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Litigation News

Fall 2023, Vol. 49, No. 1

Fail-Safe Class Certification Deemed Permissible

Josephine Bahn


  • A federal appellate court rejected a rule barring “fail-safe" classes from being certified.
  • The court held that a rule against fail-safe provisions in a class is an improper limitation on F.R.C.P. Rule 23 class certification.
  • The holding splits with several other circuits across the United States.
Fail-Safe Class Certification Deemed Permissible

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A federal appellate court has issued a groundbreaking ruling with significant implications for class action lawsuits. Rejecting a rule barring “fail-safe” classes from being certified, the court held that a rule against fail-safe provisions in a class is an improper limitation on Federal Rule of Civil Procedure (FRCP) Rule 23 class certification. The holding splits with several other circuits across the United States. ABA Litigation Section leaders are divided on the opinion, some noting numerous concerns with certification of fail-safe classes, which require that membership in a class can be determined only through a decision on the merits.

Facts at Issue in White

In re White involved three employees who brought Employee Retirement Income Security Act claims against a former employer, a hotel chain. They alleged that the hotel chain wrongfully denied their vested retirement benefits by undercounting eligible hours of service. They brought the claim as a putative class action in the U.S. District Court for the District of Columbia.

The proposed class of hotel employees who challenged the denial of vested retirement benefits defined their class as “former or current employees . . . or surviving spouses or beneficiaries of former . . . employees who submitted a claim for vested retirement benefits . . . and [h]ave been denied vested rights to retirement benefits.”

The former employees moved for class certification. The district court denied certification, deeming the class definition “impermissibly fail-safe” because “whether retirement rights had vested was an issue to be resolved in this case.”

The plaintiffs, on behalf of the putative class, filed a Rule 23(f) interlocutory appeal to the U.S. Court of Appeals for the D.C. Circuit. Although class certification orders are not final judgments, the D.C. Circuit granted the appeal. It reasoned that the “fail-safe” class definition issue was an “important and recurring issue of law, the issue will likely evade end-of-case review for all practical purposes, and the circumstances taken as a whole warrant interlocutory intervention.”

Class Requirements and Fail-Safe Classes Defined

On appeal, the D.C. Circuit reversed the trial court’s decision, rejecting a rule that “fail-safe” classes are a per se bar to certifying a class action. The court began its analysis by explaining how Rule 23(a) sets out four “indispensable prerequisites” for class certification.

First, the class must be “so numerous that joinder of all members is impracticable.” Second, “the questions of law or fact at issue in the case are common to the class.” Third, “the claims or defenses of the representative parties [must] be typical of the claims or defenses of the class.” Fourth, “the named representative parties will fairly and adequately protect the interest of the class.”

Once those four requirements are met, the class must also qualify for one of three types of class actions set forth in Rule 23(b). A class can proceed as a class action if proceeding against individual class members would be impracticable. It may also proceed as a class action if the class seeks declaratory or injunctive relief on grounds that apply generally to the class; or a class action is available when questions of law or fact common to the class predominate over any questions individual to the class members, and a class action is the superior method for adjudicating the action.

The court continued, explaining that Rule 23(c) provides that the decision to certify a class must be resolved early in the litigation. Further, the order certifying the class must define the class, as well as its claims, issues, and defenses. Additionally, the court noted that Rule 23 “expressly directs” that the definition of a class be determined and its members be identifiable “early in the litigation, not at its end.”

Fail-safe classes require that membership in a class be determined only through a decision on the merits. For example, a fail-safe class could be defined as “all persons whom the defendant defrauded,” the court explained.

The court noted two main problems with fail-safe classes. First, if membership in a class depended on final resolution on the merits, it would be difficult to determine class membership early on in the case, the court said.

The court also acknowledged that some circuits have chastised fail-safe classes as being unfair to defendants. Circuits denying these fail-safe class provisions find that they put defendants in an untenable situation—the proverbial “tails I win, heads you lose” situation. Further explaining that where the plaintiffs win on the merits, the class can be populated with the winning claims. In an instance where the plaintiffs are unsuccessful on the merits, the “losing” class members are, by definition, outside of the class and thus cannot be bound by an adverse judgement. For example, courts have previously rejected a class that included employees who were involuntarily terminated and not paid certain wages in violation of state law because whether the employee had a valid claim on the merits rendered a fail-safe claim.

For these reasons, at least four circuits—the FirstThirdSixth, and Eighth—treat the existence of a fail-safe definition as an independent bar to class certification. The FourthSeventhNinth, and Eleventh circuits have not adopted or rejected this rule but admit that fail-safe definitions can cause trouble. Specifically, most courts of appeals have held that it is improper to certify fail-safe classes. However, the D.C. Circuit joined the Fifth Circuit in rejecting the categorical rule.

Why Allow a Fail-Safe Class?

In its opinion, the White court acknowledged unfairness and administrative issues inherently implicated by fail-safe classes. In reaching its conclusion, the court rejected a bright-line rule against fail-safe definitions that were required to be considered on a case-by-case basis.

The D.C. Circuit found the concerns that other courts expressed to be “understandable” but held instead that “Rule 23 is a carefully structured rule that, properly applied, already addresses relevant defects in class definitions.” The court held that rather than deploying “a textually untethered and potentially disuniform criterion, courts should stick to Rule 23’s specific requirements when making class certification decisions.”

