Over forty years ago, the Supreme Court held that “if none of the named plaintiffs purporting to represent a class establishes the requisite of a case or controversy with the defendants, none may seek relief on behalf of himself or any other member of the class.”[2] The Supreme Court has yet to decide whether Article III’s “case or controversy” requirement must also be satisfied by unnamed (i.e., absent) class members as part of a class certification motion. The Third Circuit addressed this question recently in Neale v. Volvo Cars of N. Am., LLC.[3] It held that only the named plaintiffs – and not absent class members – must establish standing under Article III.[4]

In common with several other Courts of Appeal, the Third Circuit also rejected the argument that the Supreme Court’s 2013 decision in Comcast Corp. v. Behrend[5] requires that damages be susceptible to measurement on a class-wide basis for a class to be certified under Rule 23(b)(3).[6]

Despite these rulings, the appeals court vacated the district court’s class certification order, which lacked an adequate predominance analysis under Rule 23(b)(3), and failed to include a “readily discernible, clear, and complete list of the claims, issues or defenses to be treated on a class basis.”[7]

Article III

Article III of the Constitution limits the jurisdiction of federal courts to actual “cases or controversies.”[8] To satisfy Article III, a plaintiff must demonstrate “(1) an injury in fact, (2) a sufficient causal connection between the injury and the conduct complained of, and (3) a likel[ihood] that the injury will be redressed by a favorable decision.”[9] Standing must be demonstrated for each claim the plaintiff asserts against the defendant.[10]

The Third Circuit decision in Neale involved the first of these requirements, injury-in-fact. Under Article III, the requisite injury-in-fact is an “invasion of a legally protected interest” that is “particularized” and “concrete in both a qualitative and temporal sense.”[11] The injury must also be “actual or imminent, not conjectural or hypothetical.”[12] A risk of future injury may support standing if the threatened harm is “certainly impending,” or there is a “substantial risk” that the harm will occur.[13]

Facts

The plaintiffs in Neale alleged that the sunroof drainage systems in several Volvo vehicle models contained a design defect that permitted water to become entrapped within the passenger compartment floorpans, causing damage to the vehicles, including interior components, carpets, and safety-related electrical sensors and wiring. The plaintiffs further alleged that Volvo had longstanding knowledge of the defect, based on consumer complaints as well as internal Volvo communications and Technical Service Bulletins issued by Volvo in an unsuccessful attempt to address the problem.[14]

The named plaintiffs, who haled from six states, filed a class action seeking the certification of a nationwide class or, in the alternative, six state-wide classes.[15] Every one of the named plaintiffs had experienced water damage that they attributed to the sunroof defect, and all of them had expended significant sums on vehicle repairs.[16] However, the proposed class definitions were much broader, defining the putative classes in terms of individuals and entities who were “current or former owners and/or lessees of a Class Vehicle,” without regard to whether their vehicles had experienced any water damage or whether the putative class members had suffered any injury, loss or damage.[17]

The District Court’s Class Certification Decision

The trial court denied the plaintiffs’ request for the certification of a nationwide class, citing conflicts in the various state laws on consumer fraud and breach of warranty.[18] However, it granted the request for six state-wide classes, based in large part on the plaintiffs’ allegations and supporting expert opinion that the vehicles all suffered from a common defect.[19] The court rejected Volvo’s arguments that the classes as defined were improper because they included many class members who had not experienced a problem with their sunroof.[20] Citing decisions from the Sixth[21] and Ninth[22] Circuits, the trial court held that “a class need not be limited to consumers who have actually experienced the defect where the product at issue suffers from a uniform design defect.”[23]

The Third Circuit’s Decision on Appeal

A.   Article III

While the trial court discussed the alleged lack of class member injury in terms of the class definition, the arguments in the Third Circuit focused on Article III’s injury-in-fact requirement.[24]

