A class action that aggregates the claims of individual plaintiffs against a common defendant can promote judicial economy and maximize efficiency. However, even the pursuit of class certification can promote abuse. In the words of Judge Henry Friendly, class actions can at times result in “blackmail settlements,” where even defendants with meritorious defenses feel compelled to settle based on the enormous threat of liability that a class action can present. See In re Rhone-Poulenc Rorer, Inc., 51 F.3d 1293, 1298 (7th Cir. 1995) (quoting Henry J. Friendly, Federal Jurisdiction: A General View 120 (1973)). In part to avoid this abuse, the Federal Rules of Civil Procedure strike a balance that permits certification of damages classes under Rule 23(b)(3) only when, among other things, common issues predominate over individualized issues necessary to resolve the case.
There is, however, a growing trend that impacts this delicate balance and is changing how many class actions are litigated, and the tactics and strategies employed by all parties. Plaintiffs, and some courts, have increasingly pointed to Rule 23(c)(4)1 to certify what are called “limited issue” classes. Rule 23(c)(4) provides that, “when appropriate, an action may be brought or maintained as a class action with respect to particular issues.”2 Limited issue certification under this Rule seeks to isolate an issue (or certain issues) for class treatment even if class members’ claim for liability or recovery might ultimately be adjudicated individually. The separation of individual issues not capable of class-wide resolution allows a class action to move forward even when it would not survive examination under the mandate of Rule 23(b)(3)’s predominance test3 – which requires common issues in the class action as a whole to predominate over issues that would require individualized adjudication.4
While the potential for limited issue classes has been around for a while, it gained increased attention in light of the Supreme Court’s decision in Wal-Mart v. Dukes, which brought teeth back to Rule 23(a)’s commonality requirement, many commentators viewed the case as a real threat to class certification.5 As the Court held, “[w]hat matters to class certification … is not the raising of common ‘questions’ – even in droves – but, rather, the capacity of a classwide proceeding to generate common answers apt to drive the resolution of the litigation.”6 Some commentators were concerned that the Dukes decision threatened the very viability of class actions.7
These concerns may have been overstated, but it has caused some commentators to advocate for limited issue class certification under Rule 23(c)(4) as a way to promote the continued viability of class actions. For example, Professor John C. Coffee has said, “the best hope for survival of the class action in money damages cases may lie in the expansion of issue class certification under Rule 23(c)(4).”8 Under Professor Coffee’s view, partial certification is a process whereby “the defendant’s liability could be established at the class trial.”9 Then, “individual issues, such as reliance, proximate causation, or damages could be established in separate proceedings.”10 Other commentators stress that this approach goes too far, and is inconsistent with federal law.11
Several courts have interpreted Rule 23(c)(4) to permit the bifurcation of class issues and certain issues that must be resolved on an individual basis in a Rule 23(b)(3) damages class. However, courts have disagreed on the proper scope and interpretation of the Rule.
Until recently, the Fifth Circuit in Castano v. American Tobacco rejected the use of Rule 23(c)(4) to overcome (b)(3)’s predominance requirement: “Severing the defendants’ conduct from reliance under rule 23(c)(4) does not save the class action. A district court cannot manufacture predominance through the nimble use of subdivision (c)(4). The proper interpretation of the interaction between subdivisions (b)(3) and (c)(4) is that … (c)(4) is a housekeeping rule that allows courts to sever the common issues for a class trial.”12 Notably, the Fifth Circuit’s more recent decision in In re Deepwater Horizon, has been cited as a retreat from Castano and evidence of a more expansive approach, stating that Rule 23(b)(3)’s predominance requirement can still be met if the proceedings are structured to establish “liability on a class-wide basis, with separate hearings to determine—if liability is established—the damages of individual class members.”13 Of course, separating the damages inquiry alone for individualized treatment is distinct from having mini-trials on issues of, for example, reliance or causation.
Other circuits have been more supportive of limited issue class certification, although circuits have different approaches to determine when it is appropriate to certify a Rule 23(c)(4) class action that could not be certified under Rule 23(b)(3). The Second Circuit held in In re Nassau County Strip Search Cases that “a court may employ subsection (c)(4) to certify a class as to liability regardless of whether the claim as a whole satisfies Rule 23(b)(3)’s predominance requirement.”14 The Second Circuit employed a material advancement standard, determining whether issue certification would “reduce the range of issues in dispute and promote judicial economy.”15 The Third Circuit applies factors set forth in the American Legal Institute’s Principles of the Law of Aggregate Litigation16 to determine whether certification of an issue class is proper. Courts are instructed to consider factors such as “the type of claim and issue in question; the overall complexity of the case; the efficiencies to be gained by granting partial certification; the substantive law underlying the claim,”17 and more. Finally, the Seventh Circuit held that if a proposed class action contains “genuinely common issues, issues identical across all the claimants … the accuracy of the resolution of which is unlikely to be enhanced by repeated proceedings, then it makes good sense, especially when the class is large, to resolve those issues in one fell swoop while leaving the remaining, claimant-specific issues to individual follow-on proceedings.”18
The liberal interpretation of Rule 23(c)(4) in some circuits has been recognized as a concern by some scholars and congressional leaders alike. On March 9, 2017, the House of Representatives passed the Fairness in Class Action Litigation Act of 2017 (“FCALA”).19 Now pending Senate approval, FCALA proposes various amendments to the judicial procedures that apply to federal court actions. Notably, FCALA would preclude courts from certifying particular issue class actions unless the entirety of the cause of action from which the particular issues arise satisfies Rule 23 requirements. An additional provision requiring that “each proposed class member suffer the same type and scope of injury” as the named plaintiff would result in substantially fewer certified issue classes as well.
