Class Actions with Uninjured Class Members Face Congressional and U.S. Supreme Court Scrutiny

SONY DSCCircumscribing an individual’s power to subject companies to class and collective actions has been on the forefront of corporate litigation for several years, particularly in light of the growing trend of class action filings.  An increasingly common scenario facing corporate defendants is the “no-injury class” in which many members of a certified class actually sustained no injury or damages, resulting in a much larger class to which damages might be awarded.  This issue has arisen in a variety of contexts, including product liability class actions like the Whirlpool moldy washing machine litigation and wage and hour class actions, which have been on the rise in recent years.  Generally, an uninjured party or one that has no legal right to a remedy would lack standing to bring a lawsuit.  The no-injury class raises the question of whether all members of a class must have standing for a class action to proceed, or is it enough that some members of the class were injured?  Concerns have been raised regarding the impact of no-injury classes on both defendants and plaintiffs.  Are defendants being forced to pay damages to individuals who are not entitled to any compensation?  Are awards for class members who actually were injured being diluted by the uninjured class members?  Can statistical models be used to assess liability and damages in class actions based on the assumption that injuries to all class members are the same as the average?  The fate of the no-injury class now finds itself simultaneously on the Congressional agenda and U.S. Supreme Court docket with H.R. 1927 – The Fairness in Class Action Litigation Act of 2015 and Tyson Foods, Inc. v. Bouaphakeo under consideration.

The no-injury class is the subject of Congressional reform efforts, as the House Judiciary Committee recently voted to send The Fairness in Class Action Litigation Act to the full House for review.  The Act seeks to modify class action procedure by requiring that each proposed class member has suffered an injury of the same type and extent as the injury of the named class representatives.  The Act does not outright prohibit no-injury classes, but it would force class members who suffered little to no injury to pursue separate actions from those who have been more substantially impacted.  The Committee voted on the Act at its June 24th hearing, with Chairman Goodlatte noting the expanse of class action litigation in the U.S. and the need for further reform: “Given that class action lawsuits involve more money and touch more Americans than virtually any other litigation pending in our legal system, it is important that we have a federal class action system that benefits those who have been truly injured, and injured in comparable ways, and is fair to both plaintiffs and defendants.”  The expectation is that the legislation will curb the size of classes to which defendants might pay damages, while also allowing injured individuals to recoup the damages to which they are entitled and keeping uninjured individuals from being forced into class actions.

On the judicial front, the Supreme Court will scrutinize no-injury class and collective actions based on two questions raised by the Tyson Foods, Inc. v. Bouaphakeo overtime wage and hour lawsuit brought under the Fair Labor Standards Act (FLSA).  Shortly before the House Judiciary Committee reported H.R. 1927 to the full House for consideration, the Supreme Court agreed to hear Tyson Foods in which the Eighth Circuit Court of Appeals upheld the certification of a class even though it had been established that hundreds of employees in the certified class did not work overtime hours.  The sentiment of the Eighth Circuit’s dissenting judge in Tyson echoes Representative Goodlatte’s concerns:  “by certifying a class with hundreds of uninjured employees the district court would force Tyson to pay employees whom it had fully compensated, a result that would be unfair to Tyson and any class members who actually were injured.”

Over and above the practical “fairness” considerations raised by including uninjured individuals in a class action suit, their inclusion in a class raises questions regarding the propriety of class certification given the prominence of individual differences with respect to liability and damages.   The Supreme Court certified the following two questions for review in Tyson:

  1. Whether differences among individual class members may be ignored and a class action certified under Federal Rule of Civil Procedure 23(b)(3), or a collective action certified under the Fair Labor Standards Act, where liability and damages will be determined with statistical techniques that presume all class members are identical to the average observed in a sample.
  2. Whether a class action may be certified or maintained under Rule 23(b)(3), or a collective action certified or maintained under the Fair Labor Standards Act, when the class contains hundreds of members who were not injured and have no legal right to any damages.

The Fairness in Class Action Litigation Act and Tyson Foods seek to address just one of many class action issues that have come under scrutiny.  The Supreme Court has agreed to hear additional cases bearing on class action procedure, including Campbell-Ewald Co. v. Gomez (No. 14-857), which addresses whether an offer of complete relief to a named plaintiff prior to class certification will moot a class action (see our previous post), and Spokeo v. Robins (No. 13-339), which touches on Congressional authority to confer standing to individuals who have suffered no injury in fact based solely on statutory violations. Also, the Advisory Committee on Civil Rules currently is in the process of developing proposed amendments to Federal Rule of Civil Procedure 23 which governs class action procedure.  We will keep you posted on further developments in the class action arena.

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