Rule 23 Certification: Obtaining or Defeating Class Status

presents Analyzing the Circuit Courts' Differing Standardspresents

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Today's panel features:Thomas L. Allen, Partner, Reed Smith, Pittsburgh

Steve W. Berman, Managing Partner, Hagens Berman Sobol Shapiro, SeattleBrian Boyle, Partner, O'Melveny & Myers, Washington, D.C.

Thursday, December 10, 2009

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Recent Federal Court Decisions Regarding Class Certification Standards

Thomas L. Allen Reed Smith, LLP

tallen@reedsmith.com Phone: 412-288-3066

Prepared for:

Teleconference Sponsored by Class Action Law Monitor and the

Legal Publishing Group of Strafford Publications

December 10, 2009

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In re Initial Public Offerings Securities Litigation, 471 F.3d 24 (2d Cir. December 5, 2006), rehearing denied, 483 F.3d 70 (2d Cir. 2007).

• Class action alleging that defendants had violated federal securities laws through various alleged fraudulent actions in connection with a series of initial public offerings.

• District Judge Shira A. Scheindlin granted class certification.

• Court of Appeals for Second Circuit reverses, holding:

• District Judge erred by only requiring plaintiffs to make “some showing” that Rule 23 class certification standards were met.

• In order to certify a class, District Court must assess all of the relevant evidence admitted at the class certification stage, resolve any factual disputes relevant to each Rule 23 requirement and determine, based on the relevant facts and the applicable legal standard, that each Rule 23 requirement is met.

• The obligation to make such determinations is not lessened by overlap between a Rule 23 requirement and a merits issue, even a merits issue that is identical with a Rule 23 requirement.

• In making such determinations, a district judge should not assess any aspect of the merits unrelated to a Rule 23 requirement.

• A district judge has ample discretion to circumscribe both the extent of discovery concerning Rule 23 requirements and the extent of a hearing to determine whether such requirements are met in order to assure that a class certification motion does not become a pretext for a partial trial on the merits.

• Second Circuit went on to apply these standards and conclude that class certification was not appropriate in this case.

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Dukes v. Wal-Mart, Inc., 474 F.3d 1214 (9th Cir. February 6, 2007), opinion withdrawn and superseded, 509 F.3d 1168 (9th Cir. December 11, 2007), rehearing en banc granted, 556 F.3d 919 (9th Cir. February 13, 2009).

• Employment discrimination class action claiming that Wal-Mart engaged in practices nationwide that discriminated against female employees in compensation and promotion.

• District Court certified nationwide Rule 23(b)(2) class consisting of all women employed at any Wal-Mart retail store dating back to December, 1998. This is purportedly one of the largest class actions in history, encompassing approximately 1.5 million persons who worked at over 3,400 Wal-Mart stores.

• In its original February, 2007, opinion Court of Appeals for Ninth Circuit affirmed. The panel then issued a second opinion in December, 2007, which also affirmed class certification. In February, 2009, the Court granted rehearing en banc.

• In the original opinion the Court seemed to embrace the view prohibiting consideration of the merits when deciding a class certification motion. With respect to the Rule 23(a)(2) requirement of commonality, the District Court had concluded that plaintiffs’ evidence raised an inference that defendant engaged in discriminatory practices in compensation and promotion that affected all class members in a common manner. The Court of Appeals affirmed the District Court’s refusal to consider defendant’s attacks on this evidence. “The district court was on very solid ground here as it has long been recognized that arguments evaluating the merits of a case are improper at the class certification stage.” 474 F.3d at 1227 (citing Eisen). “[O]ur job on this appeal is to resolve whether the ‘evidence is sufficient to demonstrate common questions of fact warranting certification of the proposed class, not whether the evidence ultimately will be persuasive’ to the trier of fact.” 474 F.3d at 1229 (emphasis by the Court, citations omitted).

• In the second opinion, however, the Court backtracked considerably on this point. “Of course we recognize that courts are not only ‘at liberty to’ but must ‘consider evidence which goes to the requirements of Rule 23 at the class certification stage even if the evidence may also relate to the underlying merits of the case.” 509 F.3d at 1178, n.2.

• In both opinions the Court of Appeals affirmed certification under Rule 23(b)(2). In the original opinion the Court expressed its view that plaintiffs had satisfied the principal Ninth Circuit requirement for Rule 23 (b)(2) certification by showing the plaintiffs’ “principal intention in bringing this case was to obtain injunctive and declaratory relief … .” 474 F.3d at 1236. Thus, Rule 23(b)(2) certification was appropriate even though the class was potentially seeking billions of dollars in punitive damages and back pay.

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Regents of the University of California v. Credit Suisse First Boston (USA), Inc., 482 F.3d 372 (5th Cir. March 19, 2007), cert. denied, 128 S. Ct. 1120 (2008).

• Securities fraud class action against banks that allegedly engaged in transaction that allowed Enron to take liabilities off its books temporarily and to book revenue from transactions that actually caused Enron to incur debt.

