Never Say Never: the Ninth Circuit's Misguided Categorical Approach to Individual Damages Questions When Assessing Rule 23(b)(3) Predominance

• Publication year: 2016
• Author: By John M. Landry

NEVER SAY NEVER: THE NINTH CIRCUIT'S MISGUIDED CATEGORICAL APPROACH TO INDIVIDUAL DAMAGES QUESTIONS WHEN ASSESSING RULE 23(B)(3) PREDOMINANCE

By John M. Landry¹

I. INTRODUCTION

To qualify for class treatment under Federal Rule of Civil Procedure 23(b)(3), damages (or restitution) claims must present common questions that "predominate over any questions affecting only individual class members."² Yet, calculating each class member's damages inherently entails some degree of individual inquiry and proof. As a result, what role individual damages questions should properly play in a predominance inquiry is a source of controversy.

When questions concerning liability are entirely common, however, various courts of appeals accept that individual damages questions do not predominate. But these courts express this rule as a general—not categorical—one, recognizing that, in certain instances, individual damages questions can reach a level of magnitude and complexity sufficient to overwhelm common questions.

Like other circuit courts, the Ninth Circuit initially adopted what appeared to be the general rule. In Blackie v. Barrack,³ a Ninth Circuit panel stated that the "amount of damages is invariably an individual question and does not defeat class action treatment."⁴ The panel then went on to consider the nature of the damages proof in that case. It supported its affirmance of the district court's class certification order by observing that computing damages for each class member would be "virtually a mechanical task."⁵

But, in a series of recent panel decisions, the Ninth Circuit has now unmistakably rejected any rule other than an absolute, categorical one: individual damages questions alone never, ever defeat class certification.⁶ Hence, once a district court perceives liability as posing entirely common questions, its predominance inquiry ends there, and individual damages questions, whatever their nature or complexity, become instantly irrelevant. Although these panel opinions purport to adhere to earlier circuit precedent, their strict, categorical approach arguably constitutes a change in Ninth Circuit law. Certainly, if it is a change, it is a nontrivial one because when applied the rule truncates the district court's Rule 23(b)(3) predominance analysis. And its application is likely to be frequent given, for example, the number of California false advertising cases litigated under California's Unfair Competition Law ("UCL") in the Ninth Circuit, cases the Ninth Circuit insists present no individualized liability determinations and so would automatically qualify for categorical treatment.

The Ninth Circuit's "categorical rule" that never permits individual damages questions alone to defeat class certification is a misstep. First, the rule's seeming departure from previous panel precedent suggests a violation of intra-circuit stare decisis. Second, the rule conflicts with the U.S. Supreme Court's decision in Comcast Corp. v. Behrend,⁷ which rests on the notion that individual damages may overwhelm common liability questions and defeat class certification. Indeed, the Ninth Circuit's own reading of Comcast, i.e., that a plaintiff show its damages method matches the liability case, makes no sense as a Rule 23 predominance requirement when applied in cases where the categorical rule also applies because the categorical rule, by definition, would obviate the need for any further predominance showing. Lastly, the Ninth Circuit's categorical approach, by ignoring damages issues altogether, effectively certifies issue-only, liability classes under Federal Rule of Civil Procedure 23(c)(4) without addressing whether a liability-only class actually advances the lawsuit's disposition.

This article discusses Rule 23(b)(3)'s predominance requirement, the general rule on the effect of individual damages questions on predominance, the Ninth Circuit's initial approach, and the genesis of the Ninth Circuit's present categorical rule. It then explains why the categorical rule should be abandoned.

II. RULE 23(B)(3)'S PREDOMINANCE REQUIREMENT

Plaintiffs purporting to assert monetary claims (damages or restitution) on behalf of a consumer or other purchaser class in federal court must proceed via Rule 23(b)(3). Unlike traditional class actions authorized under Rule 23(b)(1) or (b)(2), in which claimants tap the same limited fund or secure indivisible injunctive relief, Rule 23(b)(3) aggregates claims seeking divisible, individualized amounts of money.⁸ The justification for this is judicial economy, provided judicial economy is even achievable due to some cohesiveness present. The test for cohesiveness finds expression in Rule 23(b)(3)'s predominance element which asks whether "questions of law or fact common to the class predominate over any questions affecting only individual members."⁹ Only if the answer is yes can aggregation yield the desired efficiencies.

