The ERISA Litigation Newsletter (December 2013)

Editor's Overview This month we look at part two of our three part series on Class Actions. In part two, Robert Rachal, Page Griffin and Madeline Chimento Rea address Wal-Mart's Rule 23(b) principles, including some defenses to plaintiffs' use of "issue" or "hybrid" certifications to limit or circumvent Wal-Mart. Part II also addresses whether Wal-Mart may limit certification of ERISA classes under Rule 23(b)(1)(A), and the use of trial plans and subclasses as means to limit or defeat class actions. Part II concludes with a brief discussion of Wal-Mart and Comcast's possible impact on "collective actions" under the Fair Labor Standards Act and the Age Discrimination in Employment Act.

As always, be sure to review the Rulings, Filings, and Settlements of Interest where we discuss new proper defendants in benefit claims, liability of a claims administrator, the presumption of prudence applicable in employer stock litigation, and reinstatement of erroneous benefit payments.

Labor and Employment and ERISA Class Actions After Wal-Mart and Comcast — Practice Points for Defendants (Part II-Rule 23(b))* By Robert Rachal, Page Griffin & Madeline Chimento Rea

Introduction and Overview – Part II

This is the second part of a three-Part Bloomberg BNA Insights article addressing the impact of Wal-Mart and Comcast on labor and employment and Employee Retirement Income Security Act class actions. As discussed in Part I, Wal-Mart's dissimilarities analysis makes commonality a significant screen to eliminate or cabin many types of labor and employment and ERISA class actions (197 PBD, 10/10/13; 40 BPR 2427, 10/15/13). This can be important to labor and employment class actions involving discretionary or complex multi-level or multi-source decision making, to ERISA investment cases in 401(k) and similar plans, and to ERISA (and labor and employment) class actions that depend on allegedly defective or misleading communications. Part I also discussed how the adequacy and typicality requirements are likely heightened in a post-Wal-Mart and Comcast world.

Part II of this article addresses Wal-Mart's Rule 23(b) principles, including some defenses to plaintiffs' use of "issue" or "hybrid" certifications to limit or circumvent Wal-Mart. On a related point, Part II addresses whether Wal-Mart may limit certification of ERISA classes under Rule 23(b)(1)(A).

Part II also addresses the use of trial plans and subclasses as means to limit or defeat class actions and ends with a brief discussion of Wal-Mart and Comcast's possible impact on "collective actions" under the Fair Labor Standards Act and the Age Discrimination in Employment Act.

Rule 23(b)(2) and Wal-Mart's Strictures

Wal-Mart substantially tightened class action procedure. This included halting the practice of permitting individualized monetary relief to be joined in Rule 23(b)(2) classes whenever a court could deem injunctive relief "predominant."[1] Wal-Mart bars any direct coupling of such monetary claims with Rule 23(b)(2) classes. As discussed below, the structural analysis in Wal-Mart, which explained why these monetary claims need Rule 23(b)(3)'s protections, should preclude indirect attempts to do the same.

Rule 23(b)(2) Class and Relief and Former Employees

Plaintiffs often seek to include former employees in Rule 23(b)(2) classes for injunctive or declaratory relief. Rule 23(b)(2), however, limits this type of class to when "final injunctive relief or corresponding declaratory relief is appropriate respecting the class as a whole."[2] First, former employees should not be included in a Rule 23(b)(2) class because they lack standing to seek such prospective relief since it would not help them, i.e., it would not "redress" their injury.[3] These limitations apply with added force to former employees of a defunct company. In such a case, there is no prospective conduct to enjoin and no chance of reinstatement.[4]

Second, former employees should not be part of a Rule 23(b)(2) class because a declaration or injunction is not "final" relief as to them.[5] For example, former employees should not be in a class seeking a declaration that the challenged conduct is "unlawful," since what justifies Rule 23(b)(2) certification is enjoining prospective conduct that constitutes final relief as to the plaintiff, not a declaration to use as a step on the way to the ultimate relief of a monetary payment.[6] On a related point, former employees should not be part of a Rule 23(b)(2) class because the declaration must be for the class "as a whole." Former employees would not be within the required class-wide declaration for final relief because whether they recover often depends on whether there are defenses to their individual claims for relief.[7]