• Plaintiffs claimed that the defendant banks had violated SEC Rule 10b-5(a) (forbidding deceptive devices, schemes and artifices) and Rule 10b-5(c) (prohibiting deceptive acts, practices and courses of business).

• District Court certified a class.

• Court of Appeals for the Fifth Circuit reverses, rejecting District Court’s interpretation of the scope of liability under Rule 10b-5(a) and (c).

• Court of Appeals rejected plaintiffs’ argument that Rule 23(f) appeals were strictly limited to class certification issues and that Court of Appeals must accept District Court’s view of the underlying theories of liability for purposes of a Rule 23(f) appeal.

• “Although we may not conduct an independent inquiry into the legal or factual merit of this case as though we were reviewing a motion under Federal Rule of Civil Procedure 12(b)(6) or 56, we may address arguments that implicate the merits of plaintiffs’ cause of action insofar as those arguments also implicate the merits of the class certification decision.” 482 F.3d at 380.

• “The [Eisen] prohibition against looking into the merits applies only to … inquiries [unrelated to class certification], not to evaluations of the merits that overlap with consideration of the requirements for class certification.” 482 F.3d 381.

• “The necessity of establishing a class-wide presumption of reliance in securities class actions makes substantial merits review on a Rule 23(f) appeal inevitable.” 482 F.3d at 393.

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Oscar Private Equity Investments v. Allegiance Telecom, Inc., 487 F.3d 261 (5th Cir. May 16, 2007)

• Securities fraud class action under Section 10(b) of the Securities Exchange Act of 1934.

• Decision addresses the “fraud-on-the-market” theory of presuming reliance in securities fraud class actions, as articulated by the U.S. Supreme Court in Basic v. Levinson, 485 U.S. 224, 244 (1988).

• District Court had certified class, finding that Basic presumption applied.

• Court of Appeals for the Fifth Circuit reverses, holding:

• In the Fifth Circuit, presumption of reliance under fraud-on-the-market theory requires proof that the defendants’ non-disclosure materially affected the market price of the security. “Essentially we require plaintiffs to establish loss causation in order to trigger the fraud-on-the-market presumption.” 487 F.3d at 265.

• The class certification stage is an appropriate and necessary time to consider loss causation. “We hold hence that loss causation must be established at the class certification stage by a preponderance of all admissible evidence.” 487 F.3d at 269.

• Court also addressed the type of proof needed to show loss causation in this particular case. “[W]hen unrelated negative statements are announced contemporaneous of a corrective disclosure, the plaintiff must prove ‘that it is more probable than not that it was this negative statement, and not other unrelated negative statements, that caused a significant amount of the decline.’” 487 F.3d at 270 (citation omitted). This requires “a peek at the plaintiffs’ damages model – an empirically-based inquiry, not speculation about materiality alone.” Id.

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In re New Motor Vehicles Canadian Export Antitrust Litigation, 522 F.3d 6 (1st Cir. March 28, 2008)

• Class action under state and federal antitrust laws alleging that automobile manufacturers and dealers had conspired to prevent the importation of new automobiles into the U.S. from Canada. Plaintiffs claimed that the alleged conspiracy caused U.S. consumers to pay higher prices than they would have paid but for the alleged conspiracy.

• District Court certified twenty state-wide classes alleging only state law claims.

• In a 2-1 decision, Court of Appeals reverses and remands.

• “It is a settled question that some inquiry into the merits at the class certification stage is not only permissible but appropriate to the extent the merits overlap the Rule 23 criteria. … It is less settled what degree of merits inquiry is required at the class certification stage, and the Supreme Court has not yet addressed the issue.” 522 F.3d at 24 (emphasis by the Court) (citations omitted).

• “We have said … that ‘a district court must conduct a rigorous analysis’ of Rule 23’s prerequisites … and … that ‘a district court must formulate some prediction as to how specific issues will play out. … ‘[C]lass action machinery is expensive and in our view a court has the power to test disputed premises early on if and when the class action would be proper on one premise but not another.’ ” 522 F.3d at 25 (citations omitted).

• “We do not need to resolve now whether ‘findings’ regarding the class certification criteria are even necessary, but we do hold that when a Rule 23 requirement relies on a novel or complex theory as to injury, as the predominance inquiry does in this case, the district court must engage in a searching inquiry into the viability of that theory and the existence of the facts necessary for the theory to succeed.” 522 F.3d at 26.

• “It is true that the validity of plaintiffs’ [damages] theory is a common disputed issue. … At the class certification stage, however, the district court must still ensure that the plaintiffs’ presentation of their case will be through means amenable to the class action mechanism. We are looking here not for hard factual proof, but for a more thorough explanation of how the pivotal evidence behind plaintiffs’ theory can be established.” 522 F.3d at 29 (emphasis by the Court).

• Court remands for district court to consider further evidence.

• Jude Torruella dissents, writing that “we are … turning the class certification stage into a motion for summary judgment proceeding … .” 522 F.3d at 32.

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In re Salomon Analyst Metromedia Litigation, 544 F.3d 474 (2d Cir. September 30, 2008).

