The Supreme Court's decision in Wal-Mart Stores, Inc. v. Dukes impacted not only employment class actions but the viability of class certification in ERISA cases. The Supreme Court's grant of certiorari last term in Comcast Corporation v. Behrend has the potential to similarly impact the future availability of class certification in ERISA actions. The Supreme Court granted Comcast's petition for certiorari with respect to the following question on which the federal circuit courts have been divided since Dukes:
Whether a district court may certify a class action without resolving whether the plaintiff class has introduced admissible evidence, including expert testimony, to show that the case is susceptible to awarding damages on a class-wide basis.
Although Comcast is an antitrust lawsuit, the Supreme Court's decision could affect certification decisions in ERISA class actions, since the evaluation of class certification motions in ERISA cases often involves an assessment of the parties' respective expert analyses.
Experts have always played a significant role in complex class action litigation, including ERISA lawsuits, but the courts' views as to the role of experts at the class certification stage were inconsistent at best. The Supreme Court's decision in Dukes arguably affected the analysis, insofar as the Court set forth a "significant proof" standard for satisfying Fed. R. Civ. P. 23. As part of the "significant proof" discussion, the Supreme Court stated in dicta that the admissibility standard for expert evidence set forth in Daubert v. Merrell Dow Pharmaceuticals Inc., should apply at the class certification stage. After Dukes, the circuit courts have divided on whether a ruling on the admissibility of expert evidence is a prerequisite to a class certification ruling. The Supreme Court's ruling in Comcast should resolve this split and, in so doing, significantly impact the outcome of class action litigation, including ERISA litigation.
Role of Experts in ERISA Class Actions Pre-Dukes
To appreciate the significant role experts can play in class certification, it is helpful to consider the courts' approaches to class certification in ERISA lawsuits. The propriety of class-wide resolution is particularly important in the ERISA context, since courts apply class certification criteria both to suits brought on behalf of a class of plan participants and to suits brought "on behalf of" an ERISA plan. These decisions typically emphasize the due process considerations underlying Rule 23's procedural protections for absentee plan participants.
As in all class actions, the plaintiff in an ERISA class action must satisfy Rule 23(a)'s requirements of numerosity, commonality, typicality, and adequacy. In addition, the plaintiff must satisfy at least one of Rule 23(b)'s requirements. Before Dukes, commonality requirements were satisfied readily in ERISA 401(k) excessive fee claims and prudence claims based on alleged breaches in selecting investment options. In contrast, ERISA putative classes alleging misrepresentation and/or estoppel claims generally were not certified because of the predominance of individualized issues. Regardless of the type of claims involved, the courts have reached inconsistent results regarding the proof needed to sustain a showing of commonality, including the need for expert evidence and the circumstances under which such evidence should be considered.
For example, in Langbecker, plaintiffs brought a class action alleging breach of fiduciary duty claims, including prudence and disclosure claims, stemming from the company's offering of a 401(k) plan in which the employer stock fund was an ESOP. The district court certified the prudence claim for class treatment, notwithstanding an expert analysis offered by defendants to demonstrate that plaintiffs could not satisfy their Rule 23 burden of proof. On appeal, the Fifth Circuit decertified the prudence claims. In so ruling, the Fifth Circuit stated that a district court's analysis under Rule 23 required an inquiry into the merits to determine whether sufficient admissible evidence had been presented, and that this inquiry should include consideration of the admissibility of the expert evidence.
In parallel class action challenges to administrative fees levied against ERISA plans, the Seventh Circuit found class resolution improper based in part on expert testimony proffered by defendants, which demonstrated that damages could not be awarded on a class-wide basis. In so ruling, the court rejected plaintiffs' arguments that they did not have to offer evidence in advance of trial to show that damages could be awarded on a class-wide basis.
Contrasting these rulings is the district court's ruling in Brieger v. Tellabs. In Brieger, plaintiffs filed a putative class action alleging that Tellabs and various individual defendants breached their fiduciary duties of prudence and disclosure because Tellabs common stock was offered as an investment option in the company's 401(k) plan. In granting plaintiffs' motion for certification, the district court rejected defendants' proffered expert opinion, holding that it need not consider expert reports at the certification stage.
