Class actions consume considerable company resources and can pose significant risk of exposure in the $ millions or $ billions. Therefore, it is critical for companies to prepare themselves – to know the trends in class action litigation and the tools available to minimize their exposure to class action liability. Over the last several weeks, the Supreme Court has heard arguments in three cases that have potential to further define the landscape of class action litigation: Campbell-Ewald Co. v. Gomez (No. 14-857), Spokeo, Inc. v. Robins (No. 13-1339), and Tyson Foods, Inc. v. Bouaphakeo (No. 14-1146). Recently, we have seen the advancement of federal legislation seeking to address particular aspects of class action fairness that would limit membership in certified classes. And the Rule 23 Subcommittee of the Advisory Committee on Civil Rules is considering whether to initiate proposed modifications to Federal Rule of Civil Procedure 23 to address several aspects of class litigation. We will hit the highlights of these developments in this three-part “What’s Hot in Class Actions” series. Part 1 provided insight into two of the three class action cases currently under consideration by the U.S. Supreme Court – Campbell-Ewald and Spokeo. This Part 2 explores the potential outcome of the third significant class action case currently before the High Court – Tyson Foods.
The Fate of the No-Injury Class May Not Be Clear after Tyson
An increasingly common scenario facing corporate defendants is the “no-injury class” in which many members of a certified class actually sustained no injury or damages, resulting in a much larger class to which damages might be awarded. This issue has arisen in a variety of contexts, including product liability class actions like the Whirlpool moldy washing machine litigation and wage and hour class actions, which have been on the rise in recent years. Generally, an uninjured party or one that has no legal right to a remedy would lack standing to bring a lawsuit. The no-injury class raises the question of whether all members of a class must have standing for a class action to proceed, or is it enough that some members of the class were injured? The Supreme Court is scrutinizing no-injury class and collective actions based on two questions raised by the Tyson Foods, Inc. v. Bouaphakeo (No. 14-1146) overtime wage and hour lawsuit brought under the Fair Labor Standards Act (FLSA). You can read our previous post for additional background on the case. The Supreme Court certified the following two questions for review in Tyson:
- Whether differences among individual class members may be ignored and a class action certified under Federal Rule of Civil Procedure 23(b)(3), or a collective action certified under the Fair Labor Standards Act, where liability and damages will be determined with statistical techniques that presume all class members are identical to the average observed in a sample.
- Whether a class action may be certified or maintained under Rule 23(b)(3), or a collective action certified or maintained under the Fair Labor Standards Act, when the class contains hundreds of members who were not injured and have no legal right to any damages.
Arguments were heard on November 10 and the fact that Tyson is an FLSA case could lead to a narrow finding that does not provide answers to these questions for other types of class actions brought under Federal Rule of Civil Procedure 23. Anderson v. Mt. Clemens Pottery Co., 328 US 680 (1946) is FLSA precedent establishing that an employee may show time worked through the use of statistical evidence if an employer did not keep adequate or accurate records. As the substantive law of FLSA cases, Mt. Clemens took center stage during arguments. Analogizing the Mt. Clemens allowance for statistical averaging with the presumption of individual reliance established by Basic for securities fraud class actions, Justice Kagan expressed her view that Tyson does not truly present a Rule 23 class action question:
[Y]ou say the question is whether it can proceed as a class. But it seems as though that's really not the question in this case because of Mt. Clemens; that what Mt. Clemens does is to suggest that certain kinds of statistical evidence are completely appropriate in FLSA cases generally…. And so the question that you really are putting before us is not a Rule 23 question, it's a question of whether this sort of evidence complies with the Mt. Clemens standard; isn't that right?
Some other Justices seemed to fall into the same camp as Justice Kagan on this point. Tyson, however, urged that Mt. Clemens is not the answer in this case because it permits the use of statistical evidence only after an employee establishes that they worked 40 hours and were entitled to overtime pay.
Only after liability has been established by clear evidence, Tyson argued, could damages be established using statistics under Mt. Clemens. In this case, there were questions regarding which employees actually worked the requisite 40 hours to qualify for overtime pay for several reasons, including a lack of adequate record keeping, the use of statistical averaging by plaintiffs’ experts to determine the time required for the varying employee activities at issue, and the jury award had cut the damages nearly in half from what plaintiffs had claimed based on their expert’s statistical averages, raising questions regarding how many minutes should be added to determine an employee’s actual time worked? Tyson’s argument regarding the limits of Mt. Clemens seemed to gain traction with Chief Justice Roberts, with the Chief Justice inquiring of amicus curiae the United States: “you agree it would be an extension of Mt. Clemens to apply it at the liability stage as opposed to the damages stage, right?” It is not clear, however, whether Chief Justice Roberts is open to extending Mt. Clemens to cover the circumstances of this case.
Mt. Clemens may carry the day in Tyson under the substantive framework of the FLSA, but Justices did suggest that a Rule 23 class action generally could not be certified using this type of statistical averaging. Chief Justice Roberts called it a “much more difficult case” if the FLSA were not involved, and Justice Kennedy posited to plaintiffs’ counsel: “it seems to me that you might concede that if this were simply a class action under 23, that these problems might be a barrier to certification, but that under Mt. Clemens you have a special rule….do you concede that there is a strong possibility you might not…have this class certified under…Rule 23, absent Mt. Clemens?” With respect to the second question presented regarding non-injured members in a certified class, it is not clear where the Court would come out on this issue. Justice Breyer, at least, seemed to dismiss that issue as part and parcel of the class action process:
We put them in the class to begin with because we thought we could prove injury. As it turns out, we can’t. Now, I’ve never heard that you had to be able to know exactly how you’re going to win your case when you form the class action because you don’t know quite what the proof will be. I mean, isn’t that how class actions work?
The answer Justice Breyer would give: “I thought the answer is of course you can put in your class people whom, it will turn out, are not hurt….I thought that’s the most common thing in the world.”
Stay With Us for More
Some of the issues currently under consideration by the U.S. Supreme Court also find themselves on the Congressional agenda and the subject of potential amendments to the Federal Rules of Civil Procedure governing class actions. Part 3 of this series will highlight recent legislative and federal procedural class action developments.
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Companies are operating in an increasingly globalized and regulated business environment, facing ever-changing and complicated litigation and regulatory challenges. We provide cutting-edge information regarding developments in federal, North Carolina State, and international litigation, as well as in arbitration, regulatory enforcement, and related business practices.
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