City Select Auto Sales Inc v. BMW Bank of North America Inc , 867 F.3d 434 ( 2017 )

PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
___________
No. 15-3931
___________
CITY SELECT AUTO SALES INC., a New Jersey
corporation, individually and as the representative of a class
similarly situated persons,
Appellant
v.
BMW BANK OF NORTH AMERICA INC.;
BMW FINANCIAL SERVICES NA LLC;
CREDITSMARTS CORP.
_______________________
On Appeal from the United States District Court
for the District of New Jersey
(D.C. Civil Action No. 1-13-cv-04595)
District Judge: Honorable Noel L. Hillman
______________
ARGUED: January 25, 2017
Before: KRAUSE, SCIRICA, and FUENTES, Circuit
Judges.
(Filed: August 16, 2017)
Phillip A. Bock, Esq. [ARGUED]
Jonathan B. Piper, Esq.
Bock, Hatch, Lewis & Oppenheim, LLC
134 North La Salle Street
Suite 1000
Chicago, IL 60602
Alan C. Milstein, Esq.
Sherman, Silverstein, Kohl, Rose & Podolsky, P.A.
308 Harper Drive
Suite 200, Eastgate Corporate Center
Moorestown, NJ 08057
Counsel for Appellant City Select Auto Sales, Inc.
Ryan L. DiClemente, Esq.
Saul Ewing LLP
650 College Road East
Suite 4000
Princeton, NJ 08540
Raymond A. Garcia, Esq.
Stroock & Stroock & Lavan LLP
180 Maiden Lane
38th Floor
New York, NY 10038
Julia B. Strickland, Esq. [ARGUED]
Stroock & Stroock & Lavan LLP
2
2029 Century Park East
Suite 1800
Los Angeles, CA 90067
Counsel for Appellees BMW Bank of North America,
Inc., and BMW Financial Services NA, LLC.
Thomas J. Gaynor, Jr. Esq.
Robert A. Smith, Esq.
Smith & Doran
60 Washington Street
Courthouse Plaza
Morristown, NJ 07960
William B. Hayes, III, Esq. [ARGUED]
257 Jackson Street
Denver, CO 80206
Counsel for Appellee Creditsmarts Corp
Jonathan D. Hacker, Esq.
O’Melveny & Myers
1625 I Street NW
Washington, DC 20006
Hannah Y.S. Chanoine, Esq.
Anton Metlitsky, Esq.
7 Times Square
Time Square Tower, 33rd Floor
New York, NY 10036
3
Counsel for Amicus Curiae The Chamber of
Commerce of the United States of America and the
Grocery Manufacturers Association
_________________
OPINION OF THE COURT
_________________
SCIRICA, Circuit Judge.
In this Federal Rule of Civil Procedure 23(f) appeal, a
New Jersey automobile dealership contests the denial of class
certification of claims brought against the consumer financing
division of BMW and its contractor for junk faxes allegedly
sent in violation of the Telephone Consumer Protection Act.
The District Court denied class certification on the sole
ground that there was no reliable and administratively
feasible means of determining whether putative class
members fell within the class definition. We will vacate and
remand.
I.
Defendant Creditsmarts Corporation operates an
internet-based “indirect business-to-business lending tree”
that helps independent car dealers connect customers with
various lenders. Dealers input customer information into
Creditsmarts’s online portal, Creditsmarts forwards the
information to lenders based on the customer’s credit profile
and the automobile to be purchased, and lenders may, if
4
appropriate, approve a loan for the customer. Creditsmarts
benefits dealers by providing customers with access to
financing options to facilitate sales and benefits lenders by
connecting them with potential borrowers at many small
independent dealerships.
Defendants BMW Bank of North America, Inc., and
BMW Financial Services NA, LLC (collectively “BMW”)
offer direct automotive financing to customers through a
division called “up2drive.” up2drive provides financing to
borrowers at independent car dealers for all makes and
models of cars.
In 2012, BMW and Creditsmarts entered into a
contract, memorialized in a Master Professional Services
Agreement and a Marketing Agreement, under which BMW
would offer up2drive loans to borrowers at participating
independent car dealers through the Creditsmarts system.
Creditsmarts agreed to “establish electronic systems to permit
customers to communicate with up2drive through mutually
agreed secure lines of communication” and “process all
application forms using the minimum credit parameters
established by up2drive and the information
obtained . . . from the application form including the
customer’s credit history, that will provide sufficient data to
determine whether the customer may qualify for any loan
programs offered . . . by up2drive.” In exchange, Creditsmarts
would receive compensation from BMW for customers
referred to up2drive through its system. As part of the
marketing agreement, BMW agreed to provide “general
institution information (including logos or Trademarks) to be
published on the Vendor web site (Creditsmarts.com).”
5
On a number of occasions in late 2012, Creditsmarts
used the services of a fax broadcaster, WestFax, Inc., to fax
advertisements to independent car dealers. The
advertisements included the up2drive logo, identified BMW
Bank of North America, and stated “UpToDrive is looking
for your BUSINESS!!” A Creditsmarts employee used
WestFax to successfully send 5,480 faxes on November 29,
2012; 5,107 faxes on December 4, 2012; and 10,402 faxes on
December 27, 2012 (collectively “the BMW faxes”).
To send each fax, the employee generated a list of
recipients from Creditsmarts’s customer database. The
customer database contains dealership contact information,
sometimes including fax numbers, as well as information
regarding the dealership’s relationship, if any, with
Creditsmarts and the date the dealership was added to the
database. After generating the recipient list from the customer
database, the employee uploaded the list and the
advertisement to Westfax’s online portal. Westfax then
broadcast the fax to each recipient and billed Creditsmarts for
each fax successfully completed. Neither Creditsmarts nor
Westfax retained the lists of recipients of the BMW faxes.
