen. Tel. Co. S.W. v. Falcon, 457 U.S. 147, 161 (1982). 28. Certification Burdens, supra note 2, at A14. 29. Castano, 84 F.3d at 744. 30. 417 U.S. 156, 178 (1974). 31. 437 U.S. 463, 469 & n.12 (1978). See also Love v. Turlington, 733 F.2d 1562, 1564 (11th Cir. 1984); Huff v. N.D. Cass Co., 485 F.2d 710, 713 (5th Cir. 1973) (en banc).

Page 289

nation of the certification issues.”29 Originally, in Eisen v. Carlisle & Jacquelin, the U.S. Supreme Court stated that a court should not evaluate the merits of the parties’ legal or factual claims on a motion for class certification.30 Four years later however, in Coopers & Lybrand v. Livesay, the Court stepped away from this bright-line proposition and concluded that many of the questions involved in determining the appropriateness of class certification are “intimately” involved with the merits.31 In Szabo v. Bridgeport Machines Inc., the Seventh Circuit endorsed the idea that a district court should examine the merits of a suit at the certification stage, but only to the extent that such an inquiry is necessary to determine whether class certification is appropriate.32 The court reversed the district court’s certification of a nationwide class of persons alleging a breach of warranty. It held that the district court had erred in certifying the class based solely on the allegations in the plaintiffs’ complaint. Thus, it limited the district court’s discretion, which operated in favor of class action plaintiffs. Before a court decides whether to allow a case to proceed as a class action, the court declared, the judge should make “whatever factual and legal inquiries [that] are necessary under Rule 23.”33 Although Coopers & Lybrand and Szabo sanction looking beyond the plaintiffs’ pleadings at the class certification stage, they do not imply that district courts should or need to rely on the opinions of “legal experts” to aid it in making the 32. 249 F.3d 672, 675 (7th Cir. 2001) (explaining that “proposition that a district judge must accept all of the complaint’s allegations when deciding whether to certify class cannot be found in Rule 23"); Newton, 259 F.3d at 154, 166 (3d Cir. 2001). See also 5 MOORE’S FEDERAL PRACTICE § 23.64[4] (“[B]ecause the determination of a certification request invariably involves some examination of factual and legal issues underlying the plaintiffs’ cause of action, a court may consider the substantive elements of the plaintiffs’ case in order to envision the form that a trial on those issue would take.”). 33. Szabo, 249 F.3d at 676.

Page 290

determination that the class has met the requirements for certification. These decisions merely state that in order to understand the claims, defenses, relevant facts and applicable substantive law, a district court should make every necessary legal and factual inquiry. It is inconceivable that these cases suggest the use of inadmissible evidence in a class certification inquiry. In neither Coopers & Lybrand nor Szabo did the parties offer expert opinions at the certification stage PROHIBITING EXPERT TESTIMONY UNDER TRADITIONAL RULES OF EVIDENCE ANALYSIS Rule 702 of the Federal Rules of Evidence provides: “If scientific, technical, or other specialized knowledge will assist the trier of fact to understand the evidence or to determine a fact in issue, a witness qualified as an expert . . . may testify thereto.” Under a Rule 702 analysis, experts should be prohibited from testifying at the class certification stage, as they are opining on questions of law rather than questions of fact. An expert’s testimony is neither helpful nor necessary for a court when it dissects issues of law.34 A. Legal Experts Although it is well settled that experts may provide an opinion to aid a jury or judge to comprehend complex facts, experts may not testify as to the ultimate legal conclusions based on those facts.35 Every federal court of appeals has agreed that an expert is prohibited from testifying 34. For example, in In re Initial Public Offering Securities Litig., 174 F.Supp.2d 61, 64 (S.D. N.Y. 2001), the district court denied the admissibility of expert opinions on an issue of law. The defendants moved to recuse the court. In support of their motion, the defendants proffered the affidavits and declarations of two experts in judicial ethics. The district court rejected the contention that the experts’ opinions were admissible, concluding that Rule 702 prohibits such use. 35. United States v. Bilzerian, 926 F.2d 1285, 1294 (2d Cir. 1991). 36. Thomas Baker, The Impropriety of Expert Witness Testimony on the Law, 40 U. KAN. L. REV.


