Discovery in class action litigation is notoriously asymmetric. While a corporate defendant may have hundreds of thousands or millions of potentially relevant documents dispersed geographically and across a range of systems, the putative class representative is likely to have a relatively small number of responsive documents, which can be collected and produced with little burden or expense. Accordingly, corporate defendants in class actions are vulnerable to attempts by plaintiffs to propound extremely broad discovery requests, in the hopes that driving up the expense of the litigation will force the defendant to settle regardless of the merits of the case (or the lack thereof). This article discusses various strategies for combating this common tactic and reining in the expense of discovery in class action litigation.
A. Discovery Stays Pending Motion to Dismiss
At the start of a putative class action, defense counsel should consider seeking a stay of discovery while a motion to dismiss is pending. Courts stay discovery at their discretion, see Fed. R. Civ. P. 26(c)(1)(A), usually by balancing the relative harms between plaintiffs and defendants. See, e.g., Anti-Monopoly, Inc. v. Hasbro, Inc., No. 94 Civ. 2120, 1996 WL 101277, at *2-3 (S.D.N.Y. Mar. 7, 1996). The balance of harms should typically tilt in a defendant’s favor. On the one hand, the harm to the defendant is likely to be significant. Discovery costs are potentially immense in class actions, given, among other things, the costs associated with collecting and reviewing electronic information, the storage of electronic information across a multitude of systems, the dispersal of hard documents in different sites in various geographic regions (including potentially overseas), the need to retrieve documents from offsite storage, and the need to collect documents related to thousands or millions of transactions. Defendants should not be subjected to these significant expenses if the putative class action complaint is unlikely to survive a motion to dismiss. On the other hand, the harm to the named plaintiff is often only slight. Discovery is typically unnecessary to decide a motion to dismiss pursuant to Fed. R. Civ. P. 12(b)(6), and the risk of spoliation of potentially relevant documents is usually remote and easily avoidable with an appropriate document preservation order. Furthermore, where a class action challenges a longstanding business act or practice, rather than newly implemented conduct, a plaintiff generally cannot justify a sudden and urgent need for discovery.
B. Limits on the Scope of Precertification Discovery
If the court refuses to stay discovery or denies the motion to dismiss, defense counsel should consider attempting to limit the scope of precertification discovery to class certification issues. Bifurcation between merits and class certification discovery oftentimes creates efficiencies. In the typical class action, merits discovery requires a defendant to produce tens of thousands of pages of documents and to make dozens of witnesses available for depositions. This is, of course, costly. A corporate defendant should argue that it should only have to bear this significant expense if the suit is viable as a class action – that is, only once it has been certified. See Manual for Complex Litigation (Fourth) [hereinafter Manual] § 21.14 (2004). Merits discovery, moreover, could delay the certification decision, contravening the requirement that a class certification determination be made at “an early practicable time.” Fed. R. Civ. P. 23(c). Aside from efficiency considerations, bifurcation is also fairer to defendants. Onerous merits discovery may pressure defendants to settle even if plaintiffs’ allegations lack merit. Cases where the defendant has strong arguments against class certification, therefore, are good candidates for bifurcation. See Manual § 21.14; Gonzalez v. PepsiCo, Inc., No. 06-2163, 2007 WL 1100204, at *3 (D. Kan. Apr. 11, 2007).
C. Shifting Precertification Discovery Costs
Defense counsel should also consider seeking to shift precertification discovery costs to the plaintiff. In Boeynaems v. LA Fitness Int’l, LLC, a federal district court held that cost shifting was warranted in certain putative class actions. 285 F.R.D. 331, 334- 35, 341 (E.D. Pa. 2012). The plaintiffs in that case had signed up to join a health club but allegedly encountered obstacles when they sought to terminate their membership. They filed a putative class action and propounded extremely broad and burdensome discovery requests on the defendant. In the court’s assessment, the parties faced “asymmetrical” discovery burdens: the plaintiffs had “very few documents” compared to the defendant’s “millions of documents and millions of items of electronically stored information.” Id. at 334. If the plaintiffs had their way, the defendant would bear the brunt of “[v]irtually all” of precertification discovery at a cost that constituted “a significant factor in the defense of the litigation.” Id. As the court observed, although a responding party usually bears the costs of discovery requests, the court can shift the costs to the plaintiffs if the requests are unduly burdensome. Applying this principle to the putative class action context, the court held that cost shifting is proper in cases where (1) “class certification is pending,” and (2) the discovery requests are “very extensive” and “very expensive,” unless there are “compelling equitable circumstances to the contrary.” Id. at 341. In reaching this conclusion, the court reasoned that “discovery burdens should not force either party to succumb to a settlement that is based on the costs of litigation rather than the merits of the case.” Id. at 342 (emphasis added). The court also discussed the economic pressures faced by class action defendants. In the instant case, since the defendant had “borne all of the costs of complying with Plaintiffs’ discovery to date,” the court ruled that the plaintiffs should pay for any “additional discovery.” Id. at 341. Accordingly, there is persuasive precedent for shifting the cost of precertification discovery to the plaintiff. At the very least, the precedent provides a credible basis for threatening to file a cost-shifting motion if the plaintiff does not withdraw or narrow his or her unreasonable discovery requests. See also Schweinfurth v. Motorola, Inc., No. 1:05CV0024, 2008 WL 4449081, at *2 (N.D. Ohio Sept. 30, 2008) (splitting precertification discovery costs evenly between the parties).
