Merits Inquiry and Rigorous Analysis: Ohio Supreme Court Clarifies When Merit Inquiry at the Class Certification Stage is a Proper Part of the Rigorous Analysis

On Tuesday, July 16, 2013, the Ohio Supreme Court held that trial courts must "conduct a rigorous analysis, which may include probing the merits of plaintiffs' claims, to ensure that the prerequisites of Civ.R. 23 are satisfied."  Stammco, L.L.C. v. United Tel. Co. of Ohio, 2013-Ohio-3019, ¶¶ 18-52 ("Stammco II") (analyzing Wal-Mart Stores, Inc. v. Dukes, 564 U.S. ___, 113, S.Ct. 2541 (2011) and Amgen v. Conn. Ret. Plans & Trust Funds, 568 U.S. ___, at 133 S.Ct. 1184 (2013)).  In a significant and noteworthy decision, the Ohio Supreme Court effectively decertified the class, finding that the class definition remained overbroad and plaintiff could not satisfy the predominance requirements of Ohio R. Civ. P. 23(B)(3).  Id. ¶¶ 53-66.

The opinion is expected to have a major impact on Ohio class action law.  Ohio state courts are now required to conduct a rigorous analysis that considers, when relevant, the merits of plaintiff's underlying claims.  Moreover, class definitions will likely face even more scrutiny by Ohio state courts, as will the analysis of whether class plaintiffs are able to meet Ohio R. Civ. P. 23(B)(3)'s requirement of predominance.

Merits Inquiry at Class Certification Stage

In 2005, plaintiffs brought claims against United Telephone Co. of Ohio ("UTO") for alleged unauthorized charges, and sought to certify a class.  Id. ¶¶ 4-6.  The trial court certified a class and the Sixth Appellate District affirmed.  The Ohio Supreme Court reversed, holding that the class was not readily identifiable because individualized determinations would be needed as to "whether and how each prospective class member had authorized third-party charges on his or her phone bill," and the identification of class members would require "more than a reasonable effort."  Stammco L.L.C. v. United Tel. Co. of Ohio, 125 Ohio St. 3d 91, 2010-Ohio-1042, ¶ 7 ("Stammco I").

On remand, plaintiffs redefined the class, but the trial court refused to certify the class, finding that (1) "the 'class definition,' as submitted by the Plaintiffs is a prohibited 'fail-safe class,'" (2) "Plaintiff's [sic] action has been brought against the 'local exchange carrier,' rather than the culprit 'third party provider,'" and (3) "[t]he action proposed to impose a 'duty' upon Defendant Carrier, that is not required of them, according to the status of current legislation and case law."  Stammco II, 2013-Ohio-3019, ¶ 10.  Plaintiffs appealed and the Sixth Appellate District reversed, holding that the amended class definition addressed the ambiguities in the class definition as required in Stammco IId. ¶ 11.  UTO appealed to the Ohio Supreme Court.  Stammco II, 2013-Ohio-3019, ¶ 26.  The Ohio Supreme Court accepted a discretionary appeal on the sole issue of whether a trial court may evaluate the merits of plaintiffs' claims when making its class certification decision.

Knowledge of the evolution of United States Supreme Court precedent in Eisen v. Carlisle & Jacquelin, 417 U.S. 156, 94 S.Ct. 2140 (1974); Wal-Mart Stores, Inc. v. Dukes, 564 U.S. ___, 131 S.Ct. 2541 (2011); and Amgen v. Connecticut Retirement Plans & Trust Funds, 568 U.S. ___, 133 S.Ct 1184, 1194-95 (2013) is important to understanding the Stammco II decision.

In Eisen v. Carlisle & Jacquelin, the United States Supreme Court held that the district court erred in considering which party was likely to prevail on the merits for the purpose of deciding which party should bear the costs of notification in a class action lawsuit.  Eisen, 417 U.S. at 177.  The Court held that an inquiry into the merits would give plaintiff "a determination on the merits of the claims advanced on behalf of the class without any assurance that a class action may be maintained."  Id.

After Eisen v. Carlisle & Jacquelin, courts generally did not inquire into the merits of plaintiff's underlying claims when making class certification determinations.  Recently, United States Supreme Court precedents have clarified when an inquiry into the merits is appropriate at the class certification stage.

In Wal-Mart Stores, Inc. v. Dukes, the United States Supreme Court held that the prohibition of conducting a merits inquiry as stated in Eisen was limited to the facts, i.e., it is improper for the court to consider which party will prevail on the merits for purposes of deciding which party must bear the costs of notification in a class action lawsuit.  Wal-Mart Stores, Inc. v. Dukes, 131 S.Ct. at 2552.  The Court held that "[f]requently th[e] 'rigorous analysis' will entail some overlap with the merits of the plaintiff's underlying claim [and] class determination generally involves considerations that are enmeshed in the factual and legal issues comprising the plaintiff's cause of action."  Id. at 2551-52.  Dukes was generally interpreted to allow merits inquiry into plaintiff's underlying claims at the class certification stage.

Less than two years after Dukes, the United States Supreme Court clarified that consideration of the underlying merits at the certification stage is not unfettered.  "[T]he office of a Rule 23(b)(3) certification ruling is not to adjudicate the case; rather, it is to select the 'metho[d]' best suited to adjudication of the controversy 'fairly and efficiently.'"  Amgen v. Conn. Ret. Plans & Trust Funds, 568 U.S. ___, 133 S.Ct 1184, 1194-95 (2013).