Plaintiff City Select Auto Sales, Inc., received one of
the faxes sent on December 27, 2012. City Select alleges that
it had no preexisting business relationship with Creditsmarts
or BMW and that the fax was unsolicited.
On July 30, 2013, City Select filed a complaint in the
United States District Court for the District of New Jersey
asserting, inter alia, a claim under the Telephone Consumer
Protection Act, 47 U.S.C. § 227, and a state law claim for
conversion based on the BMW fax. In addition to its
6
individual claim, City Select asserted claims under Federal
Rule of Civil Procedure 23 on behalf of a class of other car
dealers who received the BMW faxes. City Select sought
certification of a class defined as:
All auto dealerships that were included in the
Creditsmarts database on or before December
27, 2012, with fax numbers identified in the
database who were sent one or more telephone
facsimile messages between November 20,
2012 and January 1, 2013, that advertised the
commercial availability of property, goods or
services offered by “BMW Bank of North
America.”
During class certification discovery, City Select sought
to compel production of the Creditsmarts database. The
database was not preserved as of December 2012, but was
preserved as of February 2014. City Select avers that class
members can be identified from the 2014 database by
determining those customers who were added to the database
before December 2012 and who had fax numbers listed in the
database. But City Select’s motion to compel production of
the Creditsmarts database was denied.1
1
The motion to compel was referred to a Magistrate Judge,
who denied the motion without prejudice because City Select
agreed early in the case not to seek production of the database
before a ruling on the motion for class certification, delayed
seeking to compel production, and given the exemplars that
had been provided, had not shown that disclosure of the entire
database was needed to address the certification issue. The
Magistrate Judge specifically stated that he was not ruling on
7
The District Court denied City Select’s motion for
class certification on the sole ground that the proposed class
failed to meet our Circuit’s ascertainability standard because
there was no reliable and administratively feasible means of
determining whether putative class members fell within the
class definition. City Select Auto Sales, Inc. v. BMW Bank of
N. Am., Inc., Civil Action No. 13-4595, 2015 WL 5769951, at
the relevance of the database or whether Creditsmarts’s
proprietary interests affected disclosure. City Select did not
appeal this ruling to the District Court, or directly raise it
before us. City Select explained at oral argument, however,
that it did not appeal that ruling because it believed the gist of
the database could be ascertained from the exemplar pages
and it did not need the complete class list prior to
certification, but only a method for identifying the class,
which the exemplar adequately provided. The District Court,
in turn, even assuming the exemplar was representative of the
rest of the database, concluded that the City Select's class was
not ascertainable. Although City Select’s failure to challenge
the Magistrate Judge’s discovery ruling could be deemed a
waiver absent exceptional circumstances, Continental Cas.
Co. v. Dominick d’Andrea, Inc., 150 F.3d 245, 252 (3d Cir.
1998), we conclude—in light of the procedural history here,
the arguments City Select raised expressly contemplating
production of the database if the class was deemed
ascertainable based on the exemplar, and our own view of the
centrality of the database—that even if City Select’s objection
were not preserved through its argument, we would be
presented here with the type of exceptional circumstance that
would allow us to address the production of the Creditsmarts
database and to hold, as we do today, that its production is
required.
8
*9 (D.N.J. Sept. 29, 2015); see Byrd v. Aaron’s Inc., 784 F.3d
154, 163 (3d Cir. 2015). The Court concluded that “even
though Plaintiff may be able to identify the potential universe
of fax recipients, there is no objective way of determining
which customers were actually sent the BMW fax.” City
Select appealed.
II.
The District Court had jurisdiction under 28 U.S.C.
§§ 1331 and 1367. We granted plaintiff’s petition for
interlocutory appeal from the District Court’s order denying
class certification under Federal Rule of Civil Procedure 23(f)
and have jurisdiction under 28 U.S.C. § 1292(e).
“We review a class certification order for abuse of
discretion, which occurs if the district court’s decision rests
upon a clearly erroneous finding of fact, an errant conclusion
of law or an improper application of law to fact.” In re
Hydrogen Peroxide Antitrust Litig., 552 F.3d 305, 312 (3d
Cir. 2008) (internal quotation marks omitted). We review the
legal standard applied by the district court de novo. Id.III.
The question presented in this appeal is whether the
District Court correctly determined that there was no reliable
and administratively feasible means of determining whether
putative class members were within City Select’s proposed
class definition. Because we conclude the District Court erred
in its analysis of plaintiff’s proposed method of determining
class membership, we will vacate and remand.
9
Every putative class action must satisfy the four
requirements of Federal Rule of Civil Procedure 23(a):
numerosity, commonality, typicality, and adequacy. See
Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 613 (1997).
In addition to the Rule 23(a) requirements, a class action must
be maintainable under Rule 23(b)(1), (2), or (3). Only Rule
23(b)(3) is at issue in this case, which requires plaintiff to
meet the additional requirements of predominance and
superiority. Amchem, 521 U.S. at 615.
A Rule 23(b)(3) class must also be “currently and
readily ascertainable based on objective criteria.” Marcus v.
BMW of N. Am. LLC, 687 F.3d 583, 593 (3d Cir. 2012).2 To
satisfy this standard, plaintiff must show that “(1) the class is
‘defined with reference to objective criteria’;3 and (2) there is
‘a reliable and administratively feasible mechanism for
determining whether putative class members fall within the
class definition.’” Byrd, 784 F.3d at 163 (quoting Carrera v.