D. Precertification Daubert Challenges
It has become increasingly common for plaintiffs to proffer expert testimony at the class certification stage to establish that the requirements of Rule 23 have been satisfied. Even where the expert’s report overlaps with the merits of the case (such that the expert is likely to submit another report during the merits stage of the case), defense counsel should not wait to challenge the admissibility of the expert’s testimony. If the defendant does not act, the plaintiff may argue that the defendant has waived its right to challenge the admissibility of the testimony under Fed. R. Evid. 702. The standard for testing expert reliability at the class certification stage remains unsettled, however. Some circuits require a full- blown Daubert analysis on the view that expert testimony leading to certification could be outcome determinative: once a class is certified, defendants are under intense pressure to settle. See Sher v. Raytheon Co., 419 F. App’x 887, 890-91 (11th Cir. 2011); Am. Honda Motor Co. v. Allen, 600 F.3d 813, 815-16 (7th Cir. 2010); cf. Unger v. Amedisys Inc., 401 F.3d 316, 323 n.6 (5th Cir. 2005) (suggesting that courts may inquire into the admissibility of an expert’s testimony at the certification stage). Other circuits arguably require a more focused Daubert test on the theory that reliability is a function of the available information and that experts have access to limited information at the certification stage. See Ellis v. Costco Wholesale Corp., 657 F.3d 970, 982 (9th Cir. 2011); Cox v. Zurn Pex, Inc., 644 F.3d 604, 612-614 (8th Cir. 2011). The Supreme Court has left this circuit split unresolved, but the high court has suggested in dicta that a full-blown Daubert analysis may be required. See Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541, 2554 (2011); Comcast v. Behrend, 133 S. Ct. 1426, 1432 (2013). Given the unsettled state of the law and the logic of not certifying a class based on unreliable expert testimony, defense counsel should argue that rigorous analysis of certification issues requires a thorough assessment of experts’ reliability akin to a full-blown Daubert inquiry. See In re Hydrogen Peroxide Antitrust Litig., 552 F.3d 305, 323 (3d Cir. 2009).
E. Limiting Discovery Concerning Unnamed Class Members
In an attempt to impose a burden on defendants and/ or to recruit new or additional plaintiffs, plaintiff’s counsel often seek discovery about unnamed class members. Defense counsel should counter such attempts. The rules for discovery of unnamed class members are stricter than the general discovery regime: the named plaintiff must demonstrate that the information is needed for certification. Manual § 21.14. Further, discovery may be limited to “a certain number or a sample of proposed class members.” Id. Additionally, subject to the First Amendment, courts may limit communications from plaintiff’s counsel with potential class members in order to prevent abuse and ethical violations. See Hauff v. Petterson, No. 1:09-cv-00639, 2009 WL 4782732, at *32 (D.N.M. Dec. 11, 2009). Some courts have gone further and restrained plaintiffs from discovering information from defendants about potential class members to protect privacy rights. Under the opt-in approach, plaintiffs cannot obtain information relating to unnamed class members from defendants unless the concerned individuals consent. Best Buy Stores, L.P. v. Superior Court, 40 Cal. Rptr. 3d 575, 577 (Cal. Ct. App. 2006). Under the opt-out approach, the presumption is reversed: plaintiff may obtain information about unnamed class members unless the latter parties object. Pioneer Elecs. (USA), Inc. v. Superior Court, 150 P.3d 198, 205-06 (Cal. 2007). Either approach is more protective than the unchecked release of private customer information.
F. Targeted Precertification Depositions
Discovery stays, motions to bifurcate, and cost shifting motions are powerful tools for reducing discovery costs in putative class actions and forcing a resolution that is reflective of the merits of the case, rather than the cost of litigation. At the same time, it is often well worth the investment to take some focused discovery early, including by taking targeted depositions, to expose the weakness of plaintiff’s case (and thereby influence the settlement dynamic), and to oppose class certification. By incorporating defensive and offensive elements into their discovery strategy, defense counsel can lay the foundation for timely, fair, and cost-efficient resolution of a putative class action.
A prior version of this article was published in the Spring 2014 edition of Corporate Counsel, the newsletter of the American Bar Association Section of Litigation Corporate Counsel Committee.