Ahead of the Class

On March 9, 2017, the U.S. House of Representatives passed the Fairness in Class Action Litigation Act of 2017 (“H.R. 985” or the “Act”), which would provide more stringent requirements for class certification in federal court.  The Act’s stated purpose is to “diminish abuses in class action and mass tort litigation that are undermining the integrity of the U.S. legal system.” H.R. 985, 115th Cong. § 102 (2017).  House Judiciary Committee Chairman Bob Goodlatte (R-Va.) introduced the Act last month and the House passed it by a vote of 220 to 201.  Consistent with previous endeavors to reform class actions, H.R. 985 contains provisions from a 2015 class action reform bill – also sponsored by Rep. Goodlatte – that died in the Senate (H.R. 1927).

With the Senate’s business-friendly majority and President Trump in office, the climate may be ripe for this bill to become law.  The Act, if signed into law, would rewrite class action law in considerable ways.  Notable provisions include:

• Class members must have suffered the same type and scope of injury. The Act prohibits judges from granting class certification where class members do not have the same type and scope of injury as the named plaintiff.  This provision would alter existing precedent, much of which has arisen in antitrust cases, of granting class certification despite varying degrees of injury across the class.

• No class counsel conflicts of interest.The Act requires class counsel to disclose relationships with the named plaintiff or class representative that may lead to conflicts of interest.  A judge is required to deny class certification if the class representative is a present or former client of class counsel (except in that case), related to class counsel, was employed at any time by class counsel, or has a contractual relationship with class counsel.  The present-or-former-client disclosure would preclude a lawyer from representing the same named plaintiff in more than one class action – ever.

• Class members must be ascertainable.  The Act codifies the ascertainability requirement – that (1) the class definition must rest on objective criteria and (2) there must be “a reliable and administratively feasible” method for identifying proposed class members.  The Third Circuit adopted the second element in Marcus v. BMW of North America, LLC, 687 F.3d 583, 593-54 (3d Cir. 2012); Hayes v. Wal-Mart Stores, Inc., 725 F.3d 349, 355-56 (3d Cir. 2013), and Carrera v. Bayer Corp., 727 F.3d 300, 308 (3d Cir. 2013).  The Act provides:
  

  A Federal court shall not issue an order granting certification of a class action seeking monetary relief unless the class is defined with reference to objective criteria and the party seeking to maintain such a class action affirmatively demonstrates that there is a reliable and administratively feasible mechanism (a) for the court to determine whether putative class members fall within the class definition and (b) for distributing directly to a substantial majority of class members any monetary relief secured for the class.

  This provision would end the circuit split between the Third and Eleventh Circuits – which recognize the ascertainability requirement’s second prong – and the Sixth, Seventh, Eighth, and Ninth Circuits – which reject it.

• Restrictions on attorneys’ fees.  The Act bars class counsel from collecting attorneys’ fees until payments to class members have been distributed.  The Act further requires attorneys’ fees to be tied to the actual percentage of payments allocated to class members, which presumably is inapplicable to fees awarded under the lodestar method.  In addition, the legislation requires that attorneys’ fees not exceed the total amount of money class members receive.

• Automatic stay of discovery.  The Act requires that district courts stay discovery pending the resolution of motions to dismiss, transfer, or strike class allegations.

• Mandatory appeal of class certification decisions.  In 1998, Congress added Rule 23(f) to the Federal Rules of Civil Procedure to give the Courts of Appeals discretion to review class certification decisions on an interlocutory basis.  Now, under the Act, parties would have the right to appeal class certification decisions immediately.

• Limiting issue certification under Rule 23(c)(4).  The Act restricts certification of so-called “issue classes” under Rule 23(c)(4) to entire causes of action that satisfy the elements set forth in Rule 23(a) and (b).  This provision seeks to prohibit courts from certifying a particular issue when the entire cause of action fails to satisfy Rule 23(b)(3)’s predominance requirement.  It would overturn the rule of In re Nassau Cty. Strip Search Cases, 461 F.3d 219, 225 (2d Cir. 2006) (finding that “a court may employ Rule 23(c)(4)(A) to certify a class on a particular issue even if the action as a whole does not satisfy Rule 23(b)(3)’s predominance requirement”), in favor of the contrary rule of Castano v. Am Tobacco Co., 84 F.3d 734, 745 n.21 (5th Cir. 1996) (ruling that “[r]eading rule 23(c)(4) as allowing a court to sever issues until the remaining common issue predominates over the remaining individual issues would eviscerate the predominance requirement of rule 23(b)(3)….”).  In practice, issue certification has most often been ordered where the district court finds there are common issues of liability and leaves individual questions of proximate cause and damages for trial.

• Disclosure of Third-Party Funding. Class counsel would be required to disclose to the court and all parties third-party class action funders, such as venture capitalists, hedge funds, or private investor, who have a right to receive compensation from any settlement, judgment, or other relief.

The Act’s substantive reforms face steep opposition from consumer advocacy groups, civil rights groups, and the American Bar Association.  In a letter to Congress, the ABA noted its opposition to the Act, in part, because it circumvents the Rules Enabling Act’s amendment process, through which Judicial Conference committees consider amendments.  Indeed, proposed amendments to Rule 23 are under consideration now.  The legislation’s future likely depends on whether the Senate can address enough of opponents’ concerns to muster the needed 60 votes.