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2nd Circuit’s Petrobras opinion is bad news for class action defendants at SCOTUS
July 10, 2017 / 7:27 PM / in 5 months

2nd Circuit’s Petrobras opinion is bad news for class action defendants at SCOTUS

(Reuters) - On June 30, U.S. Supreme Court Chief Justice John Roberts disclosed an intriguing tidbit about how he reads briefs to hundreds of federal judges and appellate lawyers gathered at a federal judicial conference in Pennsylvania.

According to Twitter posts by lawyers who were there, the chief justice said he reads reply briefs first, especially in complicated cases. And according to followup tweets from former Supreme Court clerks, the chief is not alone. Several lawyers said they write reply briefs assuming judges and justices will read them first.

That’s bad news for Conagra and other class action defendants.

Here’s why. Conagra, as you may recall, has asked the Supreme Court to grant review of a decision by the 9th U.S. Circuit Court of Appeals that affirmed certification of a class of Wesson Oil purchasers claiming the product was falsely advertised as all natural. The 9th Circuit, like the 6th and 7th Circuits before it (and the 8th Circuit afterward), rejected Conagra’s argument that plaintiffs must offer a “reliable and administratively feasible” method to identify class members, deepening a split among the federal circuits on the hot-button issue of whether the federal rules governing class actions contain an implied “ascertainability” requirement.

The 3rd Circuit was the first to discern this implied requirement, but Conagra told the Supreme Court in its petition for review that the 2nd, 4th and 11th Circuits have endorsed the 3rd Circuit’s interpretation of class action rules. Class action defendants, obviously, are eager for the Supreme Court to do the same, imposing a new and difficult obstacle for class certification, especially in low-dollar consumer cases.

But first, defendants need to persuade the Supreme Court to grant review of the ascertainability issue – which the justices have already twice declined to do, in the 7th Circuit case that initially created a split with the 3rd Circuit and the 6th Circuit case that deepened the divide. In their brief opposing Supreme Court review, the plaintiffs suing Conagra, represented by New York University professor Samuel Issacharoff, said the company had exaggerated the magnitude of the circuit split, which, they said, might well resolve itself under the Supreme Court’s 2016 class action decision in Tyson Foods v. Bouaphakeo. According to the plaintiffs, the 3rd Circuit is really the only appeals court on the other side of the divide, and it may come around without the Supreme Court getting involved.

Conagra, represented at the Supreme Court by Jones Day, filed its reply brief last Wednesday. The brief skewered plaintiffs for suggesting the 3rd Circuit stands alone on ascertainability. There’s also strong precedent from the 2nd Circuit, Conagra said, in 2015’s Brecher v. Republic of Argentina, which held that plaintiffs have to propose an “objective” and “readily identifiable class” in order to be certified.

Even if the 3rd Circuit were to backtrack on ascertainability, Conagra argued, the 2nd Circuit’s Brecher precedent means “there would still be a split,” the reply brief said. “This entrenched split isn’t going away.”

But to the extent that Conagra relies on the 2nd Circuit’s Brecher decision, it just did. On Friday, a three-judge 2nd Circuit panel used its decision in parallel securities class actions against the Brazilian energy company Petrobras to clarify the circuit’s holding on ascertainability. And contrary to what Conagra argued at the beginning of its reply brief at the Supreme Court, the 2nd Circuit in Petrobras said its Brecher precedent did not create an independent ascertainability requirement.

In fact, the 2nd Circuit said in Petrobras, it agrees with the 6th, 7th, 8th and 9th Circuits that courts should not impose the 3rd Circuit’s ascertainability test. “With all due respect to our colleagues on the 3rd Circuit, we decline to adopt a heightened ascertainability theory that requires a showing of administrative feasibility at the class certification stage,” wrote U.S. District Judge Nicholas Garaufis of Brooklyn, sitting by designation on a panel that also included Judges Peter Hall and Debra Livingston. “The reasoning underlying our decision in Brecher does not suggest any such prerequisite, and creating one would upset the careful balance of competing interests codified in the explicit requirements of Rule 23.”

Moreover, the 2nd Circuit referred to “growing consensus” among the federal circuits that the 3rd Circuit misinterpreted the federal rules on class action procedures. That’s a powerful endorsement of one of the arguments plaintiffs made in opposing Supreme Court review of ascertainability.

It’s a very good bet that plaintiffs will submit a brief to the Supreme Court, informing the justices of the essential flaw in Conagra’s reply brief now that the 2nd Circuit has clarified what it really meant in the case Conagra cited. Supreme Court rules allow supplemental briefing “calling attention to new cases, new legislation or other intervening matter not available at the time of the party’s last filing.”

In fairness to Conagra, the company quoted the 2nd Circuit’s 2015 Brecher decision entirely accurately. In Brecher, the 2nd Circuit held that “a class is ascertainable when defined by objective criteria that are administratively feasible and when identifying its members would not require a mini‐hearing on the merits of each case.”

You can see why Conagra, in its petition for Supreme Court review (and I, in recounting Conagra’s argument), interpreted that language to require plaintiffs to provide an administratively feasible method of identifying class members, which is the 3rd Circuit’s standard for ascertainability.

But in Petrobras, the 2nd Circuit said that what it really meant in Brecher was only that judges must be sure “a class is defined using objective criteria that establish a membership with definite boundaries,” the court said. “This modest threshold requirement will only preclude certification if a proposed class definition is indeterminate in some fundamental way.”

The appeals court said the two classes of Petrobras debt and equity investors certified to proceed with fraud claims against Petrobras met ascertainability requirements. It also said, however, that U.S. District Judge Jed Rakoff of Manhattan committed legal error in certifying a class of noteholders to sue under the Securities Act. Only noteholders whose purchases have a tangible connection to the U.S. can bring claims in U.S. courts under the Supreme Court’s 2010 decision in Morrison v. National Australia Bank.

The 2nd Circuit said Judge Rakoff hadn’t taken sufficient account of whether noteholders could meet the Morrison test when he held that class issues predominate over individual inquiries. It remanded the case so the trial judge can reconsider that question. The Petrobras class is represented by Pomerantz. Petrobras has counsel from Cleary Gottlieb Steen & Hamilton, and its underwriters are represented by Skadden Arps Slate Meagher & Flom.

To be clear, the 2nd Circuit’s Petrobras opinion does not erase the split between the 3rd Circuit and the five other federal appellate courts that have now explicitly rejected its heightened ascertainability requirement. There’s still a clear divide among the circuits, so if the Supreme Court now wants to take up this issue - despite having passed up two previous opportunities – it’s well justified.

Just not as well justified as it was on Friday.

Conagra Supreme Court lawyer Shay Dvoretzky said in an email statement that the 2nd Circuit’s Petrobras decision “recognizes and itself reflects the persistent circuit split regarding ascertainability and administrative feasibility at the class certification stage.” Vacating Judge Rakoff’s class certification in the Securities Act case, he said, contravenes the approach of the 9th Circuit, “which upheld certification in Conagra’s case even though there is no way besides mini-trials to identify those who bought Wesson Oil in the past ten years.”

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