as to issues of law. “[T]he majority rule is so well-established that it is often deemed a basic premise or assumption of evidence law—a kind of axiomatic principle.” 36 Moreover, the language of Rule 702 does not provide for expert testimony for any purpose other than to help the trier of fact understand the factual material presented by the parties during trial. Even under a broad interpretation of Rule 702, expert testimony on legal issues should be prohibited. This interpretation is reasonable for two reasons. First, the district court’s determination of whether the movant has met the criteria of Rule 23 for class treatment is a legal question, not one of fact.37 Second, class certification does not require a trier of fact; a motion for class certification is not a trial.38 Indeed, although, the issue of class treatment is a legal question, courts nevertheless have repeatedly allowed plaintiffs and defendants alike to offer expert opinions into the record at certification. This practice ignores certain basic realities of modern litigation.39 1. Under Guise of Avoiding Battle of Experts, Courts Leave the Field to Plaintiffs Courts often are presented with the problem of how much weight to give to one expert over another. This so-called “battle of the experts” is an issue that will continue to trouble courts as long as experts are used at the certification stage. Federal courts have varying views on this issue, but a curious analysis has developed in some circuits. In these circuits, courts state that a 325, 352 (1992). See, e.g., Initial Public Offering, 174 F.Supp.2d at 64 (concluding that expert on judicial ethics cannot opine on judge’s recusal, given that it is issue of law). 37. Schenek v. FSI Futures Inc., 1998 WL 427625, at *4 (S.D. N.Y.) (“[T]he question whether to certify class is one of law, resting in district court’s discretion, and falling outside the usual legitimate boundaries of expert opinion testimony.”) 38. Visa Check/MasterMoney, 192 F.R.D. at 68, 76. 39. See Note, Expert Legal Testimony, 97 HARV. L. REV. 797, 808-11 (1984).


Page 291

contest between experts is inappropriate at the certification stage, but at the same time they admit expert testimony.40 In Visa Check/MasterMoney, for example, the court asserted, “a court at the class certification stage should not delve into the merits of an expert’s opinion, or indulge in ‘dueling’ between opposing experts.”41 Indeed, if the court believes that the mere appearance of experts on both sides means that the plaintiff wins, there will be no “dueling.” The result of that approach is that the district courts consider only plaintiffs’ expert testimony for certification purposes and reserve the effectiveness of defendants’ expert for trial on the merits.42 In In re Disposable Contact Lens Antitrust Litigation, a federal district court in Florida stated that although the defendants’ expert disagreed with the “methodologies and conclusions propounded” by the plaintiffs’ expert, it “is no reason to deny class certification.”43 The court went on to certify the class based on the plaintiffs’ expert’s unquestioned and unchallenged opinion. Class certification is not a Rule 12(b)(6) motion to dismiss, where the judge must accept plaintiff’s factual allegations in the complaint as true.44 The approach epitomized by Disposable Contact Lens is naïve at best and leads to the in terrorem effect and abuse of the class process at worst. An order certifying a class is usually the district court’s last word on the matter. If the class is certified, many defendants succumb to the pressures of entering into a “reasonable” settlement, even if exorbitant, rather than risking the potential of a mas-

It is well settled that experts’ opinions as to issues of law are improper and usurp the role of the judge.45 The role of an expert under Rule 702 of the Federal Rules of Evidence is limited to the interpretation and explanation of certain evidence in a case for the benefit of laymen “fact finders.”46 The special legal knowledge of the judge renders expert testimony on legal issues at the certification hearing superfluous and unhelpful.47 If the court needs advice

