Trial of Class Actions With Statistical Evidence: California Court of Appeal Follows Wal-Mart v. Dukes In Rejecting "Trial By Formula"

Posted on February 16, 2012 by Wystan M. Ackerman

Issues regarding the use of statistical evidence at trial of a class action were recently addressed by the California Court of Appeal, First Appellate District, in Duran v. U.S. Bank Nat’l Ass’n, 2012 Cal. App. LEXIS 107 (Cal. Ct. App. Feb. 6, 2012).  The court concludes that the trial of an employment class action (seeking unpaid overtime) through the use of statistical evidence, where the court refused to allow the defendant to put on evidence of defenses to individual claims (such as that particular employees qualified as exempt), was not only contrary to California’s class action standards but a violation of due process.  The appellate court found the error here sufficiently egregious that it decertified the class and did not send the case back for another trial.  The court discussed Wal-Mart v. Dukes at some length, finding that “[t]he same type of ‘Trial by Formula’ that the U.S. Supreme Court disapproved of in Wal-Mart is essentially what occurred in this case.”  Id. at *102.  In Wal-Mart, the Supreme Court disapproved of a proposed trial plan  whereby a sample set of class members’ claims for backpay would be tried, and the result extrapolated to the entire class.  The Supreme Court concluded, unanimously, that “[a] class cannot be certified on the premise that Wal-Mart will not be entitled to litigate its statutory defenses to individual claims.”  

A recent article by Judy Greenwald in Business Insurance suggests that this decision will have broad implications for class actions in California and beyond: 

The ruling by an appellate court in California that dismisses a class action wage-and-hour lawsuit by bank employees is expected to lead to a dramatic reduction in the number of class actions filed in the state and could be highly influential nationally, observers say.

The Business Insurance article may be going a bit too far.  In my view, this decision is certainly important, but I don’t think it’s a surprising result that a defendant should be entitled to put on its defenses, and I don’t think it means the end of class actions (and after all, this is only one intermediate appellate court in one jurisdiction). 

What I think this decision means is that courts need to pay more attention to defenses in deciding class certification, and defendants should highlight defenses prominently in opposing certification.  Here is a key part of the opinion:

Class action lawsuits are intended to conserve judicial resources and to avoid unnecessarily repetitive litigation. Efficiencies must be maintained, sometimes resulting in imperfect results. A certain amount of variability can be tolerated. However, the trial management plan followed here prevented USB [the defendant] from submitting any relevant evidence in its defense as to 239 class members out of a total class of 260 plaintiffs. Whether the trial court would have given credence to such evidence is beside the point. A trial in which one side is almost completely prevented from making its case does not comport with standards of due process.

Id. at *114-15.

If plaintiffs think that defendants are conjuring up meritless defenses to defeat class certification, they can move to strike them or seek summary judgment on them.  But if a defense is valid and a defendant would be entitled to put on evidence in support of it in an individual trial, under this decision (and Wal-Mart), the defendant must have the right to put on its defense, in some reasonable manner, in a class action trial.  The California Court of Appeal made clear that they did not see their decision as making it impossible to try this kind of class action, nor was the court saying that statistical methods could never be used, but such a trial would have to be conducted in a manner that adequately protected the defendant’s rights to present individual defenses.  Because this is a due process requirement, it is not something the trial court has any discretion over.

I also found interesting that the parties and the court agreed here that, while a ruling on class certification is reviewed for abuse of discretion, the court “review[ed] de novo the legal issue of whether a trial plan violated a party’s right to due process.”  Id. at *74.  That by itself is an important reason to make due process arguments in opposing class certification, and in motion practice relating to how a class action trial will be conducted.

Insights from the ABA 2011 National Institute on Class Actions - Part 3

Posted on October 27, 2011 by Wystan M. Ackerman

Here is the third and final installment of my insights from the recent ABA conference.  

Class Action Trials:  There was a very interesting panel discussion on class action trials with some lawyers and a judge who have tried class actions.  The panel included Andrew McGuiness, Judge Weinstein of the Eastern District of New York, James Donato, David Sanford, Ned Searby and Thomas Sobol. Here are my takeaways from this: 

  • From the defendant’s perspective, a big concern at trial is often addressing the potential preconception that jurors may have that because so many people are in the class, it must have some merit.  The defense panelists suggested starting with voir dire to educate people regarding what a class action is.  There are people who have received checks in the mail for tiny sums as a result of a class action and will recognize that some of these cases can have little value.  Judge Weinstein suggested that he probably would allow some attorney voir dire in a class action trial. 
  • Another big issue identified by the panelists is the extent to which the named plaintiffs will be part of the trial.  The plaintiffs’ trial strategy is typically to keep the focus entirely on the defendant’s conduct.  They often argue that because a class has been certified, the class should be treated like a corporate entity, and the named plaintiffs should not have relevant individual issues.  Although it is a challenge for them, they often call adverse defense witnesses as their lead witnesses at trial.  They need to call the named plaintiffs, but they often try to keep their testimony as short as possible.  The defense lawyers on the panel offered different viewpoints on how to handle the named plaintiffs.  One of them suggested that there is often little cross-examination that is appropriate, and the defense strategy should really focus on the details of the company’s practices and convincing the jury that the defendant acted appropriately.  Another defense panelist suggested that a long cross-examination of the named plaintiffs, to the extent possible, will be helpful to try to make a record for decertification or an appeal of the certification decision, and to demonstrate the lack of involvement that the named plaintiffs have in the class action process. 
  • Another key issue is whether any absent class members will testify and, if so, how they will be selected.  Often this arises in disputes over whether absent class members will be deposed because if they are not deposed it is unlikely the court will allow them to testify at trial.  Judge Weinstein suggested that in some cases interrogatories to absent class members may be more appropriate but he might allow both sides to select some absent class members to be deposed and to testify at trial. 
  • Another important question is whether the jury will decide the class issues or the individual issues first (a chicken and egg type of question).  If not all the named plaintiffs are allowed to testify, that tends to answer the question as the jury will not be able to decide all of the individual issues first.

