The ERISA Litigation Newsletter - January 2014
EDITOR'S OVERVIEW
This month we look at part three of our three part series on Class Actions. In part three, Robert Rachal and M. Todd Mobley address the role of experts in class certification post Wal-Mart and Comcast and how to use and attack experts during the class certification phase of class action litigation. Please look for parts one and two of this series in our previous Newsletters.
As always, be sure to review the Rulings, Filings, and Settlement of Interest where we discuss the Supreme Court's decision to resolve a circuit split in health care reform cases, the Supreme Court's decision on the enforceability of plan limitations provisions, the availability of remedies under ERISA, IRS guidance on in-plan Roth rollovers, benefits for same-sex spouses and non-discrimination testing relief, and valid assignments of rights.
LABOR AND EMPLOYMENT AND ERISA CLASS ACTIONS AFTER WAL-MART AND COMCASTPRACTICE POINTS FOR DEFENDANTS (PART III - EXPERTS)*
By Robert Rachal and M. Todd Mobley
Introduction and Overview Part III: Wal-Mart and Comcast and the Central Role of Experts in Class Certification
This is the final installment of a three-part Bloomberg BNA Insight article addressing the impact of Wal-Mart and Comcast on labor and employment and ERISA class actions (197 PBD, 10/10/13; 207 PBD, 10/25/13; 40 BPR 2427, 10/15/13; 40 BPR 2537, 10/29/13). This is a hotly contested and developing areacases such as the U.S. Court of Appeals for the Fourth Circuit's recent ruling suggesting a class may be possible regarding management discretion indicate that the full meanings of Wal-Mart and of Comcast are still being developed.1 This part focuses on experts, and how defendants may be able to use experts to defeat or limit class certification.
Wal-Mart and Comcast offer a good place to begin a discussion on class certification and experts, since the failures of expert proof in those cases led to class decertification. In Wal-Mart, plaintiffs sought to prove commonality for their pay and promotion claims using two forms of expert proof: (i) a "social framework" analysis purporting to show that Wal-Mart had a corporate culture that made it susceptible to gender bias; and (ii) a statistical analysis that showed disparities in pay and promotions.2 In answering the central question as to "why was I disfavored," the Court found the social framework analysis of plaintiffs' expert useless for class purposesit provided no "glue" to show that discretion was exercised in a common and discriminatory mannersince it could not answer whether 0.5 percent or 95 percent of the employment decisions at Wal-Mart were determined by stereotyped thinking on gender.3
The Court also found plaintiffs' statistical evidence deficient. The Court noted that the presence of disparities at the national or regional level does not establish the existence of disparitiesor discriminationat the store level where the challenged decisions were made. The statistics' more fundamental flaw was that they failed to address possible sex-neutral reasons, including the relative availability of qualified and interested women at the store level, that could rebut any bottom-line disparities. Proof of bottom-line disparities does not answer the common question. Rather, the plaintiff must identify the particular employment practice causing the disparity and show that it caused the disparity through a common mode of acting.4
In Comcast Corp. v. Behrend,5 the Court addressed the proof of harm and damageswhich is almost always done through expertsrequired to certify a class. In an antitrust claim regarding a proposed class of cable subscribers, plaintiffs proffered four theories of antitrust injury that they argued drove-up cable subscription rates.6 The district judge found only one of these, the "deterrence of overbuilding" theory, capable of class-wide proof, and that the others could not be determined in a manner common to the class.7 Plaintiffs' economics expert admitted that he had not isolated the damages resulting from the different theories of antitrust impact, instead including the non-class theories in his model.8
The Court concluded that this expert evidence failed to carry plaintiffs' burden of proof on Rule 23's requirements.9 Specifically, the Court found that plaintiffs failed to satisfy the predominance requirements of Rule 23(b)(3) because they could not show damages capable of class-wide proof.10 The Court held that the damages model must be consistent with the liability modeli.e., that any model purporting to serve as evidence of damages in a class action must measure only damages attributable to the class-wide theory of harm.11 In the view of the dissent, the expert evidence tendered was sufficient for class purposes since it purported to show that Comcast's conduct resulted in higher prices, even though it failed to show causation tied to the class theory of harm.12 The majority imposed a far more rigorous standard: Plaintiffs must prove that the claimed class-wrong caused the injury class-wide, free of taint from individual factors. Absent such proof, plaintiffs cannot satisfy Rule 23's requirement that common issues predominate for class claims seeking damages.13
As detailed below, Wal-Mart and Comcast provide significant grounds to challenge expert opinions supporting class certification.
