What Defense Counsel Can Learn From A Class Certified Under Wal-Mart
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Much has been already said about the Supreme Court’s landmark decision in Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011). From its clarification of commonality to its implicit recognition of a plaintiff’s burden of proof at the certification stage, counsel, commentators and courts all acknowledge that Wal-Mart significantly altered the class action landscape.
The true legacy of Wal-Mart, however, is only now being written by the lower courts whose task it is to apply the decision and to determine how, if at all, prior precedent can be harmonized. The challenge is significant because the case forces a re-evaluation of concepts that rarely received the type of critical analysis that is now required.
For example, Wal-Mart provides significant guidance in its treatment of commonality. According to the Court, plaintiffs must do more than simply identify a common question. They must now show that the common question or questions can "generate common answers apt to drive the resolution of the litigation." Wal-Mart, 131 S. Ct. at 2551 (quoting R. Nagareda, Class Certification in the Age of Aggregate Proof, 84 N.Y.U.L.Rev. 97, 131-132 (2009)).
The "common question must be of such a nature that it is capable of classwide resolution—which means that determination of its truth or falsity will resolve an issue that is central to the validity of each one of the claims in one stroke." Id.
Moreover, "[c]ommonality requires the plaintiff to demonstrate that the class members ‘have suffered the same injury,’" not "merely that they have all suffered a violation of the same provision of law." Id.
And, courts must consider the impact of affirmative defenses on the common claims. Unique or individualized defenses must be heard - and may destroy commonality. See id. at 2560-61. In other words, the answers must tell us who has been injured and how - on a classwide basis.
So, parties and courts have to do more than recite a common legal issue. They must ask whether there are common facts, and whether the substantive claim is capable of yielding a uniform harm. Formulaic recitals of abstract principles simply won’t do.
Burden Of Proof Clarified
The Wal-Mart decision also shed new light on the burden of proof necessary for a plaintiff to certify a class. In the past, courts have used inconsistent language to describe a plaintiff’s burden at the certification stage of the proceedings. Indeed, some courts merely required that aspiring class plaintiffs make “some showing” of the elements of Rule 23(a), and at least one subsection of Rule 23(b). But Wal-Mart is more demanding:
Rule 23 does not set forth a mere pleading standard. 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 and fact, etc.
Id. at 2551 (emphasis in original).
The implication of this language is that a class plaintiff must establish the elements of the Rule 23 by a preponderance of the evidence. While this concept is by no means novel, it imposes an evidentiary discipline on the certification process that has not been consistently applied.
To underscore the importance of this burden, the Court emphasized the role of the "rigorous analysis" required of the trial court at the certification stage:
[T]he class determination generally involves considerations that are enmeshed in the factual and legal issues comprising the plaintiff’s cause of action.
Id. at 2551-552, (citations omitted). Thus, "actual, not presumed conformance with Rule 23(a) remains . . . indispensable." Id. at 2551.
"Rigorous Analysis" Demonstrated
Finally, Wal-Mart’s most important contribution is this: It models the "rigorous analysis" required under Rule 23. It’s not easy, and the Court recognized the dilemma. While the "common answer" formulation is a useful diagnostic tool to help determine whether there is really a class to certify, its application is challenging. Indeed, the Wal-Mart Court recognized that the "language is easy to misread, since ‘[a]ny competently crafted class complaint literally raises common questions.’" Id. Wal-Mart provides touchstones to distinguish between mere common questions, and those questions that will yield common answers.
The take-away from Wal-Mart is this:
- The plaintiff’s burden of proof has been clarified;
- "Commonality" requires common facts that yield common answers; and
- Affirmative defenses matter.
So, is Wal-Mart making a difference in the way the courts analyze class certification under Rule 23? How many classes are being certified? Are the courts applying the lessons of Wal-Mart or just paying lip service?
In the coming weeks, On The Radar will explore the cases decided in the Sixth Circuit to see how the courts are applying Wal-Mart. While the numbers provide some insight, the substantive analyses of many of the recent decisions reflect greater attention to the specific factual showings required to evaluate the Rule 23 criteria.
Ham v. Swift Transp. Co., Inc., 275 F.R.D. 475 (W.D. Tenn. 2011)
The plaintiffs in Ham v. Swift Transp. Co., Inc., 275 F.R.D. 475 (W.D. Tenn. 2011), were over-the-road truckers who sued their driving academy when their commercial drivers licenses were revoked due to improprieties of the school that credentialed them in the first place. The case illustrates that the precepts of Wal-Mart do not impede certification of classes under the right circumstances. Here’s what happened.
