The prevailing wisdom among class action defense attorneys is to focus on defeating class certification, rather than on a claim’s legal merits. This attitude is supported by various court rules and decisions that require a prompt adjudication of class certification. See Fed. R. Civ. P. 23(c)(1)(A); Florida R. Civ. P. 1.220; Ala. Code 1975 § 6-5-641; Ga. Code Ann. § 9-11-23(f)(2); Eisen v. Carlisle and Jacquelin, 417 U.S. 156, 177-178 (1974) (“In determining the propriety of a class action, the question is not whether the plaintiff . . . has stated a cause of action or will prevail on the merits. . . .”). In fact, class defendants typically have been at the forefront of seeking a stay of merits discovery, apparently content to rely on the prospects of defeating certification.
The strategic problem with staying merits discovery pending the outcome of class certification is that few class defendants have the stomach to fight the merits following certification. The stakes are perceived as too great to await the outcome of merits discovery, so class defendants elect to pay substantial sums to settle class actions before the merits are decided.
This strategy bears reevaluation. Where a defendant has a viable defense on the merits, it should consider pursuing those defenses either before or with certification. See Project Release v. Prevost, 722 F.2d 960, 963 (2d Cir. 1983)(summary judgment granted on individual claims before adjudication of class certification); Acker v. Provident Nat’l Bank, 512 F.2d 729, 732 (3d Cir. 1975)(same); Life Ins. Co. of Ga. v. Meeks, 617 S.E.2d 179, 185 (Ga. App. 2005)(same). Judges themselves have noted that, notwithstanding an affirmance of class certification, the action may not be viable on the merits. See Ameriquest Mortgage Co. v. Sheb, 995 So.2d 573 (Fla. App. October 15, 2008); Marx v. Centran Corp., 747 F.2d 1536, 152 (6th Cir. 1984). In the Ameriquest decision, the concurring opinion noted that the defendant had “raised colorable arguments as to whether [the] complaint effectively states a cause of action. [While these arguments are not properly considered in the context of class certification . . . , it] seems highly inefficient to proceed with the rather expensive and involved steps of certification of the class in this case when it is uncertain whether the complaint alleges a cognizable claim.” Id.
We see the same issues arise in our class action cases, particularly those involving financial services. If an adjudication of the merits depends upon the resolution of disputed facts, then adjudication on the merits prior to class certification would be difficult. Instead, the particular facts applicable to a plaintiff could render that plaintiff inappropriate to serve as a class representative. Conversely, when the merits ride upon a question of law, it makes sense to focus on the merits of the claim prior to class certification. While, in theory, it sounds great to win on the merits following class certification, class defendants understandably shy from that risk.
Courts also have recognized the difficulty in distinguishing between class certification discovery, on the one hand, and merits discovery, on the other. See Cooper & Lybrand, 437 U.S. 463, 469, n.12 (1978) (“the class determination generally involves considerations that are ‘enmeshed in the factual and legal issues comprising the plaintiff’s cause of action’” and “‘[e]valuation of many of the questions entering into determination of class action questions is intimately involved with the merits of the claims.’”); In re Plastics Additives Antitrust Litigation, 2004 WL 2743591, *4 (E.D.Pa.) (“class certification discovery in this litigation is not ‘easily’ differentiated from ‘merits’ discovery”); Commonwealth v. Higgins, 975 So.2d 1169, 1175 (Fla. DCA1 2008)(recognizing “that there is not always a bright line between issues relating to class certification and issues relating to the merits of a claim or defense”); Manual for Complex Litigation, Fourth, § 21.14 (same). Flaws in the factual merits of a class plaintiff’s claims go to the heart of whether he or she is an appropriate class representative. Similarly, the more the operative facts vary among putative class members, the less likely the requisite commonality will be shown. However, a legal flaw in the plaintiff’s cause of action does not fit so neatly into class discovery. While some courts have encouraged motions to dismiss on the merits before class certification, that is difficult where the class plaintiff submits merely a cursory notice pleading. See Ameriquest, 995 So.2d at 573.
Looking ahead, as the class action industry continues to expand into legally meritless claims obfuscated by the inherent vagueness of notice pleading, we expect class defendants to focus earlier on defeating the merits.
Lew Hassett is Co-Chairman of the firm’s Insurance and Reinsurance Practice. His practice concentrates in the areas of complex civil litigation, including insurance and reinsurance matters, business torts and insurer insolvencies. Lew received his bachelor’s degree from the University of Miami and his law degree from the University of Virginia.
