As the end of 2024 approaches, it’s a good time to take a look at the Fourth Circuit’s decisions on class certification over the past year.  In 2024, the Fourth Circuit issued several decisions on class certification, offering guidance on ascertainability, commonality, standing, the relationship between Rule 12(b)(6) and class certification, and the types of classes that may be certified under Rule 23(b).

In five of the six key certification decisions this year, the Court either held that class certification was improper or vacated the district court’s certification order and remanded for further proceedings, though several decisions garnered dissents. Read on for an overview of these decisions and insights for those who may be litigating issues of class certification in the year to come.

Ascertainability: Plaintiff’s Burden When Required, but Not Required for Rule 23(b)(2) Classes

The Fourth Circuit has held that Rule 23 contains an implicit requirement that a class cannot be certified unless a court can “readily identify the class members in reference to objective criteria.” EQT Prod. Co. v. Adair, 764 F.3d 347, 358 (4th Cir. 2014). Accordingly, class certification is inappropriate where identifying the class members would involve “extensive and individualized fact-finding.”  Id. (quoting Marcus v. BMW of N.A., LLC, 687 F.3d 583, 593 (3d Cir. 2012)). This year, the Fourth Circuit issued two key decisions on ascertainability, one holding that the plaintiff failed to meet the ascertainability requirement and another holding that, while ascertainability is a requirement for Rule 23(b)(1) and (b)(3) classes, it does not apply to Rule 23(b)(2) classes.

Let’s start with the former decision, holding that the plaintiff failed to satisfy the ascertainability requirement: Career Counseling, Inc. v. AmeriFactors Financial Group, LLC, 91 F.4th 202 (2024), petition for cert. filed, No. 23A982. The plaintiff alleged that the defendant sent it and thousands of other recipients an unsolicited advertisement via fax in violation of the Telephone Consumer Protection Act of 1991 (the “TCPA”), as amended by the Junk Fax Prevention Act of 2005. The plaintiff’s proposed class consisted of nearly 59,000 persons and entities who were allegedly sent the same fax that the plaintiff received.

The TCPA prohibits unsolicited advertisements sent to stand-alone fax machines but does not cover unsolicited advertisements sent to online fax services. Thus, identifying class members would have required identifying which of the 59,000 recipients were using stand-alone fax machines as opposed to online fax services. Judge Childs of the District of South Carolina rejected as deficient the plaintiff’s proposed method of identifying the stand-alone fax machine users and denied the plaintiff’s motion for class certification. Thereafter, the district court granted the plaintiff’s motion for summary judgment on its individual claim against the defendant.

The parties cross-appealed, with the plaintiff challenging the denial of class certification and the defendant challenging the entry of summary judgment. In its appeal, the plaintiff contended that it could identify class members by sending a subpoena to the telephone carrier associated with each recipient’s fax number and asking the carrier whether it provided an online fax service in connection with the particular number. The Fourth Circuit found logical flaws in this method, pointing out that just because the recipient’s telephone carrier did not offer an online fax service did not necessarily mean that the recipient was therefore using a stand-alone fax machine. The recipients may still have been using online fax services provided by someone other than the carrier. Thus, the district court would be left to make an individualized inquiry as to whether each recipient was using a stand-alone fax machine at the relevant time, rendering the class of stand-alone fax machine users not ascertainable. 

The en banc Court also touched on the ascertainability requirement in hotly contested consolidated appeals dealing with whether North Carolina and West Virginia healthcare plans that excluded coverage of certain treatments unique to transgender patients violated the Equal Protection Clause and other provisions of federal law. Kadel v. Folwell, 100 F.4th 122, 133 (4th Cir. 2024) (en banc).  In the West Virginia case, Judge Chambers of the Southern District of West Virginia certified a class of “all transgender people who are or will be enrolled in West Virginia Medicaid and who are seeking gender-confirming care barred by the Exclusion,” and entered summary judgment in the plaintiffs’ favor.  

The defendants appealed, and after a panel hearing with no decision issued, the court reheard the appeal en banc.  Although class certification issues were not at the heart of the decision, Judge Gregory, writing for a majority of the court, briefly touched on class certification.

The West Virginia appellants argued that the class definition failed the ascertainability requirement. The Fourth Circuit majority noted that “courts of appeals have consistently declined to impose an ascertainability requirement in 23(b)(2) cases requesting that a party be enjoined from certain actions.” Rule 23(b)(2) allows for certification when “the party opposing the class has acted or refused to act on grounds that apply generally to the class, so that final injunctive relief or corresponding declaratory relief is appropriate respecting the class as a whole.”  The Court explained that a “readily identifiable” or “ascertainable” class is important in Rule 23(b)(1) and 23(b)(3) classes where issues of notice and damages are at play, but those issues are not at play in a 23(b)(2) case, which seeks only declaratory and injunctive relief from a discriminatory policy.

