February 06, 2012
In a prior column, we discussed the U.S. Court of Appeals for the Third Circuit's influential opinion in In re Hydrogen Peroxide Litig., 552 F.3d 305 (3d Cir. 2008), and its potential impact on courts' treatment of expert disputes at the class certification stage.1 While the Supreme Court has not yet waded squarely into the issue, it did recently dip its toes in the water with some language in Wal-Mart Stores Inc. v. Dukes, 564 U.S.—, 131 S. Ct. 2541 (2011), suggesting an endorsement of the Third Circuit's holding that expert disputes related to class certification must be resolved before certification can issue. This language from the nation's highest court should be taken into consideration by lower courts addressing class certification motions. However, as illustrated by the U.S. Court of Appeals for the Eighth Circuit's opinion less than one month later in In re Zurn Pex Plumbing Products Liability Litigation, 644 F.3d 604 (8th Cir. 2011), petition for cert. filed, No. 11-740 (Dec. 15, 2011), at least one court has not required a full and conclusive Daubert review at the class certification stage, a holding that drew a vigorous dissent and that is likely to herald continued disagreement by other circuits.
Purchasers of hydrogen peroxide and related chemicals brought forward an expert in an antitrust class action to establish that the impact of an alleged conspiracy among manufacturers to set prices in the hydrogen peroxide industry was capable of proof at trial through evidence common to the class. Hydrogen Peroxide, 552 F.3d at 312-13. The defendants responded by bringing forth their own expert to show that the statistical methods employed by the plaintiffs' expert could not feasibly establish commonality to satisfy Rule 23(a). Id. at 313-14. The district court declined to weigh the credibility of the competing experts and instead ignored the defendants' expert, holding that plaintiffs need not show at the class certification stage that their proposed statistical methods would actually work, but instead need only "demonstrate their intention to prove a significant portion of their case through factual evidence and legal arguments common to all class members." Id. at 321-22.
On appeal, the Third Circuit flatly rejected the district court's position that it was not permitted to weigh the experts' opinions in deciding whether Rule 23 was satisfied and held instead that a district court must weigh admissible expert testimony to the extent necessary to resolve any dispute over Rule 23 requirements. Id. at 322-24. Finding that a Rule 23 requirement is met simply because a plaintiff's expert passes Daubert, without addressing relevant questions raised by a defendant's competing expert, fails to engage in the required "rigorous analysis" and is error. Id. at 322.
The appeals court observed that the requirements of Rule 23 are not mere pleading rules and that some uncertainty may have arisen from the Supreme Court's statement in Eisen v. Carlisle & Jacquelin, 417 U.S. 156 (1974), that "there is nothing in either the language or history of Rule 23 that gives a court any authority to conduct a preliminary inquiry into the merits of a suit in order to determine whether it may be maintained as a class action." This statement, said the Third Circuit, is not intended to preclude inquiries that are necessary to determining compliance with Rule 23 just because those inquiries overlap with ultimate merits issues. Hydrogen Peroxide, 552 F.3d at 317.
'Wal-Mart v. Dukes'
The Supreme Court vindicated the Third Circuit's reading of Eisen in Dukes. Reiterating that "Rule 23 does not set forth a mere pleading standard," the Court reasoned that the rigorous analysis required to ensure proper certification will frequently and unavoidably entail some overlap with the merits of the plaintiff's underlying claim. Dukes, 131 S. Ct. at 2551. Quoting the same statement from Eisen that the Third Circuit had distinguished in Hydrogen Peroxide, the Court observed that it is "sometimes mistakenly cited to the contrary" and noted that the judge in Eisen had peeked at the merits not to determine certification, which had already been granted, but to shift the cost of notice. Id. at 2552 n.6. "To the extent the quoted statement goes beyond the permissibility of a merits inquiry for any other pretrial purpose," the Court held, "it is the purest dictum and is contradicted by our other cases." Id.
Moreover, the Court commented on the expert testimony that had been offered in Dukes. Specifically, the parties disputed whether the testimony of the plaintiffs' sociological expert, William Bielby, satisfied Daubert. The district court held that Daubert did not apply to expert testimony at the certification stage, to which the Supreme Court replied, "We doubt that is so…." Id. at 2553-54. The Supreme Court then went on to find that the expert testimony did nothing to advance plaintiffs' case and thus was insignificant to the relevant issues even if it had been properly considered. Id. at 2554.
