U.S. Supreme Court justice Elena Kagan. Diego M. Radzinschi

By Arthur H. Bryant*

Two years ago, dissenting in American Express v. Italian Colors Restaurant, Justice Elena Kagan, referring to the civil procedure rule on class actions, wrote, “To a hammer, everything looks like a nail. And to a court bent on diminishing the usefulness of Rule 23, everything looks like a class action, ready to be dismantled.” The message to people and companies involved in class actions was clear: “Be afraid. Be very afraid.”

Last term, the U.S. Supreme Court basically left class actions alone. This upcoming term, however, the court has already agreed to hear four cases that could dramatically restrict or terminate class action litigation in numerous ways. The concern is real. Will the court keep hammering class actions or let them be?

To understand why so many are worried, just look at the decisions that prompted Kagan’s remarks. In 2011, AT&T Mobility v. Concepcion effectively held that the Federal Arbitration Act gave corporations the power to violate state laws and use mandatory arbitration clauses in their form contracts to bar customers and workers from bringing class actions against them.

Wal-Mart Stores v. Dukes announced several new rules making it harder to prosecute cases as class actions and precluded the courts from determining whether the country’s largest private employer was discriminating against its female workers nationwide.

In 2013, neither Comcast v. Behrend, an antitrust case, nor Genesis Healthcare v. Symczyk, a Fair Labor Standards Act case, presented the questions the court heard them to address. But, instead of dismissing them, the court stopped both from proceeding as class actions on grounds not addressed by the parties.

Finally, in American Express, the court held corporations could use mandatory arbitration clauses to ban class actions when, as a practical matter, that prevented their customers from vindicating their substantive rights and let the companies illegally obtain billions.

FOUR NEW CHALLENGES

Against this background, the court’s decision to hear four new challenges to class actions has understandably raised grave concerns. Tyson Foods v. Bouaphakeo, attacking a $5.8 million jury verdict against the company for underpaying its workers, raises two questions: first, whether the trial judge should have permitted Tyson’s workers to rely on statistical sampling to establish liability and damages; and second, whether a class can be certified that contains some members who have not been injured and have no legal right to damages.

But statistical sampling has been used to establish liability and damages in cases for years. And classes have always been certified even though they contain some members who have not been injured and are not entitled to damages. For ­example, even if an employer is discriminating against women in hiring, unqualified female job applicants would not have been injured or be entitled to damages. That fact has never stopped class actions charging gender discrimination in hiring from proceeding.

In Spokeo v. Robins, a Fair Credit Reporting Act case, the company, charged with publishing inaccurate information and failing to provide legally required notices, contends that Congress cannot constitutionally give people the right to seek statutory damages, individually or collectively, when corporations violate the law.

Based on this rationale, it urges the court to bar class actions for statutory damages authorized by Congress to enforce the Truth in Lending Act, Fair Debt Collection Practices Act, Telephone Consumer Protection Act, Employee Retirement Income Security Act, Real Estate Settlement Procedures Act, Lan­ham Act, Fair Housing Act, Americans With Disabilities Act, Video Privacy Pro­tection Act, Electronic ­Communications Privacy Act, Stored Communications Act, Cable ­Communi­cations Privacy Act, Migrant and Seasonal Agricultural Work­er Protection Act, Expedited Funds Avail­ability Act, Home­owners Protection Act, Equal Credit Opportunity Act and the Driver’s Privacy Protection Act.

Campbell-Ewald v. Gomez presents the question the court granted review of Genesis Healthcare to decide: whether defendants can stop class actions and render them moot by offering the individual class representatives their full damages and the class members ­nothing. Since Genesis Healthcare, the lower courts have unanimously agreed that Kagan’s dissent in that case was right: the answer is no. But the court took the case ­anyway.

And, in DirecTV v. Imburgia, which charges early-cancellation penalties imposed on consumers were illegal, the company’s 2007 customer agreement said its mandatory arbitration clause was invalid if the clause’s class action ban violated “the law of your state.” It did. AT&T Mobility later held federal law pre-empted that state law, but the lower court found that didn’t matter — because the parties’ agreement was to follow state law. Contract interpretation is supposed to be governed by state law, which the Supreme Court does not create. The court could, however, still find a way to enforce the class action ban.

These cases are important to everyone in America. While they involve class actions — a procedural device — what’s at stake are the substantive and constitutional rights class actions are designed to preserve and enforce. When corporations or the government harm many people or businesses, class actions are often the only way that justice can be done.

The court will be deciding whether class actions can continue to be used, as they have been, to enforce state and federal consumer protection, employment, civil rights, civil liberties, environmental and other laws — and the state and U.S. constitutions. If it keeps hammering nails in class actions’ coffin, it could be burying significant portions of these laws as well. We will see.

*Arthur H. Bryant is the chairman of Public Justice, a national public interest law firm dedicated to advancing and preserving access to justice for all. His practice focuses on ­consumers’ rights, workers’ rights, civil rights, environmental protection, and corporate and government accountability.

[Reprinted from the National Law Journal (Sept. 7, 2015) with permission of Arthur Bryant, chairman of Public Justice.  Mr. Gaudet is a member of Public Justice.]

Judge Thomas Griesa

By Robert J. Gaudet, Jr.

Today, in a decision that is sure to delight the Argentine critics of Judge Griesa (and Argentina’s lawyers, one of whom has already said he is “very pleased”), a panel of three judges of the U.S. Court of Appeals for the Second Circuit reversed an August 29, 2014 order by Judge Griesa to expand the class definition of bondholders in Brecher v. Argentina, one of numerous class actions against Argentina.

