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March 18, 2013 Articles

Circumventing the Ascertainability Roadblock

Does Rule 23(b)(2) offer a creative way around this requirement for consumer plaintiffs?

By Dawn M. Goulet

Almost every state has one or more consumer-protection statutes designed to protect small-claims consumers. These laws typically permit, if not expressly contemplate, enforcement by private class-action plaintiffs. Since the enactment of the Class Action Fairness Act, such cases are almost exclusively brought in federal district courts, where plaintiffs must survive a “rigorous” analysis of the requirements set out in Federal Rule of Civil Procedure 23 in order to pursue their claims on a class-wide basis. Although small-claims consumer class actions involving the purchase of ordinary household items are largely unaffected by arbitration clauses and class-action waivers that have stopped other class actions in their tracks, in recent years small-claims consumers have faced a different roadblock: the judicially created “ascertainability” requirement.

The Harsh Effects of the Ascertainability Requirement
In addition to the requirements set forth in Rule 23(a), federal courts have articulated an implicit “ascertainability” requirement. To satisfy this requirement, a class definition must be sufficiently definite so that it is administratively feasible for the court to determine whether a particular person is a member of the proposed class, and must identity class members by reference to objective criteria.

A court may find that a class is not ascertainable under a variety of circumstances. A class definition may fail to satisfy the requirement where membership is based, for example, on subjective criteria like a class member’s state of mind. A court may also find that a class definition is overly broad, sweeping up individuals who have not been harmed by the alleged conduct. And in cases where so-called “fail-safe” class definitions are employed, membership is based on a determination of the merits of an individual’s claim, such that a class member will be bound only by a judgment that is favorable to the class. Finally, even if the class definition is not problematic in and of itself, a court may find the class is not ascertainable where—as is often the case in small-claims consumer class actions—complete documentation simply does not exist to establish who purchased the defendant’s product or service.

Due process and other justifications have been advanced to support the ascertainability requirement, including the need to know precisely who is bound by the res judicata effect of an adverse judgment, the need to provide all putative class members with notice so that they can opt out of the class if they so choose, and manageability concerns where monetary relief is to be distributed to class members.

The requirement has dramatically reduced the number of certified consumer class actions arising from small retail purchases of ordinary products, an odd result given that small-claims consumer class actions are one of the primary reasons Rule 23 exists. A growing number of courts are even willing to dispose of class actions at the pleading stage if the court determines that a class definition is insufficient on its face. Consumers of such goods rarely save their receipts, and despite the ubiquitous nature of loyalty programs and rewards cards, it may not be possible to compile a complete list of class members from a defendant’s business records.

Critics worry that “[i]n practice, what this shadow standard of ascertainability has come to mean is that no matter how clear the evidence of wrongdoing, plaintiffs have no redress in the typical consumer case involving small retail transactions.” Miriam Gilles,“Class Dismissed: Contemporary Judicial Hostility to Small-Claims Consumer Class Actions,” 59 DePaul L. Rev. 305, 307 (2010).

Ascertainability and Rule 23(b)(2) Classes
It bears noting, however, that ascertainability may not be a required—or may be more easily satisfied—in cases seeking certification of a class for injunctive relief under Rule 23(b)(2). William B. Rubenstein et al., Newberg on Class Actions § 3:7 (2011). Rule 23 does not demand ascertainability. The requirement was created by judges to ensure that class definitions are workable where money will be distributed and class members will be provided with notice. Classes certified pursuant to Rule 23(b)(2), however, provide primarily injunctive or declaratory relief and do not require notice. Courts may relax or dispense entirely with the ascertainability requirement under these circumstances.

The extent to which this is true will vary by jurisdiction. The First and Tenth Circuits, for example, hold that a plaintiff seeking to certify a Rule 23(b)(2) class need not precisely delimit class membership. See Yaffe v. Powers, 454 F.2d 1362, 1366 (1st Cir. 1972); Shook v. El Paso Cnty., 386 F.3d 963, 972 (10th Cir. 2004). Early decisions in the Fifth, Sixth, and Seventh Circuits, by contrast, initially applied the ascertainability requirement across the board, without considering the unique circumstances of a Rule 23(b)(2) class action.

More recent district court decisions in these circuits and others have instead adopted a middle ground. Instead of ignoring the requirement outright or applying it strictly, they apply it as a relaxed standard, generally holding that “[a] Rule 23(b)(2) class need not be defined as precisely as a Rule 23(b)(3) class, as Rule 23(b)(2) does not provide for monetary or individualized relief, and does not require notice to allow class members to opt out.” Finch v. N.Y. State Office of Children & Family Servs., 252 F.R.D. 192, 198 (S.D.N.Y. 2008). This is also the position taken by the Second Circuit. See Marison v. Giuliani, 126 F.3d 372, 378 (2d Cir. 1997). Under this relaxed standard, general class definitions based on a defendant’s conduct or on the alleged harm the class has suffered will suffice.

