In re Deepwater Horizon
Fifth Circuit Refuses to Decide Correct Standing Inquiry for Absent Class Members.
Under Article III of the Constitution, federal courts may only adjudicate actual “Cases” or “Controversies.” Plaintiffs must therefore establish standing to invoke a court’s jurisdiction.1×1. See Lujan v. Defenders of Wildlife, 504 U.S. 555, 559–60 (1992). The three bedrock requirements for standing are injury, causation, and redressability. Id. at 560–61. This requirement applies with equal force to class actions,2×2. See Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 613 (1997) (“Rule 23[ of the Federal Rules of Civil Procedure]’s requirements must be interpreted in keeping with Article III constraints . . . .”). where defendants challenging class certification have increasingly argued that plaintiffs lack standing to bring suit.3×3. See, e.g., Brief Amicus Curiae of Pacific Legal Foundation in Support of Petitioners at 12–14, Sears, Roebuck & Co. v. Butler, 134 S. Ct. 1277 (2014) (mem.) (No. 13-430), and Whirlpool Corp. v. Glazer, 134 S. Ct. 1277 (2014) (mem.) (No. 13-431); see also Joshua P. Davis et al., The Puzzle of Class Actions with Uninjured Members, 82 Geo. Wash. L. Rev. 858, 861–67 (2014). Courts address these standing challenges in two ways. Some consider only the named plaintiffs in standing analysis.4×4. See, e.g., Stearns v. Ticketmaster Corp., 655 F.3d 1013, 1021 (9th Cir. 2011). Others mandate that a class must be defined such that all class members — including those not before the court — could have individual standing to bring the suit.5×5. See Avritt v. Reliastar Life Ins. Co., 615 F.3d 1023, 1034 (8th Cir. 2010) (citing Denney v. Deutsche Bank AG, 443 F.3d 253, 263–64 (2d Cir. 2006)); 7 Charles A. Wright et al., Federal Practice and Procedure § 1785.1 (3d ed.) (Westlaw) (last visited Nov. 23, 2014) (“[T]o avoid a dismissal based on a lack of standing, the court must be able to find that both the class and the representatives have suffered some injury requiring court intervention.”).
This comment addresses the standing inquiry for absent class members when they have suffered no cognizable injury. The problem of disjuncture — where absent class members suffered a different injury than the named plaintiff — is analytically distinct and presents fewer Article III concerns since all parties have suffered some grievance. On disjuncture, see generally 1 William B. Rubenstein, Newberg on Class Actions § 2:6 (5th ed. 2011).
Recently, in In re Deepwater Horizon,6×6. 739 F.3d 790 (5th Cir.), reh’g en banc denied, 756 F.3d 320 (5th Cir. 2014), cert. denied, 2014 WL 3841261. the Fifth Circuit faced the question of which standing test to adopt. Rather than choosing which method “articulate[s] the correct test,”7×7. Id. at 802. the Fifth Circuit avoided the question altogether by applying both approaches and reaching the same result. In so doing, the decision demonstrates that the practical difference between the two standing analyses is much narrower than their theoretical dichotomy. As it turns out, the seemingly conflicting tests rarely lead to divergent outcomes in class certification decisions.
In April 2010, oil giant British Petroleum’s (BP) drilling vessel Deepwater Horizon exploded, spilling millions of barrels of oil into the Gulf of Mexico.8×8. Id. at 795–96. Businesses and individuals brought a class action against BP for the resulting damages.9×9. See id. at 796. By April 2012, BP agreed to an amended class action complaint and proposed settlement, which the district court preliminarily approved.10×10. Id. Pursuant to the terms of the agreement, the court appointed a Claims Administrator to oversee the settlement program.11×11. Id. While the Administrator began reviewing initial claims, BP and the plaintiffs moved for final approval and certification of the class.12×12. Id. Despite objections from some class members,13×13. Objectors opposed the adequacy of representation under Rule 23(a)(4), id. at 808, commonality under Rule 23(a)(2), id. at 809–10, predominance over individual adjudication under Rule 23(b)(3), id. at 815, class notice deficiencies under Rule 23(c)(2)(B), id. at 819, and Rule 23’s implicit ascertainability requirement, id. at 821. the district court certified the class and approved the settlement agreement on December 21, 2012.14×14. Id. at 796. The objectors appealed.15×15. Id.