The appeals court first noted its holding seventeen years ago, in In re Prudential Ins. Co. Am. Sales Pract. Litig. Agent Actions,[25] that unnamed members of a settlement class need not satisfy Article III.[26] The Court then cited two principles of class action law that it viewed as applying with equal force to a litigation class: (1) “the class action device treats individuals falling within a class definition as members of a group rather than as legally distinct persons,”[27] and (2) “standing must be personal to and satisfied by those who seek to invoke the power of federal courts.”[28] These two principles formed the basis for the Court’s holding that absent class members in a litigation class need not satisfy Article III’s standing requirements:

Herein lies the key: a class action is a representative action brought by a named plaintiff or plaintiffs. Named plaintiffs are the individuals who seek to invoke the court’s jurisdiction and they are held accountable for satisfying jurisdiction. Thus, a class action is permissible so long as at least one named plaintiff has standing.

                                  *        *        *

Requiring individual standing of all class members would eviscerate the representative nature of the class action. It would also fail to recognize that the certified class is treated as a legally distinct entity even though the outcome of such an action is binding on the class.[29]

The Court found further support for this conclusion in Supreme Court precedent permitting a representative action to persist despite a named plaintiff’s claim becoming moot after certification.[30] It rejected as ambiguous decisions from three other Circuits that Volvo cited as contrary authority,[31] and cited opinions from other federal appeals courts in accord with its own.[32] Instead of Article III, the Third Circuit held that issues related to absent class members’ lack of injury were more properly analyzed within the general rubric of Rule 23 and its specific requirements of typicality, adequacy and predominance.[33]

B.   Comcast v. Behrend

Turning to the predominance inquiry, the Third Circuit flatly rejected Volvo’s argument that the Supreme Court’s decision in Comcast established a bright-line rule that plaintiffs seeking class treatment under Rule 23(b)(3) “must show that “damages are susceptible of measurement across the entire class.”[34] The Comcast majority’s statement that the decision “turn[ed] on the straightforward application of class-certification principles” refuted such a proposition.[35] The Court also noted that the predominance analysis in Comcast “was specific to the antitrust claim at issue” in that case.[36] Citing other federal appeals court decisions rejecting similar arguments,[37] the Court concluded by quoting the Comcast dissenting Justices’ observation that “[r]ecognition that individual damages calculations do not preclude class certification under Rule 23(b)(3) is well nigh universal.”[38]

C.   Class Certification Reversed

Despite its rejection of Volvo’s Article III and Comcast arguments, the Third Circuit vacated the trial court’s certification order. Finding that Volvo’s discussion of the differences between claims among the separate statewide classes demonstrated that it “may have legitimate Rule 23 challenges,” the Court agreed that the trial court’s predominance analysis was insufficient.[39] It specifically rejected the district court’s reliance on an isolated statement from a recent Third Circuit decision for the proposition that “for consumer fraud claims, the predominance inquiry focuses on whether the defendant’s conduct was common to all class members, which predominates over minor individual differences between plaintiffs.”[40] The prior opinion, which involved a settlement class, “was not sufficiently analogous” to the present case, nor did it “obviate the need to evaluate the claims and evidence asserted in order to evaluate predominance for a litigation class.”[41] The trial court’s certification order was also defective because it “did not specifically identify the claims certified,” as required by Circuit precedent.[42] The Third Circuit remanded the case to the trial court so that it could “provide a complete list of the class claims, defenses and issues for each of the six statewide classes [and] rule on the predominance question in light of the claims asserted and the available evidence.”[43]

Impact on Future Cases

As the Third Circuit noted in its decision, the Article III question may be answered definitively in a recent case accepted for review by the Supreme Court.[44] Until then, the law in the Third Circuit is that absent class members need not satisfy Article III’s standing requirements. The more interesting question is how the lower courts will interpret this decision in terms of Rule 23. Specifically, will the decision cause district courts to adopt a more relaxed view of the injury requirement in terms of the predominance analysis.