Bayer Corp., 727 F.3d 300, 306 (3d Cir. 2013)). Plaintiff has
2
The ascertainability standard is not applicable to Rule
23(b)(2) classes. Shelton v. Bledsoe, 775 F.3d 554, 563 (3d
Cir. 2015).
3
Under the objective criteria requirement, “[a] class
definition that depends on subjective criteria, such as class
members' state of mind, will fail for lack of definiteness.” §
3:3.Tests for the definiteness requirement, Newberg on Class
Actions § 3:3 (5th ed.); see Chiang v. Veneman, 385 F.3d
256, 698 (3d Cir. 2004) (concluding that “defining a class by
reference to those who ‘believe’ they were discriminated
against undermines the validity of the class by introducing a
subjective criterion into what should be an objective
evaluation”).
10
the burden of making this showing by a preponderance of the
evidence, and the district court must “undertake a rigorous
analysis of the evidence to determine if the standard is met.”
Carrera, 727 F.3d at 306; see In re Hydrogen Peroxide, 552
F.3d at 318. However, plaintiff need not “be able to identify
all class members at class certification—instead, a plaintiff
need only show that ‘class members can be identified.’” Byrd,
784 F.3d at 163 (quoting Hayes v. Wal-Mart Stores, Inc., 725
F.3d 349, 355 (3d Cir. 2013)) (emphasis in Byrd).
We have articulated three principal rationales for this
standard. First, “ascertainability and a clear class definition
allow potential class members to identify themselves for
purposes of opting out of a class.” Carrera v. Bayer Corp.,
727 F.3d 300, 306 (3d Cir. 2013). “Second, it ensures that a
defendant’s rights are protected by the class action
mechanism,” id., and that “those persons who will be bound
by the final judgment are clearly identifiable,” Marcus, 687
F.3d at 593. Finally, “it ensures that the parties can identify
class members in a manner consistent with the efficiencies of
a class action.” Carrera, 727 F.3d at 307.
A.
An examination of the various factual circumstances in
which we have analyzed the ascertainability standard helps to
demonstrate its contours. We first addressed this standard in
Marcus, in which plaintiff proposed a class of New Jersey
purchasers of BMW vehicles equipped with “run-flat tires”
that had “gone flat and been replaced” during the class period.
687 F.3d at 592. This definition presented several serious
ascertainability issues. First, the vehicles in question were
manufactured by a foreign subsidiary who was not a party to
11
the action and thus defendant did not have access to records
of which vehicles were equipped with the defective tires. Id.
at 593. Second, dealerships regularly replaced the run-flat
tires with regular tires, and plaintiff did not present a method
of obtaining records from individual dealerships. Id. at 593–
94. Finally, plaintiff limited the class to purchasers of BMWs
whose tires had “gone flat and been replaced” and did not
propose a method of determining who met this part of the
class definition. Id. at 594. Because plaintiff left the answer to
each of these questions to “potential class members’ say so,”
we remanded to the District Court to consider “the critical
issue of whether the defendants’ records can ascertain class
members and, if not, whether there is a reliable,
administratively feasible alternative.” Id.
In Hayes v. Wal-Mart Stores, Inc., we considered
claims brought by a putative class of New Jersey retail
discount club customers who purchased goods with extended
warranties. 725 F.3d at 352. Plaintiff’s proposed class
definition included all customers who purchased a “Service
Plan to cover as-is products” but excluded any customers
whose “as-is product was covered by a full manufacturer’s
warranty, was a last-one item, consumers who obtained
service on their product, and consumers who have previously
been reimbursed for the cost of the Service Plan.” Id. at 353.
We noted that this class definition required a number of
separate factual inquiries to determine class membership: “(1)
whether a Sam’s Club member purchased a Service Plan for
an as-is item, (2) whether the as-is item was a ‘last one’ item
or otherwise came with a full manufacturer’s warranty, and
(3) whether the member nonetheless received service on the
as-is item or a refund of the cost of the Service Plan.” Id. at
356. We remanded so that plaintiff could propose reliable and
12
administratively feasible methods of answering these
questions without requiring “extensive and individualized
fact-finding.” Id.
In Carrera, the District Court certified a class
composed of all purchasers of a particular over-the-counter
diet supplement over several years in the state of Florida. 727
F.3d at 304. Defendants in that case were the drug
manufacturers, and thus did not have access to any retailer
records that could have established which customers
purchased the drug during the requisite time period. Id.
Plaintiff proposed using “retailer records of online sales and
sales made with store loyalty or rewards cards” combined
with affidavits from potential class members. Id. But plaintiff
had not sought, nor obtained, the proposed records during
class discovery. Id. at 308–09. We determined that it was
inappropriate to certify the class without further inquiry into
the nature and extent of the available records, and remanded
in part for this purpose. Id. at 309. In addition, we noted that,
even if the proposed records did exist, there was no evidence
that a “single purchaser,” let alone the whole class, could be
identified using them. Id.. For these reasons, among others,
we remanded so that plaintiff could conduct additional
discovery into whether there was a reliable and
administratively feasible means of determining class
membership. Id. at 312.
Most recently, in Byrd we considered claims brought
by people who leased computers with spyware that was
installed and activated without their consent. 784 F.3d at 160.
The class definition included both the lessees and their
household members. Id. Defendants kept detailed records
enabling identification of the lessees. Id. at 169. We
13
concluded that identification of the household members was
unlikely to pose “serious administrative burdens that are
incongruous with the efficiencies expected in a class action.”
Id. at 170 (quoting Marcus, 687 F.3d at 593). We explained
“[a]ny form used to indicate a household member’s status in
the putative class must be reconciled with the 895 known
class members or some additional public records.” Id. at 171.