Although BP had originally supported the settlement approval, on appeal it joined the objectors in opposing the settlement.16×16. See id. BP reversed its position after the Claims Administrator issued unfavorable interpretations of the settlement agreement following the district court’s final approval. BP argued that the settlement agreement as interpreted by the Claims Administrator allowed class members who had not in fact been injured by the spill to claim against the company.17×17. Id. at 798. Specifically, BP argued the Claims Administrator misinterpreted a provision in the settlement agreement pertaining to the proof — or lack thereof — required to file a claim. Because the settlement agreement’s class definition incorporated by reference the causation section of the settlement the Claims Administrator interpreted, BP argued the Claims Administrator had created a class that impermissibly included uninjured members. See id. at 796–98.
On first hearing the case, the Fifth Circuit reached no agreement on the issue of standing, instead remanding the case on contractual interpretation grounds.18×18. See id. at 797. The Fifth Circuit found the district court had misapplied principles of contract law pertaining to damages accounting, and instructed the lower court on remand to proceed in accordance with prescribed accounting and interpretive principles. See In re Deepwater Horizon (Deepwater Horizon I), 732 F.3d 326, 333–40 (5th Cir. 2013). The court also granted a preliminary injunction allowing BP to stay claim distributions under the Claims Administrator’s original methodology. Id. at 345–46. Judge Clement, writing only for herself on this point, maintained that standing concerns precluded certification: because the class included absent members who had not been harmed by BP, it violated Article III.19×19. See Deepwater Horizon I, 732 F.3d at 341–44 (opinion of Clement, J.). Judge Southwick concurred with the result, but did not join Judge Clement’s discussion of standing doctrine, in part because there was “no briefing on the constitutional issues” implicated.20×20. Id. at 346 (Southwick, J., concurring). Judge Dennis concurred in part and dissented in part,21×21. Id. at 347 (Dennis, J., concurring in part and dissenting in part). arguing that only named plaintiffs need be considered when assessing standing in the Rule 23 context.22×22. See id. at 358–59. Essentially, Judge Dennis disagreed with Judge Clement’s view that “every individual who benefits from a class-action settlement must or is deemed to have an independent cause of action.” Id. at 359. On remand, the district court issued a new ruling in accordance with the Fifth Circuit’s instructions, but still certified the class and approved the settlement agreement as interpreted by the Claims Administrator.23×23. See Order, In re: Oil Spill by the Oil Rig “Deepwater Horizon” in the Gulf of Mexico, on April 20, 2010, No. 2:10-md-02179 (E.D. La. Dec. 24, 2013). BP once again appealed.24×24. Deepwater Horizon, 739 F.3d at 797.
On this appeal, a different panel of the Fifth Circuit affirmed the class and settlement approval outright. Writing for the majority, Judge Davis25×25. Judge Davis was joined by Judge Dennis. “resolve[d] the Article III question as a threshold matter of jurisdiction” before turning to whether the class could be certified under Rule 23.26×26. Deepwater Horizon, 739 F.3d at 798. Emphasizing that standing was indeed a critical inquiry,27×27. Id. at 799. Judge Davis explained that courts were split between two approaches to “evaluat[ing] standing for the purposes of class certification and settlement approval.”28×28. Id. at 800. The first approach — supported by three U.S. Supreme Court Justices concurring in Lewis v. Casey,29×29. 518 U.S. 343 (1996); id. at 395–96 (Souter, J., joined by Ginsburg and Breyer, JJ., concurring in part, dissenting in part, and concurring in the judgment). Lewis was a class action of prison inmates claiming they were deprived of access to legal materials necessary to research their defenses. Though the majority did not base its denial of class certification on standing per se, see id. at 358–60, 360 n.7 (majority opinion), three concurring Justices wrote separately to highlight that so long as even one named plaintiff has standing, a court has jurisdiction under Article III to entertain the class’s suit. Id. at 394 (Souter, J., concurring in part, dissenting in part, and concurring in the judgment). several circuits,30×30. Specifically, the Fifth Circuit ascribed this approach to the Third, Seventh, and Ninth Circuits, and in part to the Tenth Circuit in class actions regarding injunctive relief, and “arguably . . . in class actions for damages as well.” Deepwater Horizon, 739 F.3d at 800. and a leading treatise31×31. Id. at 800 & n.19 (citing 1 Rubenstein, supra note 5, § 2:3). — looks only to the named plaintiffs: so long as the named plaintiffs have standing, so too does the class.32×32. See id. at 800. Judge Davis dubbed this “named plaintiffs only” method the Kohen test after the case most widely cited for that approach.33×33. Id. at 800–01 (citing Kohen v. Pac. Inv. Mgmt. Co., 571 F.3d 672, 677 (7th Cir. 2009)).
