Employment Class Actions Newsletter—October 5, 2011

Alerts / October 5, 2011

In This Issue:

Courts Take Different Approaches to Enforcement of Class Action Waivers Post Concepcion
When the U.S. Supreme Court decided AT&T Mobility, LLC v. Concepcion, holding that class action waivers can be enforced despite state law unconscionability doctrines, class action defense lawyers of all stripes cheered.

Dukes Supports Application of Daubert Standards to Expert Witnesses at the Class Certification Stage
The United States Supreme Court's recent decision in Wal-Mart Stores, Inc. v. Dukes[1] has rightly drawn attention from commentators on a host of class action issues ranging from the standards for commonality to limitations on classes seeking back pay awards.

Updates from our Employment Class Action Blog
Baker Hostetler's Employment Class Action Blog povides updates for employers, clients and other interested parties on developing issues impacting employment class actions, including those involving employment discrimination, wage and hour, civil rights and benefits issues. Please visit the blog to see what trends are shaping the current landscape of employment class actions in the wake of Dukes and Concepcion.


By Holli Hartman

When the U.S. Supreme Court decided AT&T Mobility, LLC v. Concepcion, holding that class action waivers can be enforced despite state law unconscionability doctrines, class action defense lawyers of all stripes cheered. Class actions could be avoided with a simple waiver provision in an arbitration agreement.

But in the employment class action context and elsewhere, courts have been inconsistent thus far in applying Concepcion. The good news for defense counsel is that some federal circuit courts have read the Supreme Court's opinion broadly to compel putative class members to arbitrate claims on an individual basis. Other lower courts, however, have found ways to distinguish Concepcion and are allowing employment and other types of class actions to proceed -- particularly in California under its Private Attorney General Act ("PAGA").

By way of background, in Concepcion the Supreme Court considered whether the Federal Arbitration Act "prohibits States from conditioning the enforceability of certain arbitration agreements on the availability of classwide arbitration procedures." -- U.S. --, 131 S. Ct. 1740, 1744 (2011). In that case, the Concepcions challenged as unenforceable under California law a class action waiver contained within an arbitration provision in a cellular telephone purchase agreement. California case law holds that class action waivers in consumer contracts of adhesion are unconscionable when the dispute between the parties involves a small amount of damages and the party with the superior bargaining power has allegedly carried out a scheme to deliberately prevent large numbers of consumers from individually receiving small sums of money. See Discover Bank v. Superior Court, 36 Cal.4th 148, 30 Cal.Rptr.3d 76, 113 P.3d 1100 (2005). California courts had frequently applied the Discover Bank rule to invalidate various provisions of arbitration agreements, including class action waivers.

Although the district court and Ninth Circuit both held the class action waiver invalid under California law, the Supreme Court reversed. In an opinion by Justice Scalia, the Court determined that the FAA preempts the Discover Bank rule because the rule was being applied in a fashion that disfavors arbitration and conflicted with the FAA's overarching purpose of enforcing arbitration agreements according to their terms so as to facilitate streamlined proceedings. Furthermore, the Court held that permitting a consumer-plaintiff to seek a class action within arbitration also "stands as an obstacle to the accomplishment and execution of the full purposes and objectives of [the FAA]" because classwide arbitration "sacrifices the principal advantage of arbitration -- its informality -- and makes the process slower, more costly, and more likely to general procedural morass than final judgment." The court also noted that the arbitration options available to the consumers of the AT&T cell phone contract appeared to be consumer-friendly and favorable for individual claimants.

Class action defense attorneys rejoiced when the ruling came out. The tone of the ruling seemed to raise the question whether any class action waiver provision could be invalidated using state law unconscionability principles. Class action defense counsel are now pressing courts to apply Concepcion broadly and beyond consumer class actions. The results, however, have been mixed.