In stark contrast to the approach advocated by supporters of FCALA, the Rule 23 Subcommittee to the Advisory Committee on Civil Rules recently considered amendments that would make it far easier to certify a limited issue class. Perhaps recognizing the apparent conflict between the predominance requirement and limited issue certification, the Rule 23 Subcommittee contemplated an amendment that would eliminate the predominance requirement to obtain issue class certification under Rule 23(c)(4), making it easier to certify issue classes. The Subcommittee ultimately removed issue classes from consideration for rule changes, citing an evolving consensus in various circuits for Rule 23(c)(4) treatment “when appropriate.”20 However, the proposed amendment by the Subcommittee parallels proposals by some practitioners and academics in support of a more expansive use of issue certification.21
Passage of FCALA would certainly change the landscape for issue class certification and provide clarity, shifting the focus back to the commonality and predominance of common issues in class actions over individual issues. Even if legislation does not pass, there may be changes in how courts interpret Rule 23 to permit limited issue certification and in how defendants approach class actions in this new era.
First, as noted above, some commentators have argued against broadening limited issue certifications. Based on the Constitution, Rules Enabling Act, and historical practice, Professor Mark A. Perry has advocated an approach that would permit limited issue certification solely for liability and remedies since “Rule 23(c)(4) does not authorize certification or exclusion of more discrete claim elements or defenses.”22 Under this approach, Professor Coffee’s proposed expansion to encompass claim elements (such as causation or reliance) and defenses (such as knowledge and consent) would be precluded by the courts.23 Defendants may want to follow this approach in challenging the use of limited issue certification in their cases.
Second, regardless of what is permitted to be included in a limited issue certification, defendants may change tactics and strategies to counter plaintiffs’ counsel’s evolving positions. There was a time (recognized by Judge Friendly) that even the threat of class certification could cause a defendant with a meritorious claim to settle rather than risk overwhelming liability. However, defendants may find that, even if a class is certified, if issues such as reliance, causation, or injury, are left for individualized adjudication, they may have reason to battle well beyond class certification. For example, perhaps a limited issue class will be certified, but a defendant may have strong arguments on the underlying merits, or plaintiffs may have serious problems with proving that a significant portions of the class relied on a representation. In those circumstances, it may be worth pushing plaintiffs to really prove their case for each class member. At a minimum, in those circumstances, plaintiffs’ counsel will still have a significant amount of work to do to truly “prevail” in any meaningful way, which can impact case strategy and settlement.
As the Senate debates FCALA, and the courts continue to consider how best to utilize limited issue certifications, we will keep you updated on interesting developments.
1 Fed. R. Civ. P. 23(c)(4) (“When appropriate, an action may be brought or maintained as a class action with respect to particular issues.”).
2 Fed. R. Civ. P. 23(c)(4).
3 Laura J. Hines, Codifying the Issue Class Action, 16 Nev. L.J. 625 (2016).
4 Fed. R. Civ. P. 23(b)(3).
5 Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338, 350, 131 S. Ct. 2541, 2551 (2011) (citing Richard A. Nagareda, Class Certification in the Age of Aggregate Proof, 84 N.Y.U. L.Rev. 97, 132 (2009)).
7 See, e.g., John C. Coffee, Bureau Natl’l Affairs, The New Class Action Landscape: Trends and Developments of Class Certification and Related Topics 2005-2011, at S-51 (2011).
8 Coffee, supra note 5, at 158-160.
9 Id. at 159.
11 See, e.g., Mark A. Perry, Issue Certification Under Rule 23(c)(4): A Reappraisal, 62 DePaul L. Rev. 733 (2013).
12 Castano v. American Tobacco, 84 F.3d 734, 745 n.21 (5th Cir. 1996).
13 In re Deepwater Horizon, 739 F.3d 790, 795 (5th Cir. 2014).
14 In re Nassau Cty. Strip Search Cases, 461 F.3d 219, 226-27, (2d Cir 2006).
15 McLaughlin v. American Tobacco Co., 522 F.3d 215, 234 (2d Cir. 2008).
16 Am. Legal Inst., Principles of the Law of Aggregate Litigation § 2.02 (2010).
17 Gates v. Rohm and Haas Co., 655 F.3d 255, 273 (3d Cir. 2011).
18 McReynolds v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 672 F.3d 482, 491 (7th Cir. 2012) (citing Medjdrech v. Met-Coil Systems Corp., 319 F.3d 910, 911 (7th Cir. 2003)).
19 H.R. 985, 115th Cong. § 1720 (2017).
20 Advisory Comm. on Civil Rules, Rule 23 Subcommittee Report (Nov. 5-6, 2015), http://www.uscourts.gov/rules-policies/archives/agenda-books/advisory-committee-rules-civil-procedure-november-2015.
21 Mark A. Perry, Issue Certification under Rule 23(c)(4): A Reappraisal, 62 DePaul L. Rev. 733 (2013).