He then described the alternative approach, the Denney test.34×34. Id. at 801 (citing Denney v. Deutsche Bank AG, 443 F.3d 253, 263–64 (2d Cir. 2006)). Under this analysis, though absent class members need not submit evidence of personal standing, “[t]he class must . . . be defined in such a way that anyone within it would have standing.”35×35. Id. (quoting Denney, 443 F.3d at 264) (internal quotation mark omitted). By Judge Davis’s count, four circuits have applied Denney.36×36. Judge Davis observed that the Second, Seventh, Eighth, and Ninth Circuits had applied Denney, but he noted that the Seventh and Ninth Circuits had also applied Kohen as well. Id.
After describing the two approaches, Judge Davis opined that choosing between Kohen and Denney would be no “simple task . . . based on th[e] roughly even split of circuit authority.”37×37. Id. He discussed Fifth Circuit precedent that seemed to adopt Kohen,38×38. Id. at 801–02. Judge Davis confronted whether Mims v. Stewart Title Guaranty Co., 590 F.3d 298 (5th Cir. 2009), had already adopted Kohen in the Fifth Circuit. Deepwater Horizon, 739 F.3d at 801–02. He ultimately concluded that it was unclear if Kohen was adopted, because Mims referenced Kohen in a discussion of Rule 23 rather than Article III. Id. and he acknowledged Judge Clement’s opinion in Deepwater Horizon I, which “applied the Denney test.”39×39. Deepwater Horizon, 739 F.3d at 802. But, because “[w]hichever test [was] applied,” BP’s standing argument failed,40×40. Id. at 799. Judge Davis ruled that the case was “not a vehicle” for choosing between Kohen and Denney.41×41. Id. at 802.
To prove that both tests reached the same result, Judge Davis first applied Kohen and found that certification was appropriate because the named plaintiffs indisputably had standing based on their alleged injuries caused by BP.42×42. Id. He then turned to Denney, where he came to “the same conclusion.”43×43. Id. at 803. Because the class was defined such that claimants must have experienced “[l]oss of income, earnings or profits . . . as a result of the DEEPWATER HORIZON INCIDENT,”44×44. Id. (first alteration in original) (quoting In re: Oil Spill by the Oil Rig “Deepwater Horizon” in the Gulf of Mexico, on April 20, 2012, 910 F. Supp. 2d 891, 967 (E.D. La. 2012) (appendix), aff’d sub nom. In re Deepwater Horizon, 739 F.3d 790 (5th Cir. 2014)) (internal quotation marks omitted). the standing inquiry ended: all those who had claims might have been injured by the oil spill. Though a “stricter evidentiary standard might reveal persons or entities” who received payment without injury caused by BP,45×45. Id. at 805. Denney in itself did not preclude certification.
Having addressed standing, the court next turned to the Rule 23 arguments of BP and the objectors, which were “based on the same central premise discussed above in the context of Article III — that a class cannot be certified when it includes persons who have not actually been injured.”46×46. Id. at 808. Judge Davis explained why Rule 23’s commonality and ascertainability requirements did not preclude certification47×47. Id. at 809–12, 821. : assertions that the class contained uninjured plaintiffs spoke to the merits of class members’ individual claims rather than the class’s cohesiveness under Rule 23.48×48. See id. at 812. Thus, Judge Davis proceeded to affirm the district court’s class certification and settlement approval.49×49. Id. at 821.
