7th Circuit Rejects Heightened Ascertainability Requirement in Consumer Class Actions Signaled in Carrera v. Bayer Corp. (3d Cir. 2013)

by: Colin E. Flora

    As loyal readers of the Hoosier Litigation Blog know, when the Seventh Circuit hands down a meaningful class action decision, we almost certainly will dedicate a post to it. This week provided such a decision. The irony of today’s discussion is that the issue presented was whether Rule 23(b)(3) required a heightened “ascertainability” requirement for class certification. Where is the irony, you ask? The irony is because ascertainability has long been considered as an implicit requirement of class certification–a requirement that is wholly lacking from the text of Rule 23. Ascertainability goes by many names, but its origin is from the simple concept that a definable class must exist. In 2013, the Third Circuit issued its decision in Carrera v. Bayer Corp., which added a heightened interpretation of the ascertainability requirement in 23(b)(3) class actions–i.e., class actions seeking damages.

     The Carrera decision was a major outlier in ascertainability decisions and has caused a great deal of confusion. Ascertainability is an issue that has long been recognized by federal courts but has not been fully fleshed out by the appellate courts. With Carrera providing a radically different approach to that previously recognized by most courts, numerous decisions within even the same district have reached different results. The viability of Carrera within the Seventh Circuit was the issue presented in Mullins v. Direct Digital, LLC.

     Before we delve into Mullins and discuss why the Seventh Circuit “decline[d] to follow [the Carrera] path and will stick with our settled law[,]” we owe a brief discussion of what ascertainability is to our readers who do not practice in the area of class actions. In general, in order to certify a class a party seeking certification must establish the four prerequisites of Rule 23(a)–numerosity, commonality, typicality, and adequacy. Once 23(a) is satisfied, then one of the three categories of 23(b) must be met. The most frequently utilized 23(b) category is (b)(3). But, before even beginning the 23(a) analysis, courts recognizing the implicit ascertainability requirement must determine whether ascertainability is met. As the Seventh Circuit summarized:

We and other courts have long recognized an implicit requirement under Rule 23 that a class must be defined clearly and that membership be defined by objective criteria rather than by, for example, a class member’s state of mind. In addressing this requirement, courts have sometimes used the term “ascertainability.” They have applied this requirement to all class actions, regardless of whether certification was sought under Rule 23(b)(1), (2), or (3). Class definitions have failed this requirement when they were too vague or subjective, or when class membership was defined in terms of success on the merits (so-called “fail-safe” classes). This version of ascertainability is well-settled in our circuit . . . .

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We begin with the current state of the law in this circuit. Rule 23 requires that a class be defined, and experience has led courts to require that classes be defined clearly and based on objective criteria. When courts wrote of this implicit requirement of “ascertainability,” they trained their attention on the adequacy of the class definition itself. They were not focused on whether, given an adequate class definition, it would be difficult to identify particular members of the class.

This “weak” version of ascertainability has long been the law in this circuit.

The language of this well-settled requirement is susceptible to misinterpretation, though, which may explain some of the doctrinal drift described below. To understand its established meaning, it’s better to focus on the three common problems that have caused plaintiffs to flunk this requirement.

     The three problems are: (1) the class definition is too vague; (2) the definition is tied to subjective criteria; and (3) fail-safe definitions. A class is too vague when it does not provide a basis upon which the identification of class members can be tested. “To avoid vagueness, class definitions generally need to identify a particular group, harmed during a particular time frame, in a particular location, in a particular way.” The problem with subjective criteria most typically manifests itself when the definition is tied to a would-be class member’s state of mind. “Plaintiffs can generally avoid the subjectivity problem by defining the class in terms of conduct (an objective fact) rather than a state of mind.” The final category of problem areas is the fail-safe definition. Fail-safe definitions occur when the class is defined in such a way that there must be a determination on the merits of the case in order to determine class membership. “Defining the class in terms of success on the merits is a problem because ‘a class member either wins or, by virtue of losing, is defined out of the class and is therefore not bound by the judgment.’ This raises an obvious fairness problem for the defendant: the defendant is forced to defend against the class, but if a plaintiff loses, she drops out and can subject the defendant to another round of litigation. The key to avoiding this problem is to define the class so that membership does not depend on the liability of the defendant.”

     Having identified the current state of Seventh Circuit law, the court turned to the Third Circuit’s test for ascertainability as outlined in Carrera but utilized in several Third Circuit cases since–despite some trepidation articulated in dissents and concurrences.

As it stands now, the Third Circuit’s test for ascertainability has two prongs: (1) the class must be “defined with reference to objective criteria” (consistent with long-established law discussed above), and (2) there must be “a reliable and administratively feasible mechanism for determining whether putative class members fall within the class definition.”

This second requirement sounds sensible at first glance. Who could reasonably argue that a plaintiff should be allowed to certify a class whose members are impossible to identify? In practice, however, some courts have used this requirement to erect a nearly insurmountable hurdle at the class certification stage in situations where a class action is the only viable way to pursue valid but small individual claims.