Therefore, Rule 23(b)(2) does not contain a threshold ascertainability requirement and the West Virginia district court did not err in certifying the class. On the ultimate merits question, the majority held that both the North Carolina and West Virginia healthcare plans discriminated on the basis of gender identity and sex in violation of the Equal Protection Clause.

Commonality:  Requires a Common Injury, Not Just a Common Violation of the Same Statute 

Rule 23(a)(2) requires a plaintiff to show that “there are questions of law or fact common to the class.”  Fed. R. Civ. P. 23(a)(2). Although Rule 23(a)(2) is phrased in terms of common questions, “what matters for class certification is the capacity of a class-wide proceeding to generate common answers apt to drive the resolution of the litigation.” Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338, 350 (2011) (emphasis in original) (cleaned up).

In G.T. v. Board of Education of County of Kanawha, the Fourth Circuit grappled with the commonality requirement in cases alleging statutory violations. 117 F.4th 193 (4th Cir. 2024). The Court emphasized that the commonality requirement is not satisfied just because all class members suffered a violation of the same provision of law. Commonality requires the plaintiff to demonstrate that the class members have suffered the same injury.

The plaintiffs in this case alleged that the school board violated the Individuals with Disabilities Education Act (“IDEA”) by failing to provide effective behavior supports for students with disabilities, leading to those students being unjustifiably removed from the classroom for misbehavior. Judge Berger of the Southern District of West Virginia certified a class of all “Kanawha County Schools students with disabilities who need behavior supports and have experienced disciplinary removals from any classroom.” The defendants appealed pursuant to Rule 23(f), which allows an appellate court to hear an interlocutory appeal from an order on class certification.

In a majority opinion authored by Judge Rushing (joined by Judge Motz), the Fourth Circuit reversed the district court’s certification order on the grounds that the plaintiffs failed to satisfy the commonality requirement.  Commonality requires the plaintiff to demonstrate that the class members have suffered the same injury. However, the typical IDEA lawsuit involves an individualized assessment of whether a student was denied a free appropriate public education (“FAPE”), which typically is not suitable for class treatment. 

In IDEA class actions, “the commonality prerequisite requires proof of some common driver—the ‘glue’ holding all those decisions together in a way that suggests they can be productively litigated all at once.” Thus, certification of an IDEA class requires the plaintiff to identify a uniform policy of the school district that drives the alleged violation. Here, the plaintiffs failed to identify such a policy, and resolving whether the school board adequately developed appropriate behavioral supports for any individual class member would turn on that particular child’s needs and goals. Thus, the plaintiffs failed to meet the commonality requirement and the Court reversed the district court’s certification order.

In a separate opinion concurring in part and dissenting in part, Judge Wynn contended that the plaintiffs satisfied Rule 23’s commonality requirement, reasoning that a common risk that derives from policy failures can support class certification. Applying this risk-of-harm theory, the G.T. plaintiffs targeted the defendants’ failure to enact legally required policies, which posed a common risk of harm to all students with disabilities. Although Judge Wynn disagreed with the majority about whether the plaintiffs satisfied Rule 23’s commonality requirement, Judge Wynn would still vacate the district court’s opinion and remand for the district court to address whether the risk of harm is sufficiently substantial to support standing.

Standing:  Certification is Improper When the Named Plaintiff Fails to Demonstrate Standing

As this blog has previously discussed, in 2021, in TransUnion, the United States Supreme Court held that to recover damages, every class member must have standing. “Transunion LLC v. Ramirez: A Pyrrhic Victory for Class Action Defendants?” Ellis & Winters LLP Best in Class Blog (Sept. 13, 2021). This year, in Fernandez v. RentGrow, Inc., the Fourth Circuit grappled with questions of standing at the class certification stage and demonstrated that standing issues can be a basis for undermining class certification. 116 F.4th 288 (4th Cir. 2024).

Like TransUnion, Fernandez dealt with allegations of false information in consumer reports in violation of the Fair Credit Reporting Act. The named plaintiff alleged that a consumer reporting agency falsely reported to his landlord, in connection with a tenant screening report, that he was a “possible match” to someone on a list of persons who pose a threat to national security. 