This expression of "doubt" by the Supreme Court has led a number of lower courts to change course in their approach to certification. For example, in a recent case in the Western District of Oklahoma, the court wrote that "[p]rior to the Supreme Court's decision in [Dukes], the Court would have left Dr. Burtis's critiques of Dr. Singer's application of this method for resolution at the Daubert motion stage. However, the Supreme Court recently suggested in dicta that Daubert applied to expert testimony at the class certification stage…. Therefore, the Court will evaluate Dr. Singer's use of the GRS Test in light of the requirements outlined in Daubert and its progeny." In re Cox Enters. Inc. Set-Top Cable Television Box Antitrust Litig., 2011 U.S. Dist. LEXIS 149656, at *59-60 (W.D. Okla. Dec. 28, 2011); accord In re Aftermarket Automotive Lighting Prods. Antitrust Litig., 276 F.R.D. 364, 370 (C.D. Cal. 2011).
The en banc U.S. Court of Appeals for the Ninth Circuit had held in Dukes that the district court had properly rejected Wal-Mart's Daubert challenge to the plaintiff's sociological expert because the district court's role at the certification stage is "to make factual determinations regarding evidence as it relates to common questions of fact or law but not to decide which parties' evidence is ultimately more persuasive as to liability…. [W]hether the jury was ultimately persuaded by these opinions was a question on the merits." Dukes v. Wal-Mart Stores Inc., 603 F.3d 571, 602 (9th Cir. 2010) (en banc), rev'd, 131 S. Ct. 2541 (2011).
Following the Supreme Court's reversal, however, the Ninth Circuit has stated in a subsequent case that "the merits of the class members' substantive claims are often highly relevant when determining whether to certify a class. More importantly, it is not correct to say a district court may consider the merits to the extent that they overlap with class certification issues; rather, a district court must consider the merits if they overlap with the Rule 23(a) requirements." Ellis v. Costco Wholesale Corp., 657 F.3d 970, 981 (9th Cir. 2011).
A majority of circuits have now indicated that Daubert applies at the certification stage. See In re Polymedica Corp. Sec. Litig., 432 F.3d 1, 5-6 (1st Cir. 2005); In re IPO, 471 F.3d 24, 42 (2d Cir. 2006); Hydrogen Peroxide, 552 F.3d at 316-20; Regents of the Univ. of Cal. v. Credit Suisse First Boston (USA), 482 F.3d 372, 379-80 (5th Cir. 2007); Am. Honda Motor Co. v. Allen, 600 F.3d 813, 816 (7th Cir. 2010); Ellis, 657 F.3d at 981; Sher v. Raytheon Co., 419 F. App'x 887, 890-91 (11th Cir. 2011); see also Gariety v. Grant Thornton, LLP, 368 F.3d 356, 366 (4th Cir. 2004) (citing favorably U.S. Court of Appeals for the Seventh Circuit cases on the necessity of merits review). The Eighth Circuit, however, recently pushed back against this trend in In re Zurn Pex Plumbing Products Liability Litigation, 644 F.3d 604 (8th Cir. 2011).
Zurn involved allegedly defective pipe fittings about which both sides sought to introduce expert evidence at the class certification stage. Although both sides agreed that Daubert review was necessary, they differed significantly as to the appropriate application. The plaintiffs argued that the expert testimony should be excluded only if it were "so flawed it cannot provide any information as to whether the prerequisites of class certification have been met," id. at 610, while the defendant urged a full and conclusive Daubert review as endorsed by the Seventh Circuit in American Honda. Id. at 611. The district court did neither; instead, it conducted a "focused" or "tailored" Daubert inquiry to assess whether the experts' opinions, based on their areas of expertise and the reliability of their analyses of the available evidence, should be considered in deciding the issues relating to class certification, an approach the Eight Circuit endorsed on appeal.
"The main purpose of Daubert," reasoned the Eighth Circuit, "is to protect juries from being swayed by dubious scientific testimony. That interest is not implicated at the class certification stage where the judge is the decision maker." Id. at 613. Moreover, the defendant, Zurn, had sought bifurcated discovery in the case, which resulted in a limited record at the class certification stage and therefore prevented the kind of full and conclusive Daubert inquiry it later requested. Id. at 612-13. Accordingly, there was no need for the district court to determine at the class certification stage, and before merits discovery, whether the expert opinions ultimately would be admitted at trial, especially as the rulings on such matters are preliminary and may be modified in light of later evidence.
The majority's approach nominally complies with the Supreme Court's statement in Dukes, although in a limited and modified way. See Fosmire v. Progressive Max Ins. Co., 2011 U.S. Dist. LEXIS 117366, at *9 (W.D. Wash. Oct. 11, 2011) ("This court believes that Zurn has struck the right balance. It honors the Supreme Court's dictum in Dukes by applying Daubert at class certification, but it does so in a manner that recognizes the specific criteria under consideration, as well as the differing stage of discovery and state of the evidence, at the class certification stage").
