A Mixed Bag on Class Certification From the Third Circuit

Marcus v. BMW of North America, Inc., 687 F.3d 583 (3d Cir. 2012).  “Run-flat” tires (“RFT’s”) are automobile tires that can, as their name implies, continue to run for 50 to 150 miles, at 50 miles per hour, even when flat.  Plaintiff bought a BMW with run-flat tires.  Unluckily, he got four flat tires.  Each time, the tire continued to “run,” and he was able to drive to a dealer and replace the tire.  Unhappy with the failure rate of the tires, he filed a class action against BMW and Bridgestone, the tire manufacturer, for violation of the New Jersey Consumer Fraud Act, breach of warranty, and breach of contract.  Plaintiff alleged that the tires fail at a higher rate than other tires (even other run-flat tires), cannot be repaired, but only replaced, and are “exorbitantly priced.”  The district court denied plaintiff’s motion for a natiowide class but granted certification of a New Jersey class.  The Third Circuit granted defendants’ petition for review under Federal Rule of Civil Procedure 23(f) and reversed the class certification.  Judge Ambro wrote the panel’s opinion.

Judge Ambro noted at the outset that the abuse of discretion standard governs review of decisions on class certification.  In this context, an abuse of discretion “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.”

The first substantive issue that the panel dealt with was the failure of the district court to define the class clearly and precisely and to list the claims, issues or defenses to be treated on a class basis.  Those requirements can be found in Wachtel v. Guardian Life Ins. Co., 453 F.3d 179, 187 (3d Cir. 2006).  It did not suffice for the district court to refer to the motion papers for the definition of the class being certified, a path that Judge Ambro found left unclear exactly what class was being certified.  Nor was it enough that “cobble together” some “isolated statements” in the district court’s opinion to find the issues that would be given class treatment.  The panel cautioned that if plaintiff again sought class certification, the Wachtel requirements would have to be met.

Judge Ambro then addressed the issue of the “ascertainability” of the class.  He noted that BMW had argued it might not be able to identify who had vehicles with Bridgestone tires (as opposed to six other tire brands that were used on the vehicles as well) that went flat, since the vehicles were “made in Germany by a different company” and BMW did not have a “parts manifest.”  The panel admonished that the district court would have to determine whether BMW’s records can ascertain class members and, if not, whether there is “a reliable, administratively feasible alternative.”  It would “have serious due process implications,” however, for the court to approve a class member identification procedure that allows persons simply to submit affidavits certifying that their vehicles had Bridgestone run-flat tires and that those tires went flat.

This ruling on ascertainability, if extended beyond the atypical facts of this case, has troubling implications for consumer class actions.  Though consumer products such as automobiles generate sales records that make easy the identification of class members, other consumer products, such as food items, are sold with no record of who purchases them.  Any implication that, because there are no such records, a class asserting consumer fraud in the sale of (for example) cereal could not be certified because the defendant’s records would not reveal who is in the class would effectively eliminate consumer class actions in connection with such products.  In an appropriate case, the Third Circuit should cabin some of its potentially broad language in this decision to make clear that it has no intent to repeal the class certification provisions of Federal Rule of Civil Procedure 23 in the context of consumer goods for which there may not be records of who bought them.

When Judge Ambro turned to the substantive requirements for class certification contained in Rule 23, he addressed first the requirement of numerosity.  He stated that “[w]hen a plaintiff attempts to certify both a nationwide class and a state-specific class, as Marcus did here, evidence that is sufficient to establish numerosity with respect to the nationwide class is not necessarily sufficient to establish numerosity with respect to the state-specific subclass.”  Forty class members, as the panel noted, usually suffice for numerosity.  Plaintiff had presented evidence of several hundred vehicles nationwide that had complained about Bridgestone run-flat tires having gone flat.  But plaintiff had not presented any evidence that “identifies another purchaser or lessee of a 2006-2009 BMW that was sold or leased in New Jersey and equipped with Bridgestone RFT’s that have gone flat and been replaced” other than himself.  Therefore, plaintiff had not satisfied numerosity.

This ruling is somewhat in tension with the settled rule, recognized by Judge Ambro here, that common sense assumptions can be used in determining numerosity, and that detailed proofs are not needed.  In an affluent state such as New Jersey, with its many drivers of BMW vehicles, it seems questionable that there are not at least 40 persons like Marcus.  As with the court’s ascertainability ruling, though, it may be that the numerosity decision can be justified by the unique facts of this case.  But to whatever extent the ruling may be seen to undercut the “common sense assumptions” principle in a larger context, it would be unfortunate and misplaced.