The defendant argued that the plaintiff failed to demonstrate that he and the putative class members suffered a concrete injury sufficient to establish Article III standing. Judge Bredar of the District of Maryland disagreed with the defendant’s argument, finding that dissemination of a misleading report alone was sufficient to demonstrate a concrete injury and thus it did not matter whether the recipient read or understood it. The district court ultimately certified a class of all individuals who were subject to a consumer report that the defendant issued to a third party during a set time period and which reported false possible matches regarding the person being on the subject national security threat lists. In the same opinion granting class certification, the district court denied the defendant’s motion for summary judgment. The defendant sought immediate review of the class certification order pursuant to Rule 23(f), which the Fourth Circuit granted.

The Fourth Circuit concluded that the district court erred in its standing analysis. The Court vacated the certification order and remanded to the district court to reconsider class certification in light of the Fourth Circuit’s decision.

TransUnion held that the presence of a misleading alert to a match on a national security list contained within an internal credit file causes no concrete harm if it is not disclosed to a third party. Without publication, there can be no reputational harm. Thus, the Fourth Circuit explained that, to show that he had standing, the named plaintiff, Fernandez, had to show that a third party read and understood, or otherwise considered, the misleading information in his screening report indicating that he might be a match to someone on the list of persons who pose a threat to national security. There was no such evidence here. Thus, the Fourth Circuit held that Fernandez lacked standing.

The Fourth Circuit did not outright reverse class certification, however, based on Fernandez’s lack of standing. Rather, the Court reasoned that, because the district court’s erroneous standing analysis “undermine[d] [its] reasoning at various points throughout the class certification order,” a remand for reconsideration of class certification with a correct standing analysis was in order.

Pendent Appellate Jurisdiction:  An Opportunity for Review of a 12(b)(6) Denial Along with Review of Class Certification

Just as an erroneous analysis on standing can lead to an erroneous certification decision, so too can an erroneous ruling at the 12(b)(6) stage. See Elegant Massage, LLC v. State Farm Mut. Auto. Ins. Co., 95 F.4th 181 (4th Cir. 2024). Although a denial of a motion to dismiss is usually not immediately appealable, in Elegant Massage, Judge Keenan, writing for a majority of the Fourth Circuit (joined by Chief Judge Diaz), showed how appeals from certification under Rule 23(f) can afford an opportunity to challenge a trial court’s denial of a motion to dismiss.

Due to emergency orders issued during the pandemic, Elegant Massage, a Virginia massage parlor, had to temporarily cease operations. Elegant Massage filed a claim with its insurance company, State Farm, for loss of business income under its “all risk” commercial property policy. The coverage included “loss of income” sustained during “suspension” of operations during any “period of restoration.” To qualify for “loss of income” coverage, the policy required that the “suspension” be caused by “accidental direct physical loss” to the covered policy. State Farm denied the claim, explaining that Elegant Massage voluntarily closed before any Virginia executive order went into place and that there was no known damage to the covered property.

Elegant Massage filed a putative class action against State Farm for breach of contract and breach of the duty of good faith and fair dealing.  State Farm moved to dismiss, arguing that Elegant Massage did not allege “accidental direct physical loss” to the covered property. Judge Jackson of the Eastern District of Virginia denied State Farm’s motion to dismiss, explaining that “direct physical loss” could mean that the covered property was uninhabitable or inaccessible because of intangible sources. The district court certified a class of all persons and entities in Virginia with a businessowners’ insurance policy issued by State Farm whose policies were in effect between March and June 2020.

State Farm sought immediate appellate review of the certification order under Rule 23(f). The Fourth Circuit granted immediate review of the class certification order and considered whether it had pendent appellate jurisdiction to review the trial court’s order denying State Farm’s motion to dismiss.  Ultimately, the majority exercised pendent appellate jurisdiction, reversed the denial of the defendant’s motion to dismiss, reserved the class certification order, and remanded to the district court with instructions to dismiss the entire case.

The majority explained that, under the doctrine of pendent appellate jurisdiction, an appellate court may review an issue not otherwise subject to immediate appeal when that issue is “so interconnected” with an issue properly raised on appeal so as to warrant concurrent review. Here, the majority found the dismissal order and certification order were interconnected because the district court’s denial of State Farm’s motion to dismiss and resulting assumptions underlying its class certification order conflicted with Fourth Circuit precedent addressing nearly identical language in a different insurance policy. 

