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February 29, 2016 Articles

Why the Rules Subcommittee Should Steer Clear of "No Injury" Class "Reform"

The real motive: to slice and dice class lawsuits and do away with consumer class actions entirely

by James J. Bilsborrow, Esq.

In 2011, the Federal Rules of Civil Procedure Advisory Committee appointed a subcommittee to consider potential amendments to Rule 23. Class action litigators and interest groups were quick to chime in on this effort. At its meeting in November 2015, the subcommittee appeared to pare its list of potential rule amendments to six, focusing on areas such as notice, class action objectors, settlement class criteria, and Rule 23(f) appeals of “preliminary approval” orders.

The defense bar lobbied—unsuccessfully for now, it appears—for rule changes that would prohibit or severely curtail so-called “no injury” classes. The subcommittee’s refusal to consider these proposed amendments is a positive development because any such rule change would constitute a step backward for consumers and those whose damages would not ordinarily justify a stand-alone action.

A “no injury” class is difficult to describe because the concept is really something of a clever marketing invention. Sometimes the phrase is used to describe a class of consumers, all of whom purchased a defective product, but only some of whom have experienced the product’s failure. Auto defect class actions such as the Takata airbag litigation are a classic example. See In re Takata Airbag Prods. Liab. Litig., No. 1:15-md-02599-FAM (S.D. Fla.). Consumers in the “no injury” class would have to wait until their airbags explode in order to suffer “injury” as a matter of law. The ticking time bomb defect, in other words, is not enough to constitute legal harm.

At other times, the “no injury” tag refers to a class who purchased a deceptively marketed product, but defendants contend that not everyone in the class relied on the deception to make his or her purchase. The recent disclosure by Volkswagen that a number of its “clean diesel” vehicles did not meet emissions standards fits the definition of a “no injury” class. See In re Volkswagen “Clean Diesel” Mktg., Sales Practices & Prods. Liab. Litig., No. 3:15-md-02672-CRB (N.D. Cal.). Some consumers purchased these vehicles specifically for their environmental benefits, but many did not. Another group may have viewed the “clean diesel” feature as a benefit even if it did not drive the purchasing decision. State and federal consumer protection laws have long prohibited companies like Volkswagen from engaging in this manner of deceptive marketing. Therefore, it seems odd to say that purchasers cannot band together as a class to hold Volkswagen accountable for its deception simply because purchasers relied on the company’s misrepresentations to varying degrees.

In other types of cases, defendants contend there is “no injury” simply because they disagree that the plaintiffs have experienced an actual harm recognized by the law. As an example, in Spokeo v. Robins, which was recently argued before the Supreme Court, the defendant acknowledged that it violated a federal statute prohibiting publication of false personal information, but it denied that such publication constituted an injury. See Spokeo, Inc. v. Robins, cert. granted, 135 S. Ct. 1892 (Apr. 25, 2015) (No. 13-1339). The defendants, in other words, questioned whether Congress was capable of legislatively defining legal harm. However, Congress has long used its statutory power to prohibit certain conduct and, by corollary, to designate victims of that conduct as legally “injured” parties. See, e.g., Fair Debt Collection Practices Act, 15 U.S.C. §§ 1692–1692p (governing conduct of debt collectors); Real Estate Settlement Procedures Act of 1974, 12 U.S.C. §§ 2601–2617 (governing conduct in real estate settlement); Truth in Lending Act, 15 U.S.C. §§ 1601–1667f (governing conduct of disclosures in credit transactions); see also Havens Realty Corp. v. Coleman, 455 U.S. 363 (1982) (holding that Congress could create an “enforceable right to truthful information” under the Fair Housing Act and create a right of action for individuals who were denied such information). That a defendant disagrees with a statutory designation does not mean that the victim of the defendant’s unlawful conduct was not “injured.” Indeed, to deprive the legislature of the power to legislate legal harm is not only counterintuitive but also antidemocratic.