Eight, Third and Eleventh Circuits Give Concepcion Broad Reading, Denying Wage and Hour Class Action

First, the good news. The Eighth Circuit recently affirmed a grant of a motion to compel arbitration, holding that, under Concepcion, the FAA preempted a Minnesota state law challenging a class action waiver in a franchisee agreement that drivers for SuperShuttle are required to sign. Green v. SuperShuttle International, Inc., Case No. 10-3310, U.S. Court of Appeals for the Eighth Circuit (Sept. 16, 2011).

The plaintiff drivers brought the action alleging that they had been misclassified as franchisees rather than employees and were eligible for lost wages, employment benefits and other damages under the Minnesota Fair Labor Standards Act. SuperShuttle moved to compel arbitration, asserting that the following provision was enforceable:

Any arbitration suit, action or other legal proceeding shall be conducted and resolved on an individual basis only and not on a class-wide, multiple plaintiff, consolidated, or similar basis.

With little analysis, the Eighth Circuit held that the Minnesota state law the plaintiffs argued invalidated the class action waiver was preempted by the FAA. The court concluded that the state law suffered the same flaw as the California law that was at issue in Concepcion. The court didn't elaborate on the "flaw;" rather, it appeared to give Concepcion a broad reading and extended the decision's applicability beyond cellular telephone sales contracts.

In Litman v. Cellco Partnership, -- F.3d -- , 2011 WL 3689015, No. 08-4103, Aug. 24, 2001, the Third Circuit on remand from the Supreme Court also applied Concepcion in a relatively straightforward way. This was easy for the court to do since the New Jersey law at issue was similar to the Discover Bank rule from California and the cell phone sales contract involved similar class action and class arbitration waivers to those at issue in Concepcion. The Third Circuit reasoned:

We understand the holding of Concepcion to be both broad and clear: a state law that seeks to impose class arbitration despite a contractual agreement for individualized arbitration is inconsistent with, and therefore preempted by, the FAA, irrespective of whether class arbitration "is desirable for unrelated reasons." ... Therefore, we must hold that ... the rule published by the New Jersey Supreme Court in [Muhammad v. County Bank of Rehoboth Beach, Delaware] is preempted by the FAA. It follows that the arbitration clause at issue here must be enforced according to its terms, which requires individual arbitration and forecloses class arbitration.

The court's analysis did not mention whether the arbitration clause at issue contained the sorts of consumer-friendly procedural protections that were contained in the AT&T Mobility agreement. The Third Circuit also did not undertake analysis applying unconscionability principles to the agreement as a whole, or remand the matter directing the district court to do so.

The Eleventh Circuit reached a similar conclusion in Cruz v. Cingular Wireless LLC, No. 08-16080, August 11, 2011, in which the arbitration agreement was identical to the one in Concepcion. In Cruz the Eleventh Circuit held that a Florida public policy that would have invalidated the agreement as unconscionable was preempted by the FAA.

These cases teach that a class action or class arbitration waiver likely cannot be the sole reason an arbitration agreement is ruled unconscionable. The decisions provide a defendant with strong authority for arguing that such waivers cannot be held unconscionable in states that have adopted unconscionability doctrines similar to the Discover Bank rule or where a state public policy has been applied in a sweeping fashion to invalidate the waivers.

New York District Court Limits Concepcion Holding in "Pattern or Practice" Case

Not all courts are willing to give Concepcion such an expansive reading. In Chen-Oster v. Goldman, Sachs & Co., 2011 WL 2671813, July 7, 2011, the U.S. District Court for the Southern District of New York held that the federal common law of arbitrability precludes enforcement of an arbitration clause when doing so would interfere with a substantive federal statutory right, such as a "pattern or practice" discrimination claim brought under Title VII of the Civil Rights Act of 1964. Defendants argued that Concepcion controlled because it "reinforces the broad and consistent commitment of the Supreme Court, under the [FAA], to allowing enforcement of arbitration agreements, even where enforcement prevents plaintiffs from proceeding as a class. The court held that such a reading of Concepcion went too far. It found that Concepcion does not apply when the issue is not preemption of a state law but whether a right provided by a competing federal statute is infringed by compelling arbitration. According to the court, the right to be free from discriminatory employment practices trumps. The court said it is a right that cannot be provided in an individual bilateral arbitration since Title VII prohibits individuals from bringing pattern or practice claims.

