If you handle class actions, you’ll want to read the D.C. Circuit’s decision this past week on so-called fail-safe classes, a vexing topic that has split the circuits. But the court spent even more time explaining when courts should agree to review class-certification decisions in the first place. That, too, is an important topic, and another reason to read the decision.
As a preview, here are the key takeaways.
Fail-safe classes. As a reminder, a fail-safe class includes only plaintiffs with a viable claim (e.g., “those shareholders whom Company X defrauded”).
Fail-safe classes pose two problems. “First, if membership in a class depends on a final resolution of the merits, it is administratively difficult to determine class membership early on [as required by FRCP 23]. Second, if the only members of fail-safe classes are those who have viable claims on the merits, then class members either win or, by virtue of losing, are defined out of the class, escaping the bars of res judicata and collateral estoppel.”
Parting ways with three circuits, the D.C. Circuit held that there is no “extra-textual” rule against fail-safe classes. But the court added that fail-safe classes are unlikely to survive the textual requirements of FRCP 23, and it is those requirements that courts should apply. A class that could have no members is not numerous, for example. A class defined as those treated illegally may not present a common issue; FRCP 23 “does not allow for such a 30,000 foot view of commonality.” And so on.
But rather than reject circular classes outright, the court held, judges should fix the flaw. “The solution … is for the district court either to work with counsel to eliminate the problem or for the district court to simply define the class itself.” With that, the court remanded.
Standards for granting review under FRCP 23(f). Here’s where the court spent most of its time, first reiterating that review is generally merited when:
[a] there is a death-knell situation for either the plaintiff or defendant[,] in that the class-certification decision will effectively end the party’s ability to litigate;
[b] the certification decision presents an unsettled and fundamental issue of law relating to class actions, important both to the specific litigation and generally, that is likely to evade end-of-the-case review; or
[c] the district court’s class certification decision is manifestly erroneous.
The fail-safe class issue matched situation [b]. “Whether the district court properly adopted a rule against fail-safe classes is an unsettled, recurring, and fundamental issue of law relating to class actions, important both to the specific litigation and generally, and one that is likely to evade end-of-the-case review.” And then the court dilated for pages.
Again, if you handle class actions, you’ll want to read the whole thing.
The case is No. 22-8001, In re Valerie White (4/4/23).