B.
In this case, we will vacate and remand for two
reasons. First, our ascertainability precedents do not
categorically preclude affidavits from potential class
members, in combination with the Creditsmarts database,
from satisfying the ascertainability standard. Second, because
the Creditsmarts database was not produced during discovery,
plaintiff was denied the opportunity to demonstrate whether a
reliable, administratively feasible method of ascertaining the
class exists based, in whole or in part, on that database.
Critically, the proposed class definition in this case is
limited to “auto dealerships that were included in the
Creditsmarts database on or before December 27, 2012.” The
first two principal policy rationales for the ascertainability
standard—facilitating opt-outs and identifying persons bound
by the final judgment—are not implicated in this case. Unlike
the consumer classes in Marcus, Hayes, and Carrera, in
which plaintiffs had not limited the proposed class definitions
to the available records, the Creditsmarts database allows for
notice directly to potential class members and limits the
universe of potential claimants. Any recipients of the BMW
faxes who are not included in the Creditsmarts database
would not be bound by a hypothetical judgment. See Byrd,
14
784 F.3d at 167 (“Individuals who are injured by a defendant
but are excluded from a class are simply not bound by the
outcome of that particular action.”).
The District Court concluded that the class was
nonetheless not certifiable because the Creditsmarts database
was over-inclusive, and thus it would be impossible to
identify class members in a reliable and administratively
feasible way. The Court explained,
It is clear from the record that the list of
recipients of the BMW fax was generated from
the Creditsmarts database, and although the
database was not preserved until February 2014,
it appears that the parties can determine from
the database those customers that were also on
the list in December 2012. From this subset of
customers, the parties can eliminate those
customers who could not have been sent the fax
because no fax number was contained in the
database. However, there is no evidence that the
BMW fax was sent to every customer who had
a fax number in the database during the relevant
time period.
This determination was based, in part, on Creditsmarts’s
representation that its database included more entries than the
number of BMW faxes sent in the three batches. The District
Court concluded “there is no objective way of determining
which customers were actually sent the BMW fax” using the
Creditsmarts database alone.
To the extent this conclusion was based on a
15
categorical determination that the Creditsmarts database in
combination with affidavits from potential class members
could never satisfy the ascertainability standard, we disagree.
Plaintiff need not, at the class certification stage, demonstrate
that a single record, or set of records, conclusively establishes
class membership. Byrd, 784 F.3d at 163. Rule 23 does not
require an objective way of determining class membership at
the certification stage, but only that there be “objective
criteria” for class membership and a “reliable and
administratively feasible” means of determining whether
these criteria are met. Id.
Affidavits from potential class members, standing
alone, without “records to identify class members or a method
to weed out unreliable affidavits,” will not constitute a
reliable and administratively feasible means of determining
class membership. Byrd, 784 F.3d at 171. However, Marcus
and our other cases do not imply “no level of inquiry as to the
identity of class members can ever be undertaken.” Id.
Affidavits, in combination with records or other reliable and
administratively feasible means, can meet the ascertainability
standard. Id. at 170–71. The conclusion that affidavits in
combination with the Creditsmarts database categorically
failed to meet the ascertainability standard was inconsistent
with these precedents.
Here, the Creditsmarts database defines a limited set of
potential claimants. The only factual inquiry required to
determine class membership is whether a particular dealership
in the database received the BMW fax on one of the dates in
question. Answering this factual question of identification
through affidavits or other available records does not
necessarily require individualized fact-finding that would be
16
“administratively infeasible” or “a violation of Defendants’
due process rights.” See Byrd, 784 F.3d at 170.
We take no position on whether the level of
individualized fact-finding in this case is administratively
infeasible because we are limited by the record before us,
which does not include the Creditsmarts database. The
determination whether there is a reliable and administratively
feasible mechanism for determining whether putative class
members fall within the class definition must be tailored to
the facts of the particular case. The amount of over-
inclusiveness, if any, of the proposed records is a critical
consideration.4
The District Court’s conclusion that “there is no
evidence that the BMW fax was sent to every customer who
had a fax number in the database during the relevant time
period” cannot be supported on this record. Without
production of the database, there was no evidence in the
record of the number of customers who both had fax numbers
and were in the database as of December 2012. On appeal,
Creditsmarts avers that its database includes “as many as
31,000 auto dealerships,” but does not offer any information
about how many of those dealerships had fax numbers and
were added prior to the relevant period. In addition, City
4
Even if it is true that the BMW fax was not sent to every
customer who had a fax number in the database during the
relevant time period, the class could still be certified, so long
as there is a method for determining which customers did
receive such faxes, which could be by affadavit. While a high
degree of over-inclusiveness could prevent certification, any
degree of over-inclusiveness will not do so.
17
Select was denied an opportunity to review the information in
the Creditsmarts database to determine if it could be used as
part of a reliable and administratively feasible means to
determine class membership, combined with other records,
with affidavits, or otherwise.
Without further information about the Creditsmarts
database, there was not an adequate record on which to base
the conclusion that the class was not ascertainable based on a
“reliable and administratively feasible mechanism.” Byrd,
784 F.3d at 163.5 We will remand so that the Creditsmarts
5
As noted above, the District Court, even after assuming the
database could be filtered to reflect the customers in the
database during the appropriate time period, stated “there is
no evidence that the BMW fax was sent to every customer
who had a fax number in the database during the relevant
time period.” That finding does not appear to be consistent
with the record, which contains significant circumstantial
evidence that the faxes were sent to every customer in the
database at that time. For example, after the faxes went out,
Creditsmarts’s CEO emailed BMW explaining that the “the
employee who sent the email out to our registered dealer list”
did it without authorization, and, at his deposition, the CEO
testified that he understood the fax to be a “program
update”—that is, an update meant to provide Creditsmarts’s
“list of 31,000 auto dealerships that have registered to receive
information regarding finance programs and compliance”
with information that they “need[] to know when discussing
finance options with their customers.” On remand, the
District Court should consider this evidence in assessing
whether the relevant portion of the database coupled with
attestations satisfies our ascertainability standard.