The predominance test is hard to pin down as the term "predominate" is imprecise. The Supreme Court's recent statement that common questions predominate when they are "more prevalent or important," lends no greater precision.¹⁰ Moreover, although Rule 23(b)(3) itself makes no distinction between questions going to liability versus those going to damages, courts tend to treat liability-related questions as more important and thus more determinative of predominance. This is observable, for example, in antitrust cases where predominance largely turns on whether there is class-wide proof of "fact of injury" (or impact), an element of the claim itself.¹¹ Hence, in cases where liability questions will, to some degree, vary by individual class member, common-question predominance is less likely. In such cases, individual damages questions are relevant in determining if individual questions (either liability or damages) predominate.¹² But when liability questions are entirely common, the question is whether individual damages questions alone may predominate.

III. INDIVIDUAL DAMAGES QUESTIONS AND PREDOMINANCE

Awarding damages to class members invariably requires some degree of individualized proof. As Professor Rubenstein points out, "[i]n most any damage class action, each class member is likely to be entitled to a specific amount of damages pertinent to the harm she suffered."¹³ He offers securities class actions as an example where "each shareholder's damage will depend on the quantity of shares that she owned." Indeed, from the outset, it was recognized that the mere need for individual damages determinations should not automatically bar Rule 23(b)(3) class certification. The advisory committee to Rule 23 used this example:

The court is required to find . . . that the questions common to the class predominate over the questions affecting individual members . . . . In this view, a fraud perpetrated on numerous persons by the use of similar misrepresentations may be an appealing situation for a class action, and it may remain so despite the need, if liability is found, for separate determination of the damages suffered by individuals within the class.¹⁴

As the advisory committee's note indicates, individual damages questions may—or may not—predominate over common liability questions. But, when liability questions are entirely common, a rule has developed. Simply stated, individual damages questions do not preclude class certification. This rule, however, is widely understood to be only a general rule, not a categorical one, and various circuit courts have expressed it in distinctly non-categorical terms.¹⁵

The First Circuit, in Smilow v. Southwest Bell Mobile Systems, Inc.,¹⁶ after surveying the various circuits, observed: "Where, as here, common questions predominate regarding liability, the courts generally find the predominance requirement to be satisfied even if individual damages remain."¹⁷ Likewise, the leading treatise on class actions summarizes the law as follows: "individual damage calculations generally do not defeat a finding that common issues predominate."¹⁸ Some courts of appeals state this same rule by recognizing that individual damages questions may, even if only infrequently, predominate over common liability questions.¹⁹ Cases from the Third, Fourth, Fifth, and Eleventh Circuits, provide actual examples of individual damages questions alone predominating over common liability questions.²⁰

Several observations are possible from the case law. Individual damages questions are most likely to predominate when calculations are particularly non-formulaic or "labyrinthine."²¹ Such calculations may defeat predominance unless a proposed class-wide method—some database, formula or expert's model—overcomes the complexity or dissimilitude, rendering the computations a less individualized or more mechanical task. For example, the Fifth Circuit has recognized that "[c]lass treatment . . . may not be suitable where the calculation of damages is not susceptible to a mathematical or formulaic calculation, or where the formula by which the parties propose to calculate individual damages is clearly inadequate."²² Absent a satisfactory class-wide method, the concern is that individual damages will require "separate mini-trials" and thereby overwhelm any common questions.

Although individual damages decisions alone rarely defeat class certification, the general, non-categorical nature of the rule remains and shapes the scope of a district court's Rule 23(b)(3) inquiry. Hence, even when liability issues are common, a general, non-categorical approach has important practical effects. District courts must still consider all potential individual issues, whether liability or damages, and understand the nature of the damages proof. Plaintiffs, even when a district court is likely to view liability issues as entirely common, must disclose how they intend to prove each class member's damages, frequently by submitting an expert's proposed formula or model to advance a more simplified, class-wide...