Bryan Cave



Proof of Standing in Federal Court Class Actions After Dukes

Peter W. Herzog III

Bryan Cave LLP

St. Louis, Missouri

Introduction

It is well established that class actions are creatures of procedure. This is so whether the class action is brought under Rule 23 or one of the state counterparts. E.g., Deposit Guar. Nat’l Bank v. Roper, 445 U.S. 326, 332 (1980) (“[T]he right of a litigant to employ Rule 23 is a procedural right only, ancillary to the litigation of substantive claims”); Diaz-Ramos v. Hyundai Motor Co., 501 F.3d 12, 16 (1st Cir. 2007) (“class action provisions neither create substantive rights nor give rise to an independent cause of action”); In re Baldwin-United Corp., 770 F.2d 328, 335 (2d Cir. 1985) (Rule 23 “is a rule of procedure and creates no substantive rights or remedies enforceable in federal court”); Southwestern Refining Co. v. Bernal, 22 S.W.3d 425, 437 (Tex. 2000) (“The class action is a procedural device ... It is not meant to alter the parties’ burdens of proof, right to a jury trial, or the substantive prerequisites to recovery”); City of San Jose v. Superior Court, 525 P.2d 701, 711 (Cal. 1974) (“Class actions are provided only as a means to enforce substantive law”); Charles v. Spradling, 524 S.W.2d 820, 824 (Mo. 1975) (class action device is procedural and may not be used to enlarge substantive rights). As the Supreme Court noted in Wal-Mart v. Dukes, class actions are an exception to the rule that litigants must pursue their own claims exclusively; they permit absent class members’ rights to be litigated fully by others, provided the requisite procedural safeguards have been satisfied.

The class action is an exception to the usual rule that litigation is conducted by and on behalf of the individual named parties only. In order to justify a departure from that rule, a class representative must be a part of the class and possess the same interest and suffer the same injury as the class members. Rule 23(a) ensures that the named plaintiffs are appropriate representatives of the class whose claims they wish to litigate. The Rule’s four requirements—numerosity, commonality, typicality, and adequate representation—effectively limit the class claims to those fairly encompassed by the named plaintiff’s claims.

Wal-Mart Stores, Inc. v. Dukes, 562 U.S. ___, 131 S. Ct. 2541, 2550 (2011).

Because class actions involve adjudication by representation, where the named plaintiff’s proof must stand for proof of absent class members’ claims, federal courts have struggled with the issue whether only the named plaintiff must demonstrate Article III standing, or whether that requirement extends to all members of the proposed class. There is a split in the Circuits on the issue currently. The Second and Eighth Circuits have held that all members of a proposed class must possess Article III standing, while the Ninth Circuit has ruled that standing is satisfied if at least one named plaintiff meets the requirements. The issue of standing can have a significant impact on the class certification decision. It arises most frequently in connection with the proposed class definition and often is phrased in the negative—a proposed class definition is impermissibly overbroad if it contains class members who have not been injured and thus lack Article III standing. The Supreme Court’s decision in Dukes has spawned substantial debate with respect to a broad range of class action issues. An issue that does not appear yet to have surfaced is whether the Court’s opinion, including its explicit disapproval of a “Trial by Formula” as violative of the Rules Enabling Act, may have signaled its views on the issue of absent class member standing.

The Role of the Rules Enabling Act

in the Analysis of Absent Class Member Standing

The Rules Enabling Act is a federal statute codified at 28 U.S.C. § 2072. Section (a) delegates to the United States Supreme Court the “power to prescribe general rules of practice and procedure and rules of evidence for cases in the United States district courts (including proceedings before magistrate judges thereof) and courts of appeals.” Section (b) specifically limits the delegation of power in Section (a) by providing that the Supreme Court shall not prescribe rules that “abridge, enlarge or modify any substantive right.” As Professor Redish has observed:

The Act’s importance is difficult to overstate, for it plays a foundation, and often central, role in all federal court litigation. The Act has enabled the Court to promulgate rules governing civil, bankruptcy, criminal, and appellate procedure in federal courts, as well as rules of evidence. Simply put, the Act—through the various rules promulgated under it—in one way or another impacts every federal court litigant.

