With Scalia gone, defendants lose hope for class action reprieve

February 29, 2016

(Reuters) – Carter Phillips of Sidley Austin is one of the most experienced U.S. Supreme Court litigators in the country. According to his official bio, Phillips has argued 74 cases before the justices, more than anyone else in private practice, but if you hire Phillips, you’re not just paying for his quick thinking at the podium. You want his strategic advice about how – and whether – you can win your case.

So it’s quite telling that Phillips seems to no longer believe that the Supreme Court will act as a savior for corporations facing class actions.

On Friday, as you’ve probably heard, Phillips’ client Dow Chemical agreed to drop its bid for Supreme Court review of a jury verdict against the company for participating in a price-fixing conspiracy to inflate the cost of urethane chemicals. Dow had argued that the trial court improperly certified a class of urethane purchasers in which some class members suffered no actual injury – a constitutional argument that has been a particular bugaboo for class action detractors in the past couple of years.

Phillips persuaded the justices to take up the question of uninjured class members in another of his cases this term, Tyson Foods v. Bouaphakeo. But at oral arguments, the court seemed disinclined to use the Tyson case, which involved a jury verdict for unpaid overtime wages to a class of Tyson meat processing workers, as a vehicle for sweeping class action revisions.

The already very slim chance that the Supreme Court would issue a ruling in Tyson that would help class action defendants like Dow became even thinner with the death earlier this month of Justice Antonin Scalia, the court’s leading class action skeptic. Indeed, as my Reuters colleague Lawrence Hurley reported Friday, Dow’s announcement of its $835 million capitulation to urethane purchasers was unusually candid about how the uncertainty over Scalia’s vacant seat has led to “increased likelihood for unfavorable outcomes for businesses involved in class action suits.”

As if to underline Dow’s prediction, on Monday the Supreme Court refused to grant certiorari to the nutritional supplement seller Direct Digital, which wanted the justices to overturn a decision from the 7th U.S. Circuit Court of Appeals that said plaintiffs’ affidavits are a perfectly fine way to determine class membership.

The court also denied review of a class action against Wal-Mart that presented the question of whether the filing of successive class actions can extend the statute of limitations for absent class members.

For class action detractors, it’s increasingly evident that Scalia’s absence from the Supreme Court means at least a temporary halt in the long campaign to rein in these cases – not just because Scalia won’t be pushing his colleagues to circumscribe the rights of class action plaintiffs in written opinions but because there will be less appetite to take cases to begin with.

Defendants might not even want to bring class action issues to the Supreme Court if they can’t count on having Justice Scalia in their corner. Think about the Direct Digital case, for instance. In that decision, the 7th Circuit explicitly split with the 3rd Circuit on the standard for ascertaining class membership. In the 3rd Circuit, plaintiffs cannot rely on affidavits from people claiming to be in the class. In the 7th Circuit, they can. Without Scalia, defendants have little chance of mustering a majority to hold that, in essence, consumer class actions cannot be based on sworn statements from consumers. Their best outcome would be a 4-4 tie, which would merely preserve the status quo. And the worst-case scenario would wipe out favorable precedent in the 3rd Circuit.

Under those circumstances, defendants might better off leaving well enough alone, preserving a circuit split and uncertainty – which at least gives them a little leverage in settlement talks – rather than risking disadvantageous Supreme Court precedent.

The Supreme Court hasn’t yet issued opinions in Tyson Foods and the other potential class action blockbuster of this term, Spokeo v. Robins, which poses the question of whether Congress can legislate standing by creating a private right of action for violations of federal consumer protection laws. My prediction is that the justices opt for relatively narrow rulings in both Tyson and Spokeo.

In Tyson Foods, the likeliest outcome is an opinion upholding the verdict against the company based on the class certification standards for a Fair Labor Standards Act collective action rather than Rule 23 class action standards. At oral arguments in Spokeo, the justices seemed to agree with the credit reporting company that Congress does not have absolute authority to grant standing by statute. But the court also appeared to take a broad view of what might constitute an injury under the Fair Credit Reporting Act, the law at issue in the case.

I’m not suggesting the Supreme Court is likely to roll back from the business-friendly class action opinions Justice Scalia has written. Wal-Mart v. Dukes, which raised the bar for class membership, and AT&T Mobility v. Concepcion and American Express v. Italian Colors, which upheld the primacy of class action bans in mandatory arbitration agreements, are securely in place. But as I’ve said before, Justice Scalia’s most recent big class action opinion, Comcast v. Behrend, has turned out to be an underachiever. The justice included language in the Comcast opinion that class action opponents hope to use to prohibit class certification in cases involving individualized damages calculations. Lower appellate courts, however, have refused to read the opinion that way.

At oral arguments in the Tyson and Spokeo cases, Justice Scalia was characteristically sharp in his questions about class certification and uninjured plaintiffs. But until and unless class action opponents bring another justice onto their side, defendants ought not count on the Supreme Court for a reprieve.

(This post has been corrected. An earlier version incorrectly reported that the Supreme Court denied review in a Pennsylvania state-court Wal-Mart case involving “trial by formula” issues. The justices have not issued an order on that petition.)

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