Corporate litigants are still celebrating recent United States
Supreme Court victories by defendants in high-profile class-action
cases. As they should. After all, the trio of cases, Wal-Mart
Stores, Inc. v. Dukes, Comcast Corp. v. Behrend, and
Halliburton Co. v. Erica P. John Fund, Inc., mark a
fundamental change in class litigation. Following these decisions,
lower courts must now engage in a "rigorous analysis" of
the prerequisites for class certification—an analysis that
frequently "will entail some overlap with the merits of the
plaintiff's underlying claim." Wal-Mart Stores, Inc.
v. Dukes, 131 S. Ct. 2541, 2551 (2011). Going forward,
corporate defendants opposing class certification have a number of
new arrows in their litigation quiver to defeat class
certification.
Yet with these victories comes the threat of additional costs by
way of discovery. With merits considerations now fair game at the
certification stage, so too may be class discovery. Historically,
class defendants have successfully bifurcated merits discovery from
class discovery, cabining their discovery exposure at the class
stage. Going forward, however, courts may well give plaintiffs
wider berth at the class discovery stage, given the significance
that merits issues now play in the certification analysis.
This Commentary discusses how federal district courts
have approached discovery in the wake of Wal-Mart,
Comcast, and Halliburton. To date, most courts
confronting class discovery issues have expanded the scope of
plaintiffs' precertification discovery to include merits-based
inquiries. But not all courts have followed suit, with some still
limiting the scope of discovery in meaningful ways, and others
shifting the financial burden of discovery. And still other courts
have seized upon more active case management plans to streamline
class discovery dramatically. Class-action defendants should pay
heed to this developing class-action discovery landscape.
Background
In 2011, the Supreme Court raised the bar for plaintiffs seeking
class certification by requiring lower courts to conduct a
"rigorous analysis" to determine whether the
prerequisites for certification are met. Wal-Mart, 131 S.
Ct. at 2551 (reversing the grant of class certification due to a
lack of commonality under Fed. R. Civ. P. 23(a)(2)). This
"rigorous analysis," the Court explained, often will
"entail some overlap with the merits of the plaintiff's
underlying claim." Id. In the words of the Court, a
merits-entwined inquiry for purposes of class certification
"cannot be helped." Id. at 2551-52 (collecting
cases).
Two years later, the Supreme Court doubled-down on its
"rigorous analysis" requirement for class certification,
applying the teachings of Wal-Mart to prospective Rule
23(b)(3) classes as well. See Comcast Corp. v. Behrend,
133 S. Ct. 1426, 1432 (2013) (reversing the grant of class
certification due to a lack of predominance under Fed. R. Civ. P.
23(b)(3)). In Comcast, the Court criticized the lower
court's "refus[al] to entertain arguments against
respondents' damages model that bore on the propriety of class
certification, simply because those arguments would also be
pertinent to the merits determination." Id. at
1432-33. Rather, the Court's precedents "flatly"
require a determination that Rule 23 is satisfied, "even when
that requires inquiry into the merits of the claim."
Id. at 1433.
The third installment in the Supreme Court's class-action
trilogy came in 2014 in Halliburton Co. v. Erica P. John Fund,
Inc., 134 S. Ct. 2398 (2014). There, the Supreme Court opened
the door even further to merits-based defenses at the
class-certification stage—this time in the context of
securities class actions. In Halliburton, the Court held
that securities defendants can rebut the presumption of reliance
under a fraud-on-the-market theory not only during the merits phase
but also during class certification. Id. at 2414-15.
Securities defendants, moreover, can rebut this presumption through
the use of direct and indirect evidence alike. Id. at
2417.
The Wal-Mart/Comcast/Halliburton triumvirate
marked big wins for class-action defendants, enabling them to raise
merits-based defenses that might otherwise never be presented to a
court. That is so because many class cases are settled following
certification, given the high stakes of merit-stage proceedings.
