When last I wrote about ascertainability, I noted that a debate over the propriety of “ascertainability-by-affidavit” continued to percolate within the First Circuit even as lower courts relied on In re Nexium Antitrust Litigation to certify classes containing uninjured class members. Specifically, I noted a couple of developments. First, in In re Asacol Antitrust Litigation, Judge Casper of the District of Massachusetts had rejected defendants’ ascertainability arguments and certified a class containing uninjured individuals, relying on In re Nexium for the proposition that uninjured individuals could be identified and excluded after certification via submission of affidavits. Second, I also observed that Judge Kayatta had continued, via his dissent from denial of a Rule 23(f) petition in In re Dial Complete Marketing and Sales Practices Litigation, to express concern about the “casual reliance on ‘say-so’ affidavits” apparently sanctioned by In re Nexium. In his words, the First Circuit needed to adopt “some modicum of rigor before any further mischief [could] result.”

Just this week, the First Circuit – in an opinion written by Judge Kayatta – adopted the more rigorous approach he had urged and reversed Judge Casper’s decision in In re Asacol. In so doing, the court has brought substantial clarity to the debate over the Rule 23 analysis after In re Nexium.

In re Asacol involved allegations that drug manufacturers had engaged in anticompetitive activities. The plaintiffs, who were end-payor purchasers of certain pharmaceutical products (Delzicol and Asacol HD), contended that these anticompetitive practices had caused them to pay an overcharge. Judge Casper certified a class of individuals who had purchased Delzicol or Asacol HD. Based on the expert opinions submitted by the parties, Judge Casper concluded that approximately ten percent of class members had not been injured by the allegedly anticompetitive conduct because they would have purchased the more expensive drugs regardless of the defendants’ actions. Nevertheless, he reasoned that the class was ascertainable because the “uninjured class members could be removed in a proceeding conducted by a claims administrator.” The First Circuit reversed, finding “this approach to certifying a class at odds with both Supreme Court precedent and the law of [the First Circuit].”

The First Circuit first noted that proof of injury was a required element of plaintiffs’ case, and accepted the district court’s conclusion that ten percent of the class were not injured. The First Circuit then asked the controlling question: “Can a class be certified in this case even though injury-in-fact will be an individual issue, the resolution of which will vary among class members?” The answer, the court concluded, was “no.”

The First Circuit’s opinion, unlike Judge Casper’s decision, did not expressly discuss ascertainability but instead framed the analysis more broadly under the predominance prong of Rule 23. Judge Kayatta wrote that the “aim of the predominance inquiry is to test whether any dissimilarity among the claims of class members can be dealt with in a manner that is not ‘inefficient or unfair.’” Inefficiency, he observed, “can be pictured as a line of thousands of class members waiting their turn to offer testimony and evidence on individual issues.” On the other hand, unfairness can be “equally well pictured as an attempt to eliminate inefficiency by presuming to do away with the rights a party would customarily have to raise plausible individual challenges to those issues.” While a class “may be certified notwithstanding the need to adjudicate individual issues,” that adjudication must be both “administratively feasible and protective of defendants’ Seventh Amendment and due process rights.”

Having set out these first principles, Judge Kayatta noted that the district court had tried to follow In re Nexium in holding that it would be permissible to distinguish the injured from the uninjured after class certification via submission of claim forms. The First Circuit disagreed with the lower court’s reading of In re Nexium, instead choosing to limit In re Nexium to its own highly unusual facts.

According to the panel, In re Nexium only permits affidavits to suffice as a mechanism for distinguishing the injured from the uninjured if the affidavits are “unrebutted.” In In re Nexium, due to the unusual procedural posture of the case, neither the First Circuit nor the district court “ever learned whether the defendants would in fact rebut any affidavits.” By contrast, the record in In re Asacol showed that plaintiffs would not be able “to rely on unrebutted testimony to eliminate the question of injury-in-fact before trial.” Defendants had expressly stated their intention to challenge the affidavits, and plaintiffs had not shown that the defendant’s challenges to the affidavits would be “so implausible as to warrant a finding” that the affidavits would be effectively uncontested. Accordingly, In re Nexium did not apply.

Having distinguished In re Nexium, the First Circuit held that its inability to “presume that these plaintiffs can rely on unrebutted testimony in affidavits to prove injury-in-fact is fatal to plaintiffs’ motion to certify.” Contested affidavits would be sufficient to secure summary judgment, and would be inadmissible hearsay at trial. Thus, it would be necessary to hear testimony from absent class members to determine injury. Given that there was no indication that the number of contested affidavits would be small, the court concluded that plaintiffs had not shown that common issues predominated.

The court expressly declined to broaden the holding in In re Nexium to permit inadmissible hearsay to prove injury. As Judge Kayatta observed, “[t]he fact that plaintiffs seek class certification provides no occasion for jettisoning the rules of evidence and procedure, the Seventh Amendment, or the dictate of the Rules Enabling Act.” Review by a claims administrator would improperly deprive defendants of any meaningful opportunity to contest liability as to individual class members.

Finally, the First Circuit refused to allow plaintiffs to prove class-wide impact via expert testimony. As the court observed, there was no basis to conclude that the opinion of plaintiffs’ expert that ninety percent of class members were injured should be admissible (or would be sufficient) to “prove that any given individual class member was injured.” The court also rejected the notion that it should allow plaintiffs to prove class-wide impact by expert testimony, as long as the total amount of damages was reduced to account for uninjured individuals. As the court observed, such an approach would “fly in the face of the core principle that class actions are the aggregation of individual claims, and do not create a class entity or re-apportion substantive claims.”

The court was not insensitive to the “problem of how to deal with conduct that inflicts small amounts of damage on large numbers of people,” and acknowledged that Rule 23 addresses “many such situations.” However, Judge Kayatta rightly observed that this fact grants “no license to create a Rule 23(b)(3) class in every negative value case by either altering or reallocating substantive claims or departing from the rules of evidence.” Other tools are also available to address “the problem of low-value, high-volume claims.”

In re Asacol is a landmark decision. It unequivocally reaffirms that Rule 23 does not deprive defendants of their due process rights. After In re Asacol, it is clear that courts should not use the class action vehicle to aggregate the claims of both injured and uninjured individuals where defendants have plausible defenses to individual claims. As Judge Kayatta points out, “trial by affidavit” is simply insufficient to protect defendants’ due process rights, except in the most unusual of circumstances. In short, plaintiffs may no longer rely on In re Nexium to suggest that courts substitute an “efficient” claims process under Rule 23 for the fact-finding to which defendants are entitled in individual actions. Nor may they use In re Nexium to suggest that defendants bear the burden to disprove the efficiency of a claims administration process. Instead, plaintiffs must prove that the individual-by-individual fact-finding to which defendants are entitled would not ultimately predominate over common issues.