• Securities fraud class action brought on behalf of shareholders of stock in Metromedia Film Network, Inc., against stock analyst, based on allegedly misleading stock analyst reports regarding Metromedia stock.

• District Court certified class. Court of Appeals reverses.

• Court of Appeals holds that, at the class certification stage, plaintiffs relying on the fraud-on-the-market presumption of reliance must show that the defendant “has (1) publicly made (2) a material misrepresentation (3) about stock traded on an impersonal, well-developed (i.e. efficient) market … .” 544 F.3d at 481. “[P]laintiffs do not bear the burden of showing an impact on market price.” 544 F.3d at 483.

• Court of Appeals also holds, however, that defendants must be given “the opportunity to rebut the Basic presumption prior to class certification.” 544 F.3d at 486. Defendants may do this by rebutting proof of the elements giving rise to the presumption or by showing that the misrepresentation in fact did not lead to a distortion of price. 544 F.3d at 483.

• But Court of Appeals cautions that, on remand, the District Court shall have “considerable discretion” to limit the scope of the proceedings so as to “avoid the risk that a Rule 23 hearing will extend into a protracted mini-trial of substantial portions of the underlying litigation … .” 544 F.3d at 486.

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In re Hydrogen Peroxide Antitrust Litigation, 552 F.3d 305 (3rd Cir. January 16, 2009).

• Class action under federal antitrust laws alleging that manufacturers of hydrogen peroxide had engaged in horizontal price-fixing conspiracy.

• District Court certified nationwide class of direct purchasers of hydrogen peroxide and certain other products.

• Court of Appeals reverses and remands.

• Court of Appeals holds (552 F.3d at 307):

• “[T]he decision to certify a class calls for findings by the court, not merely a ‘threshold showing’ by a party, that each Rule 23 requirement is met. Factual determinations supporting Rule 23 findings must be made by a preponderance of the evidence.”

• “[T]he court must resolve all factual or legal disputes relevant to class certification, even if they overlap with the merits-including disputes touching on elements of the cause of action.”

• “[T]he court’s obligation to consider all relevant evidence and arguments extends to expert testimony, whether offered by a party seeking class certification or by a party opposing it.”

• Discovery prior to class certification ruling

• Quoting the Advisory Committee’s notes to the 2003 amendments to Rule 23: “it is appropriate to conduct controlled discovery into the ‘merits,’ limited to those aspects relevant to making the certification decision on an informed basis. Active judicial supervision may be required to achieve the most effective balance that expedites an informed certification determination without forcing an artificial and ultimately wasteful division between ‘certification discovery’ and ‘merits discovery.’” 552 F.3d at 319, n.20.

• The Court’s certification determination

• In deciding a class certification motion, the court’s “proper task” is “to consider carefully all relevant evidence and make a definitive determination that the requirements of Rule 23 have been met before certifying a class.” 552 F.3d at 320.

• “Genuine disputes with respect to Rule 23 requirements must be resolved, after considering all relevant evidence submitted by the parties. ‘Tough questions must be faced and squarely decided, if necessary by holding evidentiary hearings and choosing between competing perspectives.’” 552 F.3d at 324.

• Effect of class certification findings on subsequent proceedings in the action

• “Although the district court’s findings for the purpose of class certification are conclusive on that topic, they do not bind the fact finder on the merits.” 552 F.3d at 318.

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• Effect of statements in prior caselaw favoring class certification in certain types of cases for public policy reasons

• “These statements invite error. Although the trial court has discretion to grant or deny class certification, the court should not suppress ‘doubt’ as to whether a Rule 23 requirement is met – no matter the area of substantive law.” Noting that this caselaw “predates the recent amendments to Rule 23 ….” 552 F.3d at 321.

• “We emphasize that actual, not presumed, conformance with the Rule 23 requirements is essential. Applying a presumption of impact based solely on an unadorned allegation of price-fixing would appear to conflict with the 2003 amendments to Rule 23, which emphasize the need for a careful, fact-based approach, informed if necessary by discovery.” 552 F.3d at 326.

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Alaska Electrical Pension Fund v. Flowserve Corporation, 572 F.3d 221 (5th Cir. June 19, 2009).

• Securities fraud class action. District court had denied class certification because plaintiff failed to prove loss causation and hence was not entitled to a rebuttable presumption of class-wide reliance.

• Court of Appeals reverses denial of class certification and remands for further proceedings in the District Court.

• Court of Appeals holds that the District Court had applied an overly stringent standard in determining that plaintiff had not established loss causation. In particular, the District Court had improperly required a “fact-for-fact” disclosure of information that fully corrected prior misstatements. 572 F.3d at 229-30.

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In re Credit Suisse – AOL Securities Litigation, 253 F.R.D. 17 (D. Mass. September 26, 2008)

• Securities fraud action brought on behalf of putative class of AOL Time Warner shareholders against stock analyst, based on defendants’ allegedly misleading analyst reports regarding AOL Time Warner stock.