Judge Garza dissented. Highlighting that “Rule 23’s requirements must be interpreted in keeping with Article III,”50×50. Id. at 821 (Garza, J., dissenting) (quoting Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 613 (1997)) (internal quotation mark omitted). Judge Garza would have applied the Denney test outright and reached a different conclusion.51×51. See id. at 822. Judge Garza felt that Kohen only applied to pretrial classes as opposed to settlement classes, see id. at 826, similar to Judge Clement’s opinion in Deepwater Horizon I, see id. (citing In re Deepwater Horizon, 732 F.3d 326, 344 n.12 (5th Cir. 2013) (opinion of Clement, J.)). He disagreed with the majority’s understanding of how the settlement agreement operated: under Judge Garza’s view the Claims Administrator’s interpretation of the settlement agreement had rendered any causation requirement void.52×52. See id. at 821, 823–24. He also felt that the class fell short of Rule 23’s commonality requirements because not all absent class members had suffered the same injury at the hands of BP.53×53. See id. at 827. Because the Claims Administrator had eliminated causation “for a broad swath of the class,” Judge Garza would have decertified the class.54×54. Id. at 821; see also id. at 821–22.
Deepwater Horizon presented the Fifth Circuit with a choice not uncommon in federal courts: whether Kohen or Denney provides the appropriate standing inquiry for class certification.55×55. See, e.g., Waller v. Hewlett-Packard Co., 295 F.R.D. 472, 475–79 (S.D. Cal. 2013) (discussing the debate). Compare, e.g., Brief of Amicus Curiae Public Citizen, Inc., in Support of Appellees & Affirmance at 6, In re Nexium Antitrust Litig., Nos. 14-1521 & 14-1522 (1st Cir. June 26, 2014) (arguing “the district court has jurisdiction over the class action, even if some class members were not injured by the defendants’ conduct” (capitalization omitted)), with id. at 11 (recognizing defendants’ arguments that absent class members without injury deprived the court of jurisdiction). According to several dissenting judges on the Fifth Circuit who voted in favor of rehearing the case en banc, “deep confusion” on the “essential, constitutional” issue of class standing requires intervention from the Supreme Court.56×56. In re Deepwater Horizon, 753 F.3d 516, 521 (5th Cir. 2014) (Clement, J., joined by Jolly and Jones, JJ., dissenting from denial of rehearing en banc). Judge Davis noted such confusion in his Deepwater Horizon opinion, pointing to circuits that had applied both Denney and Kohen at different points in time. Deepwater Horizon, 739 F.3d at 801 (describing the Seventh and Ninth Circuits’ internally conflicting precedents). The results of this “confusion” theoretically could be significant: if plaintiffs lack standing, a court lacks the jurisdiction to even entertain a suit.57×57. See DaimlerChrysler Corp. v. Cuno, 547 U.S. 332, 341 (2006) (“If a dispute is not a proper case or controversy, the courts have no business deciding it, or expounding the law in the course of doing so.”). But by reaching the same result under both tests, Deepwater Horizon illustrates that any theoretical distinction between the tests makes little difference in terms of the substantive outcome. Indeed, the case exemplifies a broader pattern within class action standing litigation: even under Denney, the result of a certification in the case is almost invariably the same as under Kohen.58×58. At least one other court has observed that the distinction between the two inquiries is “overblown.” See Waller, 295 F.R.D. at 476.
For the courts that have considered class action standing, in fact, the standing inquiry has rarely proven singularly dispositive of the certification decision.59×59. In Deepwater Horizon, for example, Judge Garza in dissent would have refused to certify on both standing and Rule 23 grounds. 739 F.3d at 821–22, 827 (Garza, J., dissenting). Of the hundreds of cases that quote Denney or its progeny discussing absent class member standing,60×60. The Fifth Circuit accurately cited the circuit court cases “adopting” Denney, which are all frequently cited for Denney’s position on absent class members. Id. at 801 (majority opinion) (citing Mazza v. Am. Honda Motor Co., 666 F.3d 581, 594 (9th Cir. 2012); Avritt v. Reliastar Life Ins. Co., 615 F.3d 1023, 1034 (8th Cir. 2010); and Adashunas v. Negley, 626 F.2d 600, 603 (7th Cir. 1980)). a full review reveals that fewer than five have actually refused to certify a proposed class on standing grounds alone.61×61. In re Activated Carbon-Based Hunting Clothing Mktg. & Sales Practices Litig., No. 09-md-2059, 2010 WL 3893807, at *2 (D. Minn. Sept. 29, 2010); Kempner v. Town of Greenwich, 249 F.R.D. 15, 17–18 (D. Conn. 2008); see also Janes v. Triborough Bridge & Tunnel Auth., 889 F. Supp. 2d 462, 467–68 (S.D.N.Y. 2012) (adapting a class definition in a suit involving driving tolls when the relief was injunctive and declarative, since past drivers who had died or lost their license no longer had a personal stake in the suit’s forward-looking remedies and thus lacked standing); O’Shea v. Epson Am., Inc., No. CV 09-8063, 2011 WL 4352458, at *10–12 (C.D. Cal. Sept. 19, 2011) (refusing to certify a class after a discussion of lack of standing, but officially ruling on predominance grounds). Had these few cases been considered under Kohen rather than Denney, concerns about the lack of commonality binding the class members’ interests would likely have precluded certification anyway. See infra p. 1302. Thus, in practice Denney has almost never created a different substantive outcome than Kohen.
