Opinion ID: 181231
Heading Depth: 2
Heading Rank: 2

Heading: Challenges to Adequacy of Representation

Text: A class may not be certified unless the representative class members will fairly and adequately protect the interests of the class. Fed.R.Civ.P. 23(a)(4). Rule 23(a)'s adequacy of representation requirement serves to uncover conflicts of interest between named parties and the class they seek to represent. Amchem, 521 U.S. at 625, 117 S.Ct. 2231. [15] Class representatives must be part of the class and possess the same interest and suffer the same injury as the class members. Id. at 625-26, 117 S.Ct. 2231 (citation and internal quotation marks omitted). When appropriate, a class action may be divided into subclasses that are each treated as a class under [Rule 23]. Fed.R.Civ.P. 23(c)(5). Subclasses are appropriate `[w]here a class is found to include subclasses divergent in interest.' In re Ins. Brokerage Antitrust Litig., 579 F.3d 241, 271 (3d Cir.2009) (quoting Fed. R.Civ.P. 23(c) advisory committee's note); see also Ortiz v. Fibreboard Corp., 527 U.S. 815, 856, 119 S.Ct. 2295, 144 L.Ed.2d 715 (1999) (explaining that Amchem requires a class divided between holders of present and future claims to be divi[ded] into homogeneous subclasses ... with separate representation to eliminate conflicting interests of counsel). Accordingly, we have held that [a] district court hearing a class action has the discretion to divide the class into subclasses and certify each subclass separately. In re Cendant Corp. Sec. Litig., 404 F.3d 173, 202 (3d Cir.2005). Our standard of review is informed by the careful balancing of costs and benefits on the part of a district judge when deciding whether to certify a subclass: [T]he option to utilize subclasses is designed to prevent conflicts of interest in class representation. [ Cendant Corp., 404 F.3d at 202]. Nonetheless, [w]hile subclasses can be useful in preventing conflicts of interest, they have their drawbacks. Id. (citing a secondary source for the proposition that subclassing can create a Balkanization of the class action and present a huge obstacle to settlement if each subclass has an incentive to hold out for more money). Because the decision whether to certify a subclass requires a balancing of costs and benefits that can best be performed by a district judge, we accord substantial deference to district courts with respect to their resolution of this issue. Id.; see Alexander v. Gino's, Inc., 621 F.2d 71, 75 (3d Cir.1980) (noting that the district court has considerable discretion in utilizing subclasses under Rule 23(c)). Thus, [w]here the district court has declined to certify a subclass, we will ordinarily defer to its decision unless it constituted an abuse of discretion. [ Cendant Corp., 404 F.3d at 202]. Ins. Brokerage, 579 F.3d at 271. Objectors maintain subclasses were necessary for a number of reasons, none of which lead us to conclude the District Court abused its discretion in declining to subdivide the class. First, relying primarily on Amchem, [16] objectors contend subclasses and separate representation were required here because of conflicts of interest between class members with only Purchase Claims (of pet food) and class members with Injury Claims (those who assert claims for pets that became ill or died after consuming recalled pet food). [17] We disagree. All of the claims covered by the settlement are claims for economic damages, e.g., for the cost of recalled pet food, the cost of veterinary treatment, or the cost of a replacement pet. Furthermore, all class members here have present claims. Objectors fault the District Court's reliance on the fact that class representatives have both Purchase Claims and Injury Claims. See Amchem, 521 U.S. at 627, 117 S.Ct. 2231. [18] But objectors have not identified adverse interests that would require the establishment of subclasses. Nor are the other cases cited by objectors In re Community Bank of Northern Virginia, 418 F.3d 277 (3d Cir.2005), and In re General Motors Corp., 55 F.3d 768 (3d Cir. 1995)apposite. In Community Bank, we determined that a settlement class was not properly certified because the district court did not engage in a proper Rule 23(a) and (b) analysis. Because it was possible that the class could be properly certified on remand, we examined some of the relevant factors to be considered, including adequacy of representation. The objectors alleged many class members had colorable Truth in Lending Act (TILA) and Home Ownership and Equity Protection Act (HOEPA) claims that had not been asserted by class counsel either in the complaint or during settlement negotiations. Because it appeared that the named plaintiffs had no incentive to maximize such claims for the approximately 14,000 class members who may [have retained] this valuable cause of action, we noted that [a]t the very least, consideration should have been given to the feasibility of dividing the class into subclasses so that a court examining the proposed settlement could have judged the fairness of the settlement as it applied to similarly situated class members. 