40. See, e.g., O’Connor v. Boeing North Am. Inc., 184 F.R.D. 311, 324 n.16 (C.D. Cal. 1998) (noting difference between parties experts’ theories relating to merits of claims, and court will not engage in “battle of the experts” at certification stage); Krueger v. New York Tel. Co., 163 F.R.D. 433, 44041 (S.D. N.Y. 1995). 41. 192 F.R.D. at 76. See generally In re Industrial Diamonds Antitrust Litig., 167 F.R.D. 374, 384 (S.D. N.Y. 1996) (“[I]t is for the jury to evaluate[] conflicting evidence and to determine what weight to give expert’s conclusions.”); In re Potash Antitrust Litig., 159 F.R.D. 682, 696-97 (D. Minn. 1995) (concluding that certification stage not proper forum in which to resolve battle of the experts). See also

Black v. Rhone-Poulenc Inc., 173 F.R.D. 156, 162 & n.6 (S.D. W.Va. 1996) (stating any challenges to experts’ findings would be determined after certification stage). 42. See In re Polypropylene Carpet Antitrust Litig., 996 F.Supp. 18, 26 (N.D. Ga. 1997). 43. 170 F.R.D. 524, 531 (M.D. Fla. 1996). 44. Szabo, 249 F.3d at 672, 676. 45. Meineker v. Hoyts Cinemas Corp., 154 F.Supp.2d 376, 379 (N.D. N.Y. 2001); Gregro v. Barthel, 1996 WL 428819, *1 (E.D. Pa.). 46. Daubert v. Merrell Dow Pharmaceuticals Inc., 509 U.S. 579, 591-92 (1993). It should be noted that in regard to fact finding, the judge is also a layman in need of assistance.

sive, adverse jury verdict. 2. Inherent Bias A litigant’s choice of expert is purely strategic. Competent attorneys make every effort to choose an expert who can most accurately support their legal theories, and parties retain those experts whose viewpoints support their allegations. Parties may contact several “consulting experts” before finding one whose methodology is most compatible with their legal theory. Therefore, the admission of experts at the certification stage is fruitless, because neither party will introduce an expert who does not substantiate its argument for or against class certification. Courts either should reject the use of expert testimony at the class certification stage altogether or institute a means of sifting through experts’ opinions in order to ensure that there is minimal bias in certifying a class. B. Expert Testimony Does Not Assist Fact Finder at Class Certification Stage

Page 292

on legal issues, the advocates in the case should provide enlightenment on both sides of the issue. The judge has the knowledge and expertise to dissect the most complex of legal issues, without drawing on the opinion of a hired “legal expert” who has developed a methodology that substantiates the parties’ contentions on whether the facts underlying the case predominate or that the variations between state laws in a multistate class action are manageable. If the parties are not represented by sophisticated, wellpracticed counsel who are able to articulate why and how a class should or should not be certified, there are serious issues raised about the adequacy of class counsel.48 Thus, experts on the elements of Rule 23 should be prohibited under the purview of Rule of Evidence 702, and certification issues should be left within the purview of the judge.


At a trial on the merits, a federal district court’s finding that the expert’s testimony

is admissible depends on whether the proponent has satisfied the requirements of Daubert v. Merrell Dow Pharmaceuticals Inc.49 and Kumho Tire Co. v. Carmichael.50 The trial court is to act as a “gatekeeper” to prevent experts from testifying if (1) they are not qualified, (2) their opinions are not subject to empirical proof or (3) the opinion does not logically follow from the evidence. Nevertheless, courts are uncertain whether the Daubert and Kumho Tire standard applies at the class certification stage.51 Some courts have concluded the Daubert/Kumho Tire inquiry is completely unnecessary with regard to class certification,52 while others suggest that some type of inquiry is necessary but have not required a Daubert level of scrutiny. For example, in Visa Check/MasterMoney, the court concluded a Daubert inquiry is not necessary at the preliminary stages of an action, such as during a class certification motion, since the purpose of a Daubert inquiry is to shield the fact-finder at trial from flawed evidence. The court found there was no reason to protect it from flawed evidence because class certification is not a trial. Instead, it rejected the defendants’ contention that Daubert was the applicable standard and applied a “limited” analysis to support the admissibility of the plaintiffs’ expert testimony.53 The U.S. District Court for the Northern District of Georgia created its own test in In re Polypropylene Carpet Antitrust Liti-