18
database can be produced, subject, if appropriate, to a
protective order and any other necessary provisions for
confidentiality of Creditsmarts’s business information.
IV.
Because the District Court erred in applying the
ascertainability standard, we will vacate and remand for
further consideration in accordance with this opinion.
19
City Select Auto Sales Inc. v. BMW Bank of North
America Inc. et al.
No. 15-3931
_______________
FUENTES, Circuit Judge, concurring:
I agree that under our existing precedent, City Select
must be given an opportunity to demonstrate, using the
Creditsmarts database and affadavits from potential class
members, that there is a reliable and administratively feasible
means to determine whether putative class members fall
within the class definition. I write separately because this case
highlights the unnecessary burden on low-value consumer
class actions created by our circuit’s adoption of a second
ascertainability requirement. The Second, Sixth, Seventh, and
Ninth Circuits have all rejected this additional requirement,
and we should do so as well.1
Our ascertainability inquiry is a creature of common
law. Historically, it referred only to the requirement that a
class be defined with reference to objective criteria. But in
1
See Byrd v. Aaron's Inc., 784 F.3d 154, 172 (3d Cir. 2015)
(Rendell, J., concurring) (“[T]he lengths to which the majority
goes in its attempt to clarify what our requirement of
ascertainability means, and to explain how this implicit
requirement fits in the class certification calculus, indicate
that the time has come to do away with this newly created
aspect of Rule 23 in the Third Circuit. Our heightened
ascertainability requirement defies clarification. Additionally,
it narrows the availability of class actions in a way that the
drafters of Rule 23 could not have intended.”).
1
2012, in Marcus v. BMW of North America, LLC,2 we for the
first time added a second requirement: that a plaintiff must
show a “reliable, administratively feasible” mechanism to
identify class members. Since our adoption of this new
requirement, circuits that have carefully considered whether
to adopt our new requirement have declined to do so.3
2
687 F.3d 583, 594 (3d Cir. 2012).
3
The Fourth Circuit applied a version of the two-
requirement definition of ascertainability without analyzing
the adoption of this second requirement. See EQT Prod. Co. v.
Adair, 764 F.3d 347, 358 (4th Cir. 2014). The Eleventh
Circuit has applied it in unpublished opinions.
2
However, the Second, Sixth, Seventh, and Ninth Circuits
have all expressly rejected it. See In re Petrobras Sec., No.
16-1914-CV, 2017 WL 2883874, at *9 (2d Cir. July 7, 2017)
(“With all due respect to our colleagues on the Third Circuit,
we decline to adopt a heightened ascertainability theory that
requires a showing of administrative feasibility at the class
certification stage . . . [, which] would upset the careful
balance of competing interests codified in the explicit
requirements of Rule 23.”); Rikos v. Procter & Gamble Co.,
799 F.3d 497, 525 (6th Cir. 2015), cert. denied, 136 S. Ct.
1493 (2016) (“We see no reason to follow Carrera,
particularly given the strong criticism it has attracted from
other courts.”); Mullins v. Direct Digital, LLC, 795 F.3d 654,
658 (7th Cir. 2015), cert. denied, 136 S.Ct. 1161 (2016);
Briseno v. ConAgra Foods, Inc., 844 F.3d 1121 (9th Cir.
2017). In a recent opinion, the Sixth Circuit considered
adopting the added definition of ascertainability, but
ultimately found it unnecessary to reach this issue. See
Sandusky Wellness Ctr., LLC v. ASD Specialty Healthcare,
Inc., No. 16-3741, 2017 WL 2953039, at *4 (6th Cir. July 11,
2017) (“[T]he district court’s recognition of the difficulty in
identifying class members without fax logs and with sole
reliance on individual affidavits was equally sufficient to
preclude certification, regardless of whether this concern is
properly articulated as part of ascertainability, Rule 23(b)(3)
predominance, or Rule 23(b)(3) superiority.”).
3
As the majority explains,4 Marcus and the cases
interpreting it have identified three values purportedly served
by this additional ascertainability requirement—to protect:
(1) absent plaintiffs’ opt-out rights and interest in not
having future claims diluted,5
The Eighth Circuit rejects the ascertainability requirement
all together. See Sandusky Wellness Ctr., LLC v. Medtox Sci.,
Inc., 821 F.3d 992, 996 (8th Cir. 2016) (“[T]his court has not
addressed ascertainability as a separate, preliminary
requirement. Rather, this court adheres to a rigorous analysis
of the Rule 23 requirements, which includes that a class ‘must
be adequately defined and clearly ascertainable.’”).
In response to the Ninth Circuit’s decision, ConAgra has
petitioned the Supreme Court for certiorari, seeking to have
the Court decide whether there must be a reliable,
administratively feasible method for identifying class
members for a class to be certified. That petition is currently
pending before the Court.
4
Maj. Op. at 11.
5
See Marcus, 687 F.3d at 593 (explaining that this
requirement “protects absent class members by facilitating the
‘best notice practicable’ under Rule 23(c)(2) in a Rule
23(b)(3) action”). See also Carrera v. Bayer Corp., 727 F.3d
300, 310 (3d Cir. 2013) (“It is unfair to absent class members
if there is a significant likelihood their recovery will be
diluted by fraudulent or inaccurate claims.”).
