A previous entry of this blog examined the legal issues arising from the settlement of a class action over the April 20, 2010 BP Deepwater Horizon spill. As predicted, BP has appealed the Fifth Circuit’s rulings and has asked the Supreme Court to decide whether a class may be certified when it includes numerous members whose injuries were not caused by the defendant.
BP points to examples of claims paid by the Claims Administrator that it argues should preclude certification of the class. BP cites to $76 million that the Claims Administrator has awarded “to entities whose entire losses unquestionably had nothing to do with the spill.” (Cert. Petition at 8.) It offers the examples of $3.5 million awarded to an Alabama company that sold substantially all of its assets is 2009, $135,000 awarded to a retailer that was not engaged in profit-generating business in 2010, and a lawyer whose license was revoked in 2009. (Cert. Petitionat 8-9.) BP further cites $546 million awarded “to claimants that reside far from the Gulf Coast and are engaged in business activities that bear no logical connection to the spill.” (Cert. Petition at 9.)
BP argues that a class that contains members whose injuries were not caused by the defendant violates the Rule 23(a) requirements of commonality and adequacy of representation, and the Rule 23(b)(3) predominance requirement. BP also argues that the presence of these class members that lack standing violates Article III.
One complicating feature of this case is that BP initially agreed to the certification and settlement it now seeks to overturn. The Fifth Circuit found that BP expressly agreed to lessen what a claimant needed to offer to show causation:
These requirements are not as protective of BP’s present concerns as might have been achievable, but they are the protections that were accepted by the parties and approved by the district court. It was a contractual concession by BP to limit this issue of factual causation in the processing of claims. Causation, or in Rule 23 terms, traceability, was not abandoned but it was certainly subordinated.
In re Deepwater Horizon, 744 F.3d 370, 377 (5th Cir. 2014) (emphasis added). BP implies that the district court and the Claims Administrator have misinterpreted these provisions of the settlement agreement.
BP portrays the issue as one that has divided circuit courts. On the one hand, like the Fifth Circuit, the Third Circuit has upheld the certification of a class that included “a large proportion [of members who] lack any valid claims under applicable state substantive law.” See Sullivan v. DB Investments, Inc., 667 F.3d 273, 285-286 (3d Cir. 2011) (en banc), cert. denied, 132 S. Ct. 1876 (2012). On the other hand, BP argues that the Second, Seventh, Eighth, and D.C. Circuits refuse to certify classes that include a substantial number of members who were not injured by the defendant. Precedent from these circuits does seemingly contradict the Fifth Circuit’s holding here, although these courts have not expressly addressed the question that BP asks the Court to consider.
The Second Circuit has held that “no class may be certified that contains members lacking Article III standing.” Denney v. Deutsche Bank AG, 443 F.3d 253, 264 (2d Cir. 2006). But it also held that it does “not require that each member of a class submit evidence of personal standing.” Id. at 263. And the Fifth Circuit found that the certification of the Deepwater Horizon class did not violate Denney because all members could allege that they have standing. In re Deepwater Horizon, 739 F.3d 790, 803-804 (5th Cir. 2014).
BP also cites Kohen v. Pacific Investment Management Co., 571 F.3d 672, 677 (7th Cir. 2009), which held that “a class should not be certified if it is apparent that it contains a great many persons who have suffered no injury at the hands of the defendant.” But Kohen does not define what constitutes “a great many persons.” It is probably something substantial, because Kohen also concludes that it “is almost inevitable” that a class will include persons who were not injured by the defendant and that “[s]uch a possibility or indeed inevitability does not preclude certification.”Id. Indeed, the Seventh Circuit has held that determining causation for each class member at the certification stage would be “unworkable,” and the issue is better “determined after the class is certified.” Parko v. Shell Oil Co., 739 F.3d 1083, 1085 (7th Cir. 2014) (emphasis in original).
The Eighth Circuit has held that “[i]n order for a class to be certified, each member must have standing and show an injury in fact that is traceable to the defendant . . . .” Halvorson v. Auto-Owners Ins. Co., 718 F.3d 773, 778 (8th Cir. 2013). Digging more deeply, this means that a class must “be defined in such a way that anyone within it would have standing.” Id. at 779 (internal quotation omitted). This is consistent with the Fifth Circuit’s holding about the Deepwater Horizon class. In re Deepwater Horizon, 739 F.3d at 803 (“As contemplated by the Class Definition, therefore, the class contains only persons and entities that possess Article III standing.”).
The D.C. Circuit is probably the most helpful for BP. It has held that plaintiffs must offer evidence at the certification stage “to show all class members suffered someinjury.” In re Rail Freight Fuel Surcharge Antitrust Litigation, 725 F.3d 244, 252 (D.C. Cir. 2013).
The question presented by BP’s cert petition is certainly a significant one to class action defendants. Class certification would be even more difficult if defendants could defeat it simply by showing that some members were not injured. In fact, asKohen suggests, such a rule might nearly eradicate certain types of class actions and class definitions. There is no consistent answer to this issue across the various circuits, and the Supreme Court could provide some certainty. Yet, even if the Court wanted to answer this question, it’s unclear whether it will view the BP case as the right vehicle for it to do so. The Court might prefer to address this issue in a case where a court certified a class over the objections of the defendants, rather than the settlement context that the BP case presents.
If anything, the BP case is a lesson to defendants who enter into class action settlements. The payments to uninjured claimants show the importance of a strong settlement agreement that spells out precisely who is in the class and exactly what class members need to show a claims administrator in order to receive payment. Otherwise, a defendant may be at the mercy of the claims administrator.