Denney rarely reaches a different substantive outcome than Kohen for two reasons. First, Denney sets a low evidentiary threshold: the class definition need only include those who may allege a colorable injury.62×62. See Deepwater Horizon, 739 F.3d at 804. Thus, to fail Denney’s standing inquiry, a class must by its definition include absent members who could not possibly have been injured by the defendant’s conduct.63×63. For example, one paradigmatic case of those who could not have been injured involved residents suing their municipality for unreasonable beach access fees. Because the proposed class included all residents of the town, but senior citizens did not have to pay the access fees, the proposed class clearly included those who could not possibly have been harmed by the fees. See Kempner, 249 F.R.D. at 17–18. Denney itself exemplifies how forgiving that evidentiary standard is: the case actually upheld certification of the class at issue despite noting that some class members may only potentially have suffered injury.64×64. See Denney v. Deutsche Bank AG, 443 F.3d 253, 264–65 (2d Cir. 2006); see also Franco-Gonzalez v. Napolitano, No. CV 10-02211, 2012 WL 10688876, at *2 (C.D. Cal. Aug. 27, 2012) (noting that Denney’s standard for certification is more forgiving than frequently assumed). Given Denney’s low evidentiary bar, courts applying the test have consistently found the standing requirement satisfied despite the potential of uninjured class members.65×65. See, e.g., Khoday v. Symantec Corp., Civil No. 11-180, 2014 WL 1281600, at *34 (D. Minn. Mar. 13, 2014).
Second, concerns regarding cognizable injury manifest themselves regardless of whether the court addresses uninjured class members only via Rule 23 analysis (Kohen), or also under standing doctrine (Denney).66×66. Cf. Luiken v. Domino’s Pizza, LLC, 705 F.3d 370, 377–78 (8th Cir. 2013) (refusing to address standing arguments “[b]ecause the class certification is unsustainable under Rule 23,” id. at 377 (citing In re St. Jude Med., Inc., 522 F.3d 836, 841 (8th Cir. 2008))); Bruno v. Quten Research Inst., LLC, 280 F.R.D. 524, 533 (C.D. Cal. 2011) (“[T]he majority of authority militates in favor of . . . analyz[ing] [standing] arguments through Rule 23 and not by examining the Article III standing of the class representative or unnamed class members.”); 1 Rubenstein, supra note 5, § 2:1 (noting that courts occasionally “confuse and conflate” the “distinct” rules of standing and Rule 23 class certification). Rule 23 includes at its core commonality, typicality, ascertainability, and predominance requirements to ensure that only definite classes with cohesive interests and injuries are certified.67×67. See 1 Rubenstein, supra note 5, §§ 1:2, 1:3, 3:1. Many courts thus recognize explicitly that even if standing were not problematic, Rule 23 would preclude certification of a class including uninjured members: uninjured plaintiffs do not likely have interests sufficiently cohesive with those suffering cognizable injury as to merit class treatment.68×68. Phelps v. Powers, 295 F.R.D. 349, 354 (S.D. Iowa 2013) (“[L]ack of standing is not the only obstacle to class certification.”); Webb v. Carter’s Inc., 272 F.R.D. 489, 500 (C.D. Cal. 2011) (noting that Rule 23 precluded certification even if Article III did not); Kempner, 249 F.R.D. at 18 (same); Conigliaro v. Norwegian Cruise Line Ltd., No. 05-21584-CIV, 2006 WL 7346844, at *6 (S.D. Fla. Sept. 1, 2006) (same). Other courts have recognized this overlap between Denney and Rule 23 implicitly, merging their standing discussion with their Rule 23 inquiry rather than treating standing as a truly jurisdictional