On August 29, 2014, Judge Griesa had expanded the class, at the plaintiffs’ request, to include “all holders of Republic of Argentina European Medium Term Note Bond, with a coupon rate of 9.25% and a maturity date of July 20, 2004 (ISIN XS011 3833510)” without limitation as to time held.  The Second Circuit held that this definition was too broad and violated the requirement that the class be “ascertainable.”

Today, the Second Circuit gave a puzzling hypothetical that, in its opinion, demonstrated that the new class definition was not ascertainable:

A hypothetical illustrates this problem. Two bondholders—A and B—each
hold beneficial interests in $50,000 of bonds. A opts out of the class, while B opts
in. Both A and B then sell their interests on the secondary market to a third
party, C. C now holds a beneficial interest in $100,000 of bonds, half inside the
class and half outside the class. If C then sells a beneficial interest in $25,000 of
bonds to a fourth party, D, neither the purchaser nor the court can ascertain
whether D’s beneficial interest falls inside or outside of the class.3 Even if there
were a method by which the beneficial interests could be traced, determining
class membership would require the kind of individualized mini‐hearings that
run contrary to the principle of ascertainability. See Charron, 269 F.R.D. at 229;
Bakalar, 237 F.R.D. at 64–66. The features of the bonds in this case thus make the
modified class insufficiently definite as a matter of law. Although the class as
originally defined by the District Court may have presented difficult questions of
calculating damages, it did not suffer from a lack of ascertainability. The District
Court erred in attempting to address those questions by introducing an
ascertainability defect into the class definition.

This hypothetical makes little sense.  For instance, it assumes that it is possible that “A opts out of the class, while B opts in.”  However, this is not even possible in a Rule 23(b)(3) class action, as Brecher v. Argentina was certified under Rule 23(b)(3).  In such a case, bondholders are automatically members of an opt-out class unless they exclude themselves by opting out.  There is no requirement or procedure by which any party “opts in.”  The opt in procedure is a part of opt-in class actions brought under the Fair Labor Standards Act (and it is also a primary feature of class actions in many European countries, like Sweden and Italy, where the mechanism is rarely used) but it is not a part of a Rule 23(b)(3) class action.  The Court’s hypothetical suggests a fundamental misunderstanding of the way a Rule 23(b)(3) class action functions even though the panel’s opinion may be correct in other respects.

The problem identified by the Second Circuit could be cured.  For instance, the class definition could be adjusted to include owners of beneficial interests at a certain point in time, e.g., at the time of final judgment or settlement.  Even this would be an improvement over the initial class definition that required bondholders to continuously hold their bonds from the date of class certification until the date of final judgment in order to be a part of the class. It appears the Second Circuit may wish for the parties to return to this original class definition although it is not entirely clear.

The Second Circuit’s decision is further puzzling because it seems to add a new requirement, on remand, that does not seem to have any direct relationship to the class definition, the issue that was on appeal.  Specifically, the Second Circuit seems to say in today’s opinion that the parties must know make a reasonable estimate of class damages and, if they are unable to do so, then they must estimate damages for individual members of the class:

There remains the question of determining damages on remand. Given
that Appellee here is identically situated to the Seijas plaintiffs and this Court has
already addressed the requirements for determining damages in those cases, we
conclude that the District Court should apply the same process dictated by Seijas
II for calculating the appropriate damages:

Specifically, it shall: (1) consider evidence with respect
to the volume of bonds purchased in the secondary
market after the start of the class periods that were not
tendered in the debt exchange offers or are currently
held by opt‐out parties or litigants in other proceedings;
(2) make findings as to a reasonably accurate, nonspeculative
estimate of that volume based on the
evidence provided by the parties; (3) account for such
volume in any subsequent damage calculation such that
an aggregate damage award would “roughly reflect”
the loss to each class, see Seijas I, 606 F.3d at 58–59; and
(4) if no reasonably accurate, non‐speculative estimate

can be made, then determine how to proceed with
awarding damages on an individual basis. Ultimately,
if an aggregate approach cannot produce a reasonable
approximation of the actual loss, the district court must
adopt an individualized approach.

493 F. App’x at 160; see also Seijas III, 2015 WL 4716474, at *4 (repeating
instructions). The hearing will ensure that damages do not “enlarge[] plaintiffs’
rights by allowing them to encumber property to which they have no colorable
claim.” Seijas I, 606 F.3d at 59.

This latter part of the 10-page opinion is also puzzling because there is no apparent reason why an estimate of damages would be necessary at this stage of the proceedings.  There is no settlement to discuss. There is no motion for judgment or any order of judgment on the docket.  Hence, it is not necessary to estimate damages in Brecher at this moment, so it appears the Second Circuit panel decided issues that were not before it and that it may not be necessary for Judge Griesa to hold a hearing over at this stage.

The Second Circuit’s panel decision is available at this link: 2d Circuit – Sept 16 2015.  It is unclear whether the plaintiffs will file a petition for rehearing by a full panel of the Second Circuit but that may be advisable since the panel opinion seems to misunderstand the functioning, e.g., of a Rule 23 opt-out class action.

Mr. Gaudet of RJ Gaudet & Associates LLC drafted the original complaint in Brecher v. Argentina when he was a lawyer at a previous law firm.  He has not worked on the case since he resigned from that firm in 2007 and the expanded class definition that was reversed by the Second Circuit was not related to his work.

Lawyers Mr. Gaudet, Jenik Radon, and Tim Ashby currently serve as class counsel in a separate class action against Argentina, Barboni v. Argentina, in which they are assisted by English barrister, Dr. Ingrid Detter de Frankopan, of the United Kingdom, who is an expert in the field of international law.