This post was co-authored by Montgomery McCracken associate David Brown. David concentrates his practice on commercial litigation, with specific experience involving commercial contract disputes, intellectual property litigation, class action litigation, insurance coverage litigation, data privacy and security issues and white collar investigations. He can be reached at firstname.lastname@example.org or 215.772.7407.
A recent decision by the Seventh Circuit Court of Appeals signals a growing divide among the circuits over the “ascertainability” question in class actions. In Mullins v. Direct Digital, LLC, No. 15-1776, — F.3d —, 2015 WL 4546159, at *1 (7th Cir. July 28, 2015), the panel acknowledged “an implicit requirement under Rule 23 that a class must be defined clearly and that membership be defined by objective criteria,” but declined to follow the Third Circuit’s lead and adopt a further, more exacting requirement: that there must be “a reliable and administratively feasible” method for ascertaining putative class members. See Carrera v. Bayer Corp., 727 F.3d 300, 308 (3d Cir. 2013). Following Judge Rendell’s lead in her concurring opinion in Byrd v. Aaron’s Inc., 784 F.3d 154, 172 (3d Cir. 2015), the Seventh Circuit called this a “heightened” ascertainability standard.
As previously discussed here, the Third Circuit’s ascertainability inquiry is two-fold: the plaintiff must show that: (1) the class is “defined with reference to objective criteria”; and (2) there is “a reliable and administratively feasible mechanism for determining whether putative class members fall within the class definition.” Byrd, 784 F.3d at 163. Other courts follow the Third Circuit’s two-part ascertainability standard, the second part of which makes it “heightened,” according to Judge Rendell and the Seventh Circuit. See, e.g., Karhu v. Vital Pharm., Inc., No. 14-11648, — F. App’x —, 2015 WL 3560722, at *1 (11th Cir. June 9, 2015).
In Mullins, the plaintiff alleged that the seller of a dietary supplement committed consumer fraud by making false and misleading representations. The district court certified the class, and the defendant appealed, arguing that Rule 23(b)(3) implies an ascertainability requirement that the plaintiff failed to meet.
The Seventh Circuit rejected this argument and reviewed each policy reason advanced by courts and advocates to support the Third Circuit’s ascertainability requirement. Those policy reasons were: (1) administrative convenience; (2) unfairness to absent class members; (3) unfairness to bona fide class members; and (4) the due process interest of the defendant. While the Seventh Circuit acknowledged that these concerns are “substantial and legitimate,” it concluded that they are better addressed by applying the explicit requirements of Rule 23, which require courts to balance “the likely difficulties in managing a class action” with whether a class action “is superior to other available methods for fairly and efficiently adjudicating the controversy.” Fed. R. Civ. P. 23(b)(3).
First, some courts maintain that the two-part ascertainability standard promotes administrative convenience and the class action objective of avoiding “extensive and individualized fact-finding or mini-trials.” Carrera, 727 F.3d at 307. The Seventh Circuit criticized this policy reason because it not only conflicts with the supposed “well-settled presumption that courts should not refuse to certify a class merely on the basis of manageability concerns,” but also prioritizes manageability over the rest of Rule 23’s superiority considerations. According to the panel, the superiority test taken as a whole properly balances the costs and benefits of the class action device. Mullins, 2015 WL 4546159, at *7–8.
A second policy reason favoring a two-part ascertainability requirement is a legitimate concern for unfairness to absent class members. The Seventh Circuit, however, criticized this as based on the “mistaken” premise that class members must receive actual notice of the class action in order to protect their opt-out rights. The panel stated: “Due process simply does not require the ability to identify all members of the class at the certification stage.” Id. at *10.
The third policy reason, unfairness to bona fide class members, reflects a concern that if class members are identified only by their own affidavits, “individuals without a valid claim will submit erroneous or fraudulent claims and dilute the share of recovery for true class members.” Id. at *11 (citing Carrera, 727 F.3d at 310). This is reminiscent of the late-2014 Red Bull consumer fraud settlement in which consumers had only to state that they purchased Red Bull by checking a box on the settlement website (no proof of purchase required). The Seventh Circuit acknowledged the importance of this concern but declined to assign it much weight. According to the panel, the risk of dilution from fraudulent claims is trivial because it is not unusual to have participation rates of only 10 to 15 percent, which leaves unclaimed funds in the pot. The panel was further critical of the dilution argument because “[t]o deny class certification based on fear of dilution would in effect deprive bona fide class members of any recovery as a means to ensure they do not recover too little.” Id. at *12.
The Seventh Circuit found the fourth policy concern, the defendant’s “due process right not to pay in excess of its liability and to present individualized defenses,” could be satisfied in individual post-judgment proceedings to establish each claimant’s damages. According to the panel, defendants do not have “a due process right to a cost-effective procedure for challenging every individual claim to class membership.” Id. at *13 (citing Am. Express Co. v. Italian Colors Rest., 133 S. Ct. 2304, 2309 (2013)). The panel was satisfied that “[a]s long as the defendant is given the opportunity to challenge each class member’s claim to recovery during the damages phase, the defendant’s due process rights are protected.” Id. at *16. But where is the efficiency that makes common issues predominate under Rule 23(b)(3) in such a procedure?
Ascertainability is an important precept that protects both absent class members and defendants. Although the Seventh Circuit declined to modify its existing ascertainability jurisprudence by accepting the Third Circuit’s two-part test, the panel left the door open for courts to consider the underlying issues in its analysis of superiority and manageability under Rule 23(b)(3). It also invited courts to revisit ascertainability issues (and decertify a class) after the court is equipped with more information about available records, response rates, and other relevant factors. See Mullins, 2015 WL 4546159, at *8. One wonders how this invitation to certify now and decertify later when more evidence is in satisfies the Supreme Court’s view that Rule 23(b)(3) “requires the judge to make findings about predominance and superiority before allow allowing the class,” Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541, 2559 (2011), based on “evidentiary proof.” Comcast Corp. v. Behrend, 133 S. Ct. 1426, 1432 (2103).
The Ninth Circuit has the next opportunity to weigh in on ascertainability, in Jones v. ConAgra Foods, Inc., which has been fully briefed (No. 14-16327). The district court held that the plaintiffs’ proposed class—involving dozens of different food products across several brands—was not ascertainable because class members could not recall whether their inexpensive purchases contained the challenged “100% natural” labeling statement. Jones v. ConAgra Foods, Inc., No. C 12-01633 CRB, 2014 WL 2702726, at *10 (N.D. Cal. June 13, 2014) (“Even assuming that all proposed class members would be honest, it is hard to imagine that they would be able to remember which particular Hunt’s products they purchased from 2008 to the present, and whether those products bore the challenged label statements.”).