Martin H. Redish & Dennis Murashko, The Rules Enabling Act and the Procedural-Substantive Tension: A Lesson in Statutory Interpretation, 93 Minn. L. Rev. 26, 26-27 (2009) (citations omitted). The specific limitation on the Rules Enabling Act’s delegation appears to have been to preserve to Congress “what in reality is a legislative function.” Id. at 72, citing S. Rep. No. 69-1174, at 11 (1926).

Much of the commentary that has analyzed and interpreted the Rules Enabling Act has focused on the circumstances under which a rule promulgated by the Court may abridge a substantive right without being declared violative of the Rules Enabling Act. See generally Redish & Murashko, supra. Professor Redish uses Fed. R. Civ. P. 37 as an example. Its “primary goal is procedural—ensuring litigants comply with discovery orders.” Its substantive effect merely serves as a vehicle to ensure compliance with procedural orders. Id. at 30. Although little has been written about Section (b)’s prohibition on rules that enlarge substantive rights, it is doubtful that a Congress that sought to preserve to itself substantive issues nevertheless believed that a Supreme Court Rule could vary the standing requirements of Article III. Stated another way, given that Rule 23 is purely procedural, that the Rules Enabling Act forbids it from being anything else, and that the Supreme Court specifically relied on the Rules Enabling Act in Dukes, the case can be read to support the proposition that all members of a proposed class—including absent class members—must satisfy Article III standing requirements in Rule 23 class actions.

Development of Rule 23 Case Law on the

Issue of Absent Class Member Standing

Standing in federal courts is a constitutional requirement imposed by Article III. “In its constitutional dimension, standing imports justiciability: whether the plaintiff has made out a case or controversy between himself and the defendants within the meaning of Art. III. This is the threshold question in every federal case, determining the power of the court to entertain the suit.” Warth v. Seldin, 422 U.S. 490, 498 (1975). Standing under Article III requires a plaintiff to demonstrate that s/he has suffered an injury in fact that is distinct and palpable, that is fairly traceable to the challenged conduct, and that is likely to be redressed by a favorable decision. Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-61 (1992); Whitmore v. Arkansas, 495 U.S. 149, 155 (1990). In class actions, however, there is no requirement that absent class members submit proof of injury or standing. Denney v. Deutsche Bank AG, 443 F.3d 253, 263 (2d Cir. 2006).

Although distantly related to the line of cases holding that there is no cause of action for unmanifest defects, see, e.g., In re Bridgestone/Firestone Inc. Tires Prods. Liab. Litig., 288 F.3d 1012, 1017 (7th Cir. 2002); Coghlan v. Wellcraft Marine Corp., 240 F.3d 449, 455 n.4 (5th Cir. 2001), the case law addressing the issue of absent class member standing in Rule 23 class actions appears to have developed independently. It also is of recent vintage. The Second Circuit’s decision in Denney in 2006 appears to be the first decision of a federal appellate court to consider whether absent class member standing is governed by different standing rules than are applicable to individual actions. Denney involved allegations of fraudulent tax advice, and the case came to the Second Circuit on appeal from the district court’s final approval of a classwide settlement with fewer than all defendants. Denney, 443 F.3d at 259. Two of the named plaintiffs, who may have been concerned that class members who had not (yet) suffered injury might find their claims barred, challenged the settlement on a variety of grounds, including that the settlement class contained members who had not suffered injury and who, therefore, lacked Article III standing. Id.

