The Legal Intelligencer

For in-house counsel, a federal district court order granting or denying class certification is often a watershed moment. If certification is denied, it may be economically impractical for the plaintiff to continue to litigate and the case may effectively be won. If certification is granted, in-house counsel may face extraordinary pressure to settle and avoid the risk of an adverse judgment on hundreds or thousands of claims.

Given such high stakes, it is critical that in-house counsel begin preparing for possible appellate review of an order granting or denying certification while the case is in the district court. Such preparation starts with an understanding of the factors that may lead a court of appeals to grant interlocutory review of a class certification ruling under firm grasp of Federal Rule of Civil Procedure 23(f). But it also should include a realistic assessment of how a highly active appellate court might second-guess the record, the parties' legal theories and even the district court's case-management decisions.

Three Rule 23(f) cases decided by the U.S. Court of Appeals for the Third Circuit in August provide insights on how in-house counsel can begin preparing for appellate review while the case is in the district court.

By way of background, Rule 23(f) provides that a court of appeals may, "in its discretion, permit an appeal from an order of a district court granting or denying certification under this rule if application is made to it within 10 days of entry of the order."

When Rule 23(f) was adopted in 1998, nobody was certain what its practical effects would be. Fifteen years on, the rule has resulted in a significant increase in the number of appellate decisions reviewing class certification orders and become an important part of routine class-action litigation.

Yet, numbers do not tell the whole story. Rule 23(f) has enabled many federal appellate courts to assume a much more "activist" role in overseeing class certification decisions — rigorously reviewing (and often reversing) certification decisions that previously were left to the discretion of district courts. In a sense, this is precisely what Rule 23(f) was supposed to accomplish. However, Rule 23(f) may also subject district courts and litigants to a certain degree of second-guessing about the management and resolution of complex class-certification proceedings.

This past August, the Third Circuit issued three published decisions under Rule 23(f) — a large number for any court of appeals in a given month. Viewed individually, the cases address important issues regarding the identification of class members and the certification of a settlement class. Viewed as a group, the cases illustrate why in-house counsel should begin to prepare a strategy for a Rule 23(f) appeal while the case is pending in the district court. In many instances, the record and the parties' legal theories will be subjected to a level of scrutiny on appeal equal to, or greater than, the level of scrutiny applied in the trial court.

In Rodriguez v. National City Bank, --- F.3d. ----, No. 11-8079, 2013 U.S. App. LEXIS 16615 (3d Cir. Aug. 12, 2013), the Third Circuit granted a request to appeal under Rule 23(f) to review a district court order denying final approval of a proposed class-action settlement and certification of a settlement class.

In Rodriguez, the court began by reciting several circumstances in which appellate review under Rule 23(f) generally is "appropriate" and explaining why an immediate appeal was warranted in the given case. Following Newton v. Merrill Lynch, Pierce, Fenner & Smith, 259 F.3d 154, 164-65 (3d Cir. 2001), the court explained that an immediate appeal under Rule 23(f) generally is appropriate: (1) "when denial of certification effectively terminates the litigation because the value of each plaintiff's claim is outweighed by the costs of standalone litigation"; (2) when class certification risks placing "inordinate ... pressure on defendants to settle"; (3) "when an appeal implicates novel or unsettled questions of law"; (4) when the district court's class certification determination was erroneous; and (5) when the appeal might "facilitate development of the law on class certification."

The court was moved to grant an immediate appeal in Rodriguez to address the U.S. Supreme Court's decision in Wal-Mart Stores v. Dukes, --- U.S., ----, 180 L. Ed. 2d 374 (2011), and Dukes' bearing on the certification of a settlement class.

The court affirmed the district court's order denying final approval of a proposed class-action settlement and certification of a settlement class. The court held that a rigorous analysis of all Rule 23 factors was required before a settlement class could be certified and that certain Rule 23 factors (including commonality) demand even stricter scrutiny when class-action representatives are seeking certification for purposes of a settlement. Although the settling parties had presented a statistical analysis of loans issued to the settlement class, the court held that the statistical analysis was inadequate to establish that the proposed settlement class shared common questions of law and fact.

In Hayes v. Wal-Mart Stores, --- F.3d. ----, No. 12-2522, 2013 U.S. App. LEXIS 15959 (3d Cir. Aug. 2, 2013), and Carrera v. Bayer, --- F.3d. ----, No. 12-2621, 2013 U.S. App. LEXIS 17479 (3rd Cir. Aug. 21, 2013), the Third Circuit again exercised its authority under Rule 23(f). In Hayes and Carrera, the court reversed orders issued by two district court judges in New Jersey certifying classes in separate state-law consumer fraud actions. In each case, the Third Circuit panel ruled that the plaintiff failed to demonstrate that the identity of class members could be ascertained reliably without individualized factual inquiry.

The two cases built upon Marcus v. BMW of North America, 687 F.3d 583 (3d Cir. 2012), the first Third Circuit case to address the concept of "ascertainability" of class members. In Marcus, the court held a class could be certified only if there was a practical and reliable way to identify the class members objectively and without extensive and individualized fact-finding. In Marcus, the proposed plaintiff class could not be certified because plaintiffs failed to demonstrate that class members could be ascertained reliably.

In Hayes and Carrera, there also were problems identifying class members, namely consumers who had bought general merchandise and diet supplements from retailers. The district courts in Hayes and Carrera had determined that class members could be identified reliably through affidavits and/or the retailers' corporate records. The Third Circuit found that neither option would produce reliable results without extensive, individualized fact-finding. In both cases, however, the appeals resulted in a remand to the district court for the plaintiffs to try again.

What can in-house counsel take away from these Rule 23(f) decisions?

First, consider whether your case involves a class certification issue that is novel, unprecedented or unsettled within the circuit. As Rodriguez, Hayes and Carrera show, the courts of appeals frequently grant immediate appellate review to address important class-certification issues that have not been squarely decided in prior published appellate cases.

Second, make sure that the record is complete, clear and convincing as to every factor that is relevant under Rule 23. In Rodriguez, shortcomings in the settling parties' statistical analysis led the district court to deny certification based on failure to establish commonality and the Third Circuit was equally rigorous (if not more so) in its assessment of the record.

Third, remember that a preliminary examination of the merits of plaintiffs' claims is often helpful and sometimes necessary. In Rodriguez, the Third Circuit's understanding of the nature of the plaintiffs' claims was critical to its ruling on the commonality issue.

Fourth, consider strategies that could narrow the scope of the issues if there is a remand or avoid a remand altogether. Many interlocutory appeals of certification orders result in remands to the district court so that the plaintiffs may try again. Such remands increase the length, uncertainty and costs of class actions.

Fifth, do not assume that it will be easy to get final approval of a class-action settlement and certification of a settlement class in the district court or on appeal. The Third Circuit, in particular, has insisted that settlement classes be scrutinized rigorously.

Sixth, start discussing the possible issues and risks on appeal early — when litigation counsel is beginning to prepare for class-certification proceedings. Early discussions and planning can help avoid an immediate appeal if class certification is denied or increase the chances of an immediate appeal if class certification is granted.


Reprinted with permission from the 11 September 2013 edition of the “The Legal Intelligencer”© 2013 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited. For information, contact 877-257-3382, or visit