(Reuters) - In its Oct. 15 opinion in In re Asacol (2018 WL 4958856) the 1st U.S. Circuit Court of Appeals clarified its position on an issue that continues to cause much consternation among the federal appellate courts: Can trial judges certify class actions in which not every class member has suffered an injury? The 1st Circuit panel – Judges Sandra Lynch, William Kayatta and David Barron – sided with the 3rd, 5th and District of Columbia Circuits to hold that the predominance requirement in the Federal Rules of Civil Procedure for class actions precludes class certification if more than a minimal number of prospective class members haven’t been injured.
But interestingly, the 1st Circuit opted not to adopt an alternative theory promulgated by two other circuits and contemplated by some justices at the U.S. Supreme Court. Ultimately, the Supreme Court may end up being more interested in the theory the 1st Circuit avoided than the argument it accepted.
The case involved antitrust claims by union pension funds that alleged Warner Chilcott and other defendants forced ulcerative colitis patients to overpay for medication by steering them into a slightly altered version of an existing drug. (Defendants, represented by White & Case, said they changed the medication in response to FDA concerns about an ingredient in the medication’s capsule.) The union healthcare funds, represented by Wexler Wallace, acknowledged that not every patient was coerced into buying the new, more expensive version of the medication, though it disagreed with the defendants about the percentage of potentially uninjured class members. The trial judge who certified the class, U.S. District Judge Denise Casper of Boston, estimated about 10 percent, which she considered a de minimis sample. She concluded that these uninjured class members could be weeded out in the claims administration process, relying on sworn affidavits from patients prescribed the colitis drugs.
Judge Casper said that strategy was justified by the 1st Circuit’s 2015 decision in In re Nexium Antitrust Litigation (777 F.3d 9). In that case, which involved allegations that drugmakers delayed a generic version of the heartburn medication from coming to the market, the 1st Circuit said sworn affidavits sufficed to determine class membership.
But the 1st Circuit held that the facts in the Asacol case are different than those in Nexium. In Nexium, Judge Kayatta wrote, the appeals court suggested the sworn affidavit approach to ascertaining class membership without litigation below on that issue. In contrast, the Asacol defendants expressly said they would challenge such affidavits – which would turn every plaintiff’s drug purchase into a mini-trial, allowing individual issues to swamp common questions.
The 1st Circuit said its Nexium precedent was not intended to sanction “the use of inadmissible hearsay to prove injury to each class member at or after trial,” nor to compromise defendants’ rights. “The fact that plaintiffs seek class certification provides no occasion for jettisoning the rules of evidence and procedure, the Seventh Amendment, or the dictate of the Rules Enabling Act,” the court said, citing the Supreme Court’s 2016 ruling in Tyson Foods v. Bouaphakeo (136 S. Ct. 1036) and its 2011 decision in Wal-Mart v. Dukes (131 S.Ct. 2541).
The 1st Circuit said its decision aligned with predominance precedent from the D.C. Circuit in 2013’s In re Rail Freight Fuel Surcharge Antitrust Litigation (725 F.3d 244), the 5th Circuit in 2003’s Bell Atlantic Corp v. AT&T (339 F.3d 294) and the 3rd Circuit in 2008’s In re Hydrogen Peroxide Antitrust Litigation (552 F.3d 305).
But not every circuit has based its analysis of uninjured plaintiffs and class certification on predominance, as the 1st Circuit noted in discussing “the divergence evident in the manner in which our sister circuits have addressed the treatment of uninjured putative class members.” The 2nd Circuit framed the issue as a matter of constitutional standing in 2006’s Denney v. Deutsche Bank (443 F.3d 253), as did the 8th Circuit in 2013’s Halvorson v. Auto-Owners Insurance (718 F.3d 773). Both courts held classes can’t be certified unless all class members meet Article III standing requirements. In contrast, the 10th Circuit ruled in 2010’s DG ex rel. Stricklin v. Devaughn (594 F.3d 1188) that only named plaintiffs must establish standing in order for a class to be certified.
The 1st Circuit concluded that plaintiffs in Asacol did have standing to sue. (Defendants’ argument wasn’t exactly that uninjured plaintiffs don’t have standing but that the named plaintiffs did not have standing to pursue state-law claims in states they didn’t live in.) But in focusing its class certification decision on the predominance inquiry, rather than standing, the court took an implicit stand on a theory that has divided the circuits and has long been a concern of some Supreme Court justices.
A few years ago in the Tyson case, you may recall, the Supreme Court had an opportunity to address the big question at the heart of the Asacol case and others like it: Can classes be certified if they contain uninjured class members? The court did not decide the question, in part because Tyson, which contended some workers in a wage-and-hour class action that went to a jury verdict were not actually entitled to overtime wages, stepped back from its initial assertion that classes with uninjured members are unconstitutional. The justices in the majority nevertheless signaled that they’re concerned about classes in which not everyone has been injured.
Three conservative justices reiterated the point in 2017’s Microsoft v. Baker, which posed the question of whether class action plaintiffs can dismiss individual claims to hasten appellate review when class certification has been denied. In a concurrence joined by Chief Justice John Roberts and Justice Samuel Alito, Justice Clarence Thomas argued that class action plaintiffs can’t pursue classwide claims unless they have individual standing. As I wrote at the time, the class action strategists at Mayer Brown theorized that Justice Thomas was hinting that class actions may not be certifiable unless all class members have standing.
The defense group DRI is making precisely that argument in an amicus brief at the 4th Circuit in Dish Network’s appeal of a judgment of more than $60 million in a Telephone Consumer Protection Act class action. (The 4th Circuit hasn’t opined on the issue of standing and uninjured class membership.) DRI contends the class should never have been certified because not every class member received unsolicited communications. “Simply put, federal courts can provide relief to claimants, in individual or class actions, only if the claimants have suffered, or will imminently suffer, actual harm,” the brief said. “Affording a class of individuals relief where the defendant caused them no actual harm would eviscerate the separation of powers that is so vital to ensuring that federal courts do not exceed the narrow role assigned to them by the Constitution.”
Justice Neil Gorsuch didn’t participate in the Microsoft case in which Justice Thomas wrote that concurrence about standing and class membership. And Justice Brett Kavanaugh wasn’t yet on the court. But if those two take Justice Thomas’ hint, class action plaintiffs are in big trouble.