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.
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.”