The Second Circuit noted that the district court had not had an opportunity to address the issue because it had been raised only a short time before the district court issued its judgment. It nevertheless proceeded to address plaintiffs’ standing challenge “as it speaks to our jurisdiction over this action.” Id. at 263 n.3. The court ruled that the filing of a suit as a class action does not relax Article III’s jurisdictional requirements. Id. at 263, citing Allen v. Wright, 468 U.S. 737, 750 (1984), and Sutton v. St. Jude Med. S.C., Inc., 419 F.3d 568, 570 (6th Cir. 2005). It also noted, however, that once it has been established that a named plaintiff possesses standing, there is no requirement that members of the proposed class also proffer evidence of standing. Denney, 443 F.3d at 263, citing Rozema v. Marshfield Clinic, 174 F.R.D. 425, 444 (W.D. Wisc. 1997) and PBA Local No. 38 v. Woodbridge Police Department, 134 F.R.D. 96, 100 (D.N.J. 1991); see also Herbert B. Newberg & Alba Conte, 1 Newberg on Class Actions § 2.7 (4th ed. 2002) (“[P]assive members need not make any individual showing of standing because the standing issue focuses on whether the plaintiff is properly before the court, not whether represented parties or absent class members are properly before the court”).

Without explaining its reasoning or citing or relying on the Rules Enabling Act, the Second Circuit declared that “[a]t the same time, no class may be certified that contains members lacking Article III standing.” Id., citing Adshunas v. Negley, 626 F.2d 600, 604 (7th Cir. 1980).[1] The Denney Court then cited the Supreme Court’s decision in Ortiz v. Fibreboard Corp., 527 U.S. 815, 831 (1999), a district court ruling from the Southern District of New York, and the Wright & Miller treatise as support for its conclusion that “[t]he class must therefore be defined in such a way that anyone within it would have standing.” Denney, 443 F.3d at 264.

Another early decision addressing the issue of absent class member standing that mentions neither the Rules Enabling Act nor the Second Circuit’s decision in Denney with which it directly conflicts is In re General Motors Corp. Dex-Cool Prods. Liab. Litig., 241 F.R.D. 305 (S.D. Ill. 2007). The case involved allegations that owners and lessees of GM-manufactured vehicles were damaged by Dex-Cool, a factory-installed engine coolant manufactured to GM’s specifications. In opposing class certification, GM contended that the proposed class included those who had not incurred expenses for repairs to their vehicles allegedly caused by Dex-Cool and thus lacked standing. Dex-Cool, 241 F.R.D. at 308. The Dex-Cool court dismissed the argument as lacking merit, but it proceeded to address the issue, as had the Second Circuit in Denney, because “standing is an issue that implicates the Court’s subject matter jurisdiction.” Dex-Cool, 241 F.R.D. at 308. Asserting that standing in class actions “is tested according to special rules,” the court ruled that:

Generally standing in a class action is assessed solely with respect to class representatives, not unnamed members of the class ... Thus, [Article III] standing is satisfied where it is shown that a class representative meets the requirements of Rule 23(a), particularly Rule 23(a)(3) and (a)(4).

Id. at 310. As discussed below, the Ninth Circuit and certain district courts in California have concluded that Article III standing in federal court class actions is determined by reference to the named plaintiffs only and not with respect to absent class members. Without citing Dex-Cool, a number of California federal district courts also have adopted its reasoning that the issue of standing is more appropriately analyzed under Rule 23’s requirements of adequacy and typicality. E.g., Bruno v. Quten Research Inst., 2011 WL 5592880, at *3 (C.D. Cal. Nov. 14, 2011); see also Greenwood v. CompuCredit Corp., 2010 WL 4807095, at *3 (N.D. Cal. Nov. 19, 2010) (“the issue of whether a class representative may be allowed to present claims on behalf of others who have similar, but not identical, interests depends not on standing, but on an assessment of typicality and adequacy of representation” (internal quotations omitted)). The reasoning of Dex-Cool, Bruno, and others appears circular and ignores that those who have not been injured do not have claims that may be presented by others. Further, the notion that typicality and adequacy are sufficient to address class member standing makes sense only if the court evaluates the standing of absent class members, thus importing into the analysis a requirement that all members of the proposed class possess Article III standing. If the named plaintiff alone must satisfy Article III, the typicality and adequacy analyses are meaningless on the issue of standing. The reasoning in Dex-Cool also is inconsistent with the holdings of other courts, including the Seventh Circuit, that an allegedly-injured named plaintiff is not typical of an uninjured absent class member. Oshana v. Coca-Cola Co., 472 F.3d 506, 514 (7th Cir. 2006) (named plaintiff not typical of class where class includes members without claims); In re Yasmin & Yaz (Drospirenone) Marketing, Sales Practices and Prods. Liab. Litig., 2012 WL 865041, at *17 (S.D. Ill. Mar. 13, 2012) (named plaintiff with standing is not typical of those who have no claims).