Support for this approach can be found in the advisory committee notes to Rule 23(b)(2), which state that the section was designed to cover “actions in the civil-rights field where a party is charged with discriminating unlawfully against a class, usually one whose members are incapable of specific enumeration.” Fed. R. Civ. P. 23 advisory committee’s note (1966) (emphasis added).

Monetary Damages under Rule 23(b)(2) Post-Dukes
A plaintiff seeking to certify a class under Rule 23(b)(2) must satisfy two requirements in addition to the requirements of Rule 23(a): (1) the party opposing the class must have acted on grounds generally applicable to the class; and (2) final injunctive or corresponding declaratory relief must be requested. Fed. R. Civ. P. 23(b). Historically, many (b)(2) classes sought both injunctive or declaratory relief and monetary relief. The Supreme Court held in 1985, however, that in cases “wholly or predominantly for money judgments,” due process requires that class members be given notice and an opportunity to opt out. Phillips Petroleum Co. v. Shutts, 472 U.S. 797, 811–12 (1985).

More recently, in Wal-Mart Stores, Inc. v. Dukes, the Court stopped one step short of ruling that damages could never be available in (b)(2) class actions, but it limited their availability to circumstances where they are “incidental” to injunctive relief. 131 S. Ct. 2541, 2557 (2011). After Dukes, it is unclear what types of monetary relief may still be sought in a (b)(2) class, but it is likely to be the sorts that “are group-based, flow ineluctably from the injunctive or declaratory relief to the class as a whole, and that do not require individualized assessments.” William B. Rubenstein et al., Newberg on Class Actions § 4:37 (2011).

Creative Uses of Rule 23(b)(2) in Consumer Class Actions
All of this leads to the question, is a Rule 23(b)(2) class even a viable alternative in most small-claims consumer class actions? Although the rule was designed to provide broad equitable relief for amorphous classes of individuals against whom a common policy of discrimination was directed, the advisory committee notes specifically state that this application is merely illustrative and that the rule “is not limited to civil-rights cases.” Fed. R. Civ. P. 23  advisory committee’s note (1966).

Because damages are largely unavailable in (b)(2) class actions after Dukes, plaintiffs are likely to turn more often to creative applications of Rule 23 where an ascertainable class is difficult or impossible to define. A plaintiff may ask a court to bifurcate the litigation into separate liability and damages phases, for instance, and certify a (b)(2) class for the liability phase. Liability could also be determined through issue certification under Rule 23(c)(4), which permits a court, when appropriate, to certify a class action “with respect to particular issues.” Courts have found it appropriate to do so where it will achieve efficiencies and promote the purposes of representative litigation.

In Pella Corp. v. Saltzman, for example, the Seventh Circuit affirmed certification of a nationwide (b)(2) class whose liability claims regarding allegedly defective windows and the manufacturer’s handling of warranty claims would be decided by a jury, with a favorable verdict to be followed by individual claims adjudications by a special master. 606 F.3d 391, 395 (7th Cir. 2010). If successful, the class—comprised of individuals who owned structures containing the defendant’s windows but whose windows had not yet manifested the alleged defect or been replaced—would have been entitled to six declarations: (1) the windows were defective and the defect required disclosure; (2) the defendant modified its warranty program without notice; (3) the defendant must notify purchasers of the defect; (4) the 10-year statute of limitations in the original warranty was removed; (5) the defendant must reassess all warranty claims, with coverage disputes to be resolved by a special master; and (6) the defendant must pay the cost of inspection to determine whether the defect manifested itself. A second, multistate liability class was certified under Rule 23(b)(3) for purchasers in six states whose windows had manifested the defect and been replaced.

The defendant in Pella argued that certification under Rule 23(b)(2) was inappropriate because the case was really one about money, and the class did not seek final injunctive relief, as Rule 23(b)(2) requires, but only declarations as stops along the way to individual trials for damages. The Seventh Circuit, however, did not agree that individual litigation would necessarily be required. The Seventh Circuit determined that, if the district court found in favor of the class and entered all six declarations, the cumulative effect for class members would be an entitlement to have their windows replaced. In other words, the class would uniformly benefit from the declarations. Adjudication by a special master, furthermore, would not be required in every case, but only where a dispute arose.

It is undeniable that the implicit ascertainability requirement may prevent many straightforward (b)(3) class actions from being certified in small-claims consumer cases. But although roadblocks to class certification like this are more varied and effective than ever before, creative class counsel will continue to pursue relief on behalf of the classes they represent. So long as a class as a whole has suffered sufficient damages to make the effort worthwhile, and so long as courts remain willing to entertain creative applications of Rule 23, small-claims consumer cases are likely to remain a part of class-action practice.

Keywords: litigation, class action, derivative suits, consumer class action, class certification, ascertainability, injunctive relief, declaratory relief, hybrid class action, partial certification, issue certification, Dukes, Wal-Mart, Pella Windows

Dawn M. Goulet – March 18, 2013