Discretion in class certification.

Author:Wolff, Tobias Barrington
Position:II. An overview of Discretion Under Modern Rule 23 D. Discretion Not to Certify through Conclusion, with footnotes, p. 1926-1952
  1. Discretion Not to Certify

    The discretion not to certify a class--to exercise judgment in deciding whether aggregate treatment is appropriate at all, even if the requirements of Rule 23 are satisfied--is the most consequential form of control that a federal court can exercise in a putative class action proceeding. With the elimination of the conditional certification provision from Rule 23(c)(3)(C) and the Court's recent emphasis on the need for a "rigorous analysis" prior to certification, (157) a court has minimal power to authorize class certification outside the clear boundaries of Rule 23's text. In contrast, the discretion not to certify has formed a significant part of the class action jurisprudence of the federal courts since the enactment of the 1966 revisions to Rule 23. It has found expression in highly influential rulings by the lower federal courts and enjoyed a partial imprimatur from the Supreme Court itself. Some rulings have lodged the discretion not to certify in the superiority requirement for cases filed under Rule 23(b)(3) or in the tradition of discretionary control over equitable relief in (b)(2) actions. Others have not felt the need for such textual positioning, instead relying directly upon the discretion inherent in Rule 23. In many of these cases, courts have based their judgments upon an assessment of the underlying law and the impact that a class action would have upon substantive policies. But courts have also exercised the discretion not to certify in response to litigation dynamics not specifically tied to any substantive legal regime.

    The first major ruling to explore substantive law reasons for exercising discretion not to certify, and the most influential opinion of its kind for some years, was Judge Marvin Frankel's decision in Ratner v. Chemical Bank New York Trust Co. (158) The defendant in Ratner had failed to include a required disclosure on an initial credit card statement concerning the annual percentage rate of interest, and a cardholder brought suit under the TILA seeking to represent 130,000 others under Rule 23(b)(3) and claiming statutory damages of at least $100 per person. (159) The violation was technical in nature--the company had disclosed the rate in other communications, provided the required disclosure on subsequent credit card statements, and corrected the omission on the initial statement when made aware of it. (160) The initial omission was still a violation of the clear terms of the TILA, however, and entitled the plaintiff to summary judgment on the merits. (161) The case also seemed particularly well-suited to class treatment: the omission was identical for all cardholders, there was no requirement to show individual reliance, and the statutory damages provision eliminated any need for individual proof of harm. Many other district courts had previously certified classes in similar TILA disputes. (162)

    Judge Frankel denied the request to certify the class in a brief opinion that began with the following summary of reasons:

    (1) there is no affirmative need or justification for such a proceeding in the actual circumstances of the case; and

    (2) the allowance of thousands of minimum recoveries like plaintiff's would carry to an absurd and stultifying extreme the specific and essentially

    inconsistent remedy Congress prescribed as the means of private enforcement. (163)

    The "broad and open-ended terms" of the newly revised Rule called for "the exercise of some considerable discretion of a pragmatic nature" in making certification determinations, the court continued, and permitting a massive class-wide remedy for technical violations that had already been corrected would impose "horrendous, possibly annihilating punishment, unrelated to any damage to the purported class or to any benefit to defendant," a result that would be inconsistent with Congress's purpose in enacting the TILA. (164) Invoking the superiority requirement (albeit as something of an afterthought), Judge Frankel declined the request for certification and instead entered judgment on Ratner's individual claim. (165)

    Ratner had a dramatic impact on TILA litigation and subsequent legislative developments. In one illustrative 1973 case, Wilcox v. Commerce Bank of Kansas City, the Tenth Circuit affirmed a district court's denial of class certification in a TILA case involving a broader set of alleged failures to disclose required information in credit card statements, with a total potential liability of over one billion dollars. (166) Relying on Judge Frankel's opinion, the court of appeals rejected the proposition that class actions must be available either always or never for TILA violations. Instead, it authorized a discretionary approach "in view of a congressional confidence in case by case determinations" about the propriety of class certification "by qualified and informed trial judges with a wide general discretion and specific leeway under Rule 23 itself to avoid inferior, unfair or senseless applications" of the statute. (167) A report of the Senate Committee on Banking, Housing and Urban Affairs concerning the amendments to the TILA enacted in 1974 described Ratner as the "leading case" on TILA class actions and quantified its impact:

