September 21, 2011 Articles

Class Actions 101: Rule 23(b)(2) or (b)(3)? Does It Matter?

Here are answers to common questions concerning the differences between the two class types, when each should be requested, and more.

By Kathryn A. Honecker and Kevin Hanger

Yes, it does matter. In this article, we answer some common questions of young lawyers concerning the difference between a Rule 23(b)(2) class and a Rule 23(b)(3) class. All references are to the text of Federal Rule of Civil Procedure 23, unless otherwise noted.

When Should a Rule 23(b)(2) Class Be Requested?
A Rule 23(b)(2) class should be requested when a plaintiff seeks injunctive or declaratory relief that would benefit all members of the class. This type of class would be appropriate, for example, where a company has a policy that discriminates against one group of individuals, such as women or minorities, and the lawsuit seeks a single injunction ordering the company to change its policy as it relates to all of those individuals. Another example would be where a company is engaging in anticompetitive behavior, and the lawsuit seeks merely to stop such behavior or declare it unlawful. The relief sought in both examples would benefit the class at large without requiring any inquiry into the individual circumstances of the absent class members. While “incidental” money damages are occasionally allowed in (b)(2) cases, as discussed below, requesting any type of money damages or back pay heightens the risk that the class will be bounced into the (b)(3) realm. See Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541, 2557–61 (2011).

When Should a Rule 23(b)(3) Class Be Requested?
Rule 23(b)(3) classes should be requested when the plaintiff is not seeking common relief for the entire class. A class that cannot get certified under (b)(2) because the plaintiff seeks monetary relief that is not incidental to its request for injunctive relief can often find certification available under subsection (b)(3). See Dukes, 131 S. Ct. at 2557–58. However, after Dukes, the test for determining whether the monetary relief is “incidental,” permitting (b)(2) certification, or not incidental, requiring (b)(3) certification, is unclear. The Supreme Court, however, made two things very clear. The test is not whether the class’s monetary claims “predominate” over their request for injunctive or declaratory relief (id. at 2559), and claims for monetary relief that must be proven on an individual basis for each class member, such as back-pay awards, are not incidental and can therefore only be certified under (b)(3), id. at 2558–59, see id. at 2559–60.

Are the Legal Standards for Certifying Each Class the Same?
No, the standard for certifying a Rule 23(b)(2) class is generally less stringent than the standard for a (b)(3) class. Under both, the court must be satisfied that Rule 23(a)’s prerequisites of numerosity, commonality, typicality, and adequacy have been satisfied. Beyond these initial prerequisites, class treatment is appropriate only when proceeding on a class basis is superior to bringing hundreds or thousands of individual claims and where common issues predominate over individual issues. If this is not the case, certification of a class under either subsection is improper. Proving this, however, is where the standard changes. Because of the homogeneous nature of Rule 23(b)(2) claims, satisfaction of superiority and predominance is “self-evident” and need not be proven for certification. Dukes, 131 S. Ct. at 2558–59. Instead, the plaintiff need only show that the defendant “acted or refused to act on grounds that apply generally to the class, so that final injunctive relief or corresponding declaratory relief is appropriate respecting the class as a whole.”

Satisfying Rule 23(b)(3) is far more rigorous than simply asking whether the defendant “acted on grounds that apply generally to the class.” Because a Rule 23(b)(3) class involves individual issues, the superiority and predominance factors are not presumed and must be affirmatively demonstrated by the plaintiff before a class will be certified. To certify a class, the court must find both that “questions of law or fact common to class members predominate over any questions affecting only individual members, and that a class action is superior to other available methods for fairly and efficiently adjudicating the controversy.” (emphasis added). Certification would be proper, for example, if the court can use the class-action device to resolve several common issues that affect all the class members instead of using the time and resources required to resolve thousands of individual actions asking those same questions. See Califano v. Wamasaki, 442 U.S. 682, 701 (1979).

Do Both Certifications Bind Absent Class Members in the Same Way?
No. While Rule 23 provides that class actions will bind class members, it does not apply to all absent class members in the same way. Because individual money damages are at issue, individuals falling within a Rule 23(b)(3) class definition are given notice of the action and an opportunity to opt out of the class to pursue their claims on their own and not be bound by any of the court’s orders. See Fed. R. Civ. P. 23(c)(2)(B). In contrast, Rule 23(b)(2) cases do not have an opt-out mechanism, making membership in (b)(2) classes mandatory for all individuals who fall within the class definition; thus, there is no escaping the preclusive effect of a (b)(2) case.

Is Notice to the Class Required in Both Types?
No. Although Rule 23(b)(2) and Rule 23(b)(3) have the same binding effect on absent class members, notice is mandatory only for members of (b)(3) classes. Because individual claims such as damages are at issue and members can opt out of the class, members of a Rule 23(b)(3) class are entitled to “the best notice that is practicable under the circumstances, including individual notice to all members who can be identified through reasonable effort.” Notice to these class members is designed to protect their due-process rights and afford maximum preclusive effect to any eventual class judgment. Battle v. Liberty Nat’l Life Ins. Co., 770 F. Supp. 1499 (N.D. Ala. 1991). This notice must provide a description of the nature of the action; the class definition; a summary of the claims, issues, or defenses; information about making an appearance through an attorney; opt-out instructions; and an explanation as to the binding effect of a class judgment on class members if they remain in the case. Fed. R. Civ. P. 23(c)(2)(B). There is no judicial discretion under this regime; this notice is mandatory. See Eisen v. Carlisle & Jacquelin, 417 U.S. 156, 174 (1974).

In contrast, one of the reasons plaintiffs often prefer Rule 23(b)(2) classes is that notice to class members is not required. The injunctive or declaratory relief sought will apply to all class members automatically, so there is no need to advise them of it. Notice is not prohibited, however. Where appropriate and at the court’s discretion, a court “may direct appropriate notice to the class.” Rule 23(c)(2)(A). This provision plays a particularly important role where plaintiffs seek incidental monetary relief in addition to declaratory and injunctive relief, but the intricacies of that analysis are better left to a more extensive discussion. See, e.g., Battle, 770 F. Supp. 1519–20.

Can Absent Class Members File Objections to Proposed Settlements in Both Types?
Yes. “[T]he claims, issues, or defenses of a certified class may be settled, voluntarily dismissed, or compromised only with the court’s approval.” Rule 23(e). During this approval process, class members in both types of classes may object to all or a portion of a proposed settlement, voluntarily dismissal, or other compromise affecting the class.

Have This Year’s Supreme Court Opinions Had an Impact?
Yes. On June 20, 2011, the Supreme Court handed down its decision in Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011), which certainly affected the certification standards for both Rule 23(b)(2) and Rule 23(b)(3) classes. The reach of its impact, however, remains uncertain at this time. For an in-depth discussion of the contours and potential implications of Dukes, stay tuned for the next issue of the Class Actions & Derivative Suits newsletter, which will be devoted exclusively to the Supreme Court’s recent collection of class-action decisions.

Keywords: litigation, class actions, derivative suits, Rule 23(b)(2), Rule 23(b)(3), class certification

Kathryn A. Honecker and Kevin Hanger – September 8, 2011


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