On February 6, 2013, and then again on February 26, the Supreme Court of Ohio is going to hear two cases involving significant class action issues. To that end, blog student contributor Greg Kendall (now a 3L at the University of Cincinnati College of Law,) has prepared this post on some class action fundamentals. Also, my thanks to my civil procedure colleague Sandra Sperino for her observations.
Basics of Class Actions
The class action is a procedural device that allows a plaintiff or group of plaintiffs to sue as representatives on behalf of parties similarly situated. The class action is used when joinder of all the plaintiffs would be impractical. The representative pursues the claim on behalf of the class, and all people who meet the class definition are bound by the judgment, even though they are not named parties.
The basic requirements of every class action are:
1. Numerosity: the class is so numerous that joinder of all members is impracticable
2. Commonality: There are questions of law or fact common to the class.
3. Typicality: The claims or defenses of the representative parties are typical of the claims or defenses of the class.
4. Adequacy: the representative parties will fairly and adequately protect the interests of the class. This asks both whether the representative has interests that might be antagonistic to the class as a whole, and whether the representative’s attorney can competently represent the class.
Ohio Civ. R. 23(A). The Supreme Court of Ohio has explained the prerequisites to a class action as follows: (1) an identifiable class must exist and the definition of the class must be unambiguous, (2) the named representatives must be members of the class, (3) the class must be so numerous that joinder of all members is impracticable, (4) there must be questions of law or fact common to the class, (5) the claims or defenses of the representative parties must be typical of the claims or defenses of the class, (6) the representative parties must fairly and adequately protect the interests of the class, and (7) one of three requirements in Civ.R. 23(B) must be met. Hamilton v. Ohio Savings Bank, 82 Ohio St.3d 67 (1998), citing Warner v. Waste Mgt., Inc., 36 Ohio St.3d 91 (1988).
Ohio’s rule is analogous to Fed. R. Civ. P. 23, and Ohio courts look to federal case law for guidance in interpreting the Ohio rule. Sutherland v. ITT Residential Capital Corp., 122 Ohio App. 3d 526 (6th Dist. 1997) .
After the four elements are met, the court must determine whether the action fits into one of three “types.” These “types” of class actions are:
(B)(1): The prosecution of separate actions by individual members of the class (or against the individual members of the class) would raise a risk of inconsistent adjudications, or individual adjudications would dispose of the interests of all other members of the class or would impair or impede their ability to protect their interests. An example of this would be individual litigations of landowners’ rights and duties with regard to a claimed interest, which could raise a risk of incompatible judgments. Another example is a “limited fund” case where all class members are seeking to recover from a defendant’s limited assets. See Fed. R. Civ. P. 23, Advisory Committee notes. This type of class action also serves to prevent prejudice to defendants who would find it impossible to comply with inconsistent judgments.
(B)(2): A class action for declaratory or injunctive relief. The party being sued has acted or failed to act on grounds generally applicable to the class, so that injunctive or declaratory relief would be appropriate relief for all members of the class. An example of this is a civil rights action where a party has discriminated against a broad class of people.
(B)(3): Common questions of law or fact common to class members predominate over any questions affecting only individual members, and a class action is the superior method for adjudicating the claim. This encompasses additional requirements of predominance and superiority, in addition to the four requirements in Subsection (A). This is the most common fact pattern in a class action, and is typically found in a class action for damages.
In (B)(3) class actions, predominance and superiority add an additional layer of issues. Predominance is often an issue where certain class members have been differently affected; the question then becomes whether the common questions of law or fact predominate over issues that affect individual members or certain subgroups of members. For example, the 1966 Advisory Committee Notes to the Federal Rule explain that mass torts are generally not appropriate for class actions because individual questions (such as the extent of each class member’s injuries) would create the risk of the action devolving into a number of miniature trials.