It is here that the Third Circuit’s discussion of the Comcast decision presents the potential for misinterpretation. The opinions in both Comcast and Neale address the “measurement” and “calculation” of damages, which is separate and distinct from the “fact of damage” (i.e. injury). This is a critical distinction that both courts have made on multiple occasions.[45] While the need to calculate the amount of damages may not, by itself, preclude certification, the need to prove injury on an individual basis almost always does.[46]

The Neale decision also illustrates once again the pitfalls of relying on precedent involving class action settlements in the certification of litigation classes. As both the Supreme Court and the Third Circuit have recognized in past decisions, the standards applicable to each situation are different.[47]

Finally, the Third Circuit’s reversal of the class certification order is a timely reminder of the trial courts’ obligation to conduct a rigorous analysis of requests for class action treatment, and to explain in detail the reasons for their decisions. This can only serve to benefit all parties.

NOTES:

[1] This article first appeared in the July 27, 2015 edition of Law 360.

[2] O’Shea v. Littleton, 414 U.S. 488, 494 (1974).

[3] 2015 WL 4466919 (3d Cir. July 22, 2015).

[4] Id. at *5.

[5] 133 S. Ct. 1426 (2013).

[6] Neale, 2015 WL 4466919, at *16-17.

[7] Id. at *12-15.

[8] U.S. Const. Art. III, § 2 provides that:

The judicial power shall extend to all cases, in law and equity, arising under this Constitution, the laws of the United States, and treaties made, or which shall be made, under their authority; – to all cases affecting ambassadors, other public ministers and consuls; – to all cases of admiralty and maritime jurisdiction; – to controversies to which the United States shall be a party; – to controversies between two or more states; – between a state and citizens of another state; – between citizens of different states; – between citizens of the same state claiming lands under grants of different states, and between a state, or the citizens thereof, and foreign states, citizens or subjects.

[9] Susan B. Anthony List v. Driehaus, 134 S. Ct. 2334, 2341 (2014) (quoting Lujan v. Defenders of Wildlife, 504 U.S. 555, 560–61 (1991)).

[10] DaimlerChrysler Corp. v. Cuno, 547 U.S. 332, 352 (2006).

[11] Id. at 560 & n.1.

[12] Id. at 560 (quoting Whitmore v. Arkansas, 495 U.S. 149, 155 (1990)).

[13] Clapper v. Amnesty Int’l USA, 133 S. Ct. 1138, 1150 n.5 (2013) (quoting Monsanto Co. v. Geertson Seed Farms, 561 U.S. 139, 153 (2010)).

[14] Neale v. Volvo Cars of North Am., LLC, 2013 WL 1223354, at *1 (D.N.J. Mar. 26, 2013) (“Trial Court Opinion”).

[15] Id. at *3.

[16] Id. at *1-3.

[17] Id. at *4-5.

[18] Id. at *5-8.

[19] Id. at *8-12.

[20] Id. at *5.

[21] Daffin v. Ford Motor Co., 458 F.3d 549, 553 (6th Cir. 2006).

[22] Wolin v. Jaguar Land Rover North Am., LLC, 617 F.3d 1168, 1173 (9th Cir. 2010).

[23] Trial Court Opinion, 2013 WL 1223354, at *5.

[24] Neale, 2015 WL 4466919, at *2, *11 n.6.

[25] 148 F.3d 283 (3d Cir. 1998).

[26] See id. at 306-07 (holding that once Article III standing “is determined vis-a-vis the named parties … there remains no further separate class standing requirement in the constitutional sense”).

[27] Neale, 2015 WL 4466919, at *7. The Court quoted the Supreme Court’s statement in Sosna v. Iowa, 419 U.S. 393, 399 (1975) that the “class of unnamed persons described in the certification acquired a legal status separate from the interest asserted by the [plaintiff].” Id.

[28] Id. (quoting Allee v. Medrano, 416 U.S. 802, 828 (1974)).

[29] Id. at *7 (quotations omitted).

[30] As an example, the Court cited Sosna, where the Supreme Court held that a class action cannot be dismissed as moot if the named plaintiff had a live controversy when the suit was filed, a properly certified class action was pending, and there are members of the class whose claims are not moot. Neale, 2015 WL 4466919, at *7 (citing Sosna, 419 U.S. at 399, 402–03).