The Eighth Circuit addressed the issue of absent class member standing in Avritt v. Reliastar Life Ins. Co., 615 F.3d 1023 (8th Cir. 2010). There, a group of California residents had purchased fixed deferred retirement annuities from the defendant’s predecessor-in-interest. Id. at 1026 & n.2. Applying California law, the Eighth Circuit concluded that it would be inconsistent with federal standing requirements under Article III to allow an injured plaintiff to bring a class action on behalf of a group of individuals who may not have a cause of action themselves. Id. at 1034. The Avritt Court cited the Second Circuit’s opinion in Denney, and the cases cited in Denney, as support for its conclusion that a class must be defined in such a way that anyone within it would have standing. And echoing, if not relying on, the Rules Enabling Act, the Eighth Circuit wrote “[o]r, to put it another way, a named plaintiff cannot represent a class of persons who lack the ability to bring a suit themselves.” Id. at 1034.

One year later, the Ninth Circuit reached the opposite result in Stearns v. Ticketmaster Corp., 655 F.3d 1013 (9th Cir. 2011). Stearns also illustrates how the issue of standing commonly arises in consumer fraud class actions. The proposed class in that case consisted of consumers who had purchased tickets through Ticketmaster and who allegedly had been enrolled in an affiliated online coupon program that they did not want or use. Id. at 1017. The district court denied certification of the UCL claim on the ground that individual proof of reliance and causation would be required. Id. at 1020. The Ninth Circuit found that decision erroneous because relief under the UCL “is available without individualized proof of deception reliance and injury.” Id. at 1020, citing In re Tobacco II Cases, 46 Cal. 4th 298, 320 (2009). Ticketmaster contended, however, that the district court’s denial of certification should nevertheless be affirmed because the class, as defined, included those who lacked standing under Article III of the United States Constitution. Id. at 1021. The Stearns opinion is written in a way that gives the impression that the court may have analyzed the standing question in the aggregate, i.e., with respect to the class as a whole. See id. at 1021 (“Appellees’ real objection is that state law gives a right to monetary relief to a citizen suing under it without a more particularized proof of injury and causation. That is not enough to preclude class standing here”) (internal citation omitted). However, Stearns’ holding was quite specific: absent class members—individually or in the aggregate—are not required to satisfy Article III standing requirements.

[O]ur law keys on the representative party, not all the class members, and has done so for many years. In Casey v. Lewis ... we declared that: At least one named plaintiff must satisfy the actual injury component of standing in order to seek relief on behalf of himself or the class. The inquiry is whether any named plaintiff has demonstrated that he has sustained or is imminently in danger of sustaining a direct injury as the result of the challenged conduct. And close to fifteen years later we made that even more explicit when we held that: In a class action, standing is satisfied if at least one named plaintiff meets the requirements ... Thus, we consider only whether at least one named plaintiff satisfies the standing requirements.

Id. at 1021 (internal citations omitted) (emphasis original). Like the decisions that precede it, Stearns does not cite or refer to the Rules Enabling Act.