The Zurn dissent, however, gave greater weight to the Dukes dictum and would have required full and conclusive Daubert review, noting that "inferior courts can take their cues from the Supreme Court's dicta." Zurn, 644 F.3d at 627 (Gruender, J., dissenting) (quoting Scheduled Skyways Inc. v. Nat'l Mediation Bd., 738 F.2d 339, 342 (8th Cir. 1984)). Observing that both the Seventh and Eleventh circuits had adopted such a requirement, the Zurn dissent cautioned that the true concern is not that the district judge cannot weigh admissible expert testimony properly, but rather that the case will proceed beyond class certification on the basis of testimony that is in fact inadmissible or unreliable. Id. at 627-30.
Although one district court recently observed, "[t]he proper scope of the court's inquiry into an expert's testimony at the class certification stage is presently unclear," Fosmire, 2011 U.S. Dist. LEXIS 117366, at *7, the majority trend among the circuits and the Supreme Court's statements in Dukes strongly indicate that the real battle is now over how, not whether, Daubert applies at the class certification stage.
The Eighth Circuit's narrow reading of the Supreme Court's signals in Dukes and consequent adoption of a "tailored" review appears to be at odds with the "full and conclusive" review required in the Seventh Circuit. American Honda stated that "when an expert's report or testimony is critical to class certification…a district court must conclusively rule on any challenge to the expert's qualifications or submissions prior to ruling on a class certification motion. That is, the district court must perform a full Daubert analysis before certifying the class if the situation warrants." Am. Honda, 600 F.3d at 815-16. The Seventh Circuit recently clarified that the situations that do not warrant full Daubert analysis are those where an expert's report or testimony is not critical to class certification because there is an adequate independent ground for deciding the motion. Messner v. Northshore Univ. HealthSystem, No. 10-2514, slip op. at 16 (7th Cir. Jan. 13, 2012).
The Eighth Circuit attempted to distinguish American Honda on the ground that neither party in Zurn attacked the experts' qualifications or methods, as in American Honda, and instead challenged only the sufficiency of the facts or data underlying the experts' opinions. Zurn, 644 F.3d at 611-12, 614 (majority opinion). Relying on the proposition that class certification decisions are tentative, preliminary, and inherently conditional, the Eighth Circuit found no error or abuse of discretion in admitting expert testimony that "may or may not be admissible" in light of further discovery. Id. at 613, 615.
In direct conflict with this statement in Zurn, American Honda holds that an expert's submission must receive a conclusive ruling prior to certification. Moreover, as the Zurn dissent points out, the 2003 amendments to Rule 23 eliminated the provision that class certification "may be conditional." Id. at 628 (Gruender, J., dissenting); accord Hydrogen Peroxide, 552 F.3d at 319-20; In re IPO, 471 F.3d at 39.2 Contrary to Zurn, commentators have observed that "courts should not rely on later developments to determine whether certification is appropriate." 5 Moore's Federal Practice §23.80. Instead, as noted by the dissenting judge in Zurn, in most jurisdictions additional targeted discovery may be appropriate to the extent necessary to resolve disputes over expert testimony and permit a conclusive ruling. See Zurn, 644 F.3d at 629 (Gruender, J., dissenting). Failure to resolve a genuine legal or factual dispute relevant to making a definitive determination that the requirements of Rule 23 have been met before certifying a class is legal error. See, e.g., Hydrogen Peroxide, 552 F.3d at 320.
Litigants should be keenly aware of this conflict between the "tailored" and "full and conclusive" review approaches and adjust strategies accordingly. Defendants should be prepared to challenge plaintiffs' experts at the class certification stage and may wish to consider whether bifurcating discovery will inhibit their ability to demand full Daubert review if a court follows Zurn. Tools in the defendant's arsenal for urging a court to follow American Honda instead should include taking the Supreme Court's language in Dukes seriously, the 2003 amendments to Rule 23 eliminating conditional class certification, and the proposition advanced by the Zurn dissent that a high-stakes class action should not proceed before either a bench or a jury on evidence that may not even be admissible.
Jeffrey S. Klein and Nicholas J. Pappas are partners at Weil, Gotshal & Manges. John P. Sullivan, an associate at the firm, assisted with the preparation of this article.
1. Jeffrey S. Klein and Nicholas J. Pappas, "Courts Must Resolve 'Battle of the Experts' Before Class Certification," NYLJ, Aug. 3, 2009, http://www.newyorklawjournal.com/PubArticleNY.jsp?id=1202432687972.
2. "The Advisory Committee's note explains: 'A court that is not satisfied that the requirements of Rule 23 have been met should refuse certification until they have been met.' The Standing Committee on Rules of Practice and Procedure advised: 'The provision for conditional class certification is deleted to avoid the unintended suggestion, which some courts have adopted, that class certification may be granted on a tentative basis, even if it is unclear that the rule requirements are satisfied.'" Hydrogen Peroxide, 552 F.3d at 319.
Reprinted with permission from the February 6, 2012 edition of the New York Law Journal © 2012 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited. For information, contact 877-257-3382, firstname.lastname@example.org or visit www.almreprints.com.
This article also appeared in the January-February 2012 Employer Update.