Seventh Circuit Rejects Heightened “Ascertainability” Requirement in Class Actions – Part 2

August 3, 2015

gavel and scale[This is part two of a series discussing Mullins v. Direct Digital, LLC, Case No. 15-1776 (7th Cir, July 28, 2015). The previous post discussed the “doctrinal drift” of the judicially-created ascertainability requirement that preceded Mullins. This post focuses on the policy bases underlying the heightened ascertainability requirement and why those bases do not justify the requirement.]

The Mullins court examined the various policy considerations underlying the Third Circuit’s heightened ascertainability requirement and concluded that there are already mechanisms in Rule 23 and the existing law to adequately address each concern.

  • Administrative Convenience

Proponents of the heightened ascertainability requirement cite as a cornerstone of their reasoning that their test eliminates the administrative burden associated with identifying class members through “extensive and individualized fact-finding or mini-trials.”

Mullins held that this concern, while valid, is better addressed by the explicit requirements of Rule 23(b)(3), which state that the class action be “superior to other available methods for fairly and efficiently adjudicating the controversy.” One relevant consideration in this analysis is “the likely difficulties in managing a class action.” Fed. R.Civ. P. 23(b)(3)(D). The practical effect of doing this analysis under the superiority requirement rather than under a judicially-created ascertainability test is that the superiority analysis is comparative. In other words, the benefits of proceeding as a class are weighed against alternative mechanisms for adjudicating the controversy. Conversely, the heightened ascertainability analysis is one-sided; that is, it considers only the “administrative costs and headaches” of proceeding as a class, without regard for whether a better alternative exists. Considering the administrative issues in a vacuum would lead courts “to err systematically against certification.”

Additionally, according to Mullins, using the comparative framework of superiority would allow a court to certify a class and “wait and see” how serious the problem may prove to be after settlement or judgment, when more is known about the available relevant information, including customer records.  “District courts,” Mullins reminds, “have considerable experience with and flexibility in engineering solutions to difficult problems of case management.”  Overall, refusing to certify a class on manageability grounds “should be the last resort.”

  • Unfairness to Absent Class Members

Courts applying the heightened ascertainability requirement claim that it protects absent class members who cannot be identified from being bound by a proceeding of which they have no notice.

Mullins concluded that this claim is based on a mistaken premise that Rule 23 requires actual notice to all class members in all cases. Instead, Rule 23(c)(2)(B) only requires that “best notice that is practicable under the circumstances, including individual notice to all members who can be identified through reasonable efforts.”  The heightened ascertainability requirement essentially insists on actual notice to all class members – which is impractical in almost all cases.  Moreover, in cases where individual claims are low-value, such as in many consumer class actions, individual class members are unlikely to opt-out to pursue their claims on their own. So, notice to protect opt-out rights is less significant.

  • Unfairness to Bona Fide Class Members

An additional concern courts use to justify the heightened ascertainability requirement is that where class members are identified only by their own sworn testimony, fraud would be so rampant as to dilute the share of recovery for legitimate class members.

Mullins found two problems with this premise:

First, there is no empirical evidence that inaccurate or fraudulent claims in relatively low-value consumer cases present a significant risk of dilution. Mullins questioned whether many people would be willing to commit perjury for a small recovery. Even if there were some people willing to commit fraud, claims rates for class actions are typically well less than 100%, meaning that even abundant fraudulent claims – which evidently don’t exist – would not reduce the recovery for legitimate class members. In any event, there are ample tools to ferret out fraudulent claims, such as various auditing processes.

Second, denying class certification based on a “fear of dilution” would deprive actual class members of any recovery at all. Doing so would “effectively immunize[] defendants from liability because they chose not to maintain records of relevant transactions.” This would frustrate the equally important policy goal served by class actions of deterring and punishing corporate wrongdoing.

Mullins also challenged the notion that affidavits from plaintiffs are somehow inherently unreliable. The court noted that self-serving affidavits from defendants are routinely relied upon in connection with summary judgment motions. There is no factual or legal basis to assume plaintiffs commit fraud with any more frequency than defendants.

  • Due Process Interest of the Defendant

Courts applying the heightened ascertainability requirement argue that allowing class membership to be supported by plaintiffs’ own sworn testimony would abridge defendants’ right to raise every defense and to challenge the reliability of the evidence submitted to prove class membership.

Mullins noted that defendants would have a right and an opportunity to challenge class membership at any stage of the proceeding, even if based on plaintiffs’ affidavits.  Citing American Express Co. v. Italian Colors Restaurant, Mullins noted, however, that defendants do not have a due process right to a “cost-effective procedure for challenging every individual claim to class membership.

Mullins also analyzed various methods of proving damages in class cases – aggregate damages (e.g., in financial fraud/conversion cases), determining individual damages through common methods (e.g., in employment overtime cases and most consumer cases), and individual damages determinations (e.g., where liability and damages are bifurcated pursuant to Rule 23(c)(4)). Mullins concluded that the various damages frameworks provided ample opportunity for defendants to challenge each class members’ claims sufficient to protect their due process rights.

The Seventh Circuit Stands Pat

Mullins declined to adopt a heightened ascertainability requirement. The court concluded that Rule 23 and existing law provide adequate safeguards for the rights of interested parties.  Nothing in the Rule requires or implies an additional ascertainability requirement. Mullins made clear that, at least in the Seventh Circuit, courts should not erect artificial, and often insurmountable, barriers to consumers holding wrongdoers accountable.