The Second Circuit recently addressed a panoply of class certification issues in two opinions. Both decisions ruled in favor of the plaintiffs, but will help defendants tailor their arguments in future cases.
Roach v. T.L. Cannon Group, No. 13-3070-cv, 2015 U.S. App. LEXIS 2054 (2d Cir. Feb. 10, 2015) addressed whether the Supreme Court’s decision in Comcast Corp. v. Behrend, 133 S. Ct. 1426 (2013) overruled Second Circuit law regarding the impact of individualized damages issues on a class certification analysis under Rule 23(b)(3). This was an employment case in which the district court had denied certification on the sole ground that the plaintiffs did not offer a model for proving damages on a classwide basis. The Second Circuit vacated this decision and remanded. It explained that “Comcast held that a model for determining classwide damages relied upon to certify a class under Rule 23(b)(3) must actually measure damages that result from the class’s asserted theory of injury; but the Court did not hold that proponents of class certification must rely upon a classwide damages model to demonstrate predominance.” Id. at *14. The Second Circuit further explained that, “[t]o be sure, Comcast reiterated that damages questions should be considered at the certification stage, when weighing predominance issues,” but “[t]he Supreme Court did not foreclose the possibility of class certification under Rule 23(b)(3) in cases involving individualized damages calculations.” Id. at *15-16. The court concluded that this interpretation of Comcast was consistent with that of other circuits. Id. at *16-17.
What does this mean for defendants? There is no question that individualized damages remain a relevant factor and in some cases will be a very important factor in the class certification analysis. When damages are individualized, that often means that causation or other issues relevant to liability are similarly individualized. A more “totality of the circumstances” approach melding various individualized issues may be most effective.
Sykes v. Mel S. Harris and Assocs. LLC, No. 13-2742-cv, 2015 U.S. App. LEXIS 2057 (2d Cir. Feb. 10, 2015) is a lengthy opinion involving an alleged debt collection scheme whereby the defendants would obtain default judgments in New York City Civil Court by executing false affidavits of service and affidavits of merit. Issues of potentially broader significance were:
Predominance: The defendants argued that individualized issues existed with respect to damages, the statute of limitations, and whether service of process was made properly. The Second Circuit majority held that individualized issues of damages would not defeat predominance because the amount of money obtained by defendants would be information in defendants’ possession and the damages sought were tied to the theory of liability. The majority further concluded that the applicability of the statute of limitations would not present a problem because the plaintiffs disclaimed reliance on equitable tolling (although this would defeat some of the named plaintiffs’ individual claims). The majority found the causation issue would not defeat some of plaintiffs’ claims (including a FDCPA claim), and was not sufficient to defeat predominance. The dissent concluded that individualized issues regarding service of process would predominate, and that the statute of limitations issue would either require individualized inquiries or render the named plaintiffs inadequate and atypical because they relied on equitable tolling.
Superiority: There was an interesting debate between the majority and dissent with respect to whether a state court procedure would be superior to a class action. The defendants argued that a New York state court procedure that would allow for fraudulently obtained default judgments to be vacated en masse would be superior to a class action. The Second Circuit majority disagreed because the New York City Civil Court would not have jurisdiction to hear a class action, the superiority analysis does not properly compare federal to state court fora, and the New York state court procedure would have to be initiated by an administrative judge, and would not allow the plaintiffs to pursue a right of action or control the litigation. Judge Jacobs’ dissent concluded that the state court procedure would be “broad, wholesale, effective, and easy,” and “[t]he only remaining salient advantage of this federal class action is attorneys’ fees, which do not much help the members of the class.” Id. at *76 (Jacobs, J., dissenting).
Rule 23(b)(2): The majority concluded that the proposed injunctive relief (requiring defendants to correct their practices in the future) would benefit the entire class. While the named plaintiffs’ default judgments had been vacated, the majority concluded (without explanation) that they might still be subject to further action by the defendants. The dissent concluded that certification under Rule 23(b)(2) was improper because the named plaintiffs would not benefit, and any suggestion of potential future suits and default judgments by the defendant was mere speculation.
This is a case that defendants will argue should be limited to its facts, which involved serious allegations of fraud to which the district court appeared to give significant credit. The nature of the FDCPA claim was critical to the court’s analysis and would not extend to other contexts where causation would have to be determined individually. The superiority ruling may not be particularly problematic because it is rare that defendants would prefer a state court forum. The Rule 23(b)(2) analysis lacks thoroughness and may not withstand scrutiny in future opinions.