California Court Decision Offers Hope for Procedural Brake on Lawyer-Driven Class Actions

poolThis year’s rankings by civil-justice reform organizations (here and here) of states’ legal systems once again placed California near the bottom (or top, depending on how the listings are done) of the pack.  One of the California Supreme Court’s final decisions of 2017, which imposes liability on a pharmaceutical company for harm allegedly caused by a generic competitor’s copycat product, solidifies that hostile reputation going into a new year.

We write today, however, not to pile on (though we wholeheartedly share others’ California concerns), but to spotlight a December 4, 2017 California Court of Appeal ruling that is not only contrary to the state courts’ pro-litigation image but also bucks a national trend on a key class-action law issue. The question at issue in Noel v. Thrifty Payless, Inc. was whether a court can certify a class of plaintiffs when no objective method exists to ascertain who is or is not a class “member.”

When Is a Class Ascertainable?

We’ve frequently written on this site about how ascertainability protects the due-process rights of both class-action plaintiffs and defendants. In a number of amicus briefs, Washington Legal Foundation has also supported a two-pronged ascertainability test. Under that test, a lead plaintiff must, at the class-certification stage, define the class using objective criteria and offer an administratively feasible method of determining class membership.

Some federal appeals courts have applied that two-pronged test while others merely require an objectively defined class. The U.S. Supreme Court has twice rejected requests to rule on ascertainability, most recently denying cert in a U.S. Court of Appeals for the Ninth Circuit case, ConAgra v. Briseño.

Noel v. Thrifty Payless

In Noel, a consumer filed suit under state unfair competition and false advertising laws alleging that an inflatable pool purchased from Rite Aid was not as large as depicted on the packaging. Noel moved for class certification, which the trial court denied. He appealed to the California Court of Appeal, First District.

The appeals court agreed with Noel that he had objectively defined the class of plaintiffs, but disagreed that such a definition alone made the class ascertainable. Noel also needed to provide a feasible means of identifying class members, the court explained. Such a second requirement “comports with the rationale underlying the ascertainability requirement,” which is in part to protect absent class members from the res judicata effect of a final judgment.

The court stressed that Noel need not actually identify class members at the class-certification stage. He did, however, have to propose a plan for doing so. Noel “submitted no evidence the class members could be readily identified—or identified at all—from Rite Aid’s records.”

In applying a two-pronged inquiry for ascertainability and ruling that Noel had not satisfied both parts, the First District directly conflicted with the conclusions of another state Court of Appeal, the Third District. That three-judge panel held that the plaintiff could wait until the remedial stage to offer a member identification plan. Forcing lead plaintiffs to propose a plan at class certification, the Third District fretted, would “sound the death knell of consumer class actions.”

The Noel court thankfully did not engage in such policy-motivated hand-wringing, seeing the issue “somewhat differently than our Third District colleagues.” It then astutely described the two-pronged ascertainability test as a “modest evidentiary burden” that is not at all “onerous.”

Implications for 2018

Noel was a surprisingly positive development in a year that offered several setbacks for those who support a “heightened” ascertainability standard. In addition to the Supreme Court’s denial of cert. in Briseño, the Second Circuit backtracked from the two-pronged test for ascertainability with In re Petrobras Securities. The First Circuit also confirmed that an objectively defined class is an ascertainable class when it denied a request for interlocutory review of class certification in In re Dial Complete Marketing and Sales Practices Litigation.

Because, as noted above, Noel conflicts directly with another California Court of Appeal decision, California Supreme Court review of that decision is a good possibility in 2018. That court will likely be more susceptible to the “ascertainability will destroy consumer class actions” platitude than was the Noel court.

No court that respects the rule of law should embrace such a policy argument. The class-action mechanism cannot, as a matter of law, reduce a plaintiff’s burden or modify a defendant’s substantive rights. By certifying a class without an administratively feasible class-member-identification plan, a court denies defendants their right to determine who was and was not injured.

And if a defendant has no assurance at the class-certification stage that it will be able to challenge claims, that uncertainty will inspire more settlements. As First Circuit Judge William J. Kayatta Jr. wrote in dissenting from the denial of review in In re Dial, a weak ascertainability test “will eventually eliminate the requirements of Rule 23(b)(3) and turn courts into claim administrators.”

Courts contemplating ascertainability must also consider that today’s consumer class actions are largely driven by and benefit lawyers, not consumers. Consumers that cannot feasibly be notified about a pending class action are deprived of their right to opt out. Also, uninjured consumers whose claims go unchallenged will erode the compensation available to actually injured plaintiffs. Class-action lawyers, of course, oppose any mechanism that reduces the size of a class, since fewer plaintiffs means less settlement pressure and lower attorneys’ fees.

Class-action defendants should continue arguing for a heightened ascertainability analysis when opposing class certification, even in federal circuits and state courts that adhere to weak standards. Noel is certainly a decision worthy of citation when making such arguments. It’s uncertain whether 2018 will be the year the nation’s highest court finally weighs in, but further discord in the lower courts can help to propel positive consideration of a worthy petition for certiorari.

Also published by Forbes.com on WLF’s contributor page.

 

2 thoughts on “California Court Decision Offers Hope for Procedural Brake on Lawyer-Driven Class Actions

  1. Pingback: Liability roundup - Overlawyered

  2. Pingback: Liability roundup – John Culbreath

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