4
(2) a defendant’s due process rights,6 and
(3) the efficiency of the class action mechanism.7
In my view, the added ascertainability requirement is
not necessary to serve any of these values. They are already
sufficiently protected by the existing requirements of Rule 23,
including Rule 23(b)(3) predominance and Rule 23(b)(3)
superiority. Moreover, it undermines the “very core” of cases
that the class action device was designed to bring to court:
6
Marcus, 687 F.3d at 593-94 (explaining that this
requirement “protects defendants by ensuring that those
persons who will be bound by the final judgment are clearly
identifiable”). See also Carrera, 727 F.3d at 310 (“Bayer too
has an interest in ensuring it pays only legitimate claims. If
fraudulent or inaccurate claims materially reduce true class
members’ relief, these class members could argue the named
plaintiff did not adequately represent them because he
proceeded with the understanding that absent members may
get less than full relief. When class members are not
adequately represented by the named plaintiff, they are not
bound by the judgment. They could then bring a new action
against Bayer and, perhaps, apply the principles of issue
preclusion to prevent Bayer from re-litigating whether it is
liable under the [statute]. Bayer has a substantial interest in
ensuring this does not happen.” (internal citations omitted)).
7
See Marcus, 687 F.3d at 593 (explaining that this
requirement “eliminates serious administrative burdens that
are incongruous with the efficiencies expected in a class
action by insisting on the easy identification of class
members.” (internal quotations and citations omitted)).
5
cases where many consumers have been injured, but none
have suffered enough to make individual actions possible.8 In
those cases, as in this case, the realistic options are collective
action or no redress for grievances at all.
1. Absent Plaintiffs’ Opt-Out Rights and Interests
The additional requirement is apparently intended to
protect absent class members by facilitating the “best notice
practicable” requirement in a Rule 23(b)(3) action. This is
said both to prevent absent class members’ recovery from
being “diluted” by fraudulent or inaccurate claims, and to
allow potential class members to opt out of the class.
First, the dilution concern misses the mark on the
reality of the consumer class action landscape. Only a tiny
fraction of eligible class members ever submit to class
administrators in consumer cases.9 And “[t]he chances that
someone would, under penalty of perjury, sign a false
affidavit stating that he or she bought Bayer aspirin for the
8
Ebin v. Kangadis Food Inc., 297 F.R.D. 561, 567
(S.D.N.Y. 2014) (Rakoff, J.).
9
See Carrera v. Bayer Corp., No. 12-2621, 2014 WL
3887938 (3d Cir. May 2, 2014) (denial of petition for
rehearing en banc), Br. of Amici Curiae Professors of Civil
Procedure & Complex Litigation at 9 (noting the “low historic
claims rates” that make it unlikely that there would ever be a
significant risk of dilution); Geoffrey C. Shaw, Note, Class
Ascertainability, 124 Yale L.J. 2354, 2371 (2015) (“[O]f
course it is common for only a fraction of the class members
to ever file claims.”).
6
sake of receiving a windfall of $1.59 are far-fetched at
best.”10 In any case, courts have tools to identify and screen
out fraudulent claims at the claims administration stage, as
they can rely on “claim administrators, various auditing
processes, sampling for fraud detection, follow-up notices to
explain the claims process, and other techniques . . . to take
into account the size of the claims, the cost of the techniques,
and an empirical assessment of the likelihood of fraud or
inaccuracy.”11 Even if fraudulent claims are submitted, given
the low participation rate generally, this is unlikely to result in
dilution.12 This dilution concern is also inconsistent with our
Court’s acceptance of cy pres remedies in class actions,
allowing the distribution of unclaimed class action damages to
10
Byrd, 784 F.3d at 175 (Rendell, J., concurring). See also
Briseno, 844 F.3d at 1130 (“Why would a consumer risk
perjury charges and spend the time and effort to submit a false
claim for a de minimis monetary recovery?”).
11
Mullins, 795 F.3d at 667.
12
Id. (“It is of course theoretically possible that the total sum
claimed by non-deserving claimants exceeds the total amount
of unclaimed funds, in which case there would be dilution,
but given the low participation rates actually observed in the
real world, this danger is not so great that it justifies denying
class certification altogether, at least without empirical
evidence supporting the fear.”).
7
non-class members.13
Second, the concern about an absent plaintiff’s notice
and opt-out rights are also misplaced. Rule 23 does not
require actual notice to all potential class members. Instead,
Rule 23(c)(2)(B) requires the “best notice that is practicable
under the circumstances, including individual notice to all
members who can be identified through reasonable effort.”
Thus, the rule as written “recognizes it might be impossible to
13
Briseno, 844 F.3d at 1129. The cy pres doctrine has been
applied to class actions to allow courts to distribute unclaimed
class action damages to charitable organizations in certain
situations. See § 12:32.Cy pres—Generally, Newberg on
Class Actions § 12:32 (5th ed.); In re Baby Prod. Antitrust
Litig., 708 F.3d 163, 172 (3d Cir. 2013) (“We join other
courts of appeals in holding that a district court does not
abuse its discretion by approving a class action settlement
agreement that includes a cy pres component directing the
distribution of excess settlement funds to a third party to be
used for a purpose related to the class injury.”).