After ruling that Marcus had satisfied the commonality requirement by identifying at least one common issue of law or fact, the panel turned to the issue of typicality.  On this issue, the court made an important, and correct, ruling.  Among other things, BMW argued that because Marcus had bought only one type of BMW vehicle, he was not typical of those who bought or leased other BMW models.  Judge Ambro rejected that contention.  He observed that “[w]hen a class includes purchasers of a variety of different products, a named plaintiff that purchases only one type of product satisfies the typicality requirement if the alleged misrepresentations or omissions apply uniformly across the different product types.”  There was no evidence that BMW said different things about Bridgestone RFT’s in connection with one model than with another.  Thus, plaintiff was typical of purchasers and lessees of all BMW models as to which it was alleged that BMW made the same misrepresentations or material omissions.  Defendants in consumer cases often argue that since the named plaintiff bought only one “flavor” of the defendant’s product, the case is limited to that flavor.  The Third Circuit here rightly torpedoed that notion.

Since defendants did not challenge on appeal the adequacy or superiority criteria of Rule 23, that left only the predominance of common issues for discussion.  The panel found that the district court had not abused its discretion by crediting plaintiff’s expert testimony over that of defendants.  But predominance failed for other reasons, the first of which was proximate causation.  Any tire can go flat for “myriad” reasons, Judge Ambro opined, and to determine why an individual class member’s tires failed and had to be replaced would require a fact-intensive individual inquiry that is “incompatible” with the predominance requirement.  That flaw doomed class certification on the breach of warranty, breach of contract, and breach of the implied duty of good faith and fair dealing claims.

The New Jersey Consumer Fraud Act claim could not be certified for a different reason.   After a lengthy analysis of the statute, Judge Ambro rightly observed that consumer fraud can come down to whether consumers “got less than what they expected.”  Following from that, the panel reasoned, it was essential to know what each individual class member knew, if anything, about the nature of and potential defects in RFT’s.  Defendants produced evidence that there was information about the alleged defects available from certain sources.  Accordingly, the panel concluded, it was possible that some class members knew beforehand of the risks of RFT’s, but decided that the benefits of those tires outweighed those risks, while other customers did not know about that, fatally undermining predominance.

The panel did, however, add an important caveat.  There was some loose language in certain prior cases that arguably required plaintiffs to show that all class members had been affected in a given way by a defendant’s wrongdoing.  Judge Ambro’s opinion allowed plaintiff to show that either that “the alleged defects were not knowable to a significant number of potential class members” before they acquired their vehicles or that even if the defects were knowable, that class members were “relatively uniform in their decisionmaking, which would indicate that, at most, only an insignificant number of class members  actually knew of the alleged defects” and acquired their cars at the price that they did (emphases added).  Thus, defendants cannot find an idiosyncratic class member, or a few of them, and use them as evidence of lack of predominance.  To illustrate this, the panel cited Varacallo v. Mass. Mut. Life Ins. Co., 332 N.J. Super. 31, 752 A.2d 807 (App. Div. 2000), which ordered class certification where “the record did not indicate that the facts underlying the alleged fraud were knowable to class members or, even if they were, that a sufficient number of class members would have purchased the product anyway.”  [Disclosure:  I was counsel for the successful plaintiff and the class in Varacallo].

Even so, once again, the panel’s decision, if not limited to these facts, poses a potentially significant threat to the core of consumer class actions.  In these days of the internet, purported “information” (the accuracy of which is often hard to gauge) about nearly anything may be somewhere “out there” and thus, at least in theory, “knowable.”  Defendants may be able to find some “source” of “information” about their defective product, and then use that to assert that because “the truth [was] knowable,” some sufficient number of class members might have found that information before purchasing, so no class can be certified.  It is not clear how a plaintiff could prove the contrary, absent expensive expert testimony, unless it is sufficient to use an objectively reasonable class member in lieu of the subjective experiences of actual class members.   By directing that, in consumer fraud cases, the predominance inquiry may have to focus not only on the defendant’s conduct but also on what was in the heads of individual class members, the court plowed new and potentially questionable ground.

Ultimately, the unique nature of the facts here may have led to this result.  If the most doubtful aspects of the panel’s decision are limited to facts such as those here, damage to the fundamental principles of class certification may be able to be avoided.