Proof of Standing in Federal Court Class Actions After Dukes
Peter W. Herzog III
Bryan Cave LLP
St. Louis, Missouri
Introduction
It is well established that class actions are creatures of procedure. This is so whether the class action is brought under Rule 23 or one of the state counterparts. E.g., Deposit Guar. Nat’l Bank v. Roper, 445 U.S. 326, 332 (1980) (“[T]he right of a litigant to employ Rule 23 is a procedural right only, ancillary to the litigation of substantive claims”); Diaz-Ramos v. Hyundai Motor Co., 501 F.3d 12, 16 (1st Cir. 2007) (“class action provisions neither create substantive rights nor give rise to an independent cause of action”); In re Baldwin-United Corp., 770 F.2d 328, 335 (2d Cir. 1985) (Rule 23 “is a rule of procedure and creates no substantive rights or remedies enforceable in federal court”); Southwestern Refining Co. v. Bernal, 22 S.W.3d 425, 437 (Tex. 2000) (“The class action is a procedural device ... It is not meant to alter the parties’ burdens of proof, right to a jury trial, or the substantive prerequisites to recovery”); City of SanJose v. Superior Court, 525 P.2d 701, 711 (Cal. 1974) (“Class actions are provided only as a means to enforce substantive law”); Charles v. Spradling, 524 S.W.2d 820, 824 (Mo. 1975) (class action device is procedural and may not be used to enlarge substantive rights). As the Supreme Court noted in Wal-Mart v. Dukes, class actions are an exception to the rule that litigants must pursue their own claims exclusively; they permit absent class members’ rights to be litigated fully by others, provided the requisite procedural safeguards have been satisfied.
The class action is an exception to the usual rule that litigation is conducted by and on behalf of the individual named parties only. In order to justify a departure from that rule, a class representative must be a part of the class and possess the same interest and suffer the same injury as the class members. Rule 23(a) ensures that the named plaintiffs are appropriate representatives of the class whose claims they wish to litigate. The Rule’s four requirements—numerosity, commonality, typicality, and adequate representation—effectively limit the class claims to those fairly encompassed by the named plaintiff’s claims.
Wal-Mart Stores, Inc. v. Dukes, 562 U.S. ___, 131 S. Ct. 2541, 2550 (2011).
Because class actions involve adjudication by representation, where the named plaintiff’s proof must stand for proof of absent class members’ claims, federal courts have struggled with the issue whether only the named plaintiff must demonstrate Article III standing, or whether that requirement extends to all members of the proposed class. There is a split in the Circuits on the issue currently. The Second and Eighth Circuits have held that all members of a proposed class must possess Article III standing, while the Ninth Circuit has ruled that standing is satisfied if at least one named plaintiff meets the requirements. The issue of standing can have a significant impact on the class certification decision. It arises most frequently in connection with the proposed class definition and often is phrased in the negative—a proposed class definition is impermissibly overbroad if it contains class members who have not been injured and thus lack Article III standing. The Supreme Court’s decision in Dukes has spawned substantial debate with respect to a broad range of class action issues. An issue that does not appear yet to have surfaced is whether the Court’s opinion, including its explicit disapproval of a “Trial by Formula” as violative of the Rules Enabling Act, may have signaled its views on the issue of absent class member standing.
The Role of the Rules Enabling Act
in the Analysis of Absent Class Member Standing
The Rules Enabling Act is a federal statute codified at 28 U.S.C. §2072. Section (a) delegates to the United States Supreme Court the “power to prescribe general rules of practice and procedure and rules of evidence for cases in the United States district courts (including proceedings before magistrate judges thereof) and courts of appeals.” Section (b) specifically limits the delegation of power in Section (a) by providing that the Supreme Court shall not prescribe rules that “abridge, enlarge or modify any substantive right.” As Professor Redish has observed:
The Act’s importance is difficult to overstate, for it plays a foundation, and often central, role in all federal court litigation. The Act has enabled the Court to promulgate rules governing civil, bankruptcy, criminal, and appellate procedure in federal courts, as well as rules of evidence. Simply put, the Act—through the various rules promulgated under it—in one way or another impacts every federal court litigant.