The new Consumer Financial Protection Bureau (CFPB):  This new federal bureau was established by the Dodd-Frank Act and will have some regulatory oversight in areas that impact class actions.  The CFPB is currently operating without a director because the Senate has not acted on President Obama’s nomination of Richard Cordray due to a Republican filibuster.  David Gossett of the CFPB spoke at the ABA conference.  He said the bureau is interested in receiving notices of proposed class action settlements, although it is not expressly required by the Class Action Fairness Act.  The CFPB has the statutory authority to consider the propriety of and potentially ban mandatory arbitration clauses in certain types of consumer contracts, or impose conditions or limitations on them by regulation.  The bureau first has to conduct a study on arbitration, and it will not make any determination until after the study is completed.  It appears that formal action cannot be taken until a director of the bureau is confirmed.  If the CFPB issues regulations on arbitration clauses, an interesting question will arise as to whether those regulations will govern insurance contracts, given the McCarran-Ferguson Act’s preference for state regulation of insurance.

Trial of an Insurance Class Action Involving PIP Coverage: Oregon Supreme Court Opinion Teaches Lessons

Posted on June 12, 2011 by Wystan M. Ackerman

Class action trials are so rare that there is little guidance in court opinions on how these cases should be tried, other than hypothetical discussions in class certification decisions regarding how trials might be conducted.  In Strawn v. Farmers Insurance Company of Oregon, recently reported in Legal Newsline and the Soha & Lang Coverage Blawg, the Oregon Supreme Court recently decided an appeal from a judgment after a trial in an insurance class action.  Reading between the lines of the opinion teaches a few lessons about trying these cases.

The plaintiff claimed that Farmers improperly reduced benefit payments for personal injury protection (PIP) coverage under auto insurance policies, by using “cost containment software.”  This software analyzed medical expenses in comparison with a database of charges for particular services in the region, and allowed Farmers to select a particular percentile (it chose the 80th percentile) as a cutoff for what it would pay for a particular service.  The claim was that this process was arbitrary and a breach of the contractual obligation to pay “reasonable and necessary” medical expenses.  (The issue presented in this case is similar to one raised in a recent class action filing against Nationwide that I posted about.)  A class was certified and the case was tried to a jury.  A judgment in favor of the class was entered for approximately $900,000 in compensatory damages and $8 million in punitive damages.  The court of appeals found that the punitive award exceeded constitutional limits.   

The issues that Farmers raised before the Oregon Supreme Court were: (a) that it was improperly precluded from presenting individualized evidence to show that class members’ medical expenses were unreasonable; and (b) that plaintiffs failed to demonstrate class-wide reliance.  The Oregon Supreme Court rejected Farmers’ arguments on appeal, finding that the trial court had not actually barred individualized evidence, and that reliance could be inferred from the purchase of the auto policy where the terms of PIP coverage were statutorily mandated.  The supreme court agreed with the plaintiff that the constitutional issue should not have been reached by the court of appeals because no appeal was taken to the court of appeals from the trial court’s waiver ruling.  The trial court had ruled that Farmers had waived the constitutional issue by not asking for a jury instruction limiting the amount that could be awarded, and not asking for the jury to be sent back for re-deliberation after it made its award, and Farmers did not appeal the waiver ruling to the court of appeals.

The key lesson I see here is that a defendant may be better off making every attempt to try a class action as if it were a trial of thousands of individual cases.  Even if the plaintiff has the burden of proof and you think they cannot meet that burden with aggregate, class-wide evidence, consider putting on your own individualized evidence.  Ideally the trial court will recognize how individualized evidence is necessary and relevant, and decertify the class.   If the trial court does not allow such individualized evidence, this may well preserve good arguments (including due process arguments) for appeal.  Sometimes defendants may think that because they lost on class certification, the trial must be limited to only the named plaintiff’s claim or that evidence can only be presented in a global, aggregated fashion.  Not necessarily.  There are really no “rules” on how class actions must be tried.  Here, the court seems to suggest that Farmers should have tried to introduce individual evidence on how it handled particular PIP claims where it had a good defense.  Similarly, on the reliance issue, Farmers might have been able to develop evidence showing that some class members did not rely on what was in the policy (the Oregon Supreme Court disavows making any presumption of reliance).  This may have required depositions of a sample of putative class members in order to work up that issue for trial.  Thinking outside the box and almost disregarding the certification of a class potentially can be a good strategy in trying an insurance class action.