The Ninth Circuit briefly revisited the issue of absent class member standing in Mazza v. Am. Honda Motor Co., Inc., 666 F.3d 581 (9th Cir. 2012). The case was argued and submitted for decision initially in 2010 but was deferred and then resubmitted after the Supreme Court’s decision in Dukes. The case involved allegations that Honda violated the UCL and CLRA in marketing certain Acuras equipped with a Collision Mitigation Braking System. Mazza, 666 F.3d at 585 & 587. The district court certified a nationwide class of purchasers and lessees of Acura RL vehicles equipped with the Collision Mitigation Braking System. The Ninth Circuit granted Honda’s Rule 23(f) petition and vacated the district court’s certification decision because it had improperly concluded that California law could apply to the claims of class members throughout the United States. Id. at 594.

Honda, however, also had challenged the district court’s certification decision on grounds that some members of the certified class lacked standing because they were not injured. Id. at 585. Honda’s argument was straightforward: because the UCL authorizes restitution without individualized proof of injury, a class certified under the UCL in federal court, by definition, includes class members “who have no injury in fact, and therefore no Article III standing.” Although the Mazza majority opinion cites the Second Circuit’s holding in Denney that no class may be certified that contains members lacking Article III standing, it appears that the majority felt constrained by Stearns, and ruled that Honda’s argument was “not enough to preclude class standing.” Id. at 595.

California district courts have divided on the issue. As the recent decision in In re Google AdWords Litig., 2012 WL 28068 (N.D. Cal. Jan. 5, 2012) observes, numerous district courts in California have concluded that standing “is assessed solely with respect to class representatives, not unnamed members of the class,” while other California district courts “have found just the opposite: that even absent class members must establish Article III standing.”[2] Recently, it appears that some district courts have attempted to steer a middle course—analyzing absent class member standing differently in UCL and FAL class actions than in other class actions. See id. at *10 & nn.8-9, adopting the reasoning of Bruno v. Quten Research Inst., LLC, ___ F.R.D. ___, 2011 WL 5592880 (C.D. Cal. Nov. 14, 2011). Under this approach, where state law would permit absent class members to recover without proof of injury, a federal court (at least in California) may do likewise. But this reasoning runs afoul of cases decided before Proposition 64 holding that a named plaintiff who lacked Article III standing could not pursue UCL claims in federal court. Lee v. American Nat’l Ins. Co., 260 F.3d 997, 999 (9th Cir. 2001) (“Even though the California unfair business practices statute requires no ... actual injury to pursue a claim in state court ... Article III of the Constitution ‘takes priority’ in federal court over the California statute’s more liberal standing rules”); see also Nishi v. Ethicon, Inc., 2003 WL 917978, at *2 (N.D. Cal. Feb. 26, 2003) (“plaintiffs’ argument that they have standing in federal court on the basis of California’s Unfair Competition Law, irrespective of meeting federal standing requirements, fails”) (emphasis original).

Absent Class Member Standing After Dukes

The Supreme Court’s decision in Dukes appears to signal the Court’s view on absent class member standing under Rule 23. Section III of the opinion was delivered by a unanimous Court. And it is in Section III that the Court cited the Rules Enabling Act with approval and relied on it to reject the Ninth Circuit’s suggestion that class claims could be tried by formula.

The Court of Appeals believed that it was possible to replace such proceedings with Trial by Formula. A sample set of the class members would be selected, as to whom liability for sex discrimination and the backpay owing as a result would be determined in depositions supervised by a master. The percentage of claims determined to be valid would then be applied to the entire remaining class, and the number of (presumptively) valid claims thus derived would be multiplied by the average backpay award in the sample set to arrive at the entire class recovery—without further individualized proceedings. We disapprove that novel project. Because the Rules Enabling Act forbids interpreting Rule 23 to “abridge, enlarge or modify any substantive right,” a class cannot be certified on the premise that Wal-Mart will not be entitled to litigate its statutory defenses to individual claims.

Dukes, 564 U.S. at ___, 131 S. Ct. at 2561 (internal citations omitted).

