Opinion ID: 78615
Heading Depth: 3
Heading Rank: 4

Heading: Clarifying the Standard

Text: This review of Supreme Court dictates, as well as our own and other circuits' treatment of the issue, leads us to recognize a number of constant holdings across circuits that we must incorporate into our clarification of the proper standard governing a district court in considering a Rule 23 motion for class certification. To begin with, at the class certification stage, while Eisen prohibits a court from making determinations on the merits that do not overlap with the Rule 23 inquiry, district courts must make determinations that each requirement of Rule 23 is actually met. This bedrock rule is consistent with the Supreme Court's statements, other circuits' decisions, and our long-standing precedent. While plaintiffs need not make more than allegations as to their substantive claims, whether the suit is appropriate for class resolution must be actually demonstrated, not just alleged, to the district court's satisfaction. In addition, in the cases such as IPO in which courts have recognized how Eisen is sometimes misunderstood, those circuits have uniformly reserved discretion with the district court to avoid a trial-level inquiry at the certification stage despite the need to find the Rule 23 requirements met. [10] See, e.g., Blades, 400 F.3d at 567 (The closer any dispute at the class certification stage comes to the heart of the claim, the more cautious the court should be in ensuring that it must be resolved in order to determine the nature of the evidence the plaintiff would require.). District courts must maintain the ability to cut off discovery to avoid either party bootstrapping a trial or summary judgment motion into the certification stage. Nearly every circuit to consider the issue, including our own, has recognized the practical importance of the certification decision as leverage for settlement, yet Rule 23 gives neither party the right to turn the certification decision into a trial. When reading recent class certification cases, one also notices the prevalence of securities fraud cases, and particularly the fraud-on-the-market presumption, in the evolution of the Rule 23 standard. See, e.g., Oscar Private Equity Invs. v. Allegiance Telecom, Inc., 487 F.3d 261, 264 (5th Cir.2007); IPO, 471 F.3d at 30-31; Bowe v. Polymedica Corp. ( In re PolyMedica Corp. Secs. Litig. ), 432 F.3d 1, 6-7(1st Cir.2005); Unger, 401 F.3d at 323-24; Gariety, 368 F.3d at 364-66; West v. Prudential Sec., Inc., 282 F.3d 935, 937-38(7th Cir.2002). It is an interesting feature of the case law's development that it has occurred largely in these fraud-on-the-market cases, in which a plaintiff typically must show the six basic elements of a securities fraud action, Dura Pharms., Inc. v. Broudo, 544 U.S. 336, 341-42, 125 S.Ct. 1627, 161 L.Ed.2d 577 (2005), and the efficient market component of the causation element overlaps with the merits. We must, then, be aware that applying the same procedural rules, such as Rule 23, can lead to different outcomes when the underlying legal and factual framework is different. See, e.g., Hohider v. United Parcel Serv., Inc., 574 F.3d 169, 182-85 (3d Cir.2009) (describing how the pattern and practice evidentiary framework from Title VII cases is not perfectly applicable in the context of the Americans with Disabilities Act). Thus, in contrast to a securities class action based on a fraud-on-the-market theory, in a pattern and practice discrimination case, a plaintiff will typically not come to court in the first place without anecdotal evidence. For practical purposes, assuming a plaintiff possesses anecdotal evidence, the plaintiff's statistical evidence does not overlap with the merits, it largely is the merits. See Watson v. Fort Worth Bank & Trust, 487 U.S. 977, 986-87, 108 S.Ct. 2777, 101 L.Ed.2d 827 (1988); Int'l Bhd. of Teamsters v. United States, 431 U.S. 324, 337-39, 97 S.Ct. 1843, 52 L.Ed.2d 396 (1977). This means that disputes over whose statistics are more persuasive are often not disputes about whether the plaintiffs raise common issues or questions, but are really arguments going to proof of the merits. See Nagareda, Class Actions, supra, at 619-20 (Nowhere is this [disputed statistics] problem more acute than in employment discrimination class actions centered on statistical analysis of an aggregate nature.). Of course, if one party argued that the other party's statistics were unreliable or based on an unaccepted method, this may be an issue the district court would have to resolve to determine whether the potentially problematic statistics were even capable of raising a common question. In fact, after IPO, but before his recent elevation to the Second Circuit, Judge Gerard Lynch recognized this problem in a Title VII gender discrimination case in which the plaintiffs were seeking to certify on the same grounds as those here. Predictably faced with a dispute regarding whether the plaintiffs' statistics demonstrated commonality, Judge Lynch addressed IPO 's application in a Title VII, gender discrimination context. [11] The problem, the district court explained, was that [i]n deciding that the class certification order complied with In re IPO, it is important to note that disparate impact cases present unique difficulties in analyzing the commonality requirement of Rule 23(a). Plaintiffs in disparate impact cases often rely on statistical evidence to prove the merits of their claim. Hnot v. Willis Group Holdings Ltd., 241 F.R.D. 204, 