The Supreme Court's Ruling in Wal-Mart v. Dukes
Although the Supreme Court's ruling in Dukes did not rule on the admissibility of expert evidence at the class certification stage, many of the Court's pronouncements may be relevant to the issue. Plaintiffs in Dukes filed a Title VII class action suit on behalf of past, present, and future female employees of Wal‑Mart's retail stores in the United States. Plaintiffs alleged that the company systematically paid women less than their male counterparts and promoted men to higher positions at faster rates than women, in violation of Title VII. The district court granted class certification, and the Ninth Circuit affirmed.
At the outset of the opinion, the Supreme Court held that Rule 23 is not a mere pleading standard. Rather, a party seeking class certification "must affirmatively demonstrate his compliance with the Rule—that is, he must be prepared to prove that there are in fact sufficiently numerous parties, common questions of law or fact, etc.," and the moving party's burden is one of "significant proof." The Court confirmed its prior rulings that class certification is not the rule but the exception. When assessing class certification, a district court may not refuse to consider the merits of plaintiffs' underlying claims that bear on whether they have satisfied Rule 23. The Dukes Court stated if plaintiffs lack "significant proof" that a question central to establishing liability for each class member can be answered in the same way for each class member, the case is not proper for class certification. Thus, when discussing what constitutes "significant proof," the majority suggested in dicta that the admissibility standards enunciated in Daubert should be applied to expert evidence offered at the class certification stage.
Under the "significant proof" burden, the Dukes Court concluded that plaintiffs could not satisfy either Rule 23(a) or 23(b), and the class never should have been certified.
Role of Experts in ERISA Class Actions Post-Dukes
Following Dukes, courts have divided as to whether the admissibility of expert evidence must be decided when ruling on class certification motions. This division has manifested itself to some extent in the ERISA arena as well, insofar as courts have differed as to the need to evaluate expert testimony at the class certification stages and, in some instances, have conditioned that evaluation on a determination of the admissibility of the expert testimony.
Courts within the Seventh and Eleventh Circuits have considered, and been guided by, expert testimony at the Rule 23 stage. For example, in Groussman v. Motorola, Inc., plaintiffs moved to certify a class of 401(k) plan participants whose accounts included investments in employer stock. Relying on defendants' brief and attached expert report, the court ruled that plaintiffs' employer stock claims failed to satisfy Rule 23(a)'s commonality and typicality requirements because of the individualized inquiries needed to determine each class member's understanding of the company's financial state when making investment decisions.
In Sher v. Raytheon Co., the Eleventh Circuit held that the district court erred in certifying a class where it failed to weigh conflicting expert testimony presented by both parties at the class certification stage. Furthermore, the court held that the district court must conduct a Daubert admissibility analysis of the proffered expert testimony at the Rule 23 stage, especially when conflicting expert reports are presented and those opinions are critical to the certification issues.
Following Sher, the district court in Bacon v. Stiefel Labs., Inc. held that the plaintiffs failed to satisfy Rule 23(b)(3)'s predominance and superiority requirements in a putative ERISA class action. In Bacon, plaintiffs filed a class action, alleging a common scheme to defraud ESOP participants by concealing the true value of the company's stock, which was alleged to have been done to reap a windfall by acquiring stock from the participants at an artificially reduced price prior to a proper fair market valuation of the company. Relying in part on defendants' expert reports, the court rejected plaintiffs' argument that a presumption of reliance, without further proof, should flow from the alleged common scheme of misstatements and omissions. The court concluded that plaintiffs failed to sustain their burden of demonstrating that common questions as to reliance and damages predominated.
Other courts have declined to resolve the admissibility of expert evidence at the Rule 23 stage. For example, in Cox v. Zurn Pex, Inc., the Eighth Circuit affirmed class certification, rejecting defendants' contention that the district court should have undertaken a Daubert admissibility analysis prior to class certification. In so ruling, the court held that a Daubert analysis was not necessary at this stage, but was instead more appropriate at trial. Similarly, in Churchill v. CIGNA Corp., the district court certified a class in a case challenging CIGNA's national policy as to coverage of autism spectrum disorder. In its opinion, the court rejected defendants' argument that plaintiffs had not provided sufficient evidence—including expert evidence—that damages could be awarded on a class-wide basis. In rejecting this argument, the court concluded that plaintiffs need only show by a preponderance of the evidence that they would satisfy Rule 23's commonality and typicality requirements at trial, and that plaintiffs had made a sufficient showing in their certification briefs, notwithstanding the contrary testimony of defendants' experts.