• District Court certifies class, concluding that plaintiffs had made a sufficient showing for class certification purposes that they could rely on fraud-on-the market doctrine to establish reliance.

• “That loss causation may be more difficult to prove in analyst cases has no bearing whatsoever on the appropriateness of class treatment.” 253 F.R.D. at 29-30.

• “The commonality of the ultimate reliance inquiry turns on whether the market for the security is efficient, not on the materiality or market impact of defendants’ particular statement….Once the presumption attaches, all other questions of loss causation are common to the class.” 253 F.R.D. at 30.

• “Defendants’ arguments regarding market impact, while certainly not insubstantial, do not address the purposes of Rule 23. To engage with them here would drag the Court into an unwieldy trial on the merits.” 253 F.R.D. at 30.

• Another District Judge in the District of Massachusetts adopted a similar rationale in In re Boston Scientific Corporation Securities Litigation, 604 F.Supp.2d 275 (D. Mass, March 10, 2009).

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Fogarazzo v. Lehman Brothers, 2009 WL 2390244 (S.D.N.Y. August 4, 2009)

• Securities fraud action brought on behalf of putative class of shareholders of RSL Communications, Inc., against stock analyst, based on allegedly misleading analyst reports regarding stock of RSL Communications, Inc.

• District Court certifies class.

• District Court concludes that plaintiffs had shown that fraud-on-the market presumption of reliance applied, and defendants had failed to rebut that presumption by a preponderance of the evidence.

• District Court rejects defendants argument that plaintiff was required to show loss causation at class certification stage. “Plaintiffs need not show definitively that they will be able to demonstrate loss causation; rather, they must demonstrate that the element of loss causation may be proven class-wide, which may be shown by proposing a suitable methodology.”

HAGENS BERMANHAGENS BERMANSOBOL SHAPIRO LLPSOBOL SHAPIRO LLP

Strategies For Reacting Strategies For Reacting g gg gTo The Evolution of To The Evolution of Rule 23 StandardsRule 23 StandardsRule 23 StandardsRule 23 Standards

341738341738

Just a few years back in the good old days:Just a few years back in the good old days:

Plaintiffs’ Complaint was the controlling d l idocument on a class motion.

Inferences were always in plaintiffs’ favor Inferences were always in plaintiffs favor.

Rule 23 was usually liberally construed in Rule 23 was usually liberally construed in plaintiffs’ favor.

In most areas of the country, the good old days TOAST

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are . . . TOAST.

From Federal Judicial Center, Managing From Federal Judicial Center, Managing Class Action Litigation a Pocket Guide Class Action Litigation a Pocket Guide Class Action Litigation a Pocket Guide Class Action Litigation a Pocket Guide

for Judges (“Judges Manual”)for Judges (“Judges Manual”)

Class actions often attract a great deal of public attention. Rulings by state and federal judges in class actions have become the subject of a highly polarizedactions have become the subject of a highly polarizedpublic debate. This debate has focused on perceived abuses of class actions by the parties and their

h h ff d b h d f d d l attorneys that have affected both defendants and class members. In the Class Action Fairness Act of 2005 (CAFA) (Pub. L. No. 109-2, 119 Stat. 4 (2005)), (CAFA) (Pub. L. No. 109 2, 119 Stat. 4 (2005)), Congress responded to the debate by shifting many class actions to federal court and assigning new

ibili i f d l j d

3

responsibilities to federal judges.

More From the Judges’ Manual More From the Judges’ Manual “A Heightened Responsibility”“A Heightened Responsibility”

Class actions demand that judges play a unique role. There is no such thing as a simple l h h dd h dclass action. Every one has hidden hazards

that can surface without warning. Your role i l d ti i ti th f includes anticipating the consequences of poorly equipped class representatives or attorneys inadequate class settlement attorneys, inadequate class settlement provisions, and overly generous fee stipulations. The high stakes of the litigation

4

st pu at o s. e g sta es o t e t gat o heighten your responsibility. . . .

More From the Judges’ ManualMore From the Judges’ Manual

S C t t lk b t th “l ” Some Courts now talk about the “leverage” of a Class decision or the “lethal force”2 of certification.

5

2 Oscar Private Equity Inv. v. Allegiance, 487 F.3d 261, 262 (5th Cir. 2007).

Expect More Caution From the BenchExpect More Caution From the Bench

As a practical matter you should assume that as a result of the concerns expressed in the manual:

Judges, even those fully supportive of class actions, may approach the of class actions, may approach the issues more cautiously even in jurisdictions that have not gone the jurisdictions that have not gone the IPO/Hydrogen Peroxide standard.

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Post Post IPOIPO//PeroxidePeroxide Defense TacticsDefense Tactics

D f IPO d H d P idDefense uses IPO and Hydrogen Peroxideto urge courts in all jurisdictions to

l h b l f h h resolve the battle of the experts at the Class Certification stage.

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But But IPOIPO Approach is Not Approach is Not the Norm Everywherethe Norm Everywherethe Norm Everywherethe Norm Everywhere

Critical to push back – courts in other jurisdictions are not engaging in an IPO jurisdictions are not engaging in an IPO like analysis.

