A Review of Fourth Circuit Class-Action Opinions of the Past Year
As the calendar approaches the middle of the year, it is a good time to review the Fourth Circuit’s recent class-action decisions—and there have been a number of them.
These opinions offer guidance on five key topics in class-action litigation, including numerosity, ascertainability, commonality, the rights and burdens of objectors, and how to calculate attorneys’ fees with a coupon settlement. Read on for the highlights.
The prerequisites to class certification, as any class-action practitioner knows, are outlined in Federal Rule of Civil Procedure Rule 23(a). The requirements are numerosity, commonality, typicality, and adequacy of representation. It is the named plaintiff’s burden to establish all prerequisites for class certification.
Rule 23(a)(1), the numerosity requirement, states that the class must be so numerous that joinder of all members is impracticable. Joinder involves bringing each plaintiff into the suit as a party, so that each may pursue his or her individual claim in the suit—whereas class actions allow the named plaintiff to pursue the claims of all class members in a representative capacity.
The Fourth Circuit grappled with the numerosity requirement in In re Zetia (Ezetimibe) Antitrust Litig.,7 F.4th 227, 234 (4th Cir. 2021). It explained that, generally, there is no magic number of class members needed to show that a class action is appropriate. However, classes with fewer than 20 members are rarely certified, and classes with more than 40 members usually are certified because that number of plaintiffs is usually too impracticable for joinder. The Fourth Circuit emphasized, however, that the “grey area” between 20 and 40 class members should be examined with all the circumstances of the case taken into consideration, including judicial economy.
In In re Zetia, plaintiff pharmaceutical buyers brought a putative class action against two pharmaceutical manufacturers, alleging an anticompetitive settlement in a patent dispute. The district court certified the class action, reasoning that, if a class were not certified, multiple individual trials would result, and this would be impractical from a judicial-economy perspective.
The Fourth Circuit reversed and remanded, holding that the district court incorrectly analyzed the judicial-economy factor. The district court had assessed whether multiple individual suits would waste judicial resources. The Fourth Circuit explained that the district court should instead have considered whether judicial economy favored either a class action or joinder, including whether joinder would be too expensive, time-consuming, and logistically unfeasible. The Fourth Circuit warned that if district courts do not carefully analyze judicial economy considering the impracticability of joinder, itself, then class actions will always be preferable, because they will always consume fewer resources than individual suits.
Under Rule 23, members of a proposed class must be ascertainable based on objective criteria without extensive and individualized fact-finding and each viable claim must be run through the ascertainability analysis —a principle that the Fourth Circuit analyzed in Peters v. Aetna Inc., 2 F.4th 199, 242 (4th Cir. 2021).
In that case, a participant in a health-care plan brought a putative class action against a claims administrator alleging that certain administrative fees violated the Employee Retirement Income Security Act. The plaintiff brought claims for restitution, surcharge, disgorgement, and declaratory and injunctive relief. The district court granted summary judgment for the defendants on the restitution claim, finding no financial injury, and summarily concluded that the plaintiff could not identify a class that suffered a common injury. Thus, no class was ascertainable.
The Fourth Circuit largely reversed. While it upheld the grant of summary judgment on the restitution claim, it held that the plaintiff could proceed on her claims for equitable relief, and that the district court erred in its class-certification analysis by focusing on the claim for restitution, and not assessing whether objective criteria existed for identifying a class on the claims for equitable relief. The Court concluded that the same harms that supported Peters’s claims for equitable relief could be cognizable and identifiable in the ascertainability context—and remanded to the district court for consideration of these issues.
Rule 23(a)(2), the commonality requirement, states that, for a class to be certified, there must be a question of law or fact common to the class.
In Peters, the Fourth Circuit also rejected the district court’s analysis on commonality and reversed on that basis as well. The Fourth Circuit emphasized that there is commonality in situations where common questions may generate common answers apt to drive the resolution of the case.
The district court, which rejected Peters’s claim of financial loss, concluded that she would not be able to establish a class with a common injury. The Fourth Circuit, however, concluded that the commonality requirement might be met if the district court considered Peters’s claims for equitable relief. The Fourth Circuit noted that the commonality and ascertainability analyses often overlap, and did so in this case.