    Prior to the Ratner decision on February 14, 1972, the courts affirmed 8 Truth in Lending suits as class actions while denying class action status to 3. Since the Ratner case, the courts denied 21 Truth in Lending suits class action status while affirming only one and in that case, only after the plaintiffs amended their complaint to sue only for actual damages. (168) The amendments responded to Ratner's use of trial court discretion to avoid industry-destroying liability by imposing a statutory cap of $100,000 on total classwide damages in order to remove the crushing potential of classwide liability and preserve the feasibility of class remedies for private enforcement. (169) Further amendments in 1976 raised the damages cap to $500,000 to ensure that private enforcement would remain a financially viable mechanism for plaintiffs' lawyers. (170) The discretion not to certify that Judge Frankel and others exercised in the early TILA cases did not provoke a congressional rebuke; rather, it initiated a dialogue with Congress that preserved the private remedy under the statute while reducing the need for courts to apply a safety valve. (171)

    The TILA cases were the first major occasion where the lower federal courts systematically exercised discretion not to certify under modern Rule 23, but they are not singular. Courts have exercised that prerogative in a range of substantive contexts since the 1966 revisions. In some cases, courts have grounded the decision to deny certification on an assessment of the impact that class treatment would have upon the specific policies reflected in the law underlying the dispute, as in Ratner and its progeny. In others, like the widely cited opinion of Judge Posner in In re Rhone-Poulenc Rorer Inc. ,m courts have identified the potential impact of class certification on shared social policies as a basis for exercising discretion in deciding when class certification is advisable without tying their analysis to any particular substantive legal regime. And in still others, courts have invoked institutional principles not directly linked to substantive policy, particularly in cases involving government defendants in which the class device is invoked primarily as a tool for ensuring broad compliance. The range is broad and the record deep.

    The Supreme Court of the United States has never issued a major holding on the discretion not to certify, but the Court has assumed and relied upon the existence of such discretion. In Reiter v. Sonotone Corp., the Supreme Court confronted an antitrust question regarding the availability of treble damages in consumer lawsuits. (173) The case involved allegations of price fixing in the market for hearing aids that increased the cost of the product, and the plaintiff, a consumer, sought treble damages on behalf of all retail purchasers of the affected devices. (174) The appellate court held that treble damages were unavailable because an individual consumer was not injured in her "business or property" by anticompetitive behavior (a requirement under the statute), (175) but the Supreme Court reversed, finding that "the word 'property' has a naturally broad and inclusive meaning" that necessarily includes a consumer's loss of money when paying inflated prices for goods. (176) The defendants protested that making treble damages available in consumer class actions would "have a potentially ruinous effect on small businesses in particular and will ultimately be paid by consumers in any event," urging the Court to find the remedy wholly unavailable in that category of cases. (177) The Court acknowledged the importance of these concerns but found that the "plain language" of the Clayton Act precluded a holding that consumers were ineligible for treble damages. (178) Nevertheless, as in Yamasaki--which was heard in the same Term and handed down nine days after Reiter--the Court went on to opine on the important systemic role of federal court discretion in potentially troublesome categories of class proceeding:

    District courts must be especially alert to identify frivolous claims brought to extort nuisance settlements; they have broad power and discretion vested in them by Fed. Rule Civ. Proc. 23 with respect to matters involving the certification and management of potentially cumbersome or frivolous class actions. Recognition of the plain meaning of the statutory language "business or property" need not result in administrative chaos, class-action harassment, or "windfall" settlements if the district courts exercise sound discretion and use the tools available. (179) Treble damages in consumer claims need not produce extortion, the Reiter Court concluded, because frivolous claimants...

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