See, e.g., SRAM opinion 9/29/2008, N.D. Cal. No. C07-01819.Cal. No. C07 01819.

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SRAMSRAM –– 9th Circuit Standard9th Circuit Standard

Certifying class where “Dr Noll has Certifying class where Dr. Noll has advanced a plausible methodology.”

“At this stage of the litigation we must avoid engaging in a battle of the experts ” avoid engaging in a battle of the experts.

As to damages “Defendants have not shown As to damages, Defendants have not shown that the methods are so insubstantial as to amount to no method at all ”

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amount to no method at all.

A Critical Lesson Learned from the New

Th Ci it lit i b k k d b IPO

Certification Standards – Pick a Good Circuit

The Circuit split is bookmarked by IPO versus Dukes with other courts like the First Circuit in the middlemiddle.

So an obvious strategy choice from the start is to go b d h htry to obtain jurisdiction in a venue that suits what

side of the bookends you wish to be on – left or rightright.

We file cases now with a multiple level analysis –

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p ywhich circuit has good substantive law and class certification law.

Implications at the MDL LevelImplications at the MDL Level

Critical to convince as many lawyers as Critical to convince as many lawyers as possible to support the jurisdiction where both substantive and class certification is the both substantive and class certification is the best.

Fight the lawyer who thinks he will get lead in a bad jurisdiction and thus seeks to get the j gcase sent there.

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The Importance of the Jurisdictional The Importance of the Jurisdictional Pick is Bookmarked by:Pick is Bookmarked by:

Toy’s R Us: SRAM

Pick is Bookmarked by:Pick is Bookmarked by:

Toy s R-Us:Multiday class certification

SRAM:Typical 2 hour oral

certification hearing.

argument.vs.

Intel:E-bay:Typical 2 hour oral

Three day hearing (upcoming).

Typical 2 hour oral argument.

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Practical Effect of Practical Effect of IPOIPO –– Have Experts Have Experts Present Present CompletedCompleted Work ProductWork ProductPresent Present CompletedCompleted Work ProductWork Product

(The (The ZyprexaZyprexa Example)Example)

6 Plaintiffs Experts Testified at the Class Certification Hearing.Certification Hearing.

2 By Affidavit.

2 Defense Experts at the Class Certification HearingHearing.

4 By Affidavit.

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y

Strategies for the FutureStrategies for the FutureStrategies for the FutureStrategies for the Future

Plan for the worst – i e “new” or slightly Plan for the worst – i.e., new or slightly modified standards in every circuit but the 9th (but even in the 9th the right ( u gwing R judges may try to require an IPO like decision).

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CMO Issues and Rule 23CMO Issues and Rule 23You will need a case management order that allows time to develop the record. (EPDM, p (McKesson, Zyprexa, Toys “R” Us – discovery was over or far along.)

You should consider using the circuit’s Rule 23 standard to argue for a later motion date 23 standard to argue for a later motion date and full discovery.

l f d dFor example, if a more rigorous standard is in play, you may need more time and a f ll d

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fuller record.

Timing Is Now ImportantTiming Is Now ImportantTiming Is Now ImportantTiming Is Now Important

This is a critical issue we still see courts This is a critical issue, we still see courts setting a quick class schedule.

You need to educate the court that such a schedule is not appropriate if a rigorous pp p gexpert battle is in order.

Some judges don’t yet understand the relationship between timing and the Rule

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23 standard relationship.

The New Standards Have The New Standards Have

f d f ( l l )

Implications for BifurcationImplications for Bifurcation

Defendants often (almost always) want to bifurcate the class/merits issues.

If there is now a look at the merits due to overlap of issues, or a more rigorous overlap of issues, or a more rigorous standard, then it is fair to argue there is no basis to limit discovery to “class issues”.basis to limit discovery to class issues .

Cannot overemphasize the importance of b i i i d l

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obtaining more time and a more complete record.

A Good Post A Good Post Hydrogen Hydrogen DecisionDecision

One district court considering class ifi i f H d P id d IPOcertification after Hydrogen Peroxide and IPO

recently provided a well-reasoned roadmap for deciding motions for class certification See In deciding motions for class certification. See In re Ethylene Propylene Diene Monomer (“EPDM”) Antitrust Litig 2009 U S Dist Lexis 11089 (D Antitrust Litig., 2009 U.S. Dist. Lexis 11089 (D. Conn. Feb. 13, 2009). The EPDM court specifically rejected the conflation between p y jactual proof of impact and whether impact is capable of being proved through common

d h f d h18

evidence that Defendants espouse here.

EPDM EPDM Court HeldCourt Held

An attack on the merits of Plaintiffs’ expert ptestimony is not appropriate at the Rule 23 stage.g

Defendants must demonstrate the h d l i lf i i i dmethodology itself is inappropriate and not

attack the results.

“If plaintiffs can present a feasible regression l i ” th h t th i b d

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analysis” they have met their burden.

