Why Defendants Should Want To Take More Class Actions To Trial

By: Derek M. Stikeleather | 6.25.14 | Media

The conventional wisdom in consumer class action litigation has long been that cases are won or lost when the court decides the plaintiffs’ motion for class certification.  Virtually no class representative continues to pursue an individual claim after a court denies class certification.  And defendants have long treated certified consumer class claims as too risky to defend at trial, preferring instead to settle the overwhelming majority of them.  Many courts have accurately recognized that as “a practical matter, the certification decision is typically a game-changer, often the whole ballgame, for plaintiffs and plaintiffs’ counsel.”[i]  Accordingly, “denying or granting class certification is often the defining moment in class actions.”[ii]

But conventional wisdom can shift.  For many reasons, defendants have been reconsidering their traditionally strong aversion to taking consumer class actions to trial.  First, many plaintiffs’ lawyers, enticed by the prospect of a lucrative settlement soon after certification, have pushed the boundaries of traditionally viable class actions and are now simply over-reaching.  So concerned with crafting a claim that meets the procedural requirement of presenting some common questions of law or fact for classwide resolution, many have lost sight of the need to have a meritorious underlying dispute and legitimately-aggrieved named plaintiffs.  Plaintiffs can no longer celebrate class certification as crossing the goal line because frivolous claims are increasingly likely to be tried.

Second, the procedural demands for a viable class action are rising.  The Supreme Court’s continued emphasis on all federal courts’ requirement to conduct rigorous analysis to ensure compliance with Rule 23 makes class certification more difficult to obtain – at least in federal court.  It also makes class certification more difficult to preserve as the trial unfolds and plaintiffs must fully articulate how they plan to prove their damages on a classwide basis.[iii]

Third, many permissive consumer-protection statutes have been amended to prevent frivolous claims and class action abuse.  Most notably in California, which remains a popular forum for class action plaintiffs, voters passed Proposition 64 to amend their state’s Unfair Competition Law (“UCL”), Cal. Bus. & Prof. Code §§ 17200 et seq.  The UCL broadly proscribes any “fraudulent,” “unlawful,” and even “unfair” business practice, often a low threshold for plaintiffs at the motion to dismiss or summary judgment stages.  To represent the class, named plaintiffs now must show “actual reliance” on the challenged practice.[iv]

Given these changes, conventional wisdom on the fallout of class certification has shifted.  Companies faced with baseless class actions are not always compelled to settle them after they are certified, even in jurisdictions that plaintiffs favor.  If plaintiffs have their class certified, they will often waste their leverage in settlement negotiations by seeking relief that does not materially differ from what they could prove they are entitled to recover after a full trial and neutrally administered claims process.  If the claimed injury exists more in theory than in reality, plaintiffs are stuck with the fact that they ultimately have few, if any, customers who can come forward with meritorious claims.  In such cases, defendants should no longer simply accept dubious class action payouts as the cost of doing business but should, instead, put the plaintiffs to their proof.

[i] Marcus v. BMW of N. Am., LLC, 687 F.3d 583, 591 n.2 (3d Cir. 2012) (citing Newton v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 259 F.3d 154, 167 (3d Cir. 2001) (“[D]enying or granting class certification . . . may sound the ‘death knell’ of the litigation on the part of plaintiffs, or create unwarranted pressure to settle nonmeritorious claims on the part of defendants . . . .”)).

[ii] In re Hydrogen Peroxide Antitrust Litig., 552 F.3d 305, 310 (3d Cir. 2008).

[iii] See Comcast Corp. v. Behrend, 133 S. Ct. 1426, 1433, 185 L. Ed. 2d 515 (2013) (holding “at the class-certification stage (as at trial), any model supporting a plaintiff’s damages case must be consistent with its liability case”) (internal quotation marks omitted).  See also  Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541, 180 L. Ed. 2d 374 (2011).

[iv] In re Tobacco II Cases, 46 Cal. 4th 298, 314-15 (2009).