210-11 (S.D.N.Y.2007). The court continued, [i]n such a case, however, the same evidence must be considered to determine whether a plaintiff has satisfied the commonality requirement. Id. at 211. In resolving this problem and certifying the class, the district court noted, [c]ontrary to defendants' assertions, In re IPO does not stand for the proposition that the Court should, or is even authorized to, determine which of the parties' expert reports is more persuasive. Defendants ignore the fact that In re IPO specifically rejected this interpretation of Rule 23. Id. at 210. Instead, Judge Lynch explained,  In re IPO reiterated that `experts' disagreement on the merits whether a discriminatory impact [can] be shown[is] not a valid basis for denying class certification.' Id. (alterations in original) (quoting IPO, 471 F.3d at 35). Thus, the court could only examine the expert reports as far as they bear on the Rule 23 determination. Id. Judge Lynch similarly clarified, with regard to the disparate treatment issue in the case before him, that plaintiffs and defendants disagree on whose statistical findings and observations are more credible, but this disagreement is relevant only to the merits of plaintiffs' claimwhether plaintiffs actually suffered disparate treatmentand not to whether plaintiffs have asserted common questions of fact or law; plaintiffs' ultimate success at trial on the merits requires an answer to that question, specifically that defendants actually did discriminate against plaintiffs. Id. at 210-11. By asking the Court to decide which expert report is more credible, defendants are requesting that the Court look beyond the Rule 23 requirements and decide the issue on the merits, a practice In re IPO specifically cautions against. Id. at 210. Thus, in addition to demonstrating Rule 23's proper implementation in various legal contexts (securities class actions versus Title VII claims), Hnot also illustrates a second feature of the certification cases that we must address. Because the fraud-on-the-market cases are typically decided under Rule 23(b)(3)'s predominance requirement, a related feature of the circuit court cases considering the proper standard a district court applies, when deciding whether to certify a class, is the difference between cases describing review of evidence under Rule 23(a) and those under Rule 23(b). [12] We are unaware of any argument claiming that a different standard should apply in the two inquiries, and the cases generally treat the precedent as applying equally to both contexts. We do, however, note that the inquiry cannot be divorced from the text of Rule 23, which, of course, requires plaintiffs to make different showings under different parts of the rule. This distinction helps order the doctrine, keeping in mind the different requirements under Rule 23(a) and (b) and how those requirements may play out in a district court's certification decision. This insight derives from the Supreme Court's explanation of the predominance test under Rule 23(b)(3). Predominance, the Court explained, tests whether proposed classes are sufficiently cohesive to warrant adjudication by representation, Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 623, 117 S.Ct. 2231, 138 L.Ed.2d 689 (1997), a standard far more demanding than the commonality requirement of Rule 23(a), id. at 623-24, 117 S.Ct. 2231. Thus, we would expect that cases in which the parties are contesting facts underlying the Rule 23(b)(3) determination may often require more determinations by the district court than those in which Rule 23(a)(2) is the primarily contested issue. Rule 23(a)(2) is about invoking common questions, see Falcon, 457 U.S. at 158, 102 S.Ct. 2364, whereas Rule 23(b)(3) requires a district court to formulate some prediction as to how specific issues will play out in order to determine whether common or individual issues predominate in a given case, New Motor Vehicles, 522 F.3d at 20 (internal quotation marks omitted). We thus should not be surprised that a district court will have to make more precise factual determinations under Rule 23(b)(3) than under Rule 23(a)(2). This insight does not apply a procedural rule differently in two like contexts; it applies the text of Rule 23 itself to the district court's task. While we find the case law across circuits more uniform than some courts have implied, see id. at 24, to the extent it is not, this result may be because of courts' failure to recognize this key difference between a district court's job under Rule 23(a)(2) and its job under Rule 23(b)(3). [13] This conclusion is further supported when one notices that Falcon 's primary inquiry was under Rule 23(a), 457 U.S. at 156-58, 102 S.Ct. 2364, whereas many of the circuit courts discussed above were concerned with Rule 23(b)'s predominance test and, thus, required the district court to make more detailed determinations as to how the facts at issue would play outwhether they would predominatein the merits of the litigation. See, e.g., Hydrogen Peroxide, 552 F.3d at 310 (Rule 23(b)(3) predominance); New Motor Vehicles, 522 F.3d at 26 (same); IPO, 471 F.3d at 35 (same); In re PolyMedica Corp. Secs. Litig., 432 F.3d at 3 & n. 4 (same); Unger, 401 F.3d at 320, 324-25 (same); Blades, 400 F.3d at 566 (same); Gariety, 368 F.3d at 364-65 (same); Szabo, 249 F.3d at 676-77 (same). Though some courts have noted the difference between Rule 23(a) and 23(b) in passing, see Hydrogen Peroxide, 552 F.3d at 310-11, [14] we are not aware of any decisions