2010 Winston & Strawn LLP

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2 Class Action Litigation: The Facts Really Do Matter Brought to you by Winston & Strawn LLP s Litigation Practice Group

3 Today s elunch Presenters Stephen Smerek Litigation Los Angeles SSmerek@winston.com Mark L. Smith Litigation Los Angeles MarSmith@winston.com 3

4 Overview TheFacts Really Do Matter Class Action Basics Certification Standards Rigorous Analysis of the Facts Use of Ti Trial lplans Class Certification & Expert Testimony The Dukes Decision Litigation Strategies 4

5 The Facts Really Do Matter The four categories of class actions Not much, if any, merit to the case, and class unlikely to be certified Not much, if any, merit to the case, but substantial risk that class will be certified Claims have some merit, but class unlikely to be certified Claims have some merit, and substantial risk that class will be certified Early investigation of facts and analysis of case essential to chart effective litigation strategy 5

6 Class Action Basics Class Action Prerequisites FRCP 23(a): Numerosity Commonality Typicality Adequacy Types of Class Actions FRCP 23(b): (b)(1) Incompatible Standards/Unitary Decisions (b)(2) Injunctive Relief Class Actions (b)(3) Damages Class Actions 6

7 Class Action Basics: 23(b)(2) Class 23(b)(2) class may be maintained where defendant has acted in a way that applies generally to the class, so that final injunctive relief or declaratory relief is appropriate for the class as a whole Requires action, or refusal to act, generally applicable to all class members Applies where lawsuit principally seeks injunctive or declaratory relief Class may seek money damages incidental to injunctive or declaratory relief 7

8 Class Action Basics: 23(b)(3) Classes 23(b)(3) class may be maintained where the court finds that the questions of law or fact common to class members predominate over individual issues, and that a class action is superior to other available methods for adjudicating the controversy Principal class action vehicle for obtaining money damages Furthest deviation from equitable origins of representative litigation and most uniquely American class action litigation 8

9 Class Action Basics: Oft Litigated Issues 23(b)(2) ) classes Can money damages be awarded in 23(b)(2) class? Majority view only if damages are incidental and injunctive relief is appropriate for the class as a whole 23(b)(3) classes Common Questions vs. Predominance Choice of Law Questions Majority view variations in state law defeat certification Minority view resolving choice of law issues at class certification is unnecessary, defendant s home state law can be applied Use of legal presumptions to avoid individual issues (presumption ofreliance to avoid individualized inquiries in fraudcases) 9

10 Certification Standards: Review of Merits Preliminary determination regarding glikely merits not appropriate, Eisen v. Carlisle and Jacquelin, 417 U.S. 156 (1974) District courts should not conducta preliminary inquiry into the merits But class certification is more than a mere procedural hurdle, General Telephone Co. of the Southwest v. Falcon, 457 U.S. 147 (1982) Rule 23 requires rigorous analysis of requirements for class certification Rigorous analysis required even where class certification is enmeshed in the factual and legal issues comprising the plaintiff s litiff cause of action 10

11 Certification Standards: 2003 Amendments Timing 2003 Amendments to Rule 23 modify language to require certification as soon as practicable after the commencement of the action Local Rules, like C.D. Cal., dictate early deadlines Conditional certification eliminated Amendments also make clear that courts may only certify class if all Rule 23 requirements are met; no conditional certifications Trial plan encouraged Advisory Committee note encourages use of trial plans, emphasizing that a critical need is to determine how the case will be tried 11

12 Rigorous Analysis of the Facts Circuits have adopted rigorous analysis from Falcon, but application varies Some showing versus preponderance p of the evidence Consistent standard of review emerging g Class certification orders abuse of discretion Factual findings clearly erroneous Legal rulings de novo 12

13 Use of Trial Plans Given their import to certification of 23(b)(3) class, trial plans are becoming an increasingly important battleground Recent decisions have certified classes based on trial plans that contemplate sample trials to resolve/minimize the impact ofindividualized issues Because trial plans can effectively demonstrate a class action s manageability, particular emphasis must be placed on showing the trial plan is not workable kbl Sample or test cases may give rise to due process concerns that can be exploited to avoid certification 13

14 Class Certification & Expert Testimony Use of expert testimony is becoming increasingly common in many types of class actions to assert and challenge the class action factors Frequently used to demonstrate injury and damages Necessary to prove common issues like common discriminatory impact in (b)(2) cases Some courts suggest expert testimony is necessary to show predominance in (b)(3) cases Can be used to show manageability or lack of manageability Law on the use of experts has developed in two primary areas Whether courts must resolve disputes between experts in their rigorous analysis Competing expert opinions Challenging underlying factual bases of expert opinion with contrary facts Whether experts can be challenged under Daubert and what level of Daubert analysis should be undertaken 14

15 Class Certification & Expert Testimony Battle of Experts at Class Certification Know your case You cannot be prepared to challenge an expert s regression analysis if you do not understand dit Understand potential challenges to validity of statistical and anecdotal evidence Know your court Different courts and judges will examine and weigh expert testimony differently at class certification Press for full Daubert analysis (vs. partial analysis) Press for resolution of competing issues (vs. deferring to plaintiff s expert) 15

