Clifford Chance

Introduction

In the first part of this series, we explored the explosion of Rule 23 Multi-District Litigations ("MDLs") and how they have shaped the landscape of class action litigation in the United States. While class actions have been hailed by some as a powerful tool for holding corporations accountable, they have also faced significant criticism for the asymmetric financial risks they pose to defendants and the perception that the primary beneficiaries are sometimes plaintiffs' lawyers, not the claimants they represent. In this second part of the series, we will delve into the backlash against class actions following their surge from the late 1960s through the 2000s. By examining key legal developments and judicial decisions, we aim to provide a high-level understanding of how the defense struck back against the proliferation of class actions.

The Backlash and Decline of MDLs: 2000s-Present

A significant backlash developed against the explosion of class actions that marked the three decades following the 1966 amendments to Rule 23. Public perception of class action litigation shifted, and legislative and judicial responses soon followed. In 1995, Congress enacted the Private Securities Litigation Reform Act ("PLSRA"), which made it more challenging for plaintiffs to file securities fraud class actions. This legislation was followed in 2003 by amendments to Rule 23, requiring courts to make fact-based inquiries to determine whether plaintiffs could prove the propriety of their proposed class actions. 

The judicial branch also played a significant role in curbing the growth of class actions. The Supreme Court's decisions in cases such as Walmart Stores, Inc. v. Dukes (2011) and Comcast Corp v. Behrend (2013) set higher standards for class certification. In Dukes, the Court made clear that Rule 23 “does not set forth a mere pleading standard," but requires a party “to prove . . . in fact," by a preponderance of evidence, that its elements can be satisfied.^[1] The Court noted that class action litigation "is an exception to the usual rule that litigation is conducted by and on behalf of the individual named parties only" and held that a class is only viable if class representatives "suffer the same injury" as the class members they seek to represent.^[2] As a result, a class cannot be certified where a company's decision-making is fragmented (such as at each branch or store location) and spans a wide range of disparate issues (e.g., hiring, pay, promotions, and termination).

In Behrend, the Court further tightened class certification by holding that plaintiffs' damages calculations must be consistent with their liability case. Indeed, the Court noted, Rule 23(b)(3), which permits classes to pursue monetary damages claims, and not simply injunctive or declaratory relief, is an "adventuresome innovation" that requires plaintiffs to meet more rigorous proofs.^[3] "It follows that a model purporting to serve as evidence of damages in this class action must measure only those damages attributable to that theory. If the model does not even attempt to do that, it cannot possibly establish that damages are susceptible of measurement across the entire class for purposes of Rule 23(b)(3)."^[4]

In Behrend, the plaintiffs' damages model calculated a single damages figure "as a whole" for the higher cable subscriptions rights they alleged based upon four different types of assumed injuries resulting from the defendant's supposed monopoly conduct. The district court rejected three of the four claimed injuries, however. Because it was undisputed that plaintiffs' damages "model did not isolate damages from any one theory of antitrust impact," and, in particular, the only remaining valid theory of impact, the model failed to meet plaintiffs' burden under Rule 23.

Circuit Courts have also contributed to the decline of class actions by eliminating presumptions of class-wide injury in specific cases. For example, the Third Circuit re-thought the Bogosian presumption of class-wide injury in antitrust cases. In In re Hydrogen Peroxide Antitrust Litigation (2008), the court emphasized the need for a careful, fact-based approach to class injury, informed by discovery if necessary.^[5] The court stated specifically, "applying a presumption of impact based solely on an unadorned allegation of price fixing would appear to conflict with the 2003 amendments to Rule 23."^[6] This decision illustrates the application of rigorous scrutiny in determining whether plaintiffs can meet the requirements of Rule 23.

Conclusion

The landscape of class action litigation in the United States has undergone significant changes over the past few decades. The backlash against the explosion of MDLs led to stricter standards for class certification and more rigorous judicial scrutiny of class-wide injury claims. As we look to the future, defense strategies will continue to evolve in response to the challenges posed by class actions. In the final part of this series, we will explore the future of class actions and the potential developments that lie ahead, including the tools and tactics that defendants may employ to further mitigate the risks associated with class action litigation.

----------------------------------------------------------------------------------------------------

[1] Walmart Stores, Inc. v. Dukes, 564 U.S. 338 (2011).

[2] Id.

[3] Comcast Corp. v. Behrend, 569 U.S. 27 (2013).

[4] Id.

[5] 552 F.3d 305 (3d Cir. 2008).

[6] Id.