Martin H. Redish & Dennis Murashko, The Rules Enabling Act and the Procedural-Substantive Tension: A Lesson in Statutory Interpretation, 93 Minn. L. Rev. 26, 26-27 (2009) (citations omitted). The specific limitation on the Rules Enabling Act’s delegation appears to have been to preserve to Congress “what in reality is a legislative function.” Id. at 72, citing S. Rep. No. 69-1174, at 11 (1926).
Much of the commentary that has analyzed and interpreted the Rules Enabling Act has focused on the circumstances under which a rule promulgated by the Court may abridge a substantive right without being declared violative of the Rules Enabling Act. See generally Redish & Murashko, supra. Professor Redish uses Fed. R. Civ. P. 37 as an example. Its “primary goal is procedural—ensuring litigants comply with discovery orders.” Its substantive effect merely serves as a vehicle to ensure compliance with procedural orders. Id. at 30. Although little has been written about Section (b)’s prohibition on rules that enlarge substantive rights, it is doubtful that a Congress that sought to preserve to itself substantive issues nevertheless believed that a SupremeCourt Rule could vary the standing requirements of ArticleIII. Stated another way, given that Rule 23 is purely procedural, that the Rules Enabling Act forbids it from being anything else, and that the Supreme Court specifically relied on the Rules Enabling Act in Dukes, the case can be read to support the proposition that all members of a proposed class—including absent class members—must satisfy Article III standing requirements in Rule 23 class actions.
Development of Rule 23 Case Law on the
Issue of Absent Class Member Standing
Standing in federal courts is a constitutional requirement imposed by Article III. “In its constitutional dimension, standing imports justiciability: whether the plaintiff has made out a case or controversy between himself and the defendants within the meaning of Art. III. This is the threshold question in every federal case, determining the power of the court to entertain the suit.” Warth v. Seldin, 422 U.S. 490, 498 (1975). Standing under Article III requires a plaintiff to demonstrate that s/he has suffered an injury in fact that is distinct and palpable, that is fairly traceable to the challenged conduct, and that is likely to be redressed by a favorable decision. Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-61 (1992); Whitmore v. Arkansas, 495 U.S. 149, 155 (1990). In class actions, however, there is no requirement that absent class members submit proof of injury or standing. Denney v. Deutsche Bank AG, 443 F.3d 253, 263 (2d Cir. 2006).
Although distantly related to the line of cases holding that there is no cause of action for unmanifest defects, see, e.g., In re Bridgestone/Firestone Inc. Tires Prods. Liab. Litig., 288 F.3d 1012, 1017 (7th Cir. 2002); Coghlan v. Wellcraft Marine Corp., 240 F.3d 449, 455 n.4 (5th Cir. 2001), the case law addressing the issue of absent class member standing in Rule 23 class actions appears to have developed independently. It also is of recent vintage. The Second Circuit’s decision in Denney in 2006 appears to be the first decision of a federal appellate court to consider whether absent class member standing is governed by different standing rules than are applicable to individual actions. Denney involved allegations of fraudulent tax advice, and the case came to the Second Circuit on appeal from the district court’s final approval of a classwide settlement with fewer than all defendants. Denney, 443 F.3d at 259. Two of the named plaintiffs, who may have been concerned that class members who had not (yet) suffered injury might find their claims barred, challenged the settlement on a variety of grounds, including that the settlement class contained members who had not suffered injury and who, therefore, lacked Article III standing. Id.
The Second Circuit noted that the district court had not had an opportunity to address the issue because it had been raised only a short time before the district court issued its judgment. It nevertheless proceeded to address plaintiffs’ standing challenge “as it speaks to our jurisdiction over this action.” Id. at 263 n.3. The court ruled that the filing of a suit as a class action does not relax Article III’s jurisdictional requirements. Id. at 263, citing Allen v. Wright, 468 U.S. 737, 750 (1984), and Sutton v. St. Jude Med. S.C., Inc., 419 F.3d 568, 570 (6th Cir. 2005). It also noted, however, that once it has been established that a named plaintiff possesses standing, there is no requirement that members of the proposed class also proffer evidence of standing. Denney, 443 F.3d at 263, citing Rozema v. Marshfield Clinic, 174 F.R.D. 425, 444 (W.D. Wisc. 1997) and PBA Local No. 38 v. Woodbridge Police Department, 134 F.R.D. 96, 100 (D.N.J. 1991); seealso Herbert B. Newberg & Alba Conte, 1 Newberg on Class Actions §2.7 (4th ed. 2002) (“[P]assive members need not make any individual showing of standing because the standing issue focuses on whether the plaintiff is properly before the court, not whether represented parties or absent class members are properly before the court”).