8
identify some class members for purposes of actual notice.”14
In recognition of this impossibility, courts permit notice
through third parties, advertising, and/or posting in places
frequented by class members.15 Moreover, these concerns
about an absent plaintiff’s rights are beside the point, where
class actions are the only realistic means of vindicating a
14
Mullins, 795 F.3d at 665. See also Byrd, 784 F.3d at 175
(Rendell, J., concurring) (“Rule 23 requires the ‘best notice
that is practicable under the circumstances’ to potential class
members after a class has been certified. Potential difficulties
in providing individualized notice to all class members should
not be a reason to deny certification of a class. As the
Supreme Court noted in Phillips Petroleum Co. v. Shutts, due
process is satisfied when notice is ‘reasonably calculated’ to
reach the defined class. 472 U.S. 797, 812 (1985). The
question is not whether every class member will receive
actual individual notice, but whether class members can be
notified of their opt-out rights consistent with due process.”).
15
Mullins, 795 F.3d at 665. See also Briseno, 844 F.3d at
1129 (“Courts have routinely held that notice by publication
in a periodical, on a website, or even at an appropriate
physical location is sufficient to satisfy due process.”) (citing
Hughes v. Kore of Ind. Enter., Inc., 731 F.3d 672, 676-77 (7th
Cir. 2013) (holding that sticker notices on two allegedly
offending ATMs, as well as publication in the state’s
principal newspaper and on a website, provided adequate
notice to class members in an action challenging ATM fees);
Juris v. Inamed Corp., 685 F.3d 1294, 1319 (11th Cir. 2012)
(holding that notice to unidentified class members by
periodical and website satisfied due process)).
9
consumer’s rights.16 Thus, by denying class certification
based on a fear that a prospective plaintiff will not be given
notice to opt out and bring his own individual claim, we, “in
effect, deprive potential class members of any recovery as a
means to ensure they do not recover too little.”17 As Judge
Posner put it, “[t]he realistic alternative to a class action is not
17 million individual suits, but zero individual suits, as only a
lunatic or a fanatic sues for $30.”18
2. Defendants’ Due Process Rights
16
Eisen v. Carlisle & Jacquelin, 417 U.S. 156, 161 (1974)
(“Economic reality dictates that petitioner’s suit proceed as a
class action or not at all.”).
17
Carrera, Br. of Amici Curiae Professors of Civil
Procedure & Complex Litigation at 9. See also Briseno, 844
F.3d at 1129 (“Practically speaking, a separate administrative
feasibility requirement would protect a purely theoretical
interest of absent class members at the expense of any
possible recovery for all class members—in precisely those
cases that depend most on the class mechanism. Justifying an
administrative feasibility requirement as a means of ensuring
perfect recovery at the expense of any recovery would
undermine the very purpose of Rule 23(b)(3)—‘vindication of
the rights of groups of people who individually would be
without effective strength to bring their opponents into court
at all.’” (quoting Amchem Prod., Inc. v. Windsor, 521 U.S.
591, 617 (1997) (internal quotation marks and citations
omitted)).
18
Carnegie v. Household Int’l, Inc., 376 F.3d 656, 661 (7th
Cir. 2004).
10
As a second justification, our Court has also explained
that the added ascertainability requirement protects
defendants by (1) ensuring that the plaintiffs bound by the
final judgment are clearly identifiable, and (2) securing their
due process rights to raise individual defenses and challenges.
These arguments, however, are flawed. The first
requirement of the ascertainability test, that a class must be
defined in reference to objective criteria, already allows
courts to determine whether a plaintiff in a future action was a
member of a prior class and thus is precluded from
relitigation.19 A court can plainly read the class definition and
make this determination.
As to a defendant’s due process rights, defendants may
challenge a class member’s inclusion in the class and
individual damages later in the litigation.20 A defendant may
prefer to bring these challenges prior to class certification,
19
Briseno, 844 F.3d at 1130 n. 9 (“If a future plaintiff were
to assert a claim challenging the “100% Natural” label on
Wesson oil purchased during the class period in one of the
eleven states at issue, that would show that she was a member
of the class bound by the judgment. This would be so
regardless of how ‘administratively feasible’ it was to prove
the entirety of the membership at the class certification stage
in this action.”) (citing Shaw, Note, Class Ascertainability,
124 Yale L.J. at 2374-78).
20
Mullins, 795 F.3d at 671 (“As long as the defendant is
given the opportunity to challenge each class member’s claim
to recovery during the damages phase, the defendant’s due
process rights are protected.”).
11
long before the damages stage or the settlement claims
administration stage. But a defendant does not have a due
process right to the most “cost-effective” method for
challenging individual claims to class membership and
damages, and these challenges are more appropriately
addressed after certification.21 Thus, the advisory committee
notes to Rule 23 specifically contemplate that certification
may be proper “despite the need, if liability is found, for
separate determinations of the damages suffered by
individuals within the class.”22
3. Efficiency
Finally, the added ascertainability requirement is said
to eliminate administrative burdens that are inconsistent with
21
Briseno, 844 F.3d at 1132. See also Mullins, 795 F.3d at
669 (“It is certainly true that a defendant has a due process
right not to pay in excess of its liability and to present
individualized defenses if those defenses affect its liability.
See Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338, 364-65
(2011). It does not follow that a defendant has a due process
right to a cost-effective procedure for challenging every
individual claim to class membership.”) (citing American
Express Co. v. Italian Colors Restaurant, 133 S.Ct. 2304,
2309 (2013) (“the antitrust laws do not guarantee an
affordable procedural path to the vindication of every
claim”)). This is particularly true in cases where the size of
the class does not change the size of the potential damage
award.
22
Fed. R. Civ. P. 23 advisory committee’s note to 1966
amendment.
12
the efficiency that class actions are intended to generate.