[31] Id. at *8-9. In Denney v. Deutsche Bank AG, 443 F.3d 253 (2d Cir. 2006), the Second Circuit stated that “[w]e do not require that each member of a class submit evidence of personal standing. At the same time, no class may be certified that contains members lacking Article III standing. The class must therefore be defined in such a way that anyone within it would have standing.” Id. at 263–64 (citations omitted) (emphasis added). Quoting Denney, the Eighth Circuit opined that a California law that permitted a single injured plaintiff to bring a class action on behalf of a group of uninjured individuals was “inconsistent with the doctrine of standing as applied by federal courts.” Avritt v. Reliastar Life Ins. Co., 615 F.3d 1023, 1034 (8th Cir. 2010). Because the opinion in Avritt did not mention the Constitution expressly, the Third Circuit considered it “unclear” whether the decision rested on Article III’s standing requirement or the predominance requirement of Rule 23. It reached a similar conclusion with respect to the statement of the D.C. Circuit in In re Rail Freight Fuel Surcharge Antitrust Litig., 725 F.3d 244, 252 (D.C. Cir. 2013) that “common evidence [must] show all class members suffered some injury.” Neale, 2015 WL 4466919, at *9. The Court later observed that “many courts are in fact dealing with Article III standing questions within the confines of Rule 23, which raises serious doubts as to whether they really mean to impose Article III standing as separate and distinct analyses in these cases.” Id. at *11.

[32] See In re Nexium Antitrust Litig., 777 F.3d 9, 25, 30–31 (1st Cir. 2015) (concluding “that the presence of a de minimis number of uninjured class members is permissible at class certification” and would not defeat commonality or predominance); Mims v. Stewart Title Guar. Co., 590 F.3d 298, 308 (5th Cir. 2009) (“Class certification is not precluded simply because a class may include persons who have not been injured by the defendant’s conduct”); Kohen v. Pac. Inv. Mgmt. Co. LLC, 571 F.3d 672, 677 (7th Cir. 2009) (“a class will often include persons who have not been injured by the defendant’s conduct”); Stearns v. Ticketmaster Corp., 655 F.3d 1013, 1020–21 (9th Cir. 2011) (“In a class action, standing is satisfied if at least one named plaintiff meets the requirements [of Article III] … Thus, we consider only whether at least one named plaintiff satisfies the standing requirements”); DG ex rel. Stricklin v. Devaughn, 594 F.3d 1188, 1198 (10th Cir. 2010) (“Rule 23’s certification requirements neither require all class members to suffer harm or threat of immediate harm nor Named Plaintiffs to prove class members have suffered such harm”).

[33] Neale, 2015 WL 4466919, at *11.

[34] Id. at *16.

[35] Id. (quoting Comcast, 133 S. Ct. at 1433).

[36] Id. Comcast held that an antitrust litigation class could not be certified because the plaintiffs’ damages model did not demonstrate the theory of antitrust impact that the district court accepted for class-action treatment. 133 S. Ct. at 1433 .

[37] Neale, 2015 WL 4466919, at *17 n.10 (citing In re Nexium Antitrust Litig., 777 F.3d at 23; Roach v. T.L. Cannon Corp., 778 F.3d 401, 402 (2d Cir. 2015); In re Whirlpool Corp. Front–Loading Washer Prods. Liab. Litig., 722 F.3d 838, 860 (6th Cir. 2013); Butler v. Sears, Roebuck and Co., 727 F.3d 796, 800-01 (7th Cir. 2013); Leyva v. Medline Indus. Inc., 716 F.3d 510, 514 (9th Cir. 2013); Wallace B. Roderick Revocable Living Trust v. XTO Energy, Inc., 725 F.3d 1213, 1220 (10th Cir. 2013)).

[38] Id. at *17 (quoting Comcast, 133 S. Ct. at 1437 (Ginsburg, J. and Breyer, J., dissenting)).

[39] Id. at *11, 15.

