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Can A Certified Class Include Uninjured Parties? First Circuit Majority Says “Yes,” In Some Instances

By Wystan Ackerman & Wystan Ackerman on February 6, 2015
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One of the “hot” issues in class actions today is whether, or to what extent, a class can be defined to include members who were not injured, and do not have standing to sue. The First Circuit recently addressed this in a 2-1 decision, concluding that “class certification is permissible even if the class includes a de minimis number of uninjured parties.” In re Nexium Antitrust Litigation, 2015 U.S. App. LEXIS 968, *6-7 (1st Cir. Jan. 21, 2015). But how do you determine what is “de minimis”? And how do you properly identify those people and ensure that they do not obtain relief? The answers to those questions remain unclear even in the First Circuit. This is the type of issue that may be bound for the Supreme Court, either in this case or another similar case. This decision also addresses important issues concerning standing in class actions, but without fully analyzing them (at least in my view). These issues will continue to be a major battleground in class certification law in the coming years.

The Nexium case involved antitrust claims asserting that settlement agreements entered into between companies selling generic drugs and the original manufacturer of the drug (Nexium) violated state antitrust laws. Under the settlement agreements entered into during the course of patent litigation between the drug manufacturers, the original manufacturer agreed to make payments to the generic drug companies, one of which was over $1 billion. In return, the generic companies agreed to delay the launch of the generic drugs. Id. at *9-10. The plaintiffs asserted that these settlements were unlawful agreements not to compete, and caused insurance plans and individual consumers to pay more for the name brand drug during the period when the generic version was not available. Id. at *4.

The district court certified a class under Rule 23(b)(3). The central issue on appeal was whether it was proper to include in the class persons who were not injured because, for example, they would have chosen to continue to buy the name brand drug even after the generic versions were on the market. The First Circuit majority concluded that such persons could be included in the class definition, but “[a]t the class certification stage, the court must be satisfied that, prior to judgment, it will be possible to establish a mechanism for distinguishing the injured from the uninjured class members.” Id. at *19. The majority further recognized that no evidence was presented below as to whether or how this could be done. The court suggested, however, two methods: (1) a rebuttable “presumption that consumers would purchase the generic if it were available,” similar to the rebuttable presumption of reliance in certain securities class actions; or (2) testimony from each class member, perhaps by affidavit or declaration. Id. at *21-22. The court found this permissible because the number of potentially uninjured parties was “de minimus.”

So what is “de minimus”? According to the majority, “de minimus” should be defined “in functional terms,” and in this case the evidence suggested that the number of uninjured class members was somewhere between 2% and 5.8% of the class. Id. at *50-51. But where would they draw the line? What if it were 10% or 20% of the class?

Significantly, the majority further found that standing was satisfied because “[t]o the extent that it is necessary that each and every member of the class who secures a recovery also has standing, the requirement will be satisfied – only injured class members will recover.” Id. at *55. But, as the Supreme Court has explained, standing must be satisfied “at the outset of the litigation,” or the “commencement of the litigation . . . .” Friends of the Earth, Inc. v. Laidlaw Environ. Servs. (TOC), Inc., 528 U.S. 167, 180, 189 (2000). When does litigation commence for purposes of the absent class members? This likely occurs when a class is certified and the opt-out process has taken place—that is when class members become parties to the litigation. Smith v. Bayer Corp., 131 S. Ct. 2368, 2379 (2011). This was not addressed by the First Circuit, but potentially could support an argument that, when a class is certified, or at least after the opt-out period has expired, the class members must have standing. That issue, however, is for another day.

Judge Kayatta wrote a strong dissent. He disagreed with the result reached by the majority because: (1) the purportedly “de minimus” number of uninjured class members was estimated at over 24,000; (2) “the district court has not identified—much less rigorously analyzed—any method for identifying and excluding these thousands of consumers prior to entry of judgment”; and (3) it was improper, in his view, for an appellate court to create its own proposed method for culling out uninjured class members that was never proposed by the plaintiffs or considered by the district court. Judge Kayatta also noted that, during the pendency of this interlocutory appeal, the district court had taken the case to trial without conducting any culling method. The most colorful sentence of the dissent wrote that “the majority affirms a certification order based entirely on a fiction that we know to be false.” Id. at *67.

The issues presented in this opinion are an important arrow in defendants’ quiver. Many proposed class actions, including insurance cases, involve significant numbers of uninjured or potentially uninjured putative class members. In the context of insurance claims, for example, many consumers who were affected by an allegedly unlawful practice were not necessarily injured when you review how the claim was handled in its entirety. The problems in identifying those who were not injured, and whether they are even properly part of a class at all, including whether they have standing, potentially can be strong grounds for defeating class certification.

Photo of Wystan Ackerman Wystan Ackerman

Wystan Ackerman is a partner in Robinson+Cole’s Insurance + Reinsurance Group and handles a diverse range of property insurance litigation, including large business interruption cases, class actions, other complex litigation, and appeals. He also has substantial experience representing insurance companies in putative class…

Wystan Ackerman is a partner in Robinson+Cole’s Insurance + Reinsurance Group and handles a diverse range of property insurance litigation, including large business interruption cases, class actions, other complex litigation, and appeals. He also has substantial experience representing insurance companies in putative class actions involving homeowners’ insurance coverage and market conduct/claim-handling practices. He has been prominently involved in high-profile property insurance litigation concerning the September 11th catastrophe and Hurricane Katrina, and Chinese-made drywall. Based in the insurance capital of Hartford, Connecticut, Wystan writes the blog Insurance Class Actions Insider, which was selected by Lexis Nexis as a top insurance blog for 2011.