Further, instead of adopting a categorical rule as followed by the majority of courts, the court held that the current requirements of Rule 23 are adequate to address the concerns implicated in fail-safe classes. The court considered these implications and instructed the trial court to reexamine the proposed class definition under the requirements contained in the text of Rule 23. The court noted that, while Rule 23(c) requires resolution of class certification early in litigation, the Rule 23(a) and (b) requirements could be resolved at the class certification juncture. It addressed each Rule 23(a)’s four requirements in turn:

  • Numerosity: Numerosity must exist throughout the entire litigation. If the fail-safe class could have zero members if the plaintiffs lose, then it fails this numerosity requirement.
  • Commonality: If the plaintiffs define the class based on liability alone, this suggests that potential liability is the only truly common issue, and thus that the class fails the commonality requirement.
  • Typicality: The class representatives must have claims that are typical of the claims of the class members. A fail-safe class might fail this requirement if there is a chance the representatives will not even be members of the class come final judgment.
  • Adequacy of representation: For the same reasons the typicality requirement could fail—the named plaintiffs not being members of the class at final judgement—the adequacy requirement could fail.

The court then turned to Rule 23(b)’s superiority requirement, stating that a “class action would fail to be a superior device for resolving a dispute if the class would collapse should the plaintiffs lose on the merits.” The court also suggested that where a class meets all of the requirements of Rule 23, the district court should revise the individual definition to remove any-fail safe aspects. It noted that many times, by removing terms like “unlawfully,” class definitions may pass Rule 23’s requirements and lose any fail-safe character.

The court explained the “solution.” Instead of denying class certification outright, the district court should collaborate with counsel to resolve any issues related to class definition. The court also indicated a district court itself could define the class if necessary. Because the district court “bypassed Rule 23’s requirements and based its denial of class certification entirely on the class’s ‘fail-safe’ character,” the appellate court concluded the district court’s ruling was improper.

Implications for Future Classes

The White opinion intensified an already fractured circuit split on fail-safe classes. The implication of an en banc review or (finally) a decision by the U.S. Supreme Court seems more likely than not to be on the horizon. “While it is difficult to predict if or when the U.S. Supreme Court will grant certiorari, I would not be surprised if it took up the issue of fail-safe classes given its sustained interest in class action­–related issues over the past decade plus and the widening circuit split, ” predicts David R. Singh, Silicon Valley, CA, cochair of the Litigation Section’s Class Actions & Derivative Suits Committee.

As to the propriety of fail-safe classes, Section leaders are as split as the circuits. “The court’s opinion gets it exactly right. There is no need for any criterion outside of Rule 23 for the validity of a class definition,” comments Steven Finell, Santa Rosa, CA, Section leader and member of Appellate Rules Subcommittee of the Section’s Appellate Practice Committee.

“The D.C. Circuit got this one wrong,” disagrees  Ian H. Fisher, Chicago, IL, cochair of the Section’s Class Actions & Derivative Suits Committee. “It took a myopic view of Rule 23’s requirements and minimized the problems presented by fail-safe classes. And the D.C. Circuit’s suggestion that the trial courts sua sponte try to cure fail-safe classes runs counter to our adversarial system in which that is the job of the plaintiff’s counsel,” he adds. Plus, “a ban would be a bright-line rule and easy to enforce,” he concludes.

Practical Difficulties

Section leaders note that the implication of a fail-safe class could undermine the class action mechanism. “The elimination of fail-safe classes will not limit potential class members’ ability to seek relief,” asserts Fisher. “The circuits—for example, the First and Third Circuits—do not appear to suffer from a drought of class actions. Rather, it places the burden on the plaintiffs’ attorneys to define the class in a workable manner that is not circular,” he explains.

The court acknowledged that truly fail-safe classes would likely struggle to meet the requirements of Rule 23 and, thus, not would not be certified. Section leaders take issue with the court’s approach. That “Rule 23 does not create a textual bar against fail-safe classes is unpersuasive,” suggests Singh. “For example, Rule 23(b)(3) requires that a court consider likely difficulties in managing a class action. Fail-safe classes are unmanageable because the court cannot know to whom notice should be sent,” he elaborates. “Similarly, Rule 23(c)(2) requires a court to direct appropriate notice to a class, but with fail-safe classes, there are no class members to receive notice until after the litigation has already ended,” he points out.

The White court implied that Rule 23 analysis is often highly factual and differs from case to case. This implication makes it challenging for defendants to file early motions to strike or defeat class allegations, caution Section leaders. “In my view, the central problem with fail-safe classes is that they function to shield the putative class members from an adverse judgment,” opines Singh. “Either the class members win, or they lose and can argue that they are not in the class by definition, leaving them free to bring another lawsuit. Fail-safe classes are thus contrary to notions of due process and finality,” he concludes.

The Court’s Role

The D.C. Circuit suggested in White that trial courts can fix an inadequate class definition during the proceedings of class determinations. Section leaders explain that defining the class does fall under the court’s authority. “It is the district judge’s responsibility to properly define the class in the class certification order. The class definition by the plaintiff’s counsel is no more than a suggestion,” comments Finell.

However, plaintiffs should not plead fail-safe classes in the hope that a judge will fix any problems with the class definition in the class certification order. Defendants should “call out fail-safe classes in a motion to strike or motion to dismiss the complaint,” counsels Fisher. “Many trial courts will kick the can on fail-safe classes until the class certification briefing on the basis the class definitions often change but point out Rule 23’s mandate that class certification be determined as early as practicable,” he explains. Fisher stresses, “For plaintiffs, my advice is simple—don’t plead fail-safe classes.”