detailing the difference, and some courts have failed to note the distinction at all. See, e.g., IPO, 471 F.3d at 33 n. 3 (We see no reason to doubt that what the Supreme Court said about Rule 23(a) requirements applies with equal force to all Rule 23 requirements, including those set forth in Rule 23(b)(3).). We think a great deal of any disparity in different courts' explication of the Rule 23 standard can be explained by this difference. The lesson for future district courts is that, in a given case, the text of Rule 23(a), as compared to Rule 23(b), may require them to determine more or different facts (typically more under Rule 23(b)(3)) to determine whether the plaintiffs have met their Rule 23 burden. In short, these observations, which include the Supreme Court's direction, long-standing precedent in this court, and treatment from other circuits, lead us to the following explanation of the proper standards governing a district court's adjudication of a Rule 23 motion for class certification. First, when considering class certification under Rule 23, district courts are not only at liberty to, but must, perform a rigorous analysis to ensure that the prerequisites of Rule 23 have been satisfied, and this analysis will often, though not always, require looking behind the pleadings to issues overlapping with the merits of the underlying claims. It is important to note that the district court is not bound by these determinations as the litigation progresses. Second, district courts may not analyze any portion of the merits of a claim that do not overlap with the Rule 23 requirements. Relatedly, a district court performs this analysis for the purpose of determining that each of the Rule 23 requirements has been satisfied. Third, courts must keep in mind that different parts of Rule 23 require different inquiries. For example, what must be satisfied for the commonality inquiry under Rule 23(a)(2) is that plaintiffs establish common questions of law and fact, and answering those questions is the purpose of the merits inquiry, which can be addressed at trial and at summary judgment. Fourth, district courts retain wide discretion in class certification decisions, including the ability to cut off discovery to avoid a mini-trial on the merits at the certification stage. Fifth, different types of cases will result in diverging frequencies with which the district court will properly invoke its discretion to abrogate discovery. As just one example, we would expect a district court to circumscribe discovery more often in a Title VII case than in a securities class action resting on a fraud-on-the-market theory, because the statistical disputes typical to Title VII cases often encompass the basic merits inquiry and need not be proved to raise common questions and demonstrate the appropriateness of class resolution. Plaintiffs pleading fraud-on-the-market, on the other hand, may have to establish an efficient market to even raise common questions or show predominance.
In addition to setting out our own review, we feel compelled to discuss the dissent's consideration of this issue. The Supreme Court's decisions in Falcon and Eisen are the primary guides to our ruling in this case. The dissent, in suggesting that we are unfaithful to Falcon, seeks to create a new class action requirement based on a hypothetical in one sentence of Supreme Court dicta; conflates, or at least fails to distinguish, the posture of Falcon and the present case; ignores the weight of the many cases in other circuits arriving at the same standard we have described above; and renders itself unpersuasive by critiquing the district court's eighty-four-page analysis as insufficiently rigorous. In doing so, the dissent is unfaithful to the actual distinctions the Supreme Court relied upon in Falcon, and variously depicts Falcon as instituting a significant proof burden or `significant proof' requirement that Falcon did not create. Dissent at 633, 637-38. We read Falcon, as has nearly every Court of Appeals to consider the question, as creating the standard we describe above. But in discussing what it views as the analysis required by Falcon, the dissent quotes a portion of a sentence of Falcon dicta in footnote 15 as standing for the requirement that plaintiffs cannot prevail at the certification stage without showing [s]ignificant proof that an employer operated under a general policy of discrimination. Id. at 632. However, the entire footnote sentence reads as follows: Significant proof that an employer operated under a general policy of discrimination conceivably could justify a class of both applicants and employees if the discrimination manifested itself in hiring and promotion practices in the same general fashion, such as through entirely subjective decision-making processes.  Falcon, 457 U.S. at 159 n. 15, 102 S.Ct. 2364 (emphasis added). [15] Falcon 's discussion of two distinct processeshiring and promotionfor which significant proof could prove sufficient to certify a single class, is an unusually high standard that Plaintiffs here need not meet because they did not present the distinct legal theories of recovery that the Falcon plaintiffs, both employees and applicants, had pursued together in one class. The question before the district court was not whether [Plaintiffs] have definitively proven disparate treatment and a disparate impact; rather, the question was whether the basis of [Plaintiffs'] discrimination claims was sufficient to support class certification. Brown v. Nucor Corp., 576 F.3d 149, 156 (4th Cir.2009), cert. denied, ___ U.S. ___, 130 S.Ct. 1720, 176 L.Ed.2d 185 (2010). Contrary to the dissent, [16] Falcon does not say that Plaintiffs must show a common policy of proven discrimination at the class action stage, rather than just a common policy alleged to be discriminatory. 