Feb 7, 2023

With Class Action Filings and Settlement Values on the Rise the Time is Now to Get Prepared

Written by: Mark P. Allain 

2022 was a watershed year for state and federal class actions with product liability actions and mass torts seeing the greatest increase in settlement value among all substantive areas of law. A survey of over 537 class action decisions in 2022 found that 15 resolved for $1 billion or more in settlements. The total valuation for product liability actions and mass torts topped $50 billion for 2022, a nearly 300% increase over 2021. 
The largest settlement of the year resulted when student loan provider Navient Corporation agreed to pay $1.85 billion to the state of Pennsylvania resolving claims of predatory lending practices.  Navient sought to dispel a related suit through a motion to dismiss the complaint and strike its class action allegations, however the District Court for the Middle District Court of Pennsylvania denied the loan provider and indicated that class certification might be proper. Ballard v. Navient Corp., 3:18 - CV - 121, 2021 WL 1899874, at *5 (M.D. Pa. Mar. 31, 2021). The court explained that motions to strike class action claims should only be granted in the "rare few" circumstances where the complaint demonstrates the requirements for maintaining a class action cannot be met. Id. (citing Landsman & Funk PC v. Skinder-Strauss Assocs., 640 F.3d 72, 93 (3d Cir. 2011)). In this case, the court reasoned that the plaintiffs’ complaint adequately "describe[d] a widespread pattern of behavior by [Navient] which systematically harm[ed] borrowers to the economic advantage of the defendants." Id. Further, if the evidence supported plaintiff's allegations, the court indicated that class certification would be appropriate. Id. 
Another marquee settlement resulted when Twitter agreed to pay $809.5 million to investors who alleged that Twitter misled its shareholders during a six-month period in 2015 regarding the social media giant's growth projections and user engagement. See In re Twitter Inc. Securities Litigation, 326 F.R.D. 619, 622 (N.D. Cal 2018).  In granting the investors motion to certify the class, the District Court for the Northern District of California, looked to the Fifth Circuit's ruling in Ludlow v. BP P.L.C., 800 F.3d 674, 677 (5th Cir. 2015), wherein the Fifth Circuit affirmed a district court's decision to certify a "Post-Spill" class of investors who purchased BP shares after the 2010 Deepwater Horizon oil spill.  The Northern District of California likened the Twitter investors to the "Post-Spill' class in Ludlow, who relied on an out-of-pocket model to determine class-wide damages in accordance with Rule 23's predominance requirement. To the court, the plaintiff-investor's out-of-pocket damage model constituted a "sound methodology," when it proposed that damages be the lesser of the purchase price of the stock minus the statutory sales price; or the total inflation that was removed from the stock price following the disclosures of the fraud as determined by the jury. See 326 F.R.D. at 630.  Because these numbers could be ascertained on a class-wide basis the court found that the investors satisfied Rule 23(b)(3)'s requirement that individual damage calculations not overwhelm questions common to the class. Id. 
These and other 2022 class action successes are likely to bolster class action filings in 2023 and demonstrate the importance of the class certification stage of litigation.  With the number of lawsuits projected to increase throughout the year, entities with large customer bases should take action now to limit liability and prepare for future litigation. Should you find yourself on the defense side of the caption, winning the issue of class certification will turn the tides in your favor.
Knowing that the issue of class certification controls the balance in class action litigation, plaintiffs' attorneys craft claims that are "common" to an entire class pursuant to the requirements of Federal Rule of Civil Procedure 23 and defense or corporate counsel should be prepared to highlight differences and disparities among the putative class members. In particular, Rule 23(a) requires that all class actions satisfy the following criteria:

  1. Numerosity. Generally, a class is numerous if there are more than 40 class members, though courts are consistent in holding that there is no minimum.
  2. Commonality. There must be common questions of law and fact susceptible of common answers.
  3. Typicality. The claims of the class representative must be typical of those of the class.
  4. Adequacy. The class representative must have no major conflicts of interest with absent class members, and class counsel must have the requisite experience with the claims and class actions.

In addition to these requirements, plaintiffs must satisfy at least one subsection of Rule 23(b): 

  1. (1)(A): A class may be certified if there is a risk that inconsistent rulings with respect to individual plaintiffs would  create incompatible standards of conduct for the party opposing the class.
  2. (1)(B) applies when an individual resolution would impact the relief available to the remainder of the plaintiffs. 
  3. (2) applies when the plaintiffs seek injunctive relief and requires that the plaintiffs allege the defendant "acted or refused to act on grounds that apply generally to the class."
  4. (3) applies when the plaintiff class seeks damages and requires the named plaintiffs to show that common issues predominate over individual issues and that a class action is superior to other means of litigating the case. 

In the negligence context, the best course for defeating class certification is to highlight the need for an individualized inquiry into causation as to each class member. Because each plaintiff must show specific causation to prevail on his or her claim, defendants may argue that individual issues predominate over common ones and thus certification is improper. Further, as demonstrated in the Twitter litigation, in cases where the computation of damages will require individual calculations, defendants should argue that such calculations will predominate over issue common to the class. 
Of course, the best way to avoid class action litigation is to not be sued at all. With the increasing rate of class actions, companies who invest time and resources into proactive compliance planning and undergo regular compliance reviews will both lessen their class action exposure and create a solid foundation for winning cases outright.