The demands of this heightened requirement are most apparent from the Third Circuit’s discussion of self-identification by affidavit. It has said that affidavits from putative class members cannot satisfy the stringent ascertainability requirement. [Defendant] urges us to adopt this rule and to reverse the certification order here because the only method for identifying class members proposed by [Plaintiff] in the district court was self-identification by affidavit.

We decline to do so. The Third Circuit’s approach in Carrera, which is at this point the high-water mark of its developing ascertainability doctrine, goes much further than the established meaning of ascertainability and in our view misreads Rule 23.

     In fully rejecting the Third Circuit’s approach, the court turned to the four policy concerns advanced by the Third Circuit in support of its decision to digress from the beaten path on ascertainability: administrative convenience, unfairness to absent class members, unfairness to bona fide class members, and due process interests of defendants.

     The first policy is that of administrative convenience, such that a more easily identified class that does not require “extensive and individualized fact-finding or mini-trials.” The Seventh Circuit recognized that Rule 23(b)(3) already has an explicit requirement that addresses such concerns: superiority. The superiority requirement is one of the two requirements of Rule 23(b)(3) that flows from the language “that a class action is superior to other available methods for fairly and efficiently adjudicating the controversy.” The court found utilizing the explicit superiority requirement a wiser decision than to create a rigid ascertainability to address what is already to be addressed:

The superiority requirement of Rule 23(b)(3) is clarified by substantial case law. Imposing a stringent version of ascertainability because of concerns about administrative inconvenience renders the manageability criterion of the superiority requirement superfluous. It also conflicts with the well-settled presumption that courts should not refuse to certify a class merely on the basis of manageability concerns.

A reader might fairly ask whether there is any practical difference between addressing administrative inconvenience as a matter of ascertainability versus as a matter of superiority. In fact, there is. When administrative inconvenience is addressed as a matter of ascertainability, courts tend to look at the problem in a vacuum, considering only the administrative costs and headaches of proceeding as a class action. But when courts approach the issue as part of a careful application of Rule 23(b)(3)’s superiority standard, they must recognize both the costs and benefits of the class device.

Rule 23(b)(3)’s superiority requirement, unlike the freestanding ascertainability requirement, is comparative: the court must assess efficiency with an eye toward “other available methods.” In many cases where the heightened ascertainability requirement will be hardest to satisfy, there realistically is no other alternative to class treatment.

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Under this comparative framework, refusing to certify on manageability grounds alone should be the last resort. In all events, deciding whether and when to insist on details, and how many details, are matters for the sound discretion of district judges who have so much first-hand experience managing class actions.

On the other hand, if courts look only at the cost-side of the equation and fail to consider administrative solutions like those available under Rule 23(c) and (d), courts will err systematically against certification. The stringent version of ascertainability invites precisely this type of systemic error.

     With the administrative convenience basis rejected, the court turned to fairness to absent class members. This policy is based on the concept that “[i]f the identities of absent class members cannot be ascertained, . . . it is unfair to bind them by the judicial proceeding. A central premise of this argument is that class members must receive actual notice of the class action so that they do not lose their opt-out rights.” The Seventh Circuit, however, found the central premise to be flawed. Rule 23 does not require actual notice, but only the best “practicable under the circumstances.” Thus, Rule 23, and its corresponding caselaw, recognize that actual notice is not a requirement of either Rule 23 or due process.

     In the absence of an actual notice requirement, the Seventh Circuit easily dispatched this policy argument as well:

More broadly, the stringent version of ascertainability loses sight of a critical feature of class actions for low-value claims like this one. In these cases, “only a lunatic or a fanatic” would litigate the claim individually, so opt-out rights are not likely to be exercised by anyone planning a separate individual lawsuit. When this is true, it is particularly important that the types of notice that courts require correspond to the value of the absent class members’ interests. . . .

The heightened ascertainability approach upsets this balance. It comes close to insisting on actual notice to protect the interests of absent class members, yet overlooks the reality that without certification, putative class members with valid claims would not recover anything at all. When it comes to protecting the interests of absent class members, courts should not let the perfect become the enemy of the good.

     The third policy concern is based in the possibility that without a stringent ascertainability requirement–i.e., one that prohibits use of affidavits to establish class membership–persons with legitimate claims could see a dilution of their recovery due to persons with fraudulent claims also deducting from the available pool of funds. The court saw two problems with this approach. The first is that there is no empirical data indicating widespread fraud in such cases and reason itself indicates that in small recovery cases fraud is not likely prevalent. But the court noted, even if its empirical prediction were wrong, that still would not rejuvenate this policy concern.

Even then, the risk of dilution appears small because only a tiny fraction of eligible claimants ever submit claims for compensation in consumer class actions. Any participation rate less than 100 percent leaves unclaimed funds in the pot, whether it is a judgment award or a settlement fund. When there are unclaimed funds, the addition of a fraudulent or inaccurate claim typically does not detract from a bona fide class member’s recovery because the non-deserving claimant merely takes from unclaimed funds, not the deserving class member. It is of course theoretically possible that the total sum claimed by non-deserving claimants exceeds the total amount of unclaimed funds, in which case there would be dilution, but given the low participation rates actually observed in the real world, this danger is not so great that it justifies denying class certification altogether, at least without empirical evidence supporting the fear. Carrera and cases like it have given no reason to think otherwise.

