The Appellate Division Rejects Ascertainability as a Class Action Criterion, and Changes the Rules for Interlocutory Appeals of Class Certification Decisions

Daniels v. Hollister Co., 440 N.J. Super. 359 (App. Div. 2015).  Readers of this blog have gotten their fill (including, most recently, here and here) of discussion and analysis of the notion that there is some sort of “class ascertainability” requirement that is implicit in Federal Rule of Civil Procedure 23.  Today, the Appellate Division weighed in on this issue in connection with a state court class action.  In an opinion by Judge Fisher, the panel emphatically and correctly rejected the idea that New Jersey Court Rule 4:32, the class action rule, contains any such class ascertainability requirement.

The case was a “small value” lawsuit of the precise sort that the class action rules seek to encourage.  Defendant gave customers who bought more than $75 worth of merchandise a $25 gift card.  Those gift cards stated that they had “no expiration date.”  Despite that, plaintiff alleged, defendant voided all the cards just one or two months after beginning to issue them.  Though defendant contested plaintiff’s story, in the context of class certification, both the Law Division and the appellate panel were required to give plaintiff the most favorable view of the facts, as Judge Fisher observed.  The Law Division granted class certification.  Defendant sought leave to appeal, arguing that the court below had failed to apply the Third Circuit’s ascertainability cases.  The Appellate Division granted leave to appeal but affirmed the decision below.

In a footnote at the beginning of his opinion, Judge Fisher announced that the criteria for granting interlocutory review of decisions on class certification were being changed.  Instead of applying the “interest of justice” standard that is normally applicable to motions for leave to appeal, Judge Fisher imported from a D.C. Circuit case under Federal Rule of Civil Procedure 23(f), which provides for limited interlocutory review of class certification decisions, a three-part test, stating that the court would “liberally indulge applications for leave to appeal: (1) ‘when a denial of class status effectively ends the case (because, say, the named plaintiff’s claim is not of a sufficient magnitude to warrant the costs of stand-alone litigation)’: (2) ‘when the grant of class status raises the stakes of the litigation so substantially that the defendant likely will feel irresistible pressure to settle’; and (3) when permitting leave to appeal ‘will lead to a clarification of a fundamental issue of law.'”

Defendants have been lobbying for years for an automatic interlocutory appeal of class certification decisions.  Every Supreme Court Committee to have considered those lobbying efforts have rejected them.  Judge Fisher’s decision gives some color to the normal “interest of justice” standard in this context, but without actually altering that test.  Denials of class certification almost invariably have the practical effect of ending a case.  That is because individual damages in cases filed as class actions are generally fairly small, so that no one would pursue (and no lawyer would handle) such a case on an individual basis.  Thus, plaintiffs have until now often obtained leave to appeal denials of class certification, and this decision should not change that.

In contrast, defendants in state court class actions will almost never face “irresistible pressure to settle.”  The so-called Class Action Fairness Act, a federal statute adopted in 2005 that gives federal courts jurisdiction over any class action whose aggregate amount in controversy exceeds $5 million, leaves only relatively small dollar class actions to be litigated in state court.  Such smaller cases in no way create “irresistible pressure to settle.”  Thus, Judge Fisher’s decision does not give defendants what they had sought, though doubtless defendants (and perhaps plaintiffs) will try to manufacture “fundamental issue[s] of law” in order to seize on the third prong of the new test for interlocutory review.

In addressing ascertainablity, defendant contended that the Supreme Court had adopted an ascertainability criterion in Iliadis v. Wal-Mart Stores, Inc., 191 N.J. 88 (2007).  Alternatively, defendant urged that the Appellate Division should recognize that notion now.  Judge Fisher “disagree[d] on both scores.”

The Iliaidis footnote was “inapposite.  It simply evidenced the need for a clear definition of the contours of the class; it says nothing about whether the class members must be ascertainable before certification may be permitted.  In fact, the word ‘ascertainable’ does not appear in the opinion” (emphases by Judge Fisher).

Nor did Judge Fisher accept defendant’s argument that an ascertainability requirement is “implicitly contained within Rule 4:32-1.”  Nothing in any Supreme Court decision on class certification “remotely suggests that anything other than the Rule’s expressed requirements are relevant, and nothing in those decisions suggests the Rule’s requirements are to be interpreted with anything other than liberality in favor of certification.”

The panel might also have added that an ascertainability requirement is inconsistent with Rule 4:32-2(c), which permits benefits to go to “a fluid class, whose members may be, but need not have been members of the class in suit.”  An ascertainability requirement thus fails under New Jersey law for that reason too.

Judge Fisher was unpersuaded by the Third Circuit’s ascertainability cases, upon which defendant relied.  As he noted, “federal experimentation with the ascertainability doctrine seems far from over and, indeed, this doctrinal wave may have broken before ever cresting.”

Judge Fisher cited Shelton v. Bledsoe, 775 F.3d 554 (3d Cir. 2015), which declined to apply the doctrine to injunctive relief classes.  He also pointed to the highly persuasive dissent from the denial of en banc review of the leading Third Circuit ascertainability case, Carrera v. Bayer Corp., 727 F.3d 300 (3d Cir. 2013), in which the author of the opinion that had begun the descent into the ascertainability abyss, joined by other veteran Third Circuit judges, stated that the doctrine had been taken too far, and to a well-reasoned concurring opinion in the latest Third Circuit case to discuss ascertainability, Byrd v. Aaron’s, Inc., which urged that the whole idea be abrogated.  The panel “agree[d] with the concurring and dissenting judges in Carrera and Byrd that when the concept of ascertainability is applied inflexibly it becomes a device that serves to burden or eliminate nascent class actions without providing any societal benefit.”  It was particularly “misguided” to give defendant the benefit of its own failure to identify the people to whom it gave the gift cards, which defendant might readily have done.

At bottom, Judge Fisher concluded, the class action device “has equitable roots,” and “the hallmark of equity is its flexibility.”  The panel doubted that ascertainability “should ever be incorporated into our jurisprudence,” but it certainly “must play no role” in small value cases such as this one.