Class Actions - Thomas M. Byrne

• Jurisdiction: United States,Federal
• Publication year: 2007
• Citation: Vol. 58 No. 4

Class Actionsby Thomas M. Byrne^*

In terms of significant class action decisions, 2006 was one of the Eleventh Circuit's busiest years in recent memory. Among other rulings, the court established the ground rules for Federal Rule of Civil Procedure 23(b)(2)¹ classes. The year also presented the court with its first opportunity to address some of the many interpretative questions posed by the Class Action Fairness Act of 2005 ("CAFA").²

I. RULE 23(B)(2)

The Eleventh Circuit entered the controversy on the requirements for certification of a Rule 23(b)(2)³ class in Heffner v. Blue Cross & Blue Shield of Alabama, Inc.,⁴ which was probably the court's most significant class action decision during 2006. The court accepted a Rule 23(f)⁵ petition for permission to appeal the district court's certification of a Rule 23(b)(2) class of as many as 240,000 participants and beneficiaries of hundreds of group health plans administered by Blue Cross and Blue Shield ofAlabama.⁶ The underlying claim was that Blue Cross violated the Employee Retirement Income Security Act ("ERISA")⁷ by imposing deductibles that were contrary to the summary plan descriptions. Blue Cross contended that the "no deductible" language was a scrivener's error.⁸

The court began its analysis by again pointing out that while a court should not have to determine the merits of a claim at the class certification stage, it is appropriate to consider the merits to the degree necessary to determine whether Rule 23's requirements are satisfied.⁹ The court observed that "[a]t first blush, plaintiffs' claims to recover their deductibles and to obtain other equitable relief seemed to fit neatly into the Rule 23(b)(2) paradigm."¹⁰ But that was as good as it got for the plaintiffs. Because reliance was a critical element of the plaintiffs' case, the court determined that Rule 23(b)(2) class certification was inappropriate.¹¹ Relying on its prior ERISA decisions,¹² the court held that the beneficiary must prove reliance on the summary plan description to prevent an employer from enforcing the contrary terms of a benefit plan.¹³ The court noted that the formal plan documents showed, without dispute, that none of the plans provided deductible-free coverage.¹⁴ The court rejected the merits-rooted contention that the summary plan description was "the only ERISA plan document that counts,"¹⁵ an example of how merits determinations necessarily frame arguments about class certification.

The court noted that it had previously held that the reliance element of a class claim presents individualized proof problems that preclude class certification in Rule 23(b)(3)¹⁶ class actions but had not decided that issue in a Rule 23(b)(2) case.¹⁷ On that issue, the court agreed with the Fifth Circuit's decision in Bolin v. Sears, Roebuck & Co.¹⁸ that Rule 23(b)(2) certification was also precluded in such situations.¹⁹ The court reasoned that even if the plaintiff proved he purchased prescription drugs in reliance on the summary plan description of the deductible arrangement, only he would be entitled to relief on that proof; other class members would not.²⁰ Therefore, Rule 23(b)(2)'s requirement that "[f]inal injunctive reliefor corresponding declaratory relief with respect to the class as a whole" be appropriate would not be met.²¹ The court concluded that "[c]ertification under Rule 23(b)(2) is proper when the relief sought necessarily affects all class members."²² The court determined that injunctive or declaratory relief—and any other equitable relief of a monetary nature based on it—would not automatically flow to the class as a whole even if the named plaintiffs succeeded in proving reliance in their case.²³ The court expressed no opinion on a footnote in the district court's opinion which stated that a class certification would also be proper under Rules 23(b)(1) and (b)(3).²⁴ The court stated only that the class could not be certified on those grounds "without more analysis and justification."²⁵

Outside the context of the prototypical civil rights injunction, courts have struggled with the requirements for certification of a Rule 23(b)(2) class. Many Rule 23(b)(2) declaratory-injunctive relief classes have failed when monetary relief is also sought, on the ground that the injunctive or declaratory relief does not predominate over the monetary relief.²⁶ The circuits are split, however, on the standard for such predominance.²⁷ Where differences in proof or individualized issues exist pertaining to each class member, courts have rejected certification on several rationales, including failure to meet Rule 23(a)(2)'s commonality requirement,²⁸ a lack of "cohesiveness,"²⁹ or failure to meet Rule 23(b)(2)'s requirement that the relief apply to the class as a whole.³⁰ In Heffner the Eleventh Circuit joined the latter camp,³¹ even though the language of Rule 23(b)(2) requires a discerning eye to detect a requirement that individualized issues relating to proof of entitlement to reliefmust not predominate. Rule 23(b)(2), however, does seem to be a somewhat more analytically sound source for such a requirement than the alternative of a more rigorous reading of Rule 23(a)(2)'s³² usually lax commonality requirement that would apply only to (b)(2) classes. After Heffner, it seems that plaintiffs hoping to find an easier road to class certification under Rule 23(b)(2) will find disappointment in the Eleventh Circuit.