Now, those merits issues are ripe for consideration at the class
stage, to the extent they inform the certification analysis.
But with these new rights come potential new discovery
responsibilities. The class-action discovery landscape is changing
in the aftermath of Wal-Mart and its progeny. Now more
than ever, defendants must balance their litigation strategy to
maintain a strong likelihood of defeating class certification while
controlling discovery costs.
The "Old Rules" of Precertification Discovery
Before Wal-Mart/Comcast/Halliburton, district
courts faced a "threshold question" of whether
any precertification discovery was needed. See Manual
for Complex Litigation § 21.14 (4th ed. 2004). For
claims that rest on readily available and undisputed facts or that
raise only issues of law, precertification discovery generally was
not warranted. Id.
Likewise, before Wal-Mart/Comcast/Halliburton,
even when some discovery was necessary to determine whether the
prerequisites for certification were met, courts routinely
bifurcated discovery between certification issues and those
relating to the merits of the allegations. See, e.g.,
Cox v. Zurn Pex, Inc. (In re Zurn Pex Plumbing Prods. Liab.
Litig.), 644 F.3d 604, 612-13 (8th Cir. 2011) (explaining that
it is common in putative class actions for defendants to seek
"bifurcated discovery" between class certification and
merits issues); Larson v. Burlington N. & Santa Fe Ry.
Co., 210 F.R.D. 663, 665 (D. Minn. 2002) ("Here, we
conclude that the mandate of Rule 1, Federal Rules of Civil
Procedure, is best implemented by bifurcated discovery—that
is, by completing discovery as to the claims of the four
named-Plaintiffs, prior to extensive discovery on the merits of the
'class claims.'"). Bifurcated discovery was utilized
to "increase efficiency" in complex cases and reduce
attendant discovery costs for defendants. See Zurn Pex,
644 F.3d at 613.
The "New Rules" of Precertification Discovery
In light of recent Supreme Court decisions, trial courts face
new questions over the appropriate scope of precertification
discovery. Put simply, if defendants can raise merits-based
defenses to defeat class certification, as the Supreme Court has
authorized, can plaintiffs pursue discovery on the merits before a
certification decision?
So far, few opinions address this question head-on. As a general
rule, district courts retain broad discretion to manage discovery
disputes, and this discretion extends to decisions over bifurcating
discovery in class actions. In re Groupon Secs. Litig.,
No. 12 C 2450, 2014 U.S. Dist. LEXIS 26212, at *5-6 (N.D. Ill. Feb.
24, 2014); see also Evans v. Linden Research, Inc.,
No. C 11-01078 DMR, 2012 U.S. Dist. LEXIS 58024, at *5-6 (N.D. Cal.
Apr. 25, 2012). Courts are utilizing this discretion in different
ways.
Some Courts Decline to Bifurcate Discovery
Post-Wal-Mart/Comcast/Halliburton
. In the wake of
Wal-Mart/Comcast/Halliburton, a growing number of
district courts are now "reluctant to bifurcate class-related
discovery from discovery on the merits." See Chen-Oster v.
Goldman, Sachs & Co., 285 F.R.D. 294, 300 (S.D.N.Y. 2012)
(collecting cases); see also Groupon, 2014 U.S. Dist.
LEXIS 26212, at *12 (denying defendant's motion for bifurcated
discovery and noting that, "in terms of bifurcation, the
lesson of [Comcast] is more detrimental to the
Defendants' argument than helpful").
For example, in Chen-Oster, the Southern District of New
York cited Wal-Mart as the basis for refusing to bifurcate
discovery before certification. 285 F.R.D.at 298-301. The court
permitted plaintiffs to pursue discovery directed not only
"toward general [employment] policies" of Goldman Sachs,
which the defendant conceded related to the prerequisites for
certification, but also to pursue discovery related to
"individualized personnel data" that arguably went to the
merits of the plaintiffs' case. Id. at 300-01. As the
court explained, "[Wal-Mart] does not ... militate in
favor of bifurcating discovery prior to certification. On the
contrary, if anything, [Wal-Mart] illustrates the need to
develop the record fully before a class motion is considered."