418 F.3d at 307. Objectors contend the class representatives had no incentive to maximize the Purchase Claims because the value of the Injury Claims was much greater than the Purchase Claims. But unlike in Community Bank where the class representatives did not have TILA or HOEPA claims and the settlement failed to provide recovery for those claims, here, the class representatives all have Purchase Claims and the settlement allocates a portion of the recovery to those claims. Objectors' reliance on General Motors is likewise misplaced. The plaintiffs in General Motors were purchasers of certain GM trucks that may have had a design defect in the location of the fuel tank. The class consisted of individual owners of a single truck as well as fleet owners, such as governmental agencies, who owned a number of trucks. All of the class representatives were individual owners. Objectors contended the disparity in settlement benefits enjoyed by the two different groups created an intra-class conflict that precluded a finding of adequate representation. [19] We agreed, focusing on the terms of the settlement, which evidenced the disparity in the prospective value to the different sections of the class: The fleet owners will never enjoy the benefits of the settlement terms, such as the intra-household transfer option, intended specifically for the benefit of individual owners. Thus, we must be concerned that the individual owners had no incentive to maximize the recovery of the government entities; they could skew the terms of the settlement to their own benefit. Not surprisingly, the settlement leaves fleet owners with significantly less value than individual owners. At the very least, the class should have been divided into sub-classes so that a court examining the settlement could consider settlement impacts that would be uniform at least within the sub-classes. Gen. Motors Corp., 55 F.3d at 801. There is no analogous conflict in this case. The remedial interests of class members with only Purchase Claims are represented by class representatives with Purchase Claims, and the settlement provides up to $250,000 for these claims. Moreover, class members with only Purchase Claims do not receive less value for identical claims asserted by other class members. Objectors contend inadequate representation is demonstrated in the settlement's allocation terms, which designate the vast majority of the fund to Injury Claims, while Purchase Claims are capped at $250,000. [20] But varied relief among class members with differing claims in class settlements is not unusual. See Petrovic v. Amoco Oil Co., 200 F.3d 1140, 1146 (8th Cir. 1999) ([A]lmost every settlement will involve different awards for various class members.); see also Prudential, 148 F.3d at 289-90 (holding the district court properly certified a national settlement class in a circumstance in which the class was comprised of policyholders who allegedly were the victims of several different types of fraudulent and misleading sales practices and the settlement created an alternative dispute resolution mechanism to determine the kind and amount of relief to be granted). [21] Such differences in settlement value do not, without more, demonstrate conflicting or antagonistic interests within the class. See Ins. Brokerage, 579 F.3d at 272. [22] We addressed disparity in allocation in Insurance Brokerage, holding the district court did not abuse its discretion by failing to subdivide the class. The objectors argued before the district court that subclasses were needed to ensure adequate representation for different types of insurance policyholders and to ensure a fair allocation of the settlement fund. [23] We acknowledged that there was some appeal to the argument, given that the Plan of Allocation divid[ed] the total settlement award on the basis of the type of insurance, thereby creating different groups for the purpose of reimbursement, and the groups [did] not have access to an equal percentage of the fund. Id. at 272. But we noted that subclasses are only necessary when members of the class have divergent interests, and the district court had not found any divergent interests existed between the allocation groups. Id. We rejected objectors' argument that the fact that the fund was allocated so that a greater percentage of the settlement value was designated for certain class members demonstrated a conflict between groups. We found that the difference in allocations was simply a reflection of the extent of the injury that certain class members incurred and d[id] not clearly suggest that the class members had antagonistic interests. Id. We also found it important that many class members were members of both policyholder groups and would be entitled to recover damages for overpayment of premiums for both types of insurance. This illustrate[d] that the Plan of Allocation did not create de facto subclasses among the class members but merely created a structure for ensuring that reimbursement [was] tied to the extent of damages incurred on certain policies of insurance. Id. As in Insurance Brokerage, the District Court here did not find divergent interests between the allocation groups. The fact that the settlement fund allocates a larger percentage of the settlement to class members with Injury Claims does not demonstrate a conflict between groups. Instead, the different allocations reflect the relative value of the different claims. [24] Many class members are members of both allocation groups, and will be entitled to recover damages for both Purchase Claims and Injury Claims. Objectors also point to an alleged disparity in the strength of the various claims. According to objectors, defendants have no defense to the Purchase Claims, so that class members with Purchase Claims would automatically recover 100% of the value of the recalled pet food if the case were to proceed through litigation. They note the settling parties themselves have characterized the Injury Claims as difficult to prove and fraught with causation problems. As with differences in settlement value, alleged differences in the strength of the various claims asserted in this class action do