47. See VII WIGMORE ON EVIDENCE § 1952, at 81; 3 CORBIN ON CONTRACTS § 554, at 227 (1960). 48. See, e.g., In re Asbestos Litig., 90 F.3d 963, 977 (5th Cir. 1996) (“A district court may not certify a class without concluding that class counsel are qualified, experienced and generally able to conduct the proposed litigation.”) 49. 509 U.S. 579 (1993). 50. 526 U.S. 137 (1999). 51. While the focus of this article is on federal actions where the Daubert/Kumho Tire standard applies, in state actions, practitioners should not ignore similar attacks that can be made under the appropriate state standards. The authors of this article were successful in two separate state actions in keeping out plaintiff’s expert testimony under essentially a Frye standard. In both, the plaintiffs’ experts applied methodologies that had not been recognized by their peers.

52. Visa Check/MasterMoney, 192 F.R.D. at 68, 76. See also O’Connor v. Boeing North Am. Inc., 184 F.R.D. 311, 321 n.7 (C.D. Cal. 1998); Polypropylene Carpet, 996 F.Supp. at 18, 26 (agreeing that Daubert analysis was necessary to determine admissibility of expert’s testimony but finding inquiry unnecessary at certification stage). 53. 192 F.R.D. at 76-78. See also Vickers v. Gen. Motors Corp., 204 F.R.D. 476 (D. Kan. 2001) (explaining that, while Daubert analysis not required at class certification stage, class should not be certified “on basis of an expert opinion so flawed that it is inadmissible as a matter of law”). But see Sanneman v. Chrysler Corp., 191 F.R.D. 441, 451 & n.16 (E.D. Pa. 2000) (during certification hearing, court found that expert qualified under Daubert after hearing oral argument on defendant’s Daubert motion; nevertheless, court found that testimony was insufficient to satisfy Rule 23).

DAUBERT/KUMHO TIRE STANDARD SHOULD APPLY AT CLASS CERTIFICATION STAGE If expert testimony is used at class certification stage, there must be assurances of its reliability. The Daubert/Kumho Tire standard should be applied at this stage. A. Some Courts Have Rejected Daubert/Kumho Tire Standard


gation.54 The plaintiffs sought damages and equitable relief pursuant to the Clayton Act to remedy alleged violations of the Sherman Antitrust Act arising from a conspiracy alleged to have artificially maintained the price of polypropylene carpet. Both parties introduced experts to testify whether the artificially inflated price lists were common to all plaintiffs. The court concluded that at this stage, whether an expert’s opinion is admissible does not necessitate a Daubert inquiry. Rather, it set forth a three-part test to determine the admissibility of an expert’s testimony for class certification purposes, under which the court evaluates whether the expert’s testimony (1) is in alignment with other principles within the same field, (2) will posses probative value and (3) will primarily use common evidence. The court, relying on the plaintiffs’ expert opinion, concluded that the plaintiffs had satisfied their burden of showing that the antitrust impact was common to all members of the proposed class.55 B. Daubert/Kuhmo Tire Test Should Apply Rejection of the Daubert/Kuhmo Tire standard to evaluate the admissibility of experts’ opinions at the certification stage is incorrect for two reasons. First, the underlying purpose of the establishment of the Daubert test applies at the class certification stage. Second, the absence of any evaluation of experts at class certification stage poses a threat of wasted judicial resources. First, the Supreme Court intended the Daubert inquiry to shield a trier of fact from flawed evidence and to act as a gatekeeping function to ensure the reliabil54. 996 F.Supp. 18 (N.D. Ga. 1997). 55. Id. at 25-29. 56. 509 U.S. at 592-93 (1993). See also Michelle Michelson, The Admissibility of Expert Testimony on Battering and Its Effect after Kumho Tire, 79 WASH U. L.Q. 367, 384 (2001). 57. 192 F.R.D. at 76. 58. Some courts have certified a class with the understanding that if the case became unmanageable, the court reserved the right to decertify or redefine