The plaintiffs are all graduates of the Swift Driving Academy, a commercial truck driving school that provided training, testing, and even housing in exchange for tuition that the school would deduct from the drivers’ paychecks after they graduated. Id. at 479.
In December, 2007, Swift came under investigation by state and federal authorities for alleged irregularities in testing practices, which included the use of unapproved courses, providing instruction immediately before testing, and permitting students to take driving tests over the course of several days. Id. at 481. The investigators concluded that there were systemic practices that violated both state and federal law. Id.
As a result, the Tennessee Department of Safety revoked the licenses of all 8700 drivers who had received their CDLs through Swift, and each was required to retest in order to obtain a new CDL. The revocations were made irrespective of whether a driver had improperly received a CDL. Id. at 481-82.
Burden Of Proof Applied
The trial court began its rigorous analysis with several observations about Wal-Mart that were significant to its decision. First, the court recognized the burden of proof that Wal-Mart articulated:
"Rule 23 does not set forth a mere pleading standard." Although the trial court possesses broad discretion in deciding whether to certify a class, it is the responsibility of the party desiring to have the case proceed as a class to prove that the requirements of Rule 23 are met.
Id. at 482 (citations omitted). The court also noted that under the predominance inquiry of Rule 23(b)(3), it may consider not only the evidence presented in the plaintiff’s case-in-chief, but the defendant’s likely rebuttal evidence as well. Id.
The court’s recognition of the burden of proof is very significant because it reflects a growing awareness that class certification is not an entitlement - plaintiffs must prove that they can meet the elements of Rule 23.
Especially significant was Judge Donald’s acknowledgment that courts must also consider the impact of affirmative defenses on the putative class. The existence of unique defenses is as important to the commonality analysis as the elements of the claims themselves. This is one of the most important teachings of Wal-Mart: Affirmative defenses matter.
Numerosity Is Not A Numbers Game
The court’s ruling on numerosity is especially important. The plaintiffs argued that the numbers alone - 8700 - satisfied the numerosity requirement. The defendants focused on the existence of individualized defenses, and argued that each claim would require an analysis of the individual circumstances of each plaintiff before the class could be certified.
The court rejected both arguments and drew a distinction that is crucial—and overlooked by most courts addressing numerosity. She focused on the common basis for liability—non-compliance with state and federal laws—as well as the common harm that befell each class member—revocation of their CDLs:
. . . several thousand CDL holders received training and certification through Swift, subsequently had their CDLs revoked because of Swift’s failure to follow state and federal laws governing testing, and have been required by state authorities to submit to retesting - this is the harm at issue in this case as to every putative class member.
Id. at 483. (emphasis added).
The court also found that the commonality prong of Rule 23(a) was satisfied for the same reasons: The plaintiffs suffered a common injury arising from "common questions as to the legal duties and obligations imposed on Swift by law. . . . " Id.
Here’s the lesson: Numerosity is not just a numbers game—it is irrelevant how many people are in the proposed class. What matters is how many people in the proposed class have:
- Suffered the same harm;
- For the same reason;
- As the class representative.
By analyzing the injury element as part of her numerosity analysis, Judge Donald recognized this critical distinction. The Swift case provides authority for those who defend class actions that the issue of numerosity is not a mere throw-away - it is integrally intertwined with the issue of injury and commonality.
Common Injury - Not To Be Confused with Common Damages
Finally, the court also distinguished between common "injury" and common "damages." Here’s how.
Addressing the predominance element of Rule 23(b)(3), the defendant argued that each of the substantive claims required individualized analysis, and that its affirmative defenses would apply differently to each member of the class. Id. at 487-88. The court disagreed.
For example, the court found that the claims for breach of contract and unjust enrichment raised predominantly common questions since the both the legal duties and the payment to Swift could be decided on a classwide basis. Id. at 488. The court rejected the argument that the defense of in pari delicto and comparative fault created a bar to certification. The court found that these defenses "concern[ed] the calculation of damages for the individual plaintiffs rather than the overarching question regarding Swift’s testing procedures." According to the court, the "fact that not every plaintiff was necessarily injured to the same extent does not mean that common questions do nor predominate." Id. at 487-88.
The analysis set forth in Ham v. Swift underscores the point that thoughtful application of the Wal-Mart principles does not foreclose class certification as some have predicted. On The Radar will explore other cases from within the Sixth Circuit to explore whether Wal-Mart is yielding consistent results.