EPDMEPDM PosturePosture

Full merits discovery done.y

Expert reports completed.

Documents fully produced and in the d d d b th C t record and used by the Court.

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Meet The Standard Meet The Standard –– Intent To Do Intent To Do S hi T H i D IS hi T H i D I

In Hydrogen Peroxide the plaintiffs

Something To Having Done ItSomething To Having Done It

In Hydrogen Peroxide, the plaintiffs contended that they “intended” to demonstrate how antitrust impact and demonstrate how antitrust impact and damages were capable of common proof, plaintiffs here have done so through price plaintiffs here have done so through price dispersion analyses (Comanor II, ¶¶ 37-44), regression analyses (Comanor III ¶¶ 5-11) and regression analyses (Comanor III, ¶¶ 5-11), and application of the benchmark method (Comanor I ¶¶ 35-37; Comanor II ¶¶ 72-77)

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(Comanor I, ¶¶ 35-37; Comanor II, ¶¶ 72-77).

The Approach Used in McKessonThe Approach Used in McKesson11

Stage of decision after the close of discovery. (Like EPDM.)(Like EPDM.)

Nationwide certification of all payors for 450 brand name drugs (two opinions on class brand name drugs (two opinions on class certification).

R i d “ l h f b i i ” Reviewed an avalanche of submissions”.

Three expert declarations from plaintiffs and two i ltutorials.

Three expert reports from McKesson.1 New England Carpenters Health Benefits Fund v First DataBank Inc

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p p1 New England Carpenters Health Benefits Fund v. First DataBank, Inc., 244 F.R.D. 79 (D. Mass. 2007); New England Carpenters Health Benefits Fund v. First DataBank, Inc., 248 F.R.D. 363 (D. Mass. 2008).

McKessonMcKesson11

Court makes factual findings in order to define class periodclass period.

Engaged “Rigorous Review” of damage model.

First Circuit rejects 23(f) despite McKesson’s claim review warranted because it was exposed to $21 billi i d W ’ “ i d il d billion in damages. Won’t “review detailed Findings of Fact.”

Practical effect of new standard – less chance for a 23(f) review.

1 New England Carpenters Health Benefits Fund v First DataBank Inc

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1 New England Carpenters Health Benefits Fund v. First DataBank, Inc., 244 F.R.D. 79 (D. Mass. 2007); New England Carpenters Health Benefits Fund v. First DataBank, Inc., 248 F.R.D. 363 (D. Mass. 2008).

Seek Proof of Common Issues in Seek Proof of Common Issues in D f nd nt ’ D m ntD f nd nt ’ D m nt

McKesson and EPDM documents were chock full of

Defendants’ DocumentsDefendants’ Documents

McKesson and EPDM documents were chock full of admissions of the challenged conduct as having common impact on the class, while defense experts denied such an impact.

Give those documents to your expert as supporting Give those documents to your expert as supporting his/her opinion.

Can be sed to nderc t a defense e pert defendant Can be used to undercut a defense expert – defendant says impact of a price fix was mitigated by sophisticated class members, but internal company

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sophisticated class members, but internal company documents say otherwise.

Seek Proof of Impact in Seek Proof of Impact in Thi d P DThi d P DThird Party DocumentsThird Party Documents

Recall now there will be a much greater emphasis on ’ l d kyour experts’ completed work.

Confirm his opinions with documents from third i ( / )

pparties. (McKesson/EPDM.)

Example – our Intel expert opines that the price of p p p pIntel products would have been $24 less without monopolistic practice. Defendants’ experts refute this.

On reply we use third party documents that say if we weren’t engaging in this behavior the price “would be $24 less” – exactly where expert comes out

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$24 less exactly where expert comes out.

Consider Completion of the Expert Consider Completion of the Expert Report and Then Move for Class Report and Then Move for Class Report and Then Move for Class Report and Then Move for Class

CertificationCertificationA l d i i l i h As class decision comes later in the case you have an opportunity to turn the model from “ d i i h f ” h h “can do it in the future” to a report where the expert did the work and it does prove liability, i d d l id b i impact and damages on a classwide basis. (McKesson I (not done), McKesson II (done and

ifi d)certified).

h d h d f d l f b l26

Shuts down the defendants’ litany of obstacles that are often hypothetical.

Consumer Multistate CasesConsumer Multistate Cases

Courts are often reluctant to certify a multistate classclass.

AWP approachpp

Trial of a test case.

Court sees that defendants’ objections did not pan out and maintains pcertification.

C ifi li i i l S27

Certifies a 38 state litigation class. See252 F.R.D. 83 (2008). It’s a must read!

Talked the Talk vs. Walk the WalkTalked the Talk vs. Walk the Walk

hil h lk d h“While numerous courts have talked the talk that grouping of multiple state laws is l f l d ibl f hlawful and possible, very few courts have walked the grouping walk.”

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The Necessary IngredientsThe Necessary Ingredients

AWP, 252 F.R.D. at 85.

