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February 19, 2015 Articles

Much More Than "Housekeeping": Rule 23(c)(4) in Action

Some courts see the rule permitting issue classes as a powerful alternative to "complete" certification.

By Jonathan Uslaner

In recent years, class action plaintiffs have increasingly turned to Federal Rule of Civil Procedure 23(c)(4) to overcome the class-certification hurdle. On its face, Rule 23(c)(4) seems simple enough. It states that, “when appropriate, an action may be brought or maintained as a class action with respect to particular issues.” But courts have disagreed on Rule 23(c)(4)’s proper scope and application. Some have viewed it as a mere “housekeeping” tool that cannot alter the court’s analysis under Rule 23(a) and (b). Other courts appreciate that Rule 23(c)(4) is much more. These courts recognize that Rule 23(c)(4) is a powerful alternative to “complete” certification that should be liberally used to promote Rule 23’s goals. The disagreement between courts has spawned conflicting decisions and a much broader debate about the meaning and purpose of the class action device. These issues have taken on heightened significance following the Supreme Court’s decision in Comcast Corp. v. Behrend, 133 S. Ct. 1426 (2013), which made it more challenging for plaintiffs in certain types of actions to certify a “complete” class covering both issues of liability and damages.

When Rule 23(c)(4) Met Rule 23(b)(3)
In opposing class certification, defendants typically devote the bulk of their firepower to Rule 23(b)(3)’s requirement that common issues “predominate” over individualized ones. They seek to manufacture distinctions between class members, pointing to perceived differences in damages and unique defenses. Class action plaintiffs are often able to overcome these challenges and certify a class for all aspects of their case. In some instances, however, courts find that a particular element of plaintiffs’ claims or a specific defense raises too many individualized issues to certify the proposed class. But in such instances, an outright denial of class certification may not be the appropriate result. Rule 23(c)(4) offers an attractive alternative to “complete” certification in many cases, and its use promotes Rule 23’s aim of efficient, fair, and economical resolution of complex cases.

Not all courts have been receptive to issue certification, and courts have advanced conflicting views on how Rule 23(c)(4) interacts with Rule 23(b)(3). On one side of the debate is the Fifth Circuit’s decision in Castano v. American Tobacco Co., 84 F.3d 734 (5th Cir. 1996). The Castano court strove mightily to minimize Rule 23(c)(4) to the role of a “housekeep[er]” and advocated a strict application of Rule 23(b)(3). Id. at 745 n.21. According to the Castano court, plaintiffs seeking to certify an “issue” class under Rule 23(c)(4) must still satisfy Rule 23(b)(3)’s predominance requirement for “a cause of action, as a whole,” including even those issues that were not part of the proposed issue class. Id. In the Fifth Circuit’s view, any other interpretation of Rule 23(c)(4) would allow plaintiffs to “manufacture predominance through the nimble use of subdivision (c)(4)” and would result in “automatic certification in every case where there is a common issue.” Id.

Other courts of appeals, including the Second, Fourth, Seventh, and Ninth Circuits, have rejected Castano and found its doomsday concerns overblown. These courts permit, and even encourage, liberal use of Rule 23(c)(4) “to certify a class on a designated issue regardless of whether the claim as a whole satisfies the predominance test.” In re Nassau Cnty. Strip Search Cases, 461 F.3d 219, 230 (2d Cir. 2006). As these courts have explained, Castano is inconsistent with the purpose of Rule 23, as well as its text and structure. Requiring an issue class plaintiff to show that common issues predominate for the “entire cause of action” defeats the purpose of Rule 23(c)(4) and renders it superfluous. This is because, if Castano were accepted, a “court could only use [Rule 23](c)(4) to manage cases that the court had already determined would be manageable without consideration of [Rule 23](c)(4).” Gunnells v. Healthplan Servs., Inc., 348 F.3d 417, 439 (4th Cir. 2003). Basic canons of statutory construction do not countenance such a result.

The Supreme Court ultimately may weigh in on the debate and clarify how Rule 23(c)(4) interacts with Rule 23(b)(3). Although numerous courts of appeals have now either expressly or implicitly rejected Castano, including even the Fifth Circuit itself, not all courts have reached the same conclusion. Recent district court decisions continue to cite Castano favorably, denying motions to certify proposed “issue classes” based on a “strict application” of Rule 23(b)(3). See, e.g., Balschmiter v. TD Auto Fin. LLC, 2014 WL 6611008, at *7 (E.D. Wis. Nov. 20, 2014) (relying on Castano); Henke v. ARCO Midcon, L.L.C., 2014 WL 982777, at *21 (E.D. Mo. Mar. 12, 2014) (relying on Castano “absent authority within [the Eighth] Circuit’s precedent indicating otherwise”).

