Ascertainability, Injury and the Upside-down View of Class Actions
Class actions are a procedural device enabling courts to handle large numbers of similar claims efficiently and economically. The procedural device serves two purposes.
Spending $100 to get $50
First, litigation is so expensive and time-consuming that the science of economics tells us that people with valid claims will generally choose to suffer their losses if their individual recovery is irrational compared to the cost of litigation. After all, if it costs $100 to recover $50, who in their right mind would go for it? No one. Let’s carry the consequence of that conclusion forward. If 100,000 people are victimized by a $50 wrong, the defendant just got away with stealing $5 million dollars. Class actions are designed to deter this conduct and provide some remuneration for these actions.
The second purpose of the class action device is to ensure efficient use of our tax-payer funded court system. If, in the example above, every single victimized plaintiff actually did hire an hourly lawyer to sue for an ultimate recovery of $50, the system would be overrun with 100,000 or more (often times millions) of cases. Presumably, each case would follow the typical formula of motions to dismiss, discovery, discovery disputes, motions for summary judgment, and so on. If you think about it, if each case took two years, that’s 200,000 years collectively to litigate a bunch of $50 claims when, in reality, if a class was certified, it would take only two years to bring a $5 million claim to resolution—for defendant or plaintiffs. The economics of a class case overwhelmingly favor the procedure for getting a complicated case involving many plaintiffs with small claims through the system as inexpensively and efficiently as possible.
Class actions are governed by Rule 23; the law says a damages class cannot be certified unless the plaintiff shows, by a preponderance of the evidence, that all the prerequisites of Rule 23(a) and 23(b)(3) are met. This is not a small undertaking. Lip service to class certification not “being a trial on the merits” aside, practically speaking, the best way to ensure class certification in front of today’s judiciary is to try and prove plaintiff’s case on the merits, on a class-wide basis, at class certification. One can argue very persuasively that this approach eviscerates the Seventh Amendment and is an extremely inefficient standard (given that post-class certification summary judgment decisions can drastically change the issues in play for trial), but that is the reality of class certification today.
Everyone Is Injured, Everyone Is Ascertainable
Good lawyers have adjusted and do what they have to do for victimized plaintiffs, despite the hurdles and expense. Now, however, even after the heightened evidentiary threshold at the class certification stage, the defense bar has introduced two concepts into the mix that are not in Rule 23. These two arguments are, essentially, that in order for class certification to be granted: (1) every class member must be proven injured, and (2) every class member must be ascertainable, in fact, and in an “administratively feasible” fashion.
The rationale for these arguments is as follows. As to ascertainability, the theory goes that if you can’t know precisely who the members of the class are immediately, at the class certification stage, then:
- At the end of the case, there might be duplicate claims made for the same recovery, or worse, someone might submit a fraudulent claim for recovery;
- Defendants do not have finality as to the contours of the “class” bound by the judgment, pro or con; and
- Class members themselves cannot self-identify in a way that gives them a chance to opt out or pursue an individual recovery outside the class action.
In regard to the need for every class member to be injured, I think I understand the reasoning to be, what if they’re not? The argument seems to go that, if everybody isn’t injured, the defendant’s due process rights in challenging the damages sought by members of the class are compromised. So again, the necessary corollary is, you can’t possibly know if everyone in the class is injured without asking them, and if you have to ask them, you are having mini-trials and, once again, this makes individual issues overwhelm common ones, so the class should not be certified. If the aggregate damages total is relatively accurate, and we all agree that has to be the case according to Comcast and seminal antitrust law (among other torts), then what exactly is the defendants’ “due process” concern with challenging individual damages allocation? I have never read or heard a good answer to that question.
In writing this, I’m struck by the fact that, in my 30 years of litigating for class plaintiffs, I could construct an argument for every real and conceivable case that: (1) not everyone is necessarily ascertainable (someone formerly known could move and not leave a forwarding address; how can we know if this happened or not without asking every class member?) and (2) not everyone is necessarily injured (how do we know that someone who has a record of paying $99.99 for a defective smoke alarm didn’t return it and get a full refund without asking everybody if that’s what they did?).
$10 Million in Damages Equals $10 Million in Damages, Regardless of Duplicate Claims
Here’s the deal: the defendants’ rights are not affected at all by ascertainable “administrative feasibility” or class-wide injury. There is a finite amount of damages caused by wrongdoing in commercial cases. If an economist reliably measures overcharge damages as being $10 million in an antitrust case and the jury awards that amount, that means the defendant committed an illegal antitrust violation and must pay $10 million in damages to the class as it is defined. If duplicate claims are made by different class members for a share of the $10 million, that has no effect on the defendant. The defendant’s liability is limited to the damages it caused: $10 million. It becomes a dispute between the competing plaintiffs; the defendant has nothing to do with it and faces no threat to its due process rights. Problems with duplicate claims are addressed thoroughly through the substantial process allowed for class certification objection and claims administration that is ultimately approved by the court.
Likewise, if there is a claims process for the $10 million and someone who isn’t injured puts in a claim for $0 damages, how in the world does that affect the defendant or anyone else? It doesn’t.
The ascertainability and 100% injury arguments are concepts intended not to ensure that proper classes are certified, but that no class is ever certified. If, in the example above, a claimant who would recover 70% of her damages had her recovery diluted to 68% because some fraudulent claims slipped through, is she better off getting 68% with a certified class or receiving nothing because the class isn’t “ascertainable”? And that hypothetical, as recently noted by the Seventh Circuit, is wildly unrealistic because the only way a fraudulent claim can take from a legitimate claim is if you have a 100% claim rate—which, unfortunately, is not the status quo.
The “administrative feasibility” aspect of ascertainability and the notion that all class members must be proven injured at class certification have no place in our jurisprudence. They are, if anything, political concepts intended to prevent class certification entirely and protect defendants, who, by definition, enjoy the fruits of these notions by virtue of greater fraud. Rule 23 is, by its express terms, a non-absolutist rule; it is given to district courts to flexibly exercise their discretion to seek efficient justice.
 Mullins v. Direct Digital, LLC, 2015 U.S. App. LEXIS 13071, *26-34 (7th Cir. July 28, 2015) (“Any participation rate less than 100 percent leaves unclaimed funds in the pot, whether it is a judgment award or a settlement fund. When there are unclaimed funds, the addition of a fraudulent or inaccurate claim typically does not detract from a bona fide class member’s recovery because the non-deserving claimant merely takes from unclaimed funds, not the deserving class member. 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.”).