Id. at 298.
Similarly, in Groupon, the Northern District of Illinois
relied on Wal-Mart and Comcast in denying the
defendant's motion to bifurcate discovery. 2014 U.S. Dist.
LEXIS 26212, at *12, *15. There, the court looked to three factors
to determine whether bifurcated discovery is appropriate:
(i) expedience, (ii) economy, and (iii) severability,
"meaning whether class certification and merits issues are
closely enmeshed." Id. at *6. In discussing the
economy of bifurcated discovery, the court noted that oftentimes,
"bifurcation can actually increase the costs of litigation
because of disputes over what constitutes merits and what
constitutes class discovery." Id. at *14. Likewise,
because the class-certification analysis post-Wal-Mart
will entail some overlap with the merits of the underlying claims,
bifurcation will not create the same efficiencies as before.
Id. at *14-16 (concluding that defendants had not
established a "good reason" to bifurcate
discovery).
Several district courts have followed suit in denying
defendants' motions for bifurcated discovery, in the wake of
recent Supreme Court precedent. See, e.g., Johnson v.
Flakeboard Am. Ltd., No. 4:11-2607-TLW-KDW, 2012 U.S. Dist.
LEXIS 83702, at *16-17 (D.S.C. Mar. 26, 2012) ("The Supreme
Court's decision in [Wal-Mart] supports
Plaintiffs' contention that discovery into the merits of the
[employment discrimination] claim is necessary before entering
findings of fact on whether Rule 23 standards have been
met."); In re Cmty. Bank of N. Va. Mortg. Lending
Practices Litig., MDL No. 1674, 2011 U.S. Dist. LEXIS 107366,
at *24 (W.D. Pa. Sept. 20, 2011) (denying bifurcation in light of
Wal-Mart); cf. Feske v. MHC Thousand Trails
Ltd. P'ship, No. 11-CV-4124-PSG, 2012 U.S. Dist. LEXIS
47236, at *6 (N.D. Cal. Apr. 3, 2012) (holding that disclosure of
members of putative class was "even more appropriate in the
wake of [Wal-Mart]").
This growing trend toward broader precertification discovery does
not mean, however, that plaintiffs automatically are entitled to
merits-based discovery at the certification stage. To obtain such
discovery, plaintiffs still must articulate how the materials they
seek implicate the class-certification analysis under Rule 23. See
Chen-Oster, 285 F.R.D. at 300 (concluding that because
"[e]mployment policies do not exist in a vacuum[,]"
discovery into putative class members' employment experiences
was necessary "to support a finding of commonality");
Johnson v. Flakeboard Am. Ltd., 2012 U.S. Dist. LEXIS
83702, at *17 ("[P]laintiffs are generally entitled to
pre-certification discovery to establish the record the court needs
to determine whether the requirements for a class action suit have
been met" (emphasis added) (quotation omitted)). Absent any
overlap between the merits and the prerequisites for class
certification, plaintiffs may find themselves hard-pressed to
obtain such broad discovery.
Other Courts Continue to Limit the Scope and Costs of
Precertification Discovery
Post-Wal-Mart/Comcast/Halliburton
. Other courts, however, continue to bifurcate discovery
to the extent practicable following recent Supreme Court precedent.
See Lake v. Unilever U.S., Inc., 964 F. Supp. 2d 893, 933
(N.D. Ill. 2013) ("While the Court recognizes that the class
certification and merits issues may overlap in some respects, this
alone is not enough to overcome the efficiency benefits to be
gained from bifurcated discovery."); see also Christian v.
