Class action skeptics

Since 2011, a 5-4 majority of the Supreme Court has made class actions harder to bring and tougher to sustain.

In the current term, the Court’s quintet of class action skeptics — Chief Justice Roberts and Justices Alito, Kennedy, Scalia, and Thomas — may use a pair of cases in which it has heard arguments to all but doom wide swaths of class cases altogether.

I write not to address those cases but to explain why even if the threats they pose prove non-fatal, the reprieve may not last. Two other petitions for review on the Court’s docket pose existential threats almost as potent.

Deadly duo

Price-fixing

The first case, Dow Chemical Co. v. Industrial Polymers, Inc., No. 14-1091 (U.S.), involves a claim that Dow and others conspired to fix the price of polyurethane chemicals. Dow lost at trial, and the district court entered a $1 billion judgment on the verdict. The Tenth Circuit affirmed (post here). Dow has asked the Supreme Court to take up these two questions:

1. Whether, in certifying a class under Federal Rule of Civil Procedure 23(b)(3), courts may presume class-wide injury from an alleged price-fixing agreement, even when prices are individually negotiated and individual purchasers frequently succeed in negotiating away allegedly collusive overcharges.

2. Whether a class may be certified or a class-wide damages judgment affirmed where plaintiffs’ common “proof” of damages is a model that (a) does not purport to determine the actual damages of most class members, but instead applies an “average” overcharge estimated from a sample of transactions of very different purchasers, or (b) assumes that defendants engaged in multiple antitrust violations, even though plaintiffs attempted to prove only one violation at trial.

Issue 2(a) poses the most danger for class actions. It challenges a method — common in antitrust, wage and hour, and other class actions — that computes a damages total on a class-wide basis. Dow urges that Rule 23(b)(3) requires something near a perfect damages model, one that assigns a damages amount to every class member rather than to the class as a whole.

What would result for class actions if the Court adopts the Dow view? Something close to catastrophe. Any workable damages model must use averages at some level to get to a class-wide total. Banning averages would thus immunize companies that fix prices, short workers on wages, and commit other misdeeds. Rule 23 would become a dead letter.

Overtime pay

The other worrisome case, Wal-Mart Stores, Inc. v. Braun, No. 14-1123 (U.S.), presents a similar question, this one with a due process angle. As Wal-Mart’s petition puts it:

In Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541, 2561 (2011), this Court unanimously “disapprove[d]” the “novel project” of “Trial by Formula,” in which evidence pertaining only to a subset of class members is extrapolated to resolve the claims of the entire class without “further individualized proceedings,” because this procedure would impermissibly alter substantive law and preclude the litigation of “defenses to individual claims.” Here, both the Pennsylvania Supreme Court and Pennsylvania Superior Court upheld a classwide judgment of more than $150 million that was the product of just such a trial.

The question presented is:

Whether the Due Process Clause of the Fourteenth Amendment prohibits a state court from certifying a class action, and entering a monetary judgment in favor of the class, where the court permits the use of extrapolation to relieve individual class members of their burden of proof and forecloses the defendants from presenting individualized defenses to class members’ claims.

The sin in Braun looks a lot like the one in Dow. The defendants in both insist on a right to contest each class member’s damages on an individual basis and a requirement that plaintiffs prove damages for each class member.

Repercussions . . . and looking ahead

The stringent approach that the defendants advocate in Dow and Braun would gut Rule 23. Class actions make sense because they make an aggregate remedy practicable in fact. Economies of scale in class actions divide the sizable costs of proving liability and damages — often in the millions of dollars — across the large number of class members, making the total expense an affordable fraction the total harm. (An individual claim rarely involves enough at stake to justify the cost of proving a nationwide antitrust conspiracy, for instance.) Class-wide proof also makes the case triable to a jury in a reasonable amount of time. Forcing class plaintiffs to prove damages for each member of the class would further inflate costs, increase complexity of expert testimony, raise risk, and prolong trials — all to the detriment of class actions’ feasibility.

I think that what the Court does with Dow and Braun will depend on the outcome inTyson Foods, Inc. v. Bouaphakeo, No. 14-1146 (U.S.), an aggregate action for overtime pay under the Fair Labor Standards Act (FLSA). During the argument inTyson on November 10, 2015, one of the class action doubters, Justice Kennedy, stressed that FLSA cases may differ from class actions, partly because (under a 1946 ruling by the Court) the FLSA allows “just and reasonable inference”.See Transcript, Nov. 10, 2015, at 53:3-6 (“Do you concede that if this were a Rule 23 action and the FSLA were not involved that it would be a much closer, much more difficult case?”) (Kennedy, J.). If the Court upholds the $6 million judgment in Tyson, the doubters’ attention naturally would turn to the “much more difficult” issue of what to do with damages that depend on averages under the class action rule.

Looking further ahead

Where that would lead, I do not have a guess. InWal-Mart Stores, Inc. v. Dukes in 2011 and since, the Court has come close to delivering knock-out blows to class actions but so far has held back. The case that I argued to the Court, Comcast Corp. v. Behrend, 133 S. Ct. 1426 (2013), seemed likely to produce a broad rule about the necessity of admissible expert testimony showing class-wide damages in the class certification context but then proved a dud when the Court learned that Comcast had not preserved the issue in the courts below and changed the question presented post-argument. See Alison Frankel, The Supreme Court’s class action underachiever, Feb. 11, 2015. The majority also curtailed its ambitions in Dukes, coming close to saying but not quite pronouncing that Daubert‘s test for expert testimony applies in class certification proceedings. Others agree. See, e.g., Elizabeth Cabraser, The Class Abides: Class Actions and “the Roberts Court”, 48 Akron L. Rev. 756 (2015).

The cautious, incremental approach may continue. As an admirer of the class action, I hope it does. Because look out if it doesn’t.