Without explaining its reasoning or citing or relying on the Rules Enabling Act, the Second Circuit declared that “[a]t the same time, no class may be certified that contains members lacking Article III standing.” Id., citing Adshunas v. Negley, 626 F.2d 600, 604 (7th Cir. 1980).[1] The Denney Court then cited the Supreme Court’s decision in Ortiz v. Fibreboard Corp., 527 U.S. 815, 831 (1999), a district court ruling from the Southern District of New York, and the Wright & Miller treatise as support for its conclusion that “[t]he class must therefore be defined in such a way that anyone within it would have standing.” Denney, 443 F.3d at 264.
Another early decision addressing the issue of absent class member standing that mentions neither the Rules Enabling Act nor the Second Circuit’s decision in Denney with which it directly conflicts is In re General Motors Corp. Dex-Cool Prods. Liab. Litig., 241 F.R.D. 305 (S.D. Ill. 2007). The case involved allegations that owners and lessees of GM-manufactured vehicles were damaged by Dex-Cool, a factory-installed engine coolant manufactured to GM’s specifications. In opposing class certification, GM contended that the proposed class included those who had not incurred expenses for repairs to their vehicles allegedly caused by Dex-Cool and thus lacked standing. Dex-Cool, 241 F.R.D. at 308. The Dex-Cool court dismissed the argument as lacking merit, but it proceeded to address the issue, as had the Second Circuit in Denney, because “standing is an issue that implicates the Court’s subject matter jurisdiction.” Dex-Cool, 241 F.R.D. at 308. Asserting that standing in class actions “is tested according to special rules,” the court ruled that:
Generally standing in a class action is assessed solely with respect to class representatives, not unnamed members of the class ... Thus, [Article III] standing is satisfied where it is shown that a class representative meets the requirements of Rule 23(a), particularly Rule 23(a)(3) and (a)(4).
Id. at 310. As discussed below, the Ninth Circuit and certain district courts in California have concluded that Article III standing in federal court class actions is determined by reference to the named plaintiffs only and not with respect to absent class members. Without citing Dex-Cool, a number of California federal district courts also have adopted its reasoning that the issue of standing is more appropriately analyzed under Rule 23’s requirements of adequacy and typicality. E.g., Bruno v. Quten Research Inst., 2011 WL 5592880, at *3 (C.D. Cal. Nov. 14, 2011); see also Greenwood v. CompuCredit Corp., 2010 WL 4807095, at *3 (N.D. Cal. Nov. 19, 2010) (“the issue of whether a class representative may be allowed to present claims on behalf of others who have similar, but not identical, interests depends not on standing, but on an assessment of typicality and adequacy of representation” (internal quotations omitted)). The reasoning of Dex-Cool, Bruno, and others appears circular and ignores that those who have not been injured do not have claims that may be presented by others. Further, the notion that typicality and adequacy are sufficient to address class member standing makes sense only if the court evaluates the standing of absent class members, thus importing into the analysis a requirement that all members of the proposed class possess Article III standing. If the named plaintiff alone must satisfy Article III, the typicality and adequacy analyses are meaningless on the issue of standing. The reasoning in Dex-Cool also is inconsistent with the holdings of other courts, including the Seventh Circuit, that an allegedly-injured named plaintiff is not typical of an uninjured absent class member. Oshana v. Coca-Cola Co., 472 F.3d 506, 514 (7th Cir. 2006) (named plaintiff not typical of class where class includes members without claims); In re Yasmin & Yaz (Drospirenone) Marketing, Sales Practices and Prods. Liab. Litig., 2012 WL 865041, at *17 (S.D. Ill. Mar. 13, 2012) (named plaintiff with standing is not typical of those who have no claims).