Not so. The superiority consideration explicitly
required by Rule 23(b)(3) already requires courts to consider
the efficiencies of the class action mechanism before
certifying a class. Specifically, Rule 23(b)(3) requires that the
class device be “superior to other available methods for fairly
and efficiently adjudicating the controversy” and considers
“the likely difficulties in managing a class action.” Thus,
imposing a separate manageability requirement within
ascertainability “renders the manageability criterion of the
superiority requirement superfluous.”23
Furthermore, the superiority requirement requires
courts to weigh the costs and benefits of certification.24 The
heightened ascertainability requirement, however, forces
courts to consider the costs “in a vacuum”25 without
considering the realistic alternatives available to plaintiffs for
23
Mullins, 795 F.3d at 663 (citing Daniel Luks, Note,
Ascertainability in the Third Circuit: Name That Class
Member, 82 Fordham L.Rev. 2359, 2395 (2014)).
24
Id. at 663-64 (citing 7AA Wright et al., Federal Practice &
Procedure § 1780 (“Viewing the potential administrative
difficulties from a comparative perspective seems sound and a
decision against class-action treatment should be rendered
only when the ministerial efforts simply will not produce
corresponding efficiencies. In no event should the court use
the possibility of becoming involved with the administration
of a complex lawsuit as a justification for evading the
responsibilities imposed by Rule 23.”)).
25
Id. at 663.
13
bringing their claims. In truth, in many low value consumer
class actions, “other available methods” of vindicating a
plaintiff’s rights will not exist.26 A district court applying our
existing ascertainability precedent is forced to ignore this
reality.
Moreover, this requirement understates the ability of
district courts to manage their cases and engineer solutions at
the claims administration stage.27 It prevents the district court
from “wait[ing] and see[ing] how serious [a] problem may
turn out to be after settlement or judgment, when much more
may be known about available records, response rates, and
26
Even if plaintiffs could realistically bring individual suits
instead, I cannot see what efficiencies are promoted by
requiring numerous actions adjudicating the same legal and
factual issues for a small amount of damages each. See
Carnegie, 376 F.3d at 661 (“The more claimants there are, the
more likely a class action is to yield substantial economies in
litigation. It would hardly be an improvement to have in lieu
of this single class action 17 million suits each seeking
damages of $15 to $30.”).
27
Carrera, Br. of Amici Curiae Professors of Civil
Procedure & Complex Litigation at 7-8 (“[T]he panel decision
conflates class certification with the claims administration
stage of the proceedings. The ‘efficiencies’ that are promoted
by identifying individual class members plainly relate to the
claims administration stage. It is in connection with the
allocation of damages between and among class members that
there is a need to ascertain the identities of those individual
members.”).
14
other relevant factors.”28 And decertification remains an
option if manageability concerns overtake the efficiency of
the class action. The mere fact that a case is complicated or
time-consuming should not sound the death knell for
certification.
***
In short, our heightened ascertainability requirement
creates an unnecessary additional burden for class actions,
particularly the low-value consumer class actions that the
device was designed to allow.29
28
Mullins, 795 F.3d at 664. See also Byrd, 784 F.3d at 175
(Rendell, J., concurring) (“Imposing a proof-of-purchase
requirement does nothing to ensure the manageability of a
class or the ‘efficiencies’ of the class action mechanism;
rather, it obstructs certification by assuming that hypothetical
roadblocks will exist at the claims administration stage of the
proceedings.”).
29
Carrera, No. 12-2621, 2014 WL 3887938, at *1 (Ambro,
J., dissenting from denial of petition for rehearing en banc)
(“Several amici—including this country’s most recognized
expert on procedure, Arthur Miller—warn that Carrera
threatens the viability of the low-value consumer class action
‘that necessitated Rule 23 in the first instance.’” (quoting Br.
of Amici Curiae Professors of Civil Procedure & Complex
Litigation at 3)). See also Byrd, 784 F.3d at 176 (Rendell, J.,
concurring) (“The policy concerns animating our
ascertainability doctrine boil down to ensuring that there is a
surefire way to get damages into the hands of only those
individuals who we can be 100% certain have suffered injury,
15
This appeal arises because Westfax failed to retain
records of the recipients of the alleged junk faxes. Our
heightened ascertainability requirement encourages that
practice. Had the Defendants not retained a version of the
Creditsmarts database, Plaintiffs would likely have been
unable to meet the ascertainability requirement as we have
interpreted. Congress passed the Telephone Consumer
Protection Act to discourage the sending of junk faxes. Our
additional ascertainability requirement threatens to render this
and other consumer protection statutes ineffective by creating
loopholes for defendants who fail to retain customer records.
We should join the Second, Sixth, Seventh, and Ninth
Circuits in rejecting our added ascertainability requirement.
We should return to our original interpretation of
ascertainability under Rule 23, and require only that a class be
defined in reference to objective criteria. I agree with Judge
Rendell in her critique that “[u]ntil we revisit this issue as a
full Court or it is addressed by the Supreme Court or the
Advisory Committee on Civil Rules, we will continue to
administer the ascertainability requirement in a way that
and out of the hands of those who may not have. However, by
disabling plaintiffs from bringing small-value claims as a
class, we have ensured that other policy goals of class
actions—compensation of at least some of the injured and
deterrence of wrongdoing, for example—have been lost. In
small-claims class actions like Carrera, the real choice for
courts is between compensating a few of the injured, on the
one hand, versus compensating none while allowing corporate
malfeasance to go unchecked, on the other.”).
16
contravenes the purpose of Rule 23 and, in my view, disserves
the public.”30
30
Byrd, 784 F.3d at 177 (Rendell, J., concurring).
17