     The second problem with the protection of bona fide class member policy is the most damming:

The second problem with this dilution argument is that class certification provides the only meaningful possibility for bona fide class members to recover anything at all. Keep in mind what’s at stake. If the class is certified and fraudulent or inaccurate claims actually cause dilution, then deserving class members still receive something. But if class certification is denied, they will receive nothing, for they would not have brought suit individually in the first place. To deny class certification based on fear of dilution would in effect deprive bona fide class members of any recovery as a means to ensure they do not recover too little.

This stringent approach has far-reaching consequences, too. By “focusing on making absolutely certain that compensation is distributed only to those individuals who were actually harmed,” the heightened ascertainability requirement “has ignored an equally important policy objective of class actions: deterring and punishing corporate wrongdoing.” Even if the risk of dilution is not trivial, refusing to certify on this basis effectively immunizes defendants from liability because they chose not to maintain records of the relevant transactions.

When faced with this counterargument, courts applying the heightened ascertainability approach have tended to emphasize that the plaintiff has the burden to satisfy Rule 23 and that the deterrence concern is therefore irrelevant. With respect, that response begs an important question. Why are affidavits from putative class members deemed insufficient as a matter of law to satisfy this burden? In other words, no one disputes that the plaintiff carries the burden; the decisive question is whether certain evidence is sufficient to meet it.

If not disputed, self-serving affidavits can support a defendant’s motion for summary judgment, for example, and defendants surely will be entitled to a fair opportunity to challenge self-serving affidavits from plaintiffs. We are aware of only one type of case in American law where the testimony of one witness is legally insufficient to prove a fact. See U.S. Const., Art. III, § 3 (“No person shall be convicted of treason unless on the testimony of two witnesses to the same overt act, or on confession in open court.”). There is no good reason to extend that rule to consumer class actions.

     This left just one policy concern remaining: the due process rights of defendants.

Finally, courts have said the heightened ascertainability requirement is needed to protect a defendant’s due process rights. Relying on cases about a defendant’s right to “present every available defense,” these courts have argued that the defendant must have a similar right to challenge the reliability of evidence submitted to prove class membership.

We agree with the due process premise but not the conclusion. A defendant has a due process right to challenge the plaintiffs’ evidence at any stage of the case, including the claims or damages stage. That does not mean a court cannot rely on self-identifying affidavits, subject as needed to audits and verification procedures and challenges, to identify class members. To see why, separate the two claims about a defendant’s interest. It is certainly true that a defendant has a due process right not to pay in excess of its liability and to present individualized defenses if those defenses affect its liability. It does not follow that a defendant has a due process right to a cost-effective procedure for challenging every individual claim to class membership. And we should not underestimate the ability of district courts to develop effective auditing and screening methods tailored to the individual case.

     To illustrate is repudiation of the due process policy argument, the court looked to the three possible scenarios: (1) a class for a set common fund–like an employee pension fund–such that the damages are established by the value of the fund; (2) a class where the total amount of damages cannot be determined in the aggregate but is subject to a common method of determining individual damages–such as statutory damages; and (3) where the total amount is neither determinable in the aggregate of through a common method. In the first scenario, there is no due process concern occasioned by false claims because the defendant’s liability is established irrespective of the number of class participants. In the second scenario, there is a due process concern because fraudulent claims could, in theory, cause the defendant to be exposed to heightened liability. However, due process only requires that the “defendant must be given the opportunity to raise individual defenses and to challenge the calculation of damages awards for particular class members.” As the court noted:

Whether putative class members self-identify by affidavits simply does not matter. Suppose an employee files an affidavit falsely claiming that she worked 60 hours a week when in fact she worked only 50, or suppose a person files an affidavit falsely claiming to have been an employee. In either case, so long as the defendant is given a fair opportunity to challenge the claim to class membership and to contest the amount owed each claimant during the claims administration process, its due process rights have been protected.

     In the final scenario, courts have long recognized the power to address such cases through bifurcation addressing liability and damages separately. “It has long been recognized that the need for individual damages determinations at this later stage of the litigation does not itself justify the denial of certification.”

     Having rejected each proffered policy supporting the Carrera ascertainability approach, the Seventh Circuit found no reason to abandon its and other jurisdiction’s longstanding precedent on ascertainability.

     Join us again next time for further discussion of developments in the law.



*Disclaimer: The author is licensed to practice in the state of Indiana. The information contained above is provided for informational purposes only and should not be construed as legal advice on any subject matter. Laws vary by state and region. Furthermore, the law is constantly changing. Thus, the information above may no longer be accurate at this time. No reader of this content, clients or otherwise, should act or refrain from acting on the basis of any content included herein without seeking the appropriate legal or other professional advice on the particular facts and circumstances at issue.

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