Peters, altogether, shows the importance of looking critically at the nature of the claims raised and alleged harms to assess whether any may be amenable to class-wide treatment, and that courts cannot ignore seemingly tangential claims for equitable relief in conducting the class analysis.
The Fourth Circuit has had two recent decisions addressing class-action objectors.
First, McAdams v. Robinson, 26 F.4th 149 (4th Cir. 2022), dealt with an issue of first impression in the Fourth Circuit regarding whether, under 28 U.S.C. § 636(c), absent class members need to consent to magistrate-judge jurisdiction over a fairness hearing. The Fourth Circuit, like every other circuit to address the issue, held that absent class members are not parties to the class action within the meaning of section 636(c) and so do not need to consent if the named plaintiff and defendants consent.
McAdams, the absent class member, argued that the magistrate judge did not have jurisdiction to approve the class settlement because she did not consent. The Fourth Circuit reasoned that McAdams’s argument was faulty because it would be unduly burdensome on the clerk to compile the contact information of all the absent class members (here nearly 350,000) to ask for their consent, and that McAdams’s interpretation of section 636(c) would virtually eliminate referrals to magistrate judges. The Court noted, moreover, that the ordinary meaning of “party” included those designated as a plaintiff or defendant and those who can control the proceedings. Absent class members fall in neither category.
Second, in 1988 Trust for Allen v. Banner Life Ins. Co., 28 F.4th 513 (4th Cir. 2022), the Fourth Circuit addressed the respective burdens on objectors and the parties in demonstrating the fairness of a class-action settlement. The Fourth Circuit gave guidance on Rule 23(e)(5), commonly known as the objector requirement. Rule 23(e)(5)(a) provides in relevant part that objections to class-action settlements must state whether they apply only to the objector, to a specific subset of the class, or to the entire class, and state with specificity the grounds for the objection.
In 1988 Trust for Allen, former policy holders brought a putative class action against defendant life insurance companies, alleging that the life insurance companies misled the policyholders on the cost of universal life policies. The trial court certified the class and approved the settlement. One member objected, declaring that the class settlement was unfair. The objector argued that it was not its burden to show that the settlement was unfair, and instead, the burden was with the parties that sought settlement approval. The district court overruled the objection and approved the settlement.
The Fourth Circuit affirmed the settlement approval. However, the Court held, as a matter of first impression, that an objector must state the basis for its objection with enough specificity to allow the parties to respond and the court to evaluate the issues. Here, the objector claimed that the settlement was unfair, unreasonable, and inadequate, but the Fourth Circuit held that her objections were not sufficiently specific. The Court clarified, however, that when a sufficiently specific objection is made, the parties seeking approval of the settlement have the burden to demonstrate that the objection does not undermine the settlement’s fairness, adequacy, and reasonableness.
Finally, in In re Lumber Liquidators Chinese-Manufactured Flooring, 27 F.4th 291 (4th Cir. 2022), the Fourth Circuit addressed the determination of attorneys’ fees in the context of coupon settlement classes.
The Court pointed to Rule 23(e)(2), which states that a class action settlement must be fair, reasonable, and adequate. In In re Lumber Liquidators, plaintiff consumers of laminate flooring brought a putative class action against the defendant, a laminate flooring manufacturer, alleging it falsely asserted that its products met industry durability standards. The district court approved the class and a settlement providing coupons to the class, and awarded attorneys’ fees using the lodestar method.
Objectors challenged and then appealed the class settlement and the award of attorneys’ fees. Over the objection, the lawyers for the class argued that the attorneys’ fees should be based on the lodestar method, which considers the amount of time billed instead of a percentage of the recovery. The Court held, as a matter of first impression, that CAFA authorized the lodestar method in calculating attorneys’ fees for a coupon class, and that, in this case, the lodestar method was fair, reasonable, and adequate based on the favorable outcome of the settlement.
The Fourth Circuit has issued a number of important class-action opinions in the past twelve months, including some that address matters of first impression. The decisions highlight, among other things, that in addressing the requirements of Rule 23, courts should look critically at the claims raised and considerations of judicial economy and due process, and that attorneys defending against a putative class action should likewise think broadly about such considerations in crafting their arguments.