In support of their motion for tifi ti l i tiff h certification plaintiffs have

submitted a summary of state f i t d ti l unfair trade practice laws,

proposed jury instructions, and a h t t i i f i il chart containing groups of similar

unfair and deceptive trade practice t

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acts.

Bottom LineBottom Line

Class certification is tougher – everywhere but the 9th Circuit the 9th Circuit.

More expensive to get cases certified.p g

Certification will come later in the case.

The upside once you achieve certification –you have gone a great distance to convince a y g gcourt in the value of your case.

I di h D f d ill 30

I predict that Defendants will pay more now when a case is certified.

Case to WatchCase to Watch

Zyprexa class certification argument on 12/08/09 First Post IPO Review12/08/09 – First Post IPO Review.

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December 2009

Challenging Class Treatment: Recent Decisions and Their Implications

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The Plaintiff’s Evidentiary Burden Under Rule 23

• Rule 23 places burden on movant, but Eisen hangover has shown surprising persistence over the years, with some courts resisting any detailed review of likely evidence at trial. E.g., Caridad v. Metro-North Commuter R.R., 191 F.3d 283 (2d Cir. 1999) (only “some showing” required on preliminary questions crucial to certification).

• Recent decisions (Allegiance (5th Cir.), IPO (2d Cir.) and Hydrogen Peroxide (3d Cir.) mark a change in direction; they clearly hold that Rule 23 burden requires a class plaintiff to prove preliminary facts necessary to “predominance” finding by a preponderance.

• These decisions, coupled with CAFA’s concentration of important class actions in federal courts, thus promise more evidence-focused analysis of class treatment aimed at fleshing out what a“class” trial on the named plaintiff’s claims really is going to look like.

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Implications for Class Litigants

• Pre-certification discovery will be more intensive, and will delay presentation and resolution of class issue.

• Class certification proceedings will more commonly feature opposing experts, and expert challenges. E.g., In re Hydrogen Peroxide, 552 F.3d 305 (3d. Cir. 2008).

• Class certification decisions are more likely to be re-examined at close of discovery. In re New Motor Vehicles Canadian Export Antitrust Lit., 522 F.3d 6 (1st Cir. 2008) (certification decision “may require revisiting upon completion of full discovery.”).

• Certifications will command more respect, and will increase hydraulic pressure to settle–particularly after unsuccessful Rule 23(f) bid.

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Strategic Considerations for Defendants: Pleading Challenges and Discovery

• Exercise care in handling legal challenges to pleadings.

• Consider a motion to strike or dismiss class allegations, but only if there are “rifle-shot” grounds.

– Compare Vinole v. Countrywide Home Loans, Inc., 571 F.3d 935 (9th Cir. 2009) (district court did not abuse discretion in considering defense motion to deny class treatment near close of discovery).

• In discovery process, avoid categorical objections that could preclude support for defense objections to class treatment (complaint files, prior litigation records, call center records).

• Take full “trial depositions” of all putative class representatives.

• While discovery of absent members may be an unlikely prospect, consider probing plaintiffs’ counsel’s selection of named parties.

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Strategic Considerations for Defendants: the Class Determination

• Propose that court require submission of a trial plan, complete with draft verdict forms, to show course of class action trial. This will allow defense to probe flaws and omissions in plaintiffs’ trial vision.

• Consider filing summary judgment motions on named plaintiffs’ individual claims alongside class opposition where distinct issues and evidence can be highlighted.

• Urge “bellwether trials” as test for cohesiveness of purported class on alleged “common” issues.

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Remaining Battlegrounds: Relevance of Defenses/Defense Evidence

• Courts have not been consistent in assessing the relevance of defenses/defense evidence in Rule 23 calculus.

– The original Ninth Circuit Dukes v. Wal-Mart majority found the defendant’s proffer of varying sub-store statistics regarding gender pay differentials to be irrelevant when plaintiffs had submitted region-wide analyses suggesting common differentials; the revised panel opinion retreated. Compare 474 F.3d at 1229 with 509 F.3d at 1181-82.

– The Third Circuit’s Hydrogen Peroxide decision required consideration of defense expert opinion on whether there could be classwide proof of antitrust injury.

• There is no logical basis for ignoring variations in defenses and defense rebuttal evidence in applying Rule 23 tests.

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Remaining Battlegrounds: “Issue Classes”

• Circuits are divided on whether partial certification authority provided by Rule 23(c)(4) can be exercised even where Rule 23(b)(3) “predominance” cannot be established as to an entire cause of action. Compare Castano v. American Tobacco, 84 F.3d 734 (5th 1996) (no) with Nassau County Strip Search Cases, 461 F.3d 219, 227 (2nd Cir. 2006) (yes) and Valentino v. Carter-Wallace, Inc., 97 F.3d 1227 (9th Cir. 1996) (yes).

• American Law Institute (“ALI”) Principles of the Law of Aggregate Litigation § 203 (“ALI Principles”) propose a sympathetic view of issue classes where issues can be “carved at the joint” and where class treatment would “materially advance” resolution of claims by getting at “core” of dispute. This may fortify efforts to use issue classes more extensively.

