Class Action Reform and the “Fairness in Class Action Act”

22 May 2017 Dashboard Insights Blog

While the Congressional legislative agenda has taken a back seat in the headlines lately, the fact remains that there still is an agenda, and it includes class action reform.

The agenda item of interest is H.R. 985, the Fairness in Class Action Litigation and Furthering Asbestos Claim Transparency Act of 2017 (the “Fairness in Class Action Act”) which would also lead to multi-district litigation (MDL) reform. With class actions posing a major threat to corporate bottom lines, and MDLs a large driver of litigation in federal courts (the current MDL listing includes numerous OEMs and suppliers), the automotive industry has a vested interest in how class action and MDL reform plays out.

The Fairness in Class Action Act passed the House in March and is currently awaiting action by the Senate Judiciary Committee.  While that committee appears preoccupied at the moment, any realistic scenario for the next almost two years will involve Republican control of both houses of Congress and the White House, with litigation reform a priority, and the  Fairness in Class Action Act is a useful preview to see what steps Washington may take to pare back these mass actions.

In today’s post, we take a look at how the Fairness in Class Action Act would reshape class actions in federal court.  Class actions are often won and lost at the certification stage: class actions can turn from a manageable dispute with one plaintiff into a “bet-your-company” lawsuit with thousands based on a single certification order.  The Fairness in Class Action Act takes several steps to make these orders tougher for class action plaintiffs to get—some of the key ones are explained here.

Mandating Ascertainability

One of the conflicts among federal appeals courts is to what extent plaintiffs seeking to bring a class action have to show that members of the class are “ascertainable.”  This essentially asks how hard a court will have to work to decide whether a given party is in fact a member of a class the plaintiffs seek to certify.  Some courts have taken the approach that the standard is a low one, and that all plaintiffs need to show is that there are objective criteria that can be used to determine class membership.  Other courts take this requirement a step further, and demand that plaintiffs also show that there is an “administratively feasible” step for determining membership on a class-wide basis.  For some cases, this can be the difference between certifying a class, creating huge exposure for a defendant, and not certifying a class—such as where a plaintiff suing tire and automobile manufacturers cannot point to an easy way to determine which potential class members actually experienced a flat tire, even though standing by itself, getting a flat tire could be an objective criteria.

The Fairness in Class Action Act would resolve this split, by adopting the more restrictive definition: mandating that any plaintiff seeking to certify a class show that “there is a reliable and administratively feasible mechanism” for both determining class membership and for distributing any monetary relief to the class.  This would, in practice, largely require plaintiffs seeking to certify a class to point to a database, list, or other source of information that could be used to show class membership, and remove the ability of courts to rely on methods like self-certification.  For product liability and fraud actions in particular, this kind of reform would sharply curtail plaintiffs’ ability to certify class actions.

Class Member Injury

Another requirement for classes under the Fairness in Class Action Act is that plaintiffs show that “each proposed class member suffered the same type and scope of injury as the named class representative.”  Any certification order in a case seeking “monetary relief for personal injury or economic loss” would need to include “a determination, based on a rigorous analysis of the evidence presented, that” this requirement was met.

This requirement would be another major shake-up for the class action bar: currently, some courts hold that the “possibility or indeed inevitability” that some class members may not have been injured by the defendants does not defeat certification.  These courts would likely need to change course should the Fairness in Class Action Act (or something like it) pass: shrugging off the “inevitability” of uninjured class members is inconsistent with requiring plaintiffs to show that each class member “suffered the same type and scope of injury” as the named plaintiff.

Appeals From Class Certification

Currently, the rules governing class certification do not require appeals courts to entertain appeals taken from class certification decisions: instead, appeals courts “may permit an appeal from an order granting or denying class-action certification.”  In practice, appeals courts take these appeals in specific situations, such as where the appeals court believes that the certification order effectively ended the litigation, or where there is a novel legal question the appeals court feels a need to address quickly.  Of course, a business’s appetite for risk and determination of whether it is willing to roll the dice on a $100 million class action may not align with three judges’ idea of whether certification effectively ends a case.

The Fairness in Class Action Act would change this approach.  Instead of leaving appeals of class certification decisions up for discretionary review, the Act would make appeals of class certification rulings—whether a grant or a denial of class certification—available as of right.  Thus, rather than face situations in which a certified class and the prospect of trial and a major judgment, combined with a denial of appeals court review, forces a defendant’s hand into settlement, there will always be a crack at review of a certification decision.

Mandatory Discovery Stays

Another step taken to reduce the costs of class actions—while it would not necessarily make class certification more difficult like the steps above—is a mandatory stay of discovery during the pendency of certain motions, like motions to dismiss or motions to strike class allegations.  While discovery frequently does not ramp up during motions to dismiss at the outset of the case, the statutory language is not limited to motions to dismiss at the pleadings stage: such motions filed while discovery is ongoing would presumably also stay discovery.  These could take the form of motions to dismiss based on a lack of injury (a rash of these motions were filed in pending cases after the Supreme Court’s Spokeo decision), or of motions to strike the class allegations after the pleadings are closed, but before discovery is complete.  Staying discovery while these motions are pending forestalls the ability of plaintiffs to impose discovery costs on defendants and leverage outsized individual settlements, even as defendants fight whether the case should be a class action in the first place.

MDLs and the Fairness in Class Action Act

In our next post, we take a look at the Act’s application to MDLs, and how these unwieldy creatures may be reformed.

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