Wystan grew up in Deep River, Connecticut, a small town on the west side of the Connecticut River in the south central part of the state. He always had strong interests in history, politics and baseball and his heroes growing up were Abraham Lincoln and Wade Boggs (at that time the third baseman for the Boston Red Sox). Wystan says it was his early fascination with Lincoln that drove him to practice law. As a high school senior, he was one of Connecticut’s two delegates to the U.S. Senate Youth Program, which further solidified his interest in law and government. He went on to Bowdoin College, where he wrote for the Bowdoin Orient and majored in government. After Bowdoin, he went on to Columbia Law School. He also interned in the chambers of then-Judge Sonia Sotomayor on the Second Circuit. Wystan graduated from Columbia in 2001, then worked at Skadden Arps in Boston before returning to Connecticut and joining Robinson+Cole.

When Wystan’s not at his desk, flying around the country trying to save insurance companies from the plaintiffs’ bar, or attending a conference on class actions or insurance litigation he often can be found watching “Dora the Explorer” or reading or playing whiffleball with his young daughter, helping his wife with her business, Option Realty, reading a book about history or politics, or watching the Boston Red Sox.

Read Wystan’s rc.com bio.

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Photo of Wystan Ackerman Wystan Ackerman

I am a partner at the law firm of Robinson+Cole in Hartford, Connecticut, USA.  My contact information is on the contact page of my blog.  I really enjoy receiving questions, comments, suggestions and even criticism from readers.  So please e-mail me if you…

I am a partner at the law firm of Robinson+Cole in Hartford, Connecticut, USA.  My contact information is on the contact page of my blog.  I really enjoy receiving questions, comments, suggestions and even criticism from readers.  So please e-mail me if you have something to say.  For those looking for my detailed law firm bio, click here.  If you want a more light-hearted and hopefully more interesting summary, read on:

People often ask about my unusual first name, Wystan.  It’s pronounced WISS-ten.  It’s not Winston.  There is no “n” in the middle.  It comes from my father’s favorite poet, W.H. (Wystan Hugh) Auden.  I’ve grown to like the fact that because my name is unusual people tend to remember it better, even if they don’t pronounce it right (and there is no need for anyone to use my last name because I’m always the only Wystan).

I grew up in Deep River, Connecticut, a small town on the west side of the Connecticut River in the south central part of the state.  I’ve always had strong interests in history, politics and baseball.  My heroes growing up were Abraham Lincoln and Wade Boggs (at that time the third baseman for the Boston Red Sox).  I think it was my early fascination with Lincoln that drove me to practice law.  I went to high school at The Williams School in New London, Connecticut, where I edited the school newspaper, played baseball, and was primarily responsible for the installation of a flag pole near the school entrance (it seemed like every other school had one but until my class raised the money and bought one at my urging, Williams had no flag pole).  As a high school senior, my interest in history and politics led me to score high enough on a test of those subjects to be chosen as one of Connecticut’s two delegates to the U.S. Senate Youth Program, which further solidified my interest in law and government.  One of my mentors at Williams was of the view that there were far too many lawyers and I should find something more useful to do, but if I really had to be a lawyer there was always room for one more.  I eventually decided to be that “one more.”  I went on to Bowdoin College, where I wrote for the Bowdoin Orient and majored in government, but took a lot of math classes because I found college math interesting and challenging.  I then went to Columbia Law School, where I was lucky enough to be selected as one of the minions who spent their time fastidiously cite-checking and Blue booking hundred-plus-page articles in the Columbia Law Review.  I also interned in the chambers of then-Judge Sonia Sotomayor when she was a relatively new judge on the Second Circuit, my only connection to someone who now has one-ninth of the last word on what constitutes the law of our land.  I graduated from Columbia in 2001, then worked at Skadden Arps in Boston before returning to Connecticut and joining Robinson+Cole, one of the largest Connecticut-based law firms.  At the end of 2008, I was elected a partner at Robinson+Cole.

I’ve worked on class actions since the start of my career.  Being in the insurance capital of Hartford, we have a national insurance litigation practice and most of the class actions I’ve defended have been brought against insurance companies. I’ve also handled some involving products liability, managed care, health care, utilities, financial services, higher education and environmental issues.

My insurance class action practice usually takes me outside of Connecticut.  I’ve had the pleasure of working on cases in various federal and state courts and collaborating with great lawyers across the country.  While class actions are an increasingly large part of my practice, I don’t do exclusively class action work.  The rest of my practice involves litigating insurance coverage cases, often at the appellate level.  That also frequently takes me outside of Connecticut.  A highlight of my career thus far was working on Standard Fire Ins. Co. v. Knowles, the U.S. Supreme Court’s first Class Action Fairness Act case.  I was Counsel of Record for Standard Fire on the cert petition, and had the pleasure of working with Ted Boutrous on the merits briefing and oral argument.

I started this blog because writing is one of my favorite things to do and I enjoy following developments in class action law, writing about them and engaging in discussion with others who have an in interest in this area.  It’s a welcome break from day-to-day practice, keeps me current, broadens my network and results in some new business.

When I’m not at work, you might find me running lines or watching a musical with my teenage daughter who hopes to be a Broadway star (or taking her to voice or dance lessons) or reading a good book.

Read more about Wystan AckermanEmail
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  • Posted in:
    Class Action & Mass Torts, Insurance
  • Blog:
    Class Actions Insider
  • Organization:
    Robinson & Cole LLP
  • Article: View Original Source

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