Page 293

ity and relevance of expert opinions.56 The Visa Check/MasterMoney court concluded it was not a trier of fact at a certification hearing, given that it is forbidden to engage in an inquiry into the merits of the case.57 A Daubert inquiry is not, however, an evaluation of the merits. Its purpose is not to seek out the truth—it is to protect the judicial process from flawed testimony and fraud. At the certification stage, the court is drawing a conclusion whether the particular prerequisites mandated under Rule 23 have been proved in order for the parties to continue to the trial phase. The purpose of Daubert is just as applicable at this stage as it is at trial. By engaging in a Daubert inquiry, the court can verify the expert’s opinion, thereby preventing a party from offering any witness simply to substantiate its argument for or against class certification. Second, certification cannot stand if the district court finds during trial that the expert’s opinion or methodology, which led to the expert’s conclusion that the court would be able to manage the claims under divergent state laws or that the facts underlying the claims predominated throughout the entire class, does not pass a Daubert inquiry.58 The time and expense the court has taken to hear the action could have been avoided. By simply engaging in a Daubert inquiry, the court could have denied certification early in the litigation. Class action litigation is a procedural tool implemented to conserve judicial resources by combining numerous individual suits when possible.59 When classes are certified based on an expert’s opinion that the action was manageable or that the underlying facts predominated throughout the class, when that expert’s opinion is later the class. See In re Gen. Motors Corp. Pick-Up Truck Fuel Tank Prods. Liab. Litig., 55 F.3d 768, 815 (3d Cir. 1995), cert. denied, 516 U.S. 824 (1995); In re School Asbestos Litig., 789 F.2d 996, 1011 (3d Cir. 1986), cert. denied, 479 U.S. 852 (1986). 59. Alan S. Kaplinsky, Arbitration and Class Actions—A Contradiction in Terms, 81 A.L.I. 173, 183 (2001).

Page 294

found to be based on unreliable conclusions or theories, the class action vehicle is not the most efficient means of proceeding. PRACTICAL ADVICE ON ATTACKING EXPERTS AT CLASS CERTIFICATION STAGE Despite the increased employment by plaintiffs of experts to opine on issues of law in support of motions for class certification, there are a number of legal tactics available to defense counsel to nullify the expert’s opinion. Defense counsel can attack plaintiff’s expert witness effectively on several levels at the class certification stage. A. Attack on Legal Basis Defense counsel should attack an expert’s testimony on a legal basis, arguing that: (1) the plaintiff’s expert is testifying to issues of law, which is prohibited under Evidence Rule 702, and (2) there is no legal precedent that calls for the opinion of a “legal expert” to aid the court in making the determination that the class is appropriate for certification. This attack can be employed early in the litigation and should be considered as soon as the expert is identified. Because it is based on a legal objection, there is no need even to depose the expert. Although this legal tactic has been virtually untapped, it remains a strong argument because it establishes that there is no foundation that would allow experts to testify at class certification hearings. If the expert is knocked out early, the plaintiffs’ likelihood of obtaining certification of the case may evaporate.

60. 192 F.R.D. 68, 76-78. The court raised two arguments that defendants had failed to make that in sum may have shown that the expert’s opinion was the kind of “junk science that a Daubert inquiry at this preliminary stage ought to screen.” 61. Id. at 78. See also Ignition Switch, 194 F.R.D. at 493-94. Here, the defendant did not make a Daubert motion but provided evidence to show how the plaintiff’s expert used a technique that ran counter to accepted statistical norms. The court inter alia made note of the concerns raised by the defendants and denied class certification.


