4 Trial Lawyer Tactics for Certifying Bet-the-Business Class Actions

Nov 5, 2012

Photographer: Joshua Roberts/Bloomberg.

As originally designed, the class action device is an important legal innovation to help plaintiffs join together to advance legitimate legal claims. But in recent years, trial lawyers have twisted the class action device beyond recognition to advance their own monetary interests at the expense of the rights of defendants and the public at large. This morning, the U.S. Supreme Court heard oral argument in two important cases that could make it easier for trial lawyers to “certify” even the flimsiest of proposed class actions (“certifying” a class action means that a judge has determined that a class action meets certain legal standards and the lawsuit can proceed as representing a large group of plaintiffs, most of whom will never know that they were part of the lawsuit, rather than each individual plaintiff deciding for him or herself whether to proceed with a lawsuit).

The trial lawyers understand that getting a blockbuster class action certified is 99% of the game, because once certified, businesses large and small face immense pressure to settle even the most frivolous class action rather than bet the business. As a result, billions of dollars are spent settling class actions each year – much of which ends up in trial lawyers’ pockets. So it’s not surprising that over the years, the trial lawyers have come up with a number of tactics to make it easier to certify class actions. In conjunction with today’s Supreme Court arguments, here are 4 such tactics:

  1. Use junk science to certify the class. A common tactic employed by trial lawyers is to rely on questionable expert testimony to support class certification. The federal courts and many states have moved forward with reforms to attempt to reduce junk science in our courts, but it’s an uphill battle. In 1993, the Supreme Court affirmed that trial judges should act as “gatekeepers” to rigorously guard against junk expert testimony; the Court’s gatekeeping criteria has become known as the “Daubert standard.” At issue in Comcast Corp. v. Behrend, a class action case the U.S. Supreme Court heard this morning, is whether a trial court weighing whether to certify a class action must apply the “Daubert standard” before certifying the class, or if the court should wait until after the class is certified. Waiting until after the class has been certified to vet the expert testimony means, in all likelihood, that the expert testimony will never get vetted by a court, because the company will be pressured to settle. The Chamber’s public policy law firm, the National Chamber Litigation Center (NCLC) filed a friend-of-the-court (“amicus curiae”) brief in this case.
  1. Exempt certain types of lawsuits from requiring proof. A trial lawyer tactic to make it easier to file and win securities class actions has been to advocate for legal rules that essentially exempt plaintiffs from proving all the elements of a fraud claim. That is what’s at stake in Amgen Inc., et al. v. Connecticut Retirement Plans and Trust Funds, another class action case heard by the U.S. Supreme Court this morning. Securities class actions have been a real boon for the trial bar; indeed, a new study by the U.S. Chamber’s Institute for Legal Reform shows that a shocking 91% of mergers result in a class action lawsuit – because the trial lawyers know that the cost of defending against even frivolous securities class actions push companies to settle them quickly. In Amgen, the trial lawyers’ legal theory is that securities plaintiffs need not prove that allegedly misleading reports from the company had an effect on the company’s stock price. Such an approach would make it easy for securities plaintiffs to proceed with frivolous class actions based on allegations of misreporting that had no detrimental economic effect for shareholders. NCLC filed an amicus brief in this case.
  1. File them – and keep them – in state court “Judicial Hellholes.” Over the years, trial lawyers have identified and cultivated certain state courts that essentially rubberstamp their proposed class actions. These courts became known as “magnet jurisdictions” for the way they attracted class actions with a nationwide economic impact. Rankings by the American Tort Reform Association (ATRA) identified the most egregious courts as “Judicial Hellholes.”  In 2005, Congress passed the “Class Action Fairness Act” (or “CAFA”), sweeping reforms that made it easier for defendants to “remove” class actions from state courts and into the federal courts, where the standards for certifying class actions are fairer (if applied properly – see 1 and 2!). CAFA included two key reforms: class actions claiming $5 million or more in damages, or with more than 100 class members, can be removed to federal courts. You can probably guess what the trial lawyers have done to evade CAFA: purport to seek only $4,999,999 in damages (of course, if a jury wants to give them more, they won’t turn their noses at it…!), and file a host of identical class actions with only 99 members in each! The first tactic – claiming to ask for less than $5 million – will be addressed by the U.S. Supreme Court this term, in Standard Fire Insurance v. Knowles, to be heard in January. NCLC filed an amicus brief in that case, as well.
  1. Two-step “provisional certification” sounds so benign. In a recent U.S. Supreme Court decision, Wal-Mart Stores Inc. v. Dukes, the Court re-affirmed that trial judges must conduct a “rigorous analysis” of the would-be class plaintiffs’ claims before certifying the class action. Since that decision came down, trial lawyers have been working overtime to come up with ways around it. One such tactic is the innocent-sounding “provisional certification” – rather than conduct a “rigorous analysis” upfront as to whether the class should be certified under federal Rule 23(b)(3), the trial judge “provisionally” certifies the class for “preliminary injunction” purposes under the much more relaxed Rule 23(b)(2). The U.S. Court of Appeals for the Ninth Circuit recently did just that in a case called Meyer v. Portfolio Recovery Associates, a lawsuit brought under the Telecommunications Privacy Act (TCPA) in an attempt to block informational calls from being made to mobile devices.  You can read about the case over at the Meyer Brown Class Action Defense Blog. We hear that the defendants have asked the full Ninth Circuit to take another look at the certification of this class – this case is one to follow.

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