457 U.S. at 158-59, 102 S.Ct. 2364. Of course, as we have already explained, named plaintiffs must do more than merely allege discriminatory practices against themselves. Id. As we demonstrate below, Plaintiffs here do so, making showings through their expert testimony and statistical evidence, which further distinguishes the certification decision here from that decision in Falcon. In maintaining otherwise in its discussion, the dissent confuses merits decisions such as Teamsters, 431 U.S. at 336, 97 S.Ct. 1843, and class action certification decisions. [17] It also ignores our previous statement examining Falcon footnote 15 in which we explained that [w]e understand footnote fifteen of Falcon to present a demonstrative example rather than a limited exception to the overall skepticism toward broad discrimination class actions. Staton, 327 F.3d at 955. In other words, as we have previously described Falcon, the Supreme Court does not generally ban all broad classes but rather precludes a class action that, on the basis of one form of discrimination against one or a handful of plaintiffs, seeks to adjudicate all forms of discrimination against all members of a group protected by Title VII, § 1981, or a similar statute. Id. The dissent also largely ignores Supreme Court guidance by failing to recognize that Falcon addressed the claim that the allegations of an employee subject to discrimination in promotion decisions fairly encompassed the claims of non-employees allegedly subject to discrimination in a discrete hiring process. Falcon, 457 U.S. at 158, 102 S.Ct. 2364. Such a determination under Rule 23 is clearly distinct from an inquiry where, as here, a class consists entirely of individuals actually employed under the same corporate policies. [18] Critically, in Falcon, the individual plaintiff's claim was based on promotion practices for his allegations and hiring practices for the putative class members, yet Falcon's complaint contained no factual allegations concerning petitioner's hiring practices, id. at 150, 102 S.Ct. 2364, despite the fact that the class members' claims depended on pattern or practice in hiring, id. at 159, 102 S.Ct. 2364. In contrast, where the individual plaintiffs seek to prove their own cases through pattern or practice methods, they are necessarily dependent on proving facts relevant to others of the same protected group subject to the same policy, class action or no class action. See Watson, 487 U.S. at 994-95, 108 S.Ct. 2777; see also Nagareda, Aggregate Proof, supra, at 150 (The terms `pattern' and `practice' themselves imply an aggregate perspective.). Finally, Plaintiffs here are unlike the plaintiff in Falcon, who failed to otherwise []support [his] allegation that the company ha[d] a policy of discrimination except by claiming that he himself had been denied a promotion on discriminatory grounds. Falcon, 457 U.S. at 157-58, 102 S.Ct. 2364. As we detail below, Plaintiffs here have introduced significant proof of Wal-Mart's policies, and their effects on the certified class, and have introduced evidence of far more than the validity of [their] own claim[s]. Id. Even if the dissent were correct in creating a significant proof standard (or burden, or requirement), which it is not, it would not apply to Plaintiffs in this case. Subjective decisionmaking processes are exactly what the Plaintiffs allege here and what the Supreme Court's hypothetical expressed concern with in Falcon. Id. at 159 n. 15, 102 S.Ct. 2364. In addition, it is not clear that such a standard, if it existed, need apply to Plaintiffseveryone of whom was or is an employeeat all because they are not situated as the Falcon plaintiffs, who were both employees seeking promotion and job applicants pursuing a position and thus needed to show different facts and allege diverging legal theories. Again unlike in Falcon, and as discussed in detail below, the district court here did not presume or fail to evaluate carefully the legitimacy [of Plaintiffs' claims to be] proper class representative[s], id. at 160, 102 S.Ct. 2364, but rather found Rule 23 satisfied only after undertaking the rigorous analysis the Supreme Court requires, see Dukes, 222 F.R.D. at 143-69. The specific recognition of Falcon 's rigorous analysis requirement guided the district court's analysis throughout its lengthy order, and the court made determinations that each of Rule 23's requirements were satisfied. Id. at 143-44, 166-68 (applying Falcon ). The dissent's attenuated claim that the district court abused its discretion by failing to require a specific presentation identifying the questions of law or fact that were common to the claims of respondent and of the members of the class he sought to represent, see Falcon, 457 U.S. at 158, 102 S.Ct. 2364, is vitiated by the twenty-four pages in which the district court exhaustively performed exactly that analysis, explicitly considering questions of law and fact that were common to the members of the class and the named representatives, [19] see Dukes, 222 F.R.D. at 145-69. In short, and as we will now explain, at the certification stage, it is difficult for us to envision a more rigorous analysis than the one the district court conducted.