issue.69×69. See, e.g., Halvorson v. Auto-Owners Ins. Co., 718 F.3d 773, 779–80 (8th Cir. 2013) (merging standing discussion with the Rule 23 predominance inquiry); Avritt v. Reliastar Life Ins. Co., 615 F.3d 1023, 1029–35 (8th Cir. 2010) (same); Kennedy v. United Am. Ins. Co., No. 2:11CV00131 SWW, 2013 WL 1367131, at *3–6 (E.D. Ark. Apr. 3, 2013) (same); O’Shea v. Epson Am., Inc., No. CV 09-8063, 2011 WL 4352458, at *8–12 (C.D. Cal. Sept. 19, 2011) (same); cf. In re Light Cigarettes Mktg. Sales Practices Litig., 271 F.R.D. 402, 419 n.13 (D. Me. 2010) (“Courts insert standing into the class certification requirements by either implying a prerequisite [of predominance] or through typicality.”). Indeed, Mazza v. American Honda Motor Co., 666 F.3d 581 (9th Cir. 2012) — cited in Deepwater Horizon as the Ninth Circuit’s adoption of Denney, Deepwater Horizon, 739 F.3d at 801 & n.29 — explicitly called attention to the underlying similarity between standing and predominance arguments raised by defendants, and chose to rule on predominance grounds. Mazza, 666 F.3d at 594–96.
Although Denney and Kohen converge on the same substantive result, the choice between tests theoretically could have significant consequences in terms of procedure. Most notably, appellate courts review Rule 23 certification decisions for abuse of discretion but may address standing issues de novo.70×70. In re Zurn Pex Plumbing Prods. Liab. Litig., 644 F.3d 604, 616 (8th Cir. 2011) (“While we reverse [a certification decision] only for an abuse of that discretion, a district court ‘abuses its discretion if it commits an error of law.’” (quoting Blades v. Monsanto Co., 400 F.3d 562, 566 (8th Cir. 2005))); Denney v. Deutsche Bank AG, 443 F.3d 253, 262 (2d Cir. 2006) (“We review de novo the issue of whether a party has standing.”). Further, while courts generally will consider only those certification issues brought by the parties on appeal, standing issues are jurisdictional and thus may be considered sua sponte.71×71. See Steel Co. v. Citizens for a Better Env’t, 523 U.S. 83, 93 (1998). Thus, while Denney has not yet significantly impacted decisions, its increased adoption may inspire more aggressive application with consequences for appellate review of certification decisions.72×72. Indeed, two of the six Fifth Circuit judges considering Deepwater Horizon would have refused to certify the class as defined because of the standing issues it presented. 739 F.3d at 821–22 (Garza, J., dissenting); In re Deepwater Horizon, 732 F.3d 326, 340–44 (5th Cir. 2013) (opinion of Clement, J.).
But despite these potential distinctions, Deepwater Horizon reveals that the practical difference between Denney and Kohen has not been as wide as may seem at first blush. Because Denney sets a low evidentiary threshold, and because Rule 23 is equipped to handle questions of class cohesion, the Denney test essentially merges a jurisdictional challenge with Rule 23 inquiries. In practice, Denney has merely given defendants another legal doctrine under which to make the same substantive claim. While many have called for clarification on the appropriate inquiry,73×73. See, e.g., Petition for a Writ of Certiorari at i, BP Exploration & Prod. Inc. v. Lake Eugenie Land & Dev., Inc., 134 S. Ct. 2750 (2014) (mem.) (No. 13A1177), http://media.wwltv.com/documents/BP+Writ+of+Cert+Petition+8-1-14.pdf [http://perma.cc/HVY8-EDF7]; Brief Amicus Curiae of Pacific Legal Foundation in Support of Petitioners at i, Whirlpool Corp. v. Glazer, 133 S. Ct. 1722 (2013) (mem.) (No. 12-322), 2012 WL 4842966, at *i. for the time being lower courts may well consider the choice as largely academic.