Ninth Circuit En Banc Decision Affirms “Rigorous Analysis” Required to Satisfy Rule 23

May 04, 2010

In a highly anticipated decision, the Ninth Circuit Court of Appeals, sitting en banc, addressed the standard for certifying a class under Federal Rule of Civil Procedure 23. The court’s 6-5 decision elaborates on the Supreme Court’s pronouncement in General Telephone Company of Southwest v. Falcon, 457 U.S. 147, 160 (1982), that a class can only be certified once a trial court has performed “a rigorous analysis” to determine whether the requirements under Rule 23 have been satisfied. The Ninth Circuit’s opinion is the latest in a string of appellate court decisions ruling that this “rigorous analysis” requires the district court to look past the pleadings and make any factual determinations necessary to determine whether a class should be certified, even if they overlap with the merits of the underlying claim.

In Dukes v. Wal-Mart Stores, Inc. (Case Nos. 04-16688, 04-16720, 9th Cir. April 26, 2010, en banc), plaintiffs sought to certify a class of Wal-Mart employees subject to gender discrimination. The lengthy opinion affirmed, in large part, the district court’s decision to certify the class based on the specific facts and legal theory presented to the district court. The court noted, however, that “applying the same procedural rules, such as Rule 23, can lead to different outcomes when the underlying legal and factual framework is different.” Opinion at p. 6172.

Notwithstanding the affirmance of certification based on the specific facts and employment law claim before the court, Dukes joins other circuits in confirming several standards beneficial to antitrust defendants.

Rule 23 Requirements

Under Rule 23(a), a district court may certify a class only if:

(1) the class is so numerous that joinder of all members is impracticable; (2) there are questions of law or fact common to the class; (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class; and (4) the representative parties will fairly and adequately protect the interests of the class.

In addition, to certify a class, the district court must find that one of the Rule 23(b) factors is met. Typically, plaintiffs try to certify a class based on Rule 23(b)(2) or 23(b)(3). Under Rule 23(b)(2), the court must find that the defendant has acted or refused to act on grounds generally applicable to the class, so that “final injunctive relief or corresponding declaratory relief is appropriate respecting the class as a whole.” In contrast, plaintiffs primarily seeking money damages must seek certification under Rule 23(b)(3), which requires (1) that common issues predominate over individual ones, and (2) the class action is superior to other available methods of adjudication.

The Dukes Framework

In Dukes, the court outlined the “proper standards governing a district court’s adjudication of a Rule 23 motion for class certification” Opinion at p. 6176:

  • First, “under Rule 23 district courts are not only at liberty to, but must, perform a rigorous analysis to ensure that the prerequisites of Rule 23 have been satisfied, and this analysis will often, though not always, require looking behind the pleadings to issues overlapping with the merits of the underlying claims.” Id. at 6176-6177.
  • Second, a district court may not “analyze any portion of the merits of a claim that do not overlap with the Rule 23 requirements.” Id. at 6177. However, to the extent they do, the court properly “performs this analysis for the purpose of determining that each of the Rule 23 requirements has been satisfied.” Id.
  • Third, “different parts of Rule 23 require different inquiries.” Id. at 6177. Particularly, “in a given case, the text of Rule 23(a), as compared to Rule 23(b), may require [district courts] to determine more or different facts (typically more under Rule 23(b)(3)) to determine whether the plaintiffs have met their Rule 23 burden” because under Rule 23(b)(3) a district court must “make more detailed determinations as to how the facts at issue would play out — whether they would predominate — in the merits of the litigation.” Id. at 6175-6176.
  • Fourth, district courts “retain wide discretion” to “cut off discovery to avoid a mini trial on the merits at the class certification stage.” Id. at 6177. The Court noted that “different types of cases will result in diverging frequencies with which the district court will properly invoke its discretion to abrogate discovery.” Id.

What Dukes Means for Antitrust Class Actions

In Dukes, the dispute centered on whether plaintiffs had met their burden under Rule 23(a)(2), a burden frequently met in antitrust cases. In addition, the plaintiffs in Dukes moved to certify the class under Rule 23(b)(2). Antitrust class actions, however, are frequently driven by money damages and therefore fall under Rule 23(b)(3)’s more burdensome predominance requirement. The Ninth Circuit observed that it “should not be surprised that a district court will have to make more precise factual determinations under Rule 23(b)(3) than under Rule 23(a)(2).” Opinion at p. 6175. Plaintiffs must demonstrate that common issues predominate for all three elements of their claim: liability, fact of injury or “impact” on class members, and damages.

The “antitrust impact” element is often the primary certification battleground. If an examination of individual factors, rather than factors common to the class, is necessary to determine whether particular class members were impacted by the alleged anticompetitive conduct, then a district court cannot certify a class under Rule 23(b)(3)’s predominance requirement.

Whether or not a class member was impacted, of course, also goes to the underlying merits of the claim. But Dukes instructs that a district court must still rigorously examine the facts, and resolve disputes about them, to the extent necessary to determine whether plaintiffs have met their burden under Rule 23. Importantly, the question the court must answer is not the ultimate merits question — whether or not the anticompetitive conduct impacted class members — but whether, when answering that question, individual factors predominate over common ones. 

Because Dukes emphasizes that different cases will require different levels of factual inquiry, the precise contours of antitrust class actions analysis under Ninth Circuit law may differ depending on the facts and legal theory before the court. Nevertheless, plaintiffs can no longer argue that courts may not make factual determinations simply because they overlap with the merits.

With its emphasis on factual determinations, Dukes highlights the importance of marshalling key facts and data during class discovery and working with experienced and credible experts to present persuasive arguments at the class certification stage.

For more information, please contact any of the lawyers listed below:

Leiv Blad, Co-chair, Antitrust and Trade Regulation Group, 202.373.6564

Sujal Shah, Counsel, Antitrust and Trade Regulation Group, 415.393.2955

This article was originally published by Bingham McCutchen LLP.