Changing Landscape of Product Liability Class Actions
By Brian Wright
Posted: 29th November 2013 09:13
The landscape of product liability class actions has changed significantly in recent years, generally favouring defending companies. Recent decisions from the Supreme Court have been seen as decisive victories, indicating an escalating trend toward enhanced judicial scrutiny of certification issues. Such decisions have caused plaintiffs to shift their focus from injury actions to other types of class actions, like consumer fraud actions generally alleging misrepresentations of product features or performance. In such actions, plaintiffs often seek to bring "no-injury" class actions or cases where the class members suffered no injury from the alleged wrongful conduct.
In a recent decision, Comcast v. Behrend, 569 U.S. __, 133 S.Ct. 1426 (2013), the Supreme Court sharply curtailed such actions, making it much more difficult for plaintiffs to certify "no injury" class actions. However, defence attorneys might have celebrated prematurely. Two recent decisions from Courts of Appeals (in Glazer v. Whirlpool Corp. (In re Whirlpool Corp. Front-Loading Washer Prods. Liab. Litig.), 722 F.3d 838 (6th Cir. 2013) and Butler v. Sears, Roebuck & Co., 727 F.3d 796 (7th Cir. 2013)) have appeared to save, albeit temporarily, "no injury" class actions from possible extinction. As these cases head back to the Supreme Court for the second time, class practitioners are left to wait to and see whether the Whirlpool and Sears decisions rescued consumer class actions, or whether the Supreme Court will once again take the opportunity to further limit class action practice.
Comcast v. Behrend:
Causation Must be Proven (and Damages Must Be Measureable) on a Class-Wide Basis
Generally, certification of a class is appropriate only where the court determines, after a rigorous analysis, that evidence used to establish liability as to the individual claims of the named plaintiff would also establish liability as to the claims of every absent class member. When class plaintiffs seek damages, certification is appropriate only if "the court finds that questions of law or fact common to class members predominate over any questions affecting only individual class members and that a class action is superior to other available methods for fairly and efficiently adjudicating the controversy." Fed. R. Civ. P. 23(b)(3). As the Supreme Court held recently in Wal-Mart Stores Inc. v. Dukes, 564 U.S. __, 131 S.Ct. 2541, 2551 (2011), "[w]hat matters to class certification . . . is not the raising of common 'questions' -- even in droves -- but, rather the capacity of a class-wide proceeding to generate common answers apt to drive the resolution of the litigation." Id. The Court's decision in Comcast v. Behrend, 569 U.S. __, 133 S.Ct. 1426 (2013) applied this rigorous requirement to the predominance requirement of Fed. R. Civ. P. 23(b)(3).
In Comcast v. Behrend, plaintiffs brought a class action on behalf of two million current and former cable television subscribers in the Philadelphia area, alleging that Comcast violated federal antitrust laws by engaging in unlawful monopolisation by imposing horizontal territory, market and customer allocations. Id. at 133 S.Ct. at 1430. From 1998 to 2007, Comcast engaged in a series of transactions that were described as "clustering," or a strategy of concentrating operations within a particular region. Id. Comcast pursued this strategy by acquiring competitors in the region and swapping its own systems outside the region for the competitor systems located in the region. Id. Plaintiffs, subscribers to Comcast's cable-television services, filed a class action antitrust lawsuit, alleging that Comcast entered into unlawful swap agreements in violation of §1 of the Sherman Act, and monopolised or attempted to monopolise, in violation of §2 of the Sherman Act. Id. Plaintiffs argued that the "clustering" scheme harmed cable subscribers by eliminating competition and holding prices for cable services above competitive levels. Id.
Plaintiffs sought to certify a class under Federal Rule of Civil Procedure 23(b)(3). The District Court held (and it was uncontested on appeal) that, to certify a class under Rule 23(b)(3), plaintiffs needed to show (1) that the existence of individual injury resulting from the alleged antitrust violation was "capable of proof at trial through evidence that [was] common to the class rather than individual to its members"; and (2) that damages resulting from that injury were measurable "on a class-wide basis" through use of a "common methodology." Id. Plaintiffs proposed four different theories of antitrust injury: (a) Comcast's "clustering" made it profitable for Comcast to withhold local sports programming from its competitors, resulting in decreased market penetration by direct broadcast satellite providers; (b) Comcast's activities reduced the level of competition from "overbuilders" (companies that build competing cable networks in areas where incumbent cable companies already operate); (c) Comcast reduced the level of "benchmark" competition on which cable customers rely to compare prices; and (d) "clustering" increased Comcast's bargaining power relative to content providers. Id. at 1431. The District Court accepted the "overbuilder" theory of antitrust injury as capable of class-wide proof, and rejected the other antitrust injury theories propounded by plaintiff. Id.