[40] Id. at *14 (citing Sullivan v. DB Invs., Inc., 667 F.3d 273, 297-98 (3d Cir. 2011)). The district court interpreted Sullivan as confirming that “the proper focus of the inquiry here is the Defendants’ conduct in designing and marketing the Class Vehicles which all contain defective sunroof drainage systems – not the conduct of the Plaintiffs.” Trial Court Opinion, 2013 WL 1223354, at *11. What the Sullivan Court actually said was that “the focus of the predominance inquiry is on whether the defendant’s conduct was common as to all of the class members, and whether all of the class members were harmed by the defendant’s conduct.” Sullivan, 667 F.3d at 298 (emphasis added).

[41] Neale, 2015 WL 4466919, at *14.

[42] Id. at *12 (quoting Wachtel v. Guardian Life Ins. Co. of Am., 453 F.3d 179, 184 (3d Cir. 2006)); see also Nafar v. Hollywood Tanning Sys., Inc., 339 F. App’x 216, 219 (3d Cir. 2009); Beck v. Maximus, Inc., 457 F.3d 291, 299 (3d Cir. 2006) (vacating class certification orders that failed to comply with the requirements set forth in Wachtel).

[43] Id. at *13, 15.

[44] The Supreme Court has granted the petition for certiorari in Tyson Foods, Inc. v. Bouaphakeo, 2015 WL 1278593, at *1 (U.S. June 8, 2015). The second question presented by the petition is: “Whether a class action may be certified or maintained under Rule 23(b)(3), or a collective action certified or maintained under the Fair Labor Standards Act, when the class contains hundreds of members who were not injured and have no legal right to any damages.” Neale, 2015 WL 4466919, at *3 (citation omitted). Thus the Supreme Court may answer this question during its October 2015 term.

[45] See, e.g., Zenith Radio Corp. v. Hazeltine Research, Inc., 395 U.S. 100, 114 n.9 (1969) (distinguishing the amount of damages from the fact of damage); In re Hydrogen Peroxide Antitrust Litig., 552 F.3d 305, 311 (3d Cir. 2008) (“[p]roof of injury (whether or not an injury occurred at all) must be distinguished from calculation of damages (which determines the actual value of the injury)”) (quoting Newton, 259 F.3d at 188); Callahan v. A.E.V., Inc., 182 F.3d 237, 254 (3d Cir. 1999) (distinguishing between fact of damage and amount of damages); Rossi v. Standard Roofing, Inc., 156 F.3d 452, 484 (3d Cir. 1998) (same).

[46] See, e.g., In re Hydrogen Peroxide, 552 F.3d at 311 (holding that “where fact of damage cannot be established for every class member through proof common to the class, the need to establish antitrust liability for individual class members defeats Rule 23(b)(3) predominance”) (quoting Bell Atl. Corp. v. AT & T Corp., 339 F.3d 294, 302 (5th Cir. 2003)); Newton v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 259 F.3d 154, 187 (3d Cir. 2001) (“Because injury determinations must be made on an individual basis … plaintiffs fail to satisfy the superiority standard …”).

[47] For example, as the Third Circuit explained in Sullivan, “[t]he proposed settlement here obviates the difficulties inherent in proving the elements of varied claims at trial … ‘the difference is key’ … courts are more inclined to find the predominance test met [in the settlement context].” 667 F.3d at 304 & n.29 (emphasis added) (citations omitted); see also Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 621 (1997) (“Confronted with a request for settlement-only class certification, a district court need not inquire whether the case, if tried, would present intractable management problems … for the proposal is that there be no trial”); Carrera v. Bayer Corp., 727 F.3d 300, 311 (3d Cir. 2013) (“there are different standards for approving a settlement class than for certifying a litigation class”); Newton, 259 F.3d at 192 (“the settlement approval inquiry is far different from the certification inquiry”); In re Warfarin Sodium Antitrust Litig., 391 F.3d 516, 529 (3d Cir. 2004) (“[C]oncerns with regards to case manageability that arise with litigation classes are not present with settlement classes …”).