Rule 23(c)(4) in a Post-Comcast World
Defining Rule 23(c)(4)’s proper reach has taken on extra import after the Supreme Court’s Comcast decision. In Comcast, the Supreme Court reversed an order certifying a consumer class due to flaws in the plaintiff’s proposed damages model. In a well-reasoned dissent, four justices suggested that district courts may avoid the problems identified in Comcast by certifying a Rule 23(c)(4) class on “liability” issues only, with “damages” issues left for a subsequent, non-class proceeding. 133 S. Ct. at 1437. As the dissenters explained, the majority’s opinion in Comcast “breaks no new ground,” and, “at the outset, a class may be certified for liability purposes only [under Rule 23(c)(4)], leaving individual damages calculations to subsequent proceedings.” Id. at 1436–37.

Following Comcast, numerous courts took the dissenters’ suggestion and certified Rule 23(c)(4) “liability-only” classes. This approach was most notably endorsed by the Sixth Circuit in In re Whirlpool Corp. Front-Loading Washer Products Liability Litigation, 722 F.3d 838 (6th Cir. 2013). Following Comcast, the Supreme Court vacated and asked the Sixth Circuit to reconsider its prior order in Whirlpool affirming the certification of a “liability-only” consumer class. Whirlpool Corp. v. Glazer, 133 S. Ct. 1722 (2013). Upon reconsideration, the Sixth Circuit again affirmed the district court’s class-certification order. In re Whirlpool, 722 F. 3d 838. As the Sixth Circuit observed, “[t]his case is different from Comcast” because, unlike in Comcast, the Whirlpool district court used Rule 23(c)(4) to certify a liability-only class. Id. at 860. In such instances, explained the Sixth Circuit, Comcast has “limited application.” Id.

Other courts, including even the Fifth Circuit, have similarly concluded that class action plaintiffs may readily avert any “Comcast problem” by use of Rule 23(c)(4). For example, the Fifth Circuit in In re Deepwater Horizon, 739 F.3d 790 (5th Cir. 2014), effectively reversed Castano, explaining that it agreed with its “fellow circuits” that “the rule of Comcast is largely irrelevant ‘[w]here determinations on liability and damages have been bifurcated’ in accordance with Rule 23(c)(4).” Id. at 817. As the Fifth Circuit and numerous other courts have recognized after Comcast, courts may apply Rule 23(c)(4) to carve out “damages” issues that are unfit for trial on a class-wide basis. See, e.g., Brown v. City of Detroit, 2014 WL 7074259, at *3 (E.D. Mich. Dec. 12, 2014); Fort Worth Emps.’ Ret. Fund v. J.P. Morgan Chase & Co., 301 F.R.D. 116, 142 (S.D.N.Y. 2014); Wallace v. Powell, 2013 WL 2042369, at *19 (M.D. Pa. May 14, 2013). These decisions make clear how Rule 23(c)(4) certification offers a simple, yet powerful, solution to any “Comcast problem.”

The Future of Rule 23(c)(4)
Although Rule 23(c)(4) has been available to courts and class action plaintiffs for over a half-century, it remains underutilized. Rule 23(c)(4) issue certification is likely, however, to increase and expand in the future, as courts and class action plaintiffs use it to avoid “Comcast problems” and grow more comfortable with the rule. As part of this development, courts are likely to more precisely define when Rule 23(c)(4) issue certification is “appropriate.” Thus far, courts have offered general standards and noted various factors that are relevant to the analysis. Commentators have also chimed in, with the American Law Institute publishing a nonexclusive list of suggested factors for courts to consider. As creative courts and class action plaintiffs increasingly invoke Rule 23(c)(4) and certify issue classes, however, a more granular body of law is likely to develop, offering more specific guidance and identifying additional, particular situations when Rule 23(c)(4) is appropriate.

Although post-Comcast courts have most often invoked Rule 23(c)(4) to certify complete “liability” classes, issue certification may prove useful in other ways. On various occasions in the past, courts and class action plaintiffs have used Rule 23(c)(4) to certify a class to resolve only a subset of liability issues, with other uncertified questions of liability left for non-class proceedings. They have also employed Rule 23(c)(4) to carve out particular defenses that, by their nature, create individualized issues that, if not severed, would predominate over the issues common to the class. Additional uses of Rule 23(c)(4) should be encouraged, as they advance Rule 23’s goals of efficient, fair, and economical dispute resolution.

Keywords: litigation, class actions, issue certification, damages, liability, Federal Rule of Civil Procedure 23(c)(4), Comcast Corp. v. Behrend

Jonathan Uslaner – February 19, 2015