To support class certification, plaintiffs presented a damages calculation through an econometric regression analysis. Id. The expert's model incorporated all of plaintiffs' various antitrust injury theories, without differentiating damages based upon each different theory; the economic model was not limited to the single antitrust injury theory (the "overbuilder" theory). Id. Nonetheless, the District Court held that plaintiffs demonstrated that they could establish antitrust injury and damages through common evidence applicable to all class members and certified the class. Id.
On appeal, Comcast argued that the class was improperly certified because the damages model failed to attribute damages resulting from the "overbuilder" theory. Id. However, the Third Circuit refused to consider the argument because, in its view, such an "attac[k] on the merits of the methodology [had] no place in the class certification inquiry." Id. The Third Circuit held that, "[a]t the class certification state," plaintiffs were not required to "tie each theory of antitrust impact to an exact calculation of damages." Id. The Third Circuit further held that plaintiffs must "assure [the Court] that if they can prove antitrust impact, the resulting damages are capable of measurement and will not require labyrinthine individual calculations." Id. The Third Circuit held that this burden was met because plaintiffs' damages model calculated "supra-competitive prices regardless of the type of anticompetive conduct." Id. The Third Circuit affirmed class certification, and Comcast appealed to the Supreme Court. Id.
In a 5-4 decision, the Supreme Court held that the class was certified improperly because common questions did not predominate, as plaintiffs' claims rested on a damages model that did not fit the substantive legal theory remaining in the case. Id. at 1432. The Court held that the Third Circuit violated Supreme Court precedent by refusing to entertain arguments related to plaintiffs' damages model that bore on the propriety of class certification. Id. at 1432-33. After reviewing the damages model propounded by plaintiffs, the Supreme Court held that plaintiffs' "model falls far short of establishing that damages are capable of measurement on a classwide basis." Id. at 1433. Like Wal-Mart Stores, Inc., the Supreme Court's decisionin Comcast underscores that for any case to be certified as a class action, plaintiffs need to show that the alleged wrongful conduct caused injury to each class member and that damages can be shown on a class-wide basis, without resorting to individualised issues that predominate over common issues. Id.
Application of Comcast to Consumer Product Liability Class Actions:
Notwithstanding GVR Orders, Separate Courts of Appeals Reaffirm
The Supreme Court's decision in Comcast was not confined to antitrust class actions; rather, the Court held that the decision was the result of the "straightforward application of class-certification principles." Id. In other words, the Comcast decision is generally applicable to class action practice regardless of the nature of the underlying claims. In fact, citing Comcast, the Supreme Court issued two "GVR orders " (grant, vacate and remand) in two substantially similar product liability class actions. Whirlpool Corp. v. Glazer (In re Whirlpool Corp. Front-Loading Washer Product Liability Litigation), 133 S.Ct. 1722, 185 L. Ed. 2d 782, 2013 U.S. LEXIS 2695 (2013); Sears, Roebuck & Co. v. Butler, 133 S.Ct. 2768, 186 L. Ed. 2d 215, 2013 U.S. LEXIS 4213 (2013).(1)
In In re Whirlpool Corp. Front-Loading Washer Product Liability Litigation, plaintiffs brought class claims on behalf of Ohio consumers against Whirlpool alleging that design defects in certain front-loading washing machines allowed mould and mildew to grow, leading to ruined laundry and mould-smelling homes. 722 F.3d 838, 844. The District Court certified a liability class only under Rule 23(b)(3), comprised of current Ohio residents who purchased one of the specified Whirpool washers primarily for personal, family or household purposes and not for resale. Id. The District Court left proof of damages to individual determinations. Id. After an initial appeal from the District Court, the Sixth Circuit affirmed the certification, and Whirlpool appealed to the Supreme Court.
Upon remand from the Supreme Court after Comcast, the Sixth Circuit distinguishing Comcast, finding that the decision was not applicable as Whirlpoolwas a "liability-only" class action. Id. at 860 ("This case is different from Comcast Corp. Here, the district court certified only a liability class and reserved all issues concerning damages for individual determinations; in Comcast Corp. the court certified a class to determine both liability and damages."). The Sixth Circuit held that "[w]here determinations on liability and damages have been bifurcated, see Fed. R. Civ. P. 23(c)(4), the decision in Comcast -- to reject certification of a liability and damages class because plaintiff failed to establish that damages could be measured on a classwide basis -- has limited application." Id. The Sixth Circuit upheld its original decision, reaffirming class certification of a liability-only class. Id. at 861.
In Butler v. Sears, Roebuck & Co., plaintiffs alleged breach of warranty class claims on behalf of several hundred thousand purchasers of more than 20 different models of Kenmore-brand Sears washing machines. 727 F.3d 796, 797. Like in Whirlpool above, plaintiffs alleged that the washers contained a defect that caused mould issues. Id. Plaintiffs separately alleged that there was a defect in the control unit, causing the machines to stop operating. Id. The District Court denied certification of any class. Id. Upon the initial appeal, the Seventh Circuit reversed and certified the class, and Sears appealed to the Supreme Court. Id. at 798-99.