Finally, it is worth noting that even when a Rule 23(b)(2) class is limited to prospective injunctive relief for current employees, such relief may raise conflicts that defeat or limit classes. For instance, class conflicts may exist if certain class members benefit from or desire the continuation of the challenged practice.[8] Additionally, injunctive relief in Title VII cases that impinges on the rights of employee third parties raises a host of issues, which can limit the scope or nature of such relief.[9] Remedies based on inclusion (e.g., attracting more female applicants through recruitment) are more likely to be acceptable than those based on exclusion (e.g., selecting some candidates rather than others from a pool).[10] Further, Title VII has put in place notice requirements and protections before these absent parties can be bound by such relief.[11]

Practice Pointers:

Resist attempts to include former employees in a Rule 23(b)(2) class by urging standing, finality and "class as a whole" requirements. If any class member benefits from or supports the current practice, use this to show class conflicts that should limit or defeat class certification. Experts may also be helpful to show this. In Title VII cases, show that the desired prospective relief impinges on the rights of employee third parties. Hybrid or Issue Certification Should Not Be Used To Circumvent Wal-Mart's Procedural Protections

Rule 23(c)(4) provides that "[w]hen appropriate, an action may be brought or maintained as a class action with respect to particular issues."[12] Some courts have read this as a housekeeping Rule for use only when the claim is certified as meeting the class requirements of Rule 23(a) and (b).[13] In other words, they have read "when appropriate" as incorporating the other requirements of Rule 23. Other courts, however, have treated this as a "fourth way" to certify a class action under Rule 23(b). Under this analysis, the Rule 23(b) class includes an "issues class." Similarly, some courts have used this Rule to justify "hybrid certifications," in which only part of a case is certified as one of the class types in Rule 23(b), and then the rest of the case is to be certified in a mix-and-match method as a different type of class, or perhaps as no class at all going forward for case resolution.[14] Procedural Frankensteins come to mind, in which procedures and rights are uncertain and ad hoc. The use of issue classes appears to be on the rise since Wal-Mart shut down the overbroad use of Rule 23(b)(2).[15]

There are several arguments against such approaches. First, Rule 23(b) lists only three types of class actions, and the courts are unequivocal that a class action must satisfy at least one of these three types to be certified.[16] Rule 23(b) also speaks in terms of "class actions" for Rule 23(b)(1) and (b)(3) classes and of "final relief" for "the class as a whole" for Rule (b)(2) classes. "Action" is understood to be the case as a whole, not a piece of it.[17] And nowhere does Rule 23(b) include "issues" classes as an additional category of class action.[18] Rather, reading the "when appropriate" requirement of Rule 23(c) (4) in light of the rest of Rule 23(b) would suggest the case-the action-first must meet the standards to be certified as one of the permitted Rule 23(b) classes before this Rule can apply. Second, overbroad use of hybrid and issue certification is inconsistent with Wal-Mart, the structure of Rule 23(b) and its underlying principles of Due Process. This applies with added force when the ultimate relief is principally monetary and there will be substantial individualized issues and defenses.[19]

Finally, even if permitted, hybrid or issue certification should be used only in rare circumstances, and not when (i) the ultimate relief sought is predominately monetary, or (ii) the declaratory or injunctive claims are inextricably intertwined with individual issues and there are too many individualized issues left to resolve the claims. Wal-Mart supports that attempting to carve up a claim with monetary relief to try to fit part of it within Rule 23(b)(2) is improper, as it infringes on due process protections—notice, opt-out, predominance and superiority—embedded in Rule 23(b)(3) that protect both plaintiffs and defendants.[20] Cases such as McReynolds, however, have certified hybrid classes that include monetary claims without considering whether this is consistent with Wal-Mart.[21]

Accordingly, even if issue or hybrid certification is deemed consistent with Rule 23(b), courts should permit such certification only in limited circumstances. As the Federal Judicial Center's Manual for Complex Litigation notes, issue certification should not be used unless it permits fair presentation of the claims and defenses and materially advances the disposition of the litigation as a whole. If the resolution of an issues class leaves a larger number of issues requiring individual decisions, the certification may not meet this test.[22]

Thus, for example, even if there were a claimed common scheme to mislead employees, no issue certification is appropriate if there are numerous individualized issues left on reliance, injury and...