Because the Rules Enabling Act prohibits Rule 23 from being interpreted in a way that abridges, enlarges or modifies any substantive right, it also can be used to support the conclusion, reached by the Eighth Circuit in Avritt, that “a named plaintiff cannot represent a class of persons who lack the ability to bring a suit themselves.” Avritt, 615 F.3d 1023. Such a conclusion is consistent, furthermore, with the purely procedural character of class actions: how can federal courts permit a person who is precluded from recovering on his own behalf in an individual action to recover simply by changing his status from named plaintiff to absent class member? Such a conclusion also is consistent with Section II of the opinion in Dukes where, although not unanimous, the Court twice noted that Rule 23(a)’s commonality requirement obligates the plaintiff to prove that the named plaintiff and class members “have suffered the same injury.” Dukes, 562 U.S. at ___, 131 S. Ct. at 2550 & 2551, citing East Tex. Motor Freight System, Inc. v. Rodriguez, 431 U.S. 395, 403 (1977), and General Telephone Co. of the Southwest v. Falcon, 457 U.S. 147, 156 (1982). Absent class members who have not suffered any injury cannot “have suffered the same injury” as a named plaintiff who has demonstrated Article III standing.

Conclusion

The Supreme Court’s opinion in Dukes suggests that courts and litigants confronting the issue of absent class member standing in Rule 23 class actions should pay close attention to the role that the Rules Enabling Act plays in the analysis.

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[1] In Adshunas, the Seventh Circuit affirmed the district court’s denial of certification of a proposed class of children attending public schools within the State of Indiana who had specific learning disabilities and who were “not properly identified and/or who are not receiving” special education. Adshunas, 626 F.2d at 603. The Seventh Circuit noted that such a class would include children who were not learning disabled, children who were only slightly disabled such that special education would not be warranted, severely disabled children who would not benefit from special education, and disabled children whose parents might refuse identification or special education or both. In addition to its conclusion that the proposed class was not adequately defined or ascertainable, Adshunas ruled that the class definition was so amorphous and diverse that “it cannot be reasonably clear that the proposed class members have all suffered a constitutional or statutory violation warranting some relief. If the conceived injury is abstract, conjectural or hypothetical as here, instead of real, immediate or direct, the complaint fails to cite an actual case or controversy under Article III of the Constitution.” Id. at 601 & 604.

[2] Aho v. AmeriCredit Financial Services, Inc., ___ F.R.D. ___, 2011 WL 5401799, at *9 (S.D. Cal. Nov. 8, 2011) (limiting the court’s inquiry to the representative party, who met the standing requirements of Article III); Zeisel v. Diamond Foods, Inc., 2011 WL 2221113, at *4 (N.D. Cal. June 7, 2011) (“in general, standing in a class action is assessed solely with respect to class representatives, not unnamed members of the class”) (internal citation omitted); Greenwood v. Compucredit Corp., 2010 WL 4807095, at *3 (N.D. Cal. Nov. 19, 2010) (holding that “Plaintiffs are not required to establish absent class members’ individual reliance and personal standing”); Chavez v. Blue Sky Natural Bev. Co., 268 F.R.D. 365, 376 (N.D. Cal. 2010) (“unnamed class members in an action under the [California] Unfair Competition Law (“UCL”) ... are not required to establish standing”); contra O’Shea v. Epson Am., Inc., 2011 U.S. Dist. LEXIS 105504, at *28-31 (C.D. Cal. Sept. 19, 2011) (holding that absent class members must satisfy the requirements of Article III); Sanders v. Apple Inc., 672 F. Supp. 2d 978, 991 (N.D. Cal. 2009) (Fogel, J.) (same); Webb v. Carter’s Inc., 272 F.R.D. 489 (C.D. Cal. 2011) (holding absent class members in UCL action must satisfy Article III standing requirements); In re Light Cigarettes Mktg. Sales Practices Litig., 271 F.R.D. 402, 416-20 (D. Me. 2010) (same); Burdick v. Union Sec. Ins. Co., 2009 WL 4798873, at *3 (C.D. Cal. Dec. 9, 2009) (same).

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