Going on Offense: Using and Attacking Experts in Class Certification
The facts necessary to establishor disestablishwhether Rule 23 has been met typically require expert analysis and opinion, e.g., analysis of whether there are common issues or of whether everyone in the class has a common interest or suffered a common injury. These are not facts typically found in the record, and rulings like Wal-Mart and Comcast illustrate how expert issues can affect class certification.
To prohibit abuse and enhance evidentiary reliability, there are a host of rules that control and limit expert evidence. In the class stage, an initial issue is whether class experts are subject to Daubert and the attendant reliability requirements imposed on expert evidence.14 To meet Daubert's reliability requirements, the expert must show that his testimony (i) is based on sufficient facts or data, (ii) is the product of reliable principles and methods, and (iii) that the expert has applied the principles and methods reliably to the facts at hand.15 In a not-too-distant era of "certify first, ask questions later," many courts declined to require that class experts meet the reliability standards imposed by Daubert. These days should be past; now class expert evidence must be not merely admissible but persuasive to pass class muster.16
On defense strategy, class certification is typically procedurally advantageous to defendants. Unlike in summary judgment, at class certification plaintiffs bear the burden of proof. Further, class certification is often the first opportunity for a defendant to put on facts supporting its case and to show the defects in a plaintiff's class claims. Defendants can challenge plaintiffs' experts, and defendants can also put on their own experts to show the defects in plaintiffs' expert-analyses or to develop expert evidence showing that the Rule 23 requirements have not been met. Potential grounds to challenge experts and the Rule 23 requirements are discussed throughout this three-part Bloomberg BNA Insight article; some key points include:
On discrimination claims, are decisions made at the local store, office, or facility level? Does plaintiff's expert bundle up or "average out" the statistics? Conversely, can a defense expert show variability between the store, office, or facility on the challenged criteria? On discrimination claims, are decisions made at multiple levels, with multiple actors and inputs? Does plaintiff's expert use a "bottom line" analysis that does not account for or break out the steps in the process? Conversely, can a defense expert show the importance of the steps in the process, and any variability on the challenged criteria by the different actors and steps in the process? On discrimination claims, has plaintiff's expert accounted for employee choice and interest? Conversely, can a defense expert show that there is not homogeneous interest in or qualifications for the job positions at issue? On ERISA (or discrimination claims) have some in the proposed class benefitted from the challenged conduct? Can a defense expert statistically analyze and show these differences? Practice Pointers:
It sometimes may be worthwhile to file Daubert motions challenging the admissibility of class experts. Even if the motion is not granted, it can show flaws in the expert's analysis that undercut its persuasive value. Consider using defense experts not just to show flaws in the analyses of plaintiffs' experts, but also to affirmatively show why class certification requirements have not been met. Expert Issues Arising in Employer Discrimination Class Claims
Because they may rely on invalid or questionable assumptions, plaintiffs' class experts in discrimination claims are often ripe for challenge. Specifically, it is common for the plaintiff's class expert to assume homogeneity so as to infer causation and discrimination; for example, by assuming that everyone in the proposed class has the same job qualifications or interests or that the challenged decisions were made by the same decision-maker. But as explained in the Federal Judicial Center's Reference Manual on Scientific Evidence, if the data is not homogeneous, the statistical analysis combining that data is irrelevant and often misleading.17 Thus, as Wal-Mart noted, when discretionary decisions are made by different decision-makers, "demonstrating the invalidity of one manager's use of discretion will do nothing to demonstrate the invalidity of another's."18 Likewise, as illustrated in the Reference Manual on Scientific Evidence, if females are disproportionately applying to a...
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