"Although we have cautioned that a court's class-certification analysis must be 'rigorous' and may 'entail some overlap with the merits of the plaintiff's underlying claim,' Wal-Mart Stores, Inc. v. Dukes, 564 U.S. ___, ___ (2011) (slip op., at 10) (internal quotation marks omitted), Rule 23 grants courts no license to engage in free-ranging merits inquiries at the certification stage.  Merits questions may be considered to the extent—but only to the extent—that they are relevant to determining whether the Rule 23 prerequisites for class certification are satisfied.  See id., at ___, n. 6 (slip op., at 10, n. 6) (a district court has no 'authority to conduct a preliminary inquiry into the merits of a suit' at class certification unless it is necessary 'to determine the propriety of certification' (quoting Eisen v. Carlisle & Jacquelin, 417 U.S. 156, 177 (1974))); Advisory Committee's 2003 Note on subd. (c)(1) of Fed. Rule Civ. Proc. 23, 28 U.S.C. App., p. 144 ('[A]n evaluation of the probable outcome on the merits is not properly part of the certification decision.')."

Amgen, 133 S.Ct at 1194.

Consistent with the evolution of these United States Supreme Court precedents, the Ohio Supreme Court held in Stammco II that "[t]o the extent that Eisen has caused confusion, Dukes and Amgen have clarified that at the class-certification state, trial courts may probe the underlying merits of an action, but only for the purpose of determining whether the plaintiff has satisfied the prerequisites of Fed. R. Civ. P. 23."  Stammco II, 2013-Ohio-3019, ¶ 40.  Accordingly, "[A]t the certification stage in a class-action lawsuit, a trial court must undertake a rigorous analysis, which may include probing the underlying merits of the plaintiff's claim, but only for the purpose of determining whether the plaintiff has satisfied the prerequisites of Civ. R. 23."  Id. ¶ 44.

After Stammco II, courts in Ohio must conduct a rigorous analysis that considers, when relevant, the merits of plaintiff's underlying claims when determining class certification issues.

Overbroad Class Definition and Predominance

Rather than remanding the case for further consideration, the Ohio Supreme Court "exercise[d] discretionary authority to decide the class certification question."  Id. ¶ 52.

As to the class definition, the Ohio Supreme Court recognized that "[i]f . . . a class is defined so broadly as to include a great number of members who for some reason could not have been harmed by the defendant's alleged unlawful conduct, the class is defined too broadly to permit certification. Id. ¶ 53 (citing Messner v. Northshore Univ. HealthSystem, 699 F.3d 802, 824 (7th Cir. 2012).  The Court held that "every person who billed a third-party charge for which UTO had no prior authorization is now a member even if the third-party charge was proper."  Id. ¶ 56.  Thus, "the proposed amended class is overbroad and is not a proper class." Id.

As to predominance, the Ohio Supreme Court held (as other courts found in similar class action cramming lawsuits) that "because ascertaining whether third-parties are authorized will require individualized determinations, common issues do not predominate."  Id. ¶¶ 57, 66 (citing Brown v. SBC Commc'ns., Inc., S.D.Ill. No. 05-cv-777-JPG, (Feb. 4, 2009) ("[T]he Court will need to make individual determinations as to whether each proposed class member authorized the charges for which he was billed by defendants.  The result will be multiple mini-trials, each requiring individual proofs."); Lady Di's, Inc. v. Enhanced Servs. Billing, Inc., 654 F. 3d 728, 738 (7th Cir. 2011) (customers' individual transactions would need to be examined to consider whether the claims for unjust enrichment or the statutory claim for deception were proven, which does not comply with Fed.R.Civ.P. 23(b)(3)); Midland Pizza, L.L.C. v. Southwestern Bell Tel. Co., 277 F.R.D. 637, 641-42 (D.Kan. 2011) ("[T]he injury at issue here is individualized:  whether each class member was billed for, and paid for, unauthorized charges on his or her telephone bill.  And if the charges were authorized, individual questions of fact exist as to whether that authorization was valid.  Common questions of law or fact do not predominate over questions affecting only individual members.  Defendant is correct that no common proof is possible to demonstrate injury for all class members, because to determine whether or not a charge was authorized will require individualized proof."); Stern v. Cingular Wireless Corp., C.D.Cal. No. CV 05-8842 CAS, (Feb. 23, 2009) ("[O]ne cannot determine what services were crammed without taking the deposition of each class member to determine what services he or she authorized.").

The Ohio Supreme Court held that the amended class definition remains overbroad, and plaintiffs failed to satisfy the predominance requirement of Ohio R. Civ. P. 23(B)(3).

The Court effectively decertified the class, ending eight years of litigation.

Conclusion

As recognized in Justice Pfeifers' dissent, this important opinion will make it tough for class plaintiffs to certify class actions in Ohio state courts.  Id. ¶¶ 72 ("This court is well on its way to consigning class actions in Ohio to the dustbin of legal history, joining workplace intentional torts.").  Not only must courts in Ohio conduct a rigorous analysis that considers, when relevant, the merits of plaintiff's underlying claims, class definitions will likely face even more scrutiny, as will the analysis of whether class plaintiffs are able to meet Ohio R. Civ. P. 23(B)(3)'s requirement of predominance.

Importantly, Stammco II is not the only class action decision expected from the Ohio Supreme Court this year.  On February 26, 2012, the Court heard oral argument in Cullen v. State Farm Mut. Automobile Ins. Co., 2012-Ohio-0535.  See http://businesslitigationinfo.com/business-litigation/archives/how-rigorous-is-rigorous-the-supreme-court-of-ohio-accepts-review-of-a-class-certification-decision-that-may-finally-clarify-the-requisite-rigorous-analysis-of-rule-23-in-class-action-lawsuits/.  While Cullen v. State Farm Mut. Automobile Ins. Co. presents some of the same issues as in Stammco II, many expect that the Court may provide even more guidance in this area and could further alter the landscape of class action litigation in Ohio state courts.

About The Author

Brian Wright | Faruki Partner