Still other class cases allege a class-wide harm that has not previously been recognized by the law. Data breach and privacy class actions, for example, center on “injury” that is largely the result of the digitization of individual consumer or patient information. When a company like Anthem Blue Cross fails to invest in adequate network security and, as a result, loses the confidential health care information of 80 million customers, it is bizarre to say that those individuals have suffered “no injury” for purposes of Rule 23. See In re Anthem, Inc. Data Breach Litig., No. 5:15-md-02617-LHK (N.D. Cal.). Certainly, those whose information has gone lost or missing (and who often received assurances that their information was well protected) do not believe that they have not been harmed.

The settlement arising out of the BP oil spill presented yet another alleged iteration of the so-called “no injury” class. There, the parties defined by contract those who were injured by the spill. When BP later decided it no longer wished to abide by its settlement, it charged that many class members who fit the definitions set forth in the settlement were unharmed by the spill. This scenario is somewhat unique, although it demonstrates the malleability of the “no injury” label. Many of the parties lobbying for the subcommittee to address “no injury” classes vocally supported BP and submitted amicus briefs to the Supreme Court in support of BP’s “no injury” arguments.

As demonstrated by the cases above, however, each plaintiff and member of the class arguably experienced an “injury.” Moreover, in each of these cases it makes sense for the plaintiffs to join together in a class because the injuries, even if they differ in scope or severity, flow from the same alleged misconduct. One may argue whether each purchaser of a Volkswagen “clean diesel” vehicle was the victim of consumer fraud or violations of various consumer protection statutes, but there is no question that all of the plaintiffs point to the same bad acts as the source of their injuries. Courts have long held that classes may be certified when all of the alleged harm flows from the same misconduct, even if that harm differs among class members. If some members ultimately allege injuries that are not cognizable by law, those claims will be disposed of on the merits. Rule 23, by contrast, is not concerned with the merits. It is a purely procedural device.

To avoid the appearance that they are meddling with merits issues, proponents of “no injury” rule changes seek to amend Rule 23’s typicality requirement. Their proposal would require that the named class representative suffer precisely the same injury as each member of the class. Though seemingly innocuous, the amendment would eliminate most of the class lawsuits described above. In the Volkswagen “clean diesel” suit, for example, class members may plausibly allege various harms under state and federal consumer protection and warranty laws. Most, if not all, of the actions alleged have been available to consumers for decades. In other words, these are not new or invented injuries. Some jurisdictions may require that a consumer rely on Volkswagen’s misrepresentation, while others may not. Some jurisdictions may require some showing of privity, while others may not. The merits of these claims, and the availability of certain causes of action under various states’ laws, will appropriately be untangled on the merits. What binds the class together, however, is that all members allege economic harm flowing from the defendant’s bad acts. To require each member to suffer precisely identical injury and raise precisely identical claims is to require not a single class lawsuit to determine Volkswagen’s liability, but numerous, overlapping lawsuits alleging identical misconduct on behalf of smaller classes. In many cases, costs would preclude the pursuit of such overlapping suits. And this is the real motive of the “no injury” reformers: to slice and dice class lawsuits and ultimately do away with consumer class actions entirely.

If proponents of “no injury” amendments want to eliminate consumer class actions, they should state so clearly. The public can have that debate, although Congress has already started. On January 8, 2016, a divided House of Representatives passed H.R. 1927, the Fairness in Class Action Litigation and Furthering Asbestos Claim Transparency Act of 2016. This bill would prohibit a federal court from certifying a class unless “each proposed class member suffered an injury of the same type and scope as the injury of the named representatives.” The bill would, in other words, mirror the proposed Rule 23 typicality amendments. No Democrats voted for H.R. 1927, and several Republicans voted against it. The bill has yet to be considered by the Senate.

The fact remains that the class device has a storied and important role in modern American jurisprudence. It would be inappropriate and unfair to foreclose class-wide consumer relief under the guise of an amendment to the typicality requirement of Rule 23. What is more, one suspects that the public would be none too keen on the prospect that the Takatas, Volkswagens, and Anthems can no longer be held accountable for their missteps.

Keywords: litigation, class actions, Rule 23, “no injury” class, typicality


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