Generation Mortg. Co., No. 12 C 5336, 2013 U.S. Dist. LEXIS
69855, at *11-13 (N.D. Ill. May 16, 2013) (citing the efficiency
benefits of bifurcated discovery, granting the defendant's
motion to bifurcate, and rejecting the plaintiffs' claim that
foreclosing merits discovery "would, in effect, unfairly end
the entire case").
Still Other Courts Have Adopted Less Traditional
Approaches to Precertification Discovery, Including Cost-Sharing or
More Active Case Management Plans. Finally, a few courts
have adopted less traditional approaches to managing the scope and
expense of precertification discovery. In one case, a district
court even ordered the plaintiffs to bear the costs of far-reaching
discovery regarding class-certification issues. Boeynaems v. LA
Fitness Int'l, LLC, 285 F.R.D. 331, 334-41 (E.D. Pa.
2012). In Boeynaems, the court noted that, because class
determinations require a "searching inquiry" and
"very detailed analysis," the costs of precertification
discovery are often unfairly "asymmetrical" to
defendants. Id. Accordingly, where class certification is
pending and the plaintiffs have asked for extensive discovery,
"compliance with which will be very expensive," the
plaintiffs should pay for the discovery they seek absent compelling
circumstances to the contrary. Id. at 341 ("If the
plaintiffs have confidence in their contention that the Court
should certify the class, then the plaintiffs should have no
objection to making an investment."). Boeynaems
appears to be the first instance in which a court has addressed
shifting the costs of discovery in a preclass-determination
setting. Whether other courts will follow its logic remains to be
seen. Boeynaems, however, is a helpful tool for defendants
caught in the post-Wal-Mart/Comcast/Halliburton discovery
vortex.
Another alternative to permitting extensive precertification
discovery is to impose a more active case management plan upon the
parties—for example, a case management plan that seeks to
resolve certain "death knell" issues from the
plaintiffs' complaint before turning to certification. See
generally Simms v. Bayer Healthcare LLC (In re Bayer
Healthcare), 752 F.3d 1065 (6th Cir. 2014). In
Bayer Healthcare, the plaintiffs filed a putative class
action against the manufacturers of various flea-and-tick products
for dogs and cats, alleging that the manufacturers made false
representations regarding their products. Id. at 1067-68.
During the case management conference, the district court listened
to the parties' arguments before ultimately categorizing the
matter as essentially "a one-issue case." Id. at
1069. "The district court then crafted an evidentiary plan for
handling the case" and "expressed concerns about spending
millions of dollars in discovery." Id. Accordingly,
the court limited discovery to whether the defendants could
"produce studies that substantiated their advertising
claims" and, if so, whether the plaintiffs could refute those
studies. Id. at 1069-70.
After the parties submitted their competing evidence, the
defendants moved for summary judgment. Id. at 1071. The
district court granted summary judgment to the defendants on the
grounds that "the case management plan provided for limited
discovery and briefing" and that the defendants' studies
"substantiated their advertising claims." Id.
Thus, the defendants prevailed without ever engaging in extensive
discovery regarding the prerequisites for class
certification.
Although Bayer Healthcare presented an unusual case
management plan, the Sixth Circuit affirmed the grant of summary
judgment and rejected the plaintiffs' later claims that they
were denied sufficient discovery. Id. at 1074, 1078.
Bayer Healthcare thus provides yet another, albeit
irregular, path that defendants can pursue in controlling the costs
of precertification discovery.1
Conclusion
Wal-Mart, Comcast, and Halliburton
offer both the bitter and the sweet to class-action defendants.
These decisions arm defendants with powerful tools for defeating
class certification. At the same time, the decisions increase the
likelihood of broader merits discovery and increased costs at the
certification stage. Given the abuse-of-discretion standard for
appellate review, clearer rules governing the scope of this
discovery will take time to evolve. In the meantime, class-action
defendants must know their strategic options available to limit
discovery while building the record to defeat class
certification.
Footnote
1 Jones Day served as counsel for defendant Merial Inc. in the trial and appellate proceedings in Bayer Healthcare.
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