Under that prior precedent, the Fourth Circuit interpreted “physical loss”  to require material destruction or material harm to the covered premises. Here, the executive orders did not alter the covered property to require repair, rebuilding, or replacement. The district court’s erroneous interpretation of “direct physical loss” also guided its ruling on class certification. For example, in analyzing Rule 23(b)(3)’s predominance requirement, the district court cited its opinion denying State Farm’s motion to dismiss and reiterated that Elegant Massage suffered a covered loss due to the executive orders. The Court reversed and remanded to the district court with instructions to dismiss the case.

In a separate opinion concurring in part and dissenting in part, Judge Wynn contended that the majority did not need to reach the denial of the motion to dismiss to resolve the appeal. In Judge Wynn’s view, the majority should have reached the same outcome without mention of the motion to dismiss, and by reaching the motion to dismiss, the majority did not properly account for Congressional limitations imposed on review of interlocutory decisions.

Rules 23(b)(2) and 23(b)(3):  Not Satisfied When Monetary Relief Predominates and a Class Action is Not the Superior Method of Adjudication

Finally, let’s take a look two aspects of Rule 23(b), subsection (b)(2), which permits actions for injunctive relief but not if claims for monetary relief predominate, and subsection (b)(3)’s superiority requirement. The Fourth Circuit engaged with each of these issues in a case concerning a Ponzi scheme involving investments into Chinese companies. Cheng v. Liu, No. 23-1806, 2024 WL 3579606 (4th Cir. July 29, 2024) (unpublished). While the decision is unpublished, it may be of note to practitioners and is therefore included here.

The plaintiffs in this putative class action were individuals who entered into investment contracts in China as part of a fraudulent Ponzi scheme. The plaintiffs asserted ten claims, including for breach of contract, fraud, unjust enrichment, securities violations, and conversion. Judge Dawson, III, of the District of South Carolina denied the plaintiffs’ motion for class certification, finding that the plaintiffs failed to meet Rule 23(a)’s commonality and typicality requirements, and that certification was improper under Rules 23(b)(2) and (b)(3). The plaintiffs sought immediate review of the denial of class certification pursuant to Rule 23(f), which the Fourth Circuit granted.  

The Fourth Circuit affirmed. It based its analysis on Rule 23(b) and began with subsection (2). As mentioned above, Rule 23(b)(2) permits class certification if “the party opposing the class has acted or refused to act on grounds that apply generally to the class, so that final injunctive relief or corresponding declaratory relief is appropriate respecting the class as a whole.” Although Rule 23(b)(2) classes may be certified in some cases even when monetary relief is at issue, certification as a Rule 23(b)(2) class is improper where monetary relief predominates.

Here, seven of the plaintiffs’ ten claims sought actual damages rather than equitable or injunctive relief. Furthermore, the putative class members invested different amounts at different times, so an individualized determination of damages would be necessary. Therefore, the district court did not err in concluding that monetary relief predominated and that a Rule 23(b)(2) class was improper.

Because the plaintiffs did not satisfy Rule 23(b)(2), the Court turned to Rule 23(b)(3), governing class actions seeking monetary relief and requiring a plaintiff to show that a class action is a superior method of adjudicating claims between the class members and the defendant. Superiority is satisfied where “a class action is superior to other available methods for fairly and efficiently adjudicating the controversy.” 

Factors relevant to the superiority analysis include the desirability or undesirability of concentrating the litigation in the forum and likely difficulties in managing a class action. Here, nearly all the investors were Chinese citizens who invested in Chinese companies with Chinese money. The key evidence was located in China, and it was unlikely that China would allow for American-type discovery. Therefore, the district court did not err in determining that the plaintiffs failed to establish the propriety of a Rule 23(b)(3) class.

Having determined that the plaintiffs failed to satisfy Rule 23(b), the Court did not need to reach the parties’ arguments regarding Rule 23(a) because failure to satisfy either Rule 23(a) or Rule 23(b) precludes class certification. The Court affirmed the district court’s order denying class certification and remanded for further proceedings on the individual plaintiffs’ claims.

***

As these cases demonstrate, it was largely a good year in the Fourth Circuit for class action defendants. The Fourth Circuit emphasized that plaintiffs must demonstrate a logical method of identifying class members (except in Rule 23(b)(2) classes where the ascertainability requirement does not apply); explained that plaintiffs must show a common injury and not just a common statutory violation; highlighted the importance of standing issues at the class certification stage; exercised pendent appellate jurisdiction to review a denial of a motion to dismiss in conjunction with a district court’s certification order; and highlighted situations when a class may not be certified under Rules 23(b)(2) and (b)(3).