Thus, at the time the Supreme Court granted certiorari in the Comcast case, the state of the law with respect to the role of experts at the Rule 23 stage was uncertain in ERISA complex class actions.
Comcast Corp. v. Behrend: Expert Admissibility at Class Certification Stage
The Supreme Court's grant of certiorari in Comcast Corp. et al. v. Behrend picks up where the Supreme Court left off in Dukes. As noted above, the Dukes Court suggested in dicta that the Daubert admissibility standard should apply at the class certification stage. In Comcast, the Supreme Court will have the opportunity to consider whether to convert that dictum to a holding.
Factual and Procedural History
Comcast is an antitrust class action brought on behalf of select Comcast customers against Comcast Corp., alleging class action antitrust claims under Sections 1 and 2 of the Sherman Act. The plaintiffs alleged the company obtained a monopoly via a series of transactions and/or acquisitions with competitors for allocation of regional cable markets, and that conduct excluded and prevented competition. The parties exchanged competing expert reports at the class certification stage and Comcast submitted a Daubert challenge as to the admissibility of plaintiffs' class expert. The district court granted plaintiffs' motion for class certification and certified a class under Fed. R. Civ. P. 23(b)(3). In its opinion, the district court stated that the plaintiffs proved by a preponderance of the evidence that they would satisfy Fed. R. Civ. P. 23's commonality required at trial and that it need not decide Daubert admissibility issues until trial.
Following the district court's decision, defendants filed a Fed. R. Civ. P. 23(f) petition to appeal the district court's order granting class certification. On June 9, 2010, the Third Circuit granted Comcast's Rule 23(f) petition. Following briefing and oral argument, the Third Circuit affirmed the district court's decision to grant class certification. The Third Circuit held that the district court did not abuse its discretion in declining to resolve expert admissibility at the certification stage and concluding, instead, that plaintiffs' class certification evidence was susceptible to proof at trial. Although the Third Circuit held that Fed. R. Civ. P. 23 requires a rigorous analysis including a preliminary inquiry into the merits, it held that it was "precluded from addressing any merits inquiry unnecessary to make a Rule 23 determination."
Following the Third Circuit's decision to affirm the district court's opinion, Comcast petitioned for certiorari before the Supreme Court as to the following question:
Whether a district court may certify a class action without resolving merits arguments that bear on Fed. R. Civ. P. 23's prerequisites for certification, including whether common issues predominate over individual ones under Rule 23(b)(3).
The Supreme Court granted Comcast's petition for certiorari, but on a narrower question as to whether a district court must resolve whether the plaintiff has introduced admissible evidence, including expert testimony, that damages can be awarded class wide.
The parties have now briefed the issue to the Supreme Court, eliciting various amicus briefs in support of both positions, and held oral argument on November 5, 2012.
Future Role of Experts in ERISA Class Actions
The role of experts in resolving class certification issues is particularly pronounced in ERISA class action litigation. Among other things, expert opinions help to determine whether the claims are sufficiently uniform to permit class certification under Rule 23. In the past, this issue has been presented in claims arising from investment losses or alleging excessive fees, where different participants may have experienced different outcomes, which in turn could give rise to conflicts defeating class certification. In light of the Supreme Court's recent ruling in CIGNA Corp. v. Amara, which recognizes the viability of claims for recovery of monetary relief in claims alleging communications violations, it is likely that these issues will extend to many other types of cases. As courts are presented with arguments as to whether ERISA claims are sufficiently uniform to proceed as class actions, they will inevitably confront issues as to the admissible evidence required of plaintiffs to satisfy Rule 23's requirements, and whether the application of the Daubert expert evidence admissibility standard is implicated.
For these reasons, the ERISA community should view favorably the Supreme Court's decision to grant certiorari in Comcast. The outcome will hopefully resolve one aspect of the complex class certification process that has been particularly inconsistent in ERISA class action litigation.
This article originally appeared in the January 2013 issue of the Employee Benefit Plan Review.