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Remaining Battlegrounds: “Issue Classes”

Where there is smoke, there is case law…

• In McLaughlin v. Am. Tobacco Co., 522 F.3d 215 (2d. Cir. 2008), the Second Circuit reversed a trial court’s certification of an issue class on tobacco product liability issues (e.g., defect, general causation) because of range of issues that would remain; the court concluded that certification would not “materially advance the litigation.”

• In Engle v. Liggett Group, 945 So. 2d 1246 (Fla. 2006), the Florida Supreme Court reversed a plaintiff judgment in a class action inwhich tobacco claims were certified on all issues, liability anddamages included, but ruled that jury’s liability and general causation findings would have res judicata effect.

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Remaining Battlegrounds: Classes UnderRule 23(b)(1)/(b)(2)

• There continues to be aggressive use of Rule 23(b)(1)/(b)(2) in cases involving both injunctive and monetary relief to avoid more rigorous burden under Rule 23(b)(3), and courts have divided on standard for determining whether such is permissible.

– The Ninth Circuit’s opinion in Dukes v. Wal-Mart is the most breathtaking application.

• Prospect of issue preclusion on monetary claims make Rule 23(b)(1)/(b)(2) classes no less threatening to defendants than Rule 23(b)(3) classes.

• ALI Principles propose a standard favoring application of Rule 23(b)(1)/(b)(2) to classes seeking monetary remedies (along with injunctive relief) provided the remedy sought is “indivisible.”

• ALI examples of claims involving “indivisible” remedies: claims by ERISA plan members seeking correction of payment formula, and ensuing payments; claims by group that received common exposure to toxic substance seeking court-supervised medical monitoring program under state tort law.

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Remaining Battlegrounds: Classes UnderRule 23(b)(1)/(b)(2)

• Defendants are enjoying some success by urging more robust application of other Rule 23 prerequisites.

– In Heffner v. Blue Cross and Blue Shield of Alabama, Inc., 443 F.3d 1330 (11th Cir. 2006), the court interpreted plaintiffs’ burden to show propriety of “final injunctive relief … with respect to the class as a whole” to preclude certification where individualized proof of reliance was required on plaintiffs’ claims.

– In Fotta v. Trustees of UMW Health & Ret. Fund, 319 F.3d 612 (3rd Cir. 2003), a case involving “wrongful” delays in payment of disability benefits, the court questioned Rule 23(a) commonality on the grounds that evidence of “wrongfulness” would be distinct)

– In Bacon v. Honda of America Mfg., 370 F.3d 565 (6th Cir. 2004), the court questioned typicality (and commonality) in a Title VII action involving two distinct promotional ladders, multiple types of jobs, and different departments.

• In some circuits, “manageability” (a textual creature of Rule 23(b)(3)) has been imported into Rule 23(b)(2) calculus.

– Shook v. El Paso County, 386 F.3d 963, 973 (10th Cir. 2004) (“Elements of manageability and efficiency are not categorically precluded in determining whether to certify a Rule 23(b)(2) class.”)

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Remaining Battlegrounds: Choice of Law

• Plaintiffs continue to press techniques for simplifying applicable legal standards in multistate classes.

– The option of applying the law the defendant’s home state remains potentially in play, although few state courts have actually approved it. E.g., Ysbrand v. DaimlerChrysler Corp., 81 P.3d 618 (Okla. 2003); Int’l Union of Operating Eng’rs v. Merck & Co., 894 A.2d 1136 (App. Div. 2006), rev’d on other grounds, 929 A.2d 1076 (N.J. 2007).

• Defendants can expect more extensive use of federal causes, suchas RICO, to avoid choice-of-law problems.

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Remaining Battlegrounds: Choice of Law

• A few courts have found a “manageable” number of nationwide variations on certain causes of action. E.g., In re Prudential Ins. Co. of America Sales Practices Litig., 148 F.3d 283 (3d Cir. 1998) (nationwide settlement class; fraud/deception claims).

• ALI Principles are solicitous of class litigation where “different claims or issues are subject to different bodies of law that are not the same in functional content but nonetheless present a limitednumber of patterns that the court … can manage by means of identified adjudicatory procedures.”

– Claims/legal theories most likely to be the subject of a bid forclass treatment on a multistate basis include full range of contract-related theories.

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Appellate Class Action Cases to Watch

• En banc rehearing of 9th Circuit panel opinion in Dukes v. Wal-Mart, Inc.: opinion could resolve standard for Rule 23(b)(2) certification in 9th Circuit.

• Interlocutory appeal to 11th Circuit in Brown v. R.J. Reynolds Tobacco, Inc., 576 F. Supp. 2d. 1328 (M.D. Fla. 2008): opinion may address downstream feasibility of “issue” classes.

• Shady Grove Orthopedic Associates v. Allstate Ins. Co., No. 08-1008 (U.S. Supreme Court): decision will address whether state laws precluding class treatment of certain claims is applicable in federal court.