Upon remand by the Supreme Court after Comcast, like the Sixth Circuit, the Seventh Circuit re-affirmed its decisions. The Seventh Circuit recognised that Comcast holds that "a damages suit cannot be certified to proceed as a class action unless the damages sought are the result of the class-wide injury that the suit alleges." Id. at 799. However, unlike Comcast, the Seventh Circuit held that there was no possibility in this case that damages could be attributed to any acts of the defendants that are not challenged on a class-wide basis. Id. In other words, all members of the mould-alleging class attribute all of their damages to the mould, and all members of the control-unit class attribute all of their damages to the defect in the control-unit. Id.
Moreover, unlike Comcast (but like Whirlpool), the District Court "neither was asked to decide nor did decide whether to determine damages on a class-wide basis." Id. (citing McReynolds v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 672 F.3d 482, 491-92 (7th Cir. 2012), distinguishingWal-Mart Stores, Inc. v. Dukes, 131 S.Ct. 2541 (2011) ("a class action limited to determining liability on a class-wide basis, with separate hearings to determine—if liability is established—the damages of individual class members, or homogeneous groups of class members, is permitted by Rule 23(c)(4) and will often be the sensible way to proceed"). Like Whirlpool, Searsappears to be proceeding as a "liability-only" class action, with individual damages determinations left for separate proceedings.
Round 2 in Supreme Court for Sears and Whirlpool?
Pending Questions and Will "Liability-Only" Become the New Normal for Consumer Class Actions
On October 7, 2013, counsel for both Sears andWhirlpool filed petitions for writs of certiorari (again) with the Supreme Court, seeking a review of the decision from the Sixth and Seventh Circuits upholding the certification orders. Sears asks the Supreme Court to consider (1) "whether the predominance requirement of Rule 23(b)(3) is satisfied by the purported 'efficiency' of a class trial on one abstract issue, without considering the host of individual issues that would need to be tried to resolve liability and damages and without determining whether the aggregate of common issues predominates over the aggregate of individual issues"; and (2) "whether a product liability class may be certified where it is undisputed that most members did not experience the alleged defect or harm." Whirlpool requests that the Supreme Court decide: (1) "whether the Rule 23(b)(3) predominance requirement can be satisfied when the court has not found that the aggregate of common liability issues predominates over the aggregate of individual issues at trial and when neither injury nor damages can be proven on a classwide basis"; and (2) "whether a class may be certified when most members have never experienced the alleged defect and both fact of injury and damages would have to be litigated on a member-by-member basis."
As of November 12, 2013, the Supreme Court has yet to decide whether to grant certiorari (again) to hear the appeal. If the Supreme Court agrees to review the cases, then several questions could be answered, including (1) does every class member need to have standing -- do class plaintiffs need to show injury as to every class member prior to class certification; (2) can a class be certified if some portion of the class has not suffered any injury (not experienced the problem that forms the basis of the allegations in the complaint); and (3) even if a large portion of the class suffered some injury, does individualised determination as to injury (separate from damages) defeat class certification?
As Sears andWhirlpool head back to the Supreme Court for the second time, class practitioners are left to wait to see whether the decisions rescue consumer class actions, or whether the Supreme Court will once again take the opportunity to further limit class action practice. Moreover, if the Supreme Court refuses to hear the appeal, then there is one overarching question -- do Sears andWhirlpool signal a new normal where class plaintiffs will seek to certify injury-only consumer class actions under Fed. R. Civ. P. 23(c)(4), thereby avoiding the Comcast decision. We are left to find out if Comcast eviscerated product liability class actions (where injury and damages can rarely be proven on a class-wide basis), or whether Whirlpool and Sears signal significant changes ahead for class action practitioners (where plaintiffs routinely seek to certify liability-only class actions).
Brian Wright is a partner at Faruki Ireland & Cox P.L.L. in Cincinnati, Ohio. Brian focuses his practice primarily on commercial litigation matters. He represents publicly-traded companies, privately-held companies, and individual clients in complex business disputes in both federal and state courts, and alternative dispute resolution proceedings throughout the United States. He has successfully represented clients in numerous class actions and individual actions involving securities, privacy, business torts, trademarks, consumer protection, product liability, breach of contract and warranty, trade secrets, restrictive covenants (including covenants not to compete), and other business litigation matters, and has worked extensively on several false advertising disputes.
Brian Wright can be reached via email on BWright@ficlaw.com and via phone at +1 513 632 0302
(1) A "GVR" order is an acronym for an order where the Supreme Court grants a petition for certiorari, vacates the decision of the court below, and remands the case for further proceedings. Generally, the procedure allows a court of appeals to reconsider an opinion, in light of the new Supreme Court decision. While the GVR order is not a decision on the merits, it indicates "a reasonable probability that the decision below rests upon a premise that the lower court would reject if given the opportunity for further consideration, and where it appears that such a redetermination may determine the ultimate outcome" of the matter. Wellons v. Hall, 558 U.S. 220, 225 (2010).