not, by themselves, demonstrate conflicting or antagonistic interests within the class that would require subclasses. Objectors have not convinced us that the refund claims are as strong a claim as is imaginable. The District Court made no findings on the merits of the Purchase Claims, and we are not in a position to do so here. But we are skeptical of objectors' theory that because defendants initiated the recall, class members are automatically legally entitled to a 100% recovery of the money paid for recalled pet food. As noted, several defendants initiated voluntary reimbursement programs immediately after the recall. There may or may not be good business reasons to implement recalls and reimbursement programs but these programs do not establish strict liability or automatically provide for a 100% recovery. The various authorities objectors cite (e.g., the Consumer Product Safety Act, 15 U.S.C. §§ 2051-2084) do not support their far-reaching assertion that [a] consumer who does not use a recalled product is entitled to a refund, without any requirement of showing that the product is defective. The fact that courts and various government agencies may order consumer recalls and refunds in certain circumstances does not mean that class members in this casewho assert only that defendants initiated a voluntary recall and reimbursement programhave a fool-proof legal claim against defendants. Objectors' assessment of the Purchase Claims, moreover, fails to take into account class members with undocumented claims. The settling parties, of course, were aware of the reimbursement programs and negotiated the settlement understanding that the vast majority of class members with documentation for the purchase of recalled pet food would pursue a remedy through the various reimbursement programs. The settling parties assumedcorrectly, as it turned outthat the majority of class members asserting Purchase Claims through the settlement would do so without documentation. See infra Section III.B. While the settlement provides up to $900 in recovery for reasonable claims submitted without documentation, it is not the case that a class member with no documentation to support the cost of a purchase for a specific brand of recalled pet food, during a specific time period, has as strong a claim as is imaginable. But even assuming objectors' characterization of the Purchase Claims as strong and Injury Claims as weak carries some validity, objectors fail to articulate how differences in the relative strength of the different claims would lead to conflicts of interest in class representation. Objectors simply allege a substantial conflict required subclasses in this case. It appears to us objectors' focus on the relative strength of the claims, like their focus on the disparity of the allocation, is more appropriately addressed as a Rule 23(e) adequacy of allocation question, rather than a Rule 23(a) adequacy of representation question. Objectors also assert a class conflict allegedly resulting from different factual bases for the various claims. According to objectors, the Purchase Claims are based on the fact that defendants recalled the pet food, while the Injury Claims are based on the fact that the food was contaminated. Whether the pet food was actually contaminated, they argue, is immaterial for the Purchase Claims. We disagree. But more importantly, objectors again fail to explain, and we cannot discern, any antagonistic interests between class members arising from the factual underpinnings of the various claims. We believe the District Court properly determined that all class members have claims arising out of the sale of potentially contaminated pet food. That some class members have additional claims arising out of the use of the recalled food does not create a conflict between class members. Finally, the Johnson/Turner objectors assert that differences in state law create conflicts among class members that preclude a finding of adequate representation. [25] According to objectors, these differences necessitated creating subclasses to meet Rule 23(a)'s adequacy of representation requirement. We disagree and find no merit in objectors' argument that state law differences created conflicts among class members that defeat adequacy of representation and preclude certification of a nationwide class. Objectors fail to explain how the differences in state laws have created conflicts of interest between the named plaintiffs and absent class members in the context of adequacy of representation in this settlement class. We agree with the District Court that the representative plaintiffs' interests are directly aligned with those of other members of the Class. Fairness Opinion, 2008 WL 4937632, at . As the District Court determined, the representative plaintiffs were damaged as a result of defendants' allegedly unlawful conduct, and the plaintiffs would have had to prove the same wrongdoing as the absent Class members to establish defendants' liability. Id. In sum, objectors fail to articulate any conflict or adversity among class representatives and class members. It is not enough for objectors to point to differences in claims, allocation amounts, or state laws without identifying how such differences demonstrate a conflict of interest. We agree with the District Court's finding that the interests of class members with only Purchase Claims are aligned with the interests of class members with Injury Claims. The District Court exercised sound discretion by finding the adequacy of representation requirement was met, by declining to create subclasses, and by certifying the settlement class. [26]