B. Establish that Expert Does Not Qualify under Daubert Although the federal courts of appeals have not embraced Daubert in the class certification context, defendants should challenge the expert testimony offered in support of plaintiff’s motion for class certification on the ground that the expert does not qualify under Daubert. In Visa Check/ MasterMoney, the district court rejected the idea that a formal Daubert inquiry should be applied at the certification stage. Nonetheless, it stated that “there is a [limited] role for a Daubert inquiry at this stage,” thereby leaving defense counsel with the opportunity to raise the issue of the admissibility of the expert’s opinion.60 The court also stated that the standard for whether a court should admit expert testimony at the certification stage turns on whether the “expert opinion [is] so flawed that it is inadmissible as a matter of law.” In order for defense counsel to establish that the testimony is suitably “flawed,” the district court hinted that counsel must demonstrate that: (1) plaintiff’s expert has no qualifications that would establish him as an expert to testify on such an issue, and (2) plaintiff’s expert “failed to rely upon the type of methodology and data typically used and accepted in such cases.”61 The jurisprudence on the admissibility of expert opinions on issues relevant to determining class certification is still evolving. Thus, it is necessary for defense counsel to continue to raise a Daubert motion at the certification stage. That motion also has the benefit of bringing to the attention of the court some of the problems that are associated with certifying the class.62

62. See Alice A. Kelly & Joy L. Holley, Using Daubert to Oppose Class Action Certification, 4 ANDDLR 6 (2001) (hereinafter “Using Daubert”). Kelly and Holley explain that in Sanneman, 191 F.R.D. 441, the court heard oral argument on the defendant’s motion to strike or exclude expert testimony. While the court ultimately denied the motion, it was an effective legal tactic, highlighting several reasons why class certification was not appropriate and leading the court to find that class treatment was not right for this case.


If the court refuses to hear the Daubert argument, counsel should consider “making the record” to show what would have been introduced at the hearing. The recent amendment to Rule 23 provides for interlocutory appeal of class certification decisions, making it possible that the issue of the applicability of Daubert at the class certification stage should be reviewed on appeal before the case has gone all the way to judgment. C. Offer Your Own Expert Even in those courts that have said they will not entertain a “battle of the experts,” defense counsel should make its record on this issue by offering its own expert. This forces the court to examine, and the plaintiff to defend, the reliability and the methodology employed by the plaintiff’s expert.63 For example, in In re Ford Motor Co. Ignition Switch Products Liability Litigation, the plaintiffs sought to certify a class alleging injuries from defective ignition switches.64 To prove the predominance element of Rule 23(b)(3), the plaintiffs offered the opinion of an expert statistician to show that common factual issues predominated over the class. In response, the defendant employed its own statistical expert. The experts offered opposing opinions. The concerns raised by the defendant’s expert, as well as the district court’s own concerns regarding the reliability of plaintiffs’ expert’s data, caused the district court

Page 295

to find that plaintiffs had not met their burden under Rule 23. The use of a defense expert to attack not only the plaintiff’s expert’s opinion, but also the data and methodology used to form that opinion, can be a valuable weapon to nullify the effect of plaintiffs’ use of an expert’s opinion at the class certification stage. CONCLUSION The issue of whether experts should be allowed to testify at the certification stage is still open for debate. Without guidance from the U.S. Supreme Court as to what evidence should be utilized to conduct a “rigorous analysis,” trial courts have taken it on themselves to assume experts are appropriate. It is reasonable to conclude that the use of experts to opine on legal issues at the class certification stage is not permitted under the Federal Rules of Evidence. A judge’s role is clearly usurped by having legal experts testify on legal questions, which are exclusively within the purview of the judge. The rule is quite clear and has been uniformly interpreted until now. Given the growth, scale and in terrorem effect of class action litigation in the United States, this is an issue that demands immediate attention from the trial courts, legal scholars and practitioners. 63. Using Daubert, supra note 61. 64. 194 F.R.D. 484 (D. N.J. 2000).