Friday, November 23, 2012

FYI: 7th Cir Rules Class Action "Predominance" Turns on Efficient Use of Judicial Resources, Not Precluded by Individual Issues of Damages

The U.S. Court of Appeals for the Seventh Circuit recently clarified the "predominance" requirement for class certification under Federal Rule of Civil Procedure 23(b)(3), explaining that "predominance" is ultimately a question of efficiency in the use of judicial resources to resolve issues related to damages and liability where the stakes involved would be too small to justify individual lawsuits. 
The Court also reiterated that class certification should not be precluded on the basis of an absence of predominance where the only issue to be resolved is the amount of damages suffered by individual class members.  A copy of the opinion is attached.
Two groups of consumers (collectively the "Consumers") brought separate class action lawsuits based on the warranty laws of six different states.  The Consumers alleged that the washing machines they purchased from the defendant retailer ("Retailer") were supposedly defective.  Specifically, in one action (the "First Action") the Consumers claimed that a defect in the design of the washing machines allegedly caused mold growth.  In the second action ("Second Action"), Consumers alleged that a defective circuit board supposedly caused the machines suddenly to stop working. 
The lower court denied class certification in the First Action, ruling that common questions of fact did not predominate over individual questions.  In so ruling, the lower court agreed with Retailer that in modifying the design of various washing machines, the manufacturer had created design differences among the models purchased by the Consumers and that the Consumers thus experienced different types of defects.  Such differences, the lower court reasoned, precluded class certification.  Consumers appealed the denial of class certification in the First Action.
As to the Second Action, the lower court certified a class based in part on allegations that Retailer knew about the defective circuit board, but nevertheless charged Consumers for repairs of the defective machines.  Retailer appealed the lower court's class certification ruling in the Second Action.
The Seventh Circuit reversed the denial of certification in the First Action, but affirmed the grant of certification in the Second Action.
As you may recall, class certification requires that "questions of law or fact common to class members predominate over any questions affecting only individual members."  Fed. R. Civ. Proc. 23(b)(3).
Interpreting the term "predominance," the Court of Appeals explained that the question of predominance turns on whether a "class action is the more efficient procedure for determining liability and damages in a case. . . that may have imposed costs on tens of thousands of consumers, yet not a cost to any one of them large enough to justify the expense of an individual suit."  The Court also noted that where, as here, the stakes in an individual case would be too small to justify a lawsuit, denial of class certification would preclude any relief at all, suggesting that in such instances class certification would be appropriate. 
The Seventh Circuit also agreed with a sister court's grant of class certification in a case nearly identical to the First Action.  In so ruling, the Seventh Circuit observed that upholding the lower court's denial of certification in this case would create an undesirable "gratuitous" inter-circuit conflict.  See In re Whirlpool Corp., Front-Loading Washer Products Liability Litigation, 678 F.3d 409 (6th Cir. 2012). 
In addition, the Court also pointed out, first, that even though not all the plaintiffs in either the First or Second action had experienced identical problems with their washing machines, the absence of such problems was not a basis for denying class certification, because in certain states a defective product need not have failed in order for plaintiffs to recover.  Rather, the Court explained, the absence of such harm would be an argument for granting certification and then ultimately entering a judgment in Retailer's favor. 
Second, the Seventh Circuit stressed that class certification should not be denied in cases where the only issue is a determination of individual plaintiff's damages.  Pointing out the inefficiency of separate litigation entailing hundreds of different trials, the Court noted its preference for resolving in a single proceeding the issue whether the machines were defective, which the Court considered the question common to all the Consumers in both actions.   However, the Seventh Circuit also observed that, if cases were litigated separately, class certification would allow principles of res judicata or collateral estoppel to resolve the common question as to whether the machines were in fact defective.
Finally, the Seventh Circuit also indicated that judges could create sub-classes of plaintiffs in order to address in an orderly fashion the differences among them with respect to individual damages and state law, depending on the feasibility of drafting "a single, coherent set of jury instructions" in light of the extent of any differences among the various state laws involved in the two lawsuits.
Accordingly, the Seventh Circuit ruled that class certification was appropriate in both the First and Second Actions.

Ralph T. Wutscher
McGinnis Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
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