16 Expert Testimony The Case Law Blades v. Monsanto Co., 400 F.3d 562 (8th Cir. 2005) Appellants argue on appeal that the district court improperly resolved disputes between the parties experts that go to the merits of the case. We have stated that in ruling on class certification, a court may be required to resolve disputes concerning the factual setting of the case. This extends to the resolution of expert disputes concerning the import of evidence concerning the factual setting such as economic evidence as to business operations or market transactions. 16

17 Expert Testimony The Case Law In re IPO Sec. Litig., 471 F.3d 24 (2d Cir. 2006) disavow the suggestion in Visa Check that an expert s testimony may establish a component of a Rule 23 requirement simply by being not fatally flawed. A district judge is to assess all of the relevant evidence admitted dat the class certification stage and dt determine whether each Rule 23 requirement has been met, just as the judge would resolve a dispute about any other threshold prerequisite for continuing a lawsuit. In re NYSE Specialists Sec. Litig., 260 F.R.D. 55 (S.D.N.Y. 2009) Even after IPO, which requires courts to evaluate all questions of fact that pertain to class certification, even to the extent that such facts overlap with the merits... At this stage, the court may only examine the expert reports as far as they bear on the Rule 23 determination... This Court s Daubert inquiry is limited to whether or not the [expert reports] t] are admissible ibl to establish tblihthe requirements of Rule

18 Expert Testimony The Case Law In re Hydrogen Peroxide Antitrust Litig.,, 52 F.3d 305 (3d Cir. 2009) Expert opinion with respect to class certification, like any matter relevant to a Rule 23 requirement, calls for rigorous analysis. Weighing conflicting expert testimony at the certification stage isnot only permissible; itma may be integral to the rigorous analysis Rule 23 demands. Opinion testimony should not be uncritically accepted as establishing a Rule 23 requirement merely because the court holds the testimony should not be excluded, under Daubert or for any other reason. 18

19 Expert Testimony The Case Law American Honda Motor Co. v. Allen,, 600 F.3d 813 (7th Cir. 2010) [In Prudential, 282 F.3d 935], we held that a plaintiff cannot obtain class certification just by hiring a competent expert. We emphasized, a district judge may not duck hard questions by observing that each side has some support... Tough questions must be faced and squarely decided, if necessary by holding evidentiary i hearings and choosing between competing perspectives. [T]he district court must perform a full Daubert analysis before certifying the class if the situation warrants. Without [expert] testimony, Plaintiffs are left with too little to satisfy Rule 23(b)(3) s predominance prong. 19

20 The Dukes Decision Dukes v. Wal Mart Stores, 603 F.3d 571 (9th Cir. Apr. 26, 2010) Class of 1.5 million individuals encompassing all women employed by Wal Mart at any time after December 26, 1998 Certified class under 23(b)(2) where relief requested included ddeclaratory and injunctive relief, back pay, and punitive damages En banc court affirms certification by 6 5 vote, vacating and remanding punitive damages claim and reducing class to exclude former employees 20

21 The Dukes Decision Rigorous analysis required Commonality Plaintiffs showed common policy of discrimination through statistics and other evidence despite absence of any specific discriminatory policy Wal Mart s policy of decentralized, subjective employment decision making operate[s] to discriminate against female employees Based on anecdotes, statistics, and experts 23(b)(2) class despite request for back pay Predominance not required Notice and opt out unnecessary Court prescribes the use of test cases and extrapolation methodology to resolve amounts due to class members, asserting that there are no due process concerns with this approach 21

22 The Dukes Decision: Who Won? Both sides of the bar are claiming victory Plaintiffs Largest class ever certified All that rigorous ous analysis ayss resulted ed in certificationca Expanded (b)(2) classes to include damages Created decentralized subjectivity as a common question Defendants Rigorous analysis required Reinforced difficulty of getting 23(b)(3) class certified under predominance Expert opinion likely required to certify even under (b)(2) Experts opinions can be challenged, though not as broadly as in other circuits 22

23 The Dukes Decision: The Future Remanded Punitive damages in (b)(2) class? Remanded Management/trial plan Appeal? Wal Mart has already requested extension to file appeal Grounds for appeal Court misapplied Rule 23 standard Court erred in finding that this is a (b)(2) class Consideration of expert testimony without full Daubert analysis Possible circuit split issues Use and challenge of experts Scope of claim for damages under 23(b)(2) class 23

24 Litigation Strategies Know your court. Know your case. Understand if plaintiff is seeking certification under 23(b)(2) or 23(b)(3) Develop and emphasize merits issues that must be resolved in connection with class certification Find ways to demonstrate and exploit weaknesses in plaintiff s case early and often Complete early analysis of potential legal and factual challenges to superiority and predominance for 23(b)(3) classes 24

25 Litigation Strategies: Trial Plans Be prepared with a trial plan that will demonstrate that the class is unmanageable Focus on manageability and due process issues Show how incorrect results could occur with sample cases or litigating too large a class with so many inherent individual issues, particularly in (b)(2) cases Consider whether the use of test cases can be advantageous and be prepared to recommend under Dukes or challenge as a violation of due process as appropriate 25

26 Litigation Strategies: Expert Testimony Given trend toward more rigorous analysis of expert testimony, evaluate use of experts at certification Identify potential issues for expert testimony and secure experts early Be prepared to challenge likely testimony from plaintiff s experts Be prepared to seek full Daubert analysis because not foreclosed by Dukes 26

27 Questions? 27

28 Thank You. 28

29 Contact Information Stephen Smerek Litigation Los Angeles (213) Mark L. Smith Litigation Los Angeles (213)