Regarding superiority, one of the main advantages of the class action is to allow hundreds or thousands of people to bring a lawsuit whose claims are too low-value to make it economical for them to bring suit individually. Whether the suit is a “negative value suit” is one factor courts may look to when examining superiority. For example, in Brandow v. Washington Mut. Bank, 2008-Ohio-1714 (8th Dist.), the plaintiffs sued a mortgage bank for failing to record mortgage satisfactions within 90 days, which entitled them to $250 in statutory damages. The court found that the class action was the superior method for fair and efficient adjudication of the claims, because it would not be economical for each class member to sue individually for that amount of statutory damages. Compare Castano v. American Tobacco Co., 84 F.3d 734 (5th Cir. 1996) (lack of a “negative value” suit was one factor leading to conclusion that class action was not a superior vehicle for adjudicating tobacco claims). Other factors relevant to superiority analysis include (1) the interest of the members of the class in individually controlling the prosecution or defense of separate actions; (2) the extent and nature of any litigation concerning the controversy already commenced by or against members of the class; (3) the desirability or undesirability of concentrating the litigation of the claims in the particular forum; and (4) the difficulties likely to be encountered in the management of a class action. Schmidt v. Avco Corp., 15 Ohio St. 3d 310 (1984).
Shortly after a class action is initiated, the court must determine whether to certify the class. The class definition must allow the members of the class to be identified within a reasonable effort. Thus, the class cannot be a “fail-safe” class, in which the court would have to hold hearings on each individual claim to determine who is a member of the class. The court must also engage in a “rigorous analysis” to determine that the prerequisites of Rule 23(a) are met. Wal-Mart v. Dukes, 131 S.Ct. 2541 (2011). The order certifying the class defines the class, the claims, the issues, and defense, and appoints class counsel.
If the class is certified as a (B)(1) or (B)(2) class, the judge may provide notice to the class at the judge’s option. However, for a (B)(3) class, notice to the class members is required. Notice to a (B)(3) class must explain the nature of the action, the class definition, claims, issues and defenses. It must also explain that a class member may appear through his or her own attorney, that the member may be excluded from the class upon following a specified procedure (thereby allowing the member to escape the preclusive effect of the class judgment and to pursue his own action as an individual), and that the judgment will be binding on all class members.
Wal-Mart v. Dukes, 131 S.Ct. 2541 (2011) is a recent high-profile U.S. Supreme Court illustrating some of these issues in class certification. In Dukes, three female employees of Wal-Mart brought suit claiming gender-based discrimination in pay and promotions. Although there was no express corporate policy against the advancement of women, plaintiffs claimed that there was a “nationwide corporate culture” among Wal-Mart managers that led the managers to exercise their broad discretion over pay and promotions in a manner that disproportionately favored men.
The plaintiffs moved the district court to certify a class consisting of “all women employed at any Wal-Mart domestic retail store at any time since December 26, 1998, who have been or may be subjected to Wal-Mart’s challenged pay and management track promotions policies and practices” [sic]. To show commonality, the plaintiffs presented evidence in the form of statistics, anecdotal reports of discrimination from 120 female employees, and a sociologist who testified that the company was vulnerable to gender discrimination.
The Supreme Court held that there was no commonality, because the plaintiffs were suing over “literally millions of employment decisions at once” with no common “glue” holding each one together. The mere fact that all discriminatory actions may have violated the same law (Title VII) did not create commonality where each member of the class worked under a different manager and was discriminated against under different circumstances. In employment discrimination cases such as this one, the Court explained that a plaintiff class could show commonality by showing that all the members were subject to a biased testing procedure to evaluate employees, or by showing that the company operated under a “general policy of discrimination” that would have affected all employees. However, the Court found that no “general policy” was in place—Wal-Mart’s own corporate policies forbade discrimination—and there was no evidence of a “common mode” of managerial discretion over employment decisions that “pervades the entire company.” Ultimately, the Court found that the members of the class had “a multitude of different jobs, at different levels of Wal-Mart’s hierarchy, for variable lengths of time, in 3,400 stores, sprinkled across 50 states, with a kaleidoscope of supervisors (male and female), subject to a variety of regional policies that all differed.”
Additionally, the Court held that the class’s claims for back pay were improperly certified under Rule 23(b)(2). The claims for back pay, which by their very nature would differ based on each individual member’s circumstances, were not appropriate under Rule 23(b)(2) because the rule applies only to claims where the remedies of injunctive or declaratory relief predominate over claims for money damages. It explained that Rule 23(b)(2) does not apply where each individual class member would be entitled to a different injunction or declaratory judgment against the defendant, nor where each class member would be entitled to an individualized award of damages.