II. THE CAFA TRIO

CAFA,³³ which revolutionized federal jurisdiction over class actions, became effective on February 18, 2005.³⁴ The first of the court's trio of published 2006 CAFA decisions was Evans v. Walter Industries, Inc.,³⁵ in which the district court had remanded a class action to Alabama state court on the basis of CAFA's "local controversy" exception to CAFA jurisdiction.³⁶ The court first considered a procedural point—CAFA's requirement that a court of appeals that accepts a discretionary appeal of an order remanding a removed class action must complete all action on the appeal not later than sixty days after the date on which the appeal was filed.³⁷ The court held that the sixty-day period began to run from the date when the court of appeals granted the application to appeal.³⁸ The court reasoned that a request for appeal under CAFA was subject to Rule 5 of the Federal Rules of Appellate Procedure,³⁹ which governs discretionary appeals.⁴⁰ That rule provides that the order granting permission to appeal serves as the date of the notice of appeal for purposes of calculating time under the federal appellate rules.⁴¹ The court noted that its holding was consistent with the views of every other circuit to address the issue.⁴²

Having determined that it complied with the sixty-day requirement, the court considered burden of proof questions.⁴³ CAFA's "local controversy" exception provides that a court shall decline to exercise jurisdiction over a class action otherwise covered by CAFA if: (1) more than two-thirds of the members of the proposed plaintiff class are citizens of the state in which the action was originally filed; (2) at least one forum-state defendant is a defendant from whom significant relief is sought by members of the plaintiff class; (3) that forum-state defendant's conduct forms a significant basis for the claims asserted; and (4) the principal injuries resulting from the alleged conduct were incurred in the forum state.⁴⁴ The court noted that CAFA's language favors federal jurisdiction over class actions and that its legislative history suggests that Congress intended the local controversy exception "to be a narrow one."⁴⁵ The court agreed with the district court that the plaintiffs bore the burden of establishing that they fell within CAFA's local controversy exception.⁴⁶ The court also pointed out that CAFA does not change the traditional rule that the party seeking to remove (that is, the defendant) bears the burden of establishing federal jurisdiction.⁴⁷

The parties did not dispute that the defendants carried the burden of establishing that the action met CAFA's basic jurisdictional requirements; the matter in controversy exceeded $5 million and minimal diversity existed between the plaintiffs and defendants.⁴⁸ The court noted that placing the burden of proof for the "local controversy" exception on the plaintiff was appropriate because the plaintiff was in the best position to know about the composition of the plaintiff class, having defined it.⁴⁹ In further support of its opinion, the court cited cases involving actions removed by the Federal Deposit Insurance Corporation ("FDIC") in which the Eleventh Circuit had held that the burden of establishing the "state action" exception to federal jurisdiction shifted to the party objecting to the FDIC's removal.⁵⁰ The court determined that CAFA's statutory framework is very similar to the FDIC removal statute.⁵¹ While the court noted it was the first circuit to address the local controversy exception burden requirement,⁵² other courts have since agreed with Evans.⁵³

The court then turned to the merits of the exception as applied to the case before it.⁵⁴ The court concluded that the plaintiffs had failed to prove that more than two-thirds of the proposed class members were Alabama citizens.⁵⁵ The complaint alleged environmental harms from eighteen defendants extending over a period of at least eighty-five years.⁵⁶ The plaintiffs submitted an affidavit showing that of the 5,200 known class members, almost ninety-four percent were Alabama residents.⁵⁷ However, the court concluded that the underlying methodology was defective because it provided no information about how the persons interviewed were selected and thus provided no reliable information about the extremely broad class.⁵⁸

The court also held that the plaintiffs failed to prove the "significant defendant" prong of the local controversy exception.⁵⁹ The district court had held that U.S. Pipe, an Alabama corporation, was a significant...