As Usual, California Always Proves to Be a Challenging Jurisdiction

Concepcion also has been limited in California, where employees can be deputized as attorney generals to enforce California's labor code under the Private Attorney General Act of 2004 ("PAGA"). In Brown v. Ralphs Grocery Company, Case No. B222689, July 12, 2001, a division of the California Court of Appeal held that Concepcion does not apply to enforce waivers of representative actions under PAGA. The court noted that the Supreme Court did not address a state statute such as PAGA where the employee serves as a proxy or agent of the state's labor law enforcement agencies. "Until the Supreme Court rules otherwise, we continue to follow what we believe to be California law." The court did reverse a ruling invalidating the class action waiver with respect to the plaintiff's regular Rule 23 class action claim, but on the grounds that the lower court's ruling was not supported by substantial evidence. The court avoided the question of whether the waiver was enforceable under a Concepcion analysis.

Despite this state appellate court ruling, two federal district courts in California held the opposite with respect to Concepcion's effect on PAGA claims. In Grabowski v. Robinson, 2011 WL 4353998, No. 10cv1658-WQH-MDD (S.D. Cal. Sept. 19, 2011), the Southern District of California determined that allowing plaintiffs to proceed with representative claims under PAGA when they have executed conscionable arbitration agreements with class action waivers would be inconsistent with the FAA and thus preempted. The Southern District cited and sided with the Central District of California's similar holding in Quevedo v. Macy's, Inc., -- F.Supp.2d --, No. CV 09-1522, 2011 WL 3135052 (C.D. Cal. June 16, 2011). The court in Quevedo noted that, just as the Supreme Court found in Concepcion that arbitration is poorly suited to the higher stakes of class litigation, "it is also poorly suited to the higher stakes of a collective PAGA action."

In Kanbar v. O'Melveny & Myers, -- F.Supp. 2d -- , 2011 WL 2940690, July 21, 2011, the Northern District of California held in an employment discrimination case that, notwithstanding Concepcion, an arbitration provision was unconscionable under California law. The court found that the California unconscionability law as applied there did not interfere with the fundamental attributes of arbitration, particular its informality, expeditiousness and relative inexpensiveness. But the court nonetheless compelled arbitration on the grounds that plaintiff had waived her right to object to the enforceability of the arbitration clause.

Rulings Elsewhere Caution Against Drafting One-Sided Arbitration Provisions

In re: Checking Account Overdraft Litigation, Case No. 09-MD-02036-JLK, U.S. District Court, Southern District of Florida, the court found arbitration agreements with class action waivers to be unenforceable on substantive unconscionability grounds despite Concepcion. The defendant banks, in this alleged excessive overdraft fee class action suit, renewed their motions to compel arbitration after the Eleventh Circuit remanded the matter for consideration in light of the Concepcion ruling. The district court had earlier held the class action waivers contained in the banks' arbitration agreements with consumers to be unconscionable under various states' laws.

In its order on remand issued September 1, 2011, the district court provided a sentient summary of the wake left by Concepcion:

The Parties now before the Court have each argued for an extreme interpretation of Concepcion. Plaintiffs ask the Court to find that Concepcion has changed nothing, and that the class action waivers in the arbitration agreements may still be the basis for finding them unconscionable. Defendants, on the other hand, argue that Concepcion has changed everything, and that unconscionability is no longer a defense to the enforceability of an arbitration agreement. In a sense, both views are correct. Concepcion has changed everything, in that class action waivers have historically been a major factor in the unconscionability analysis under state law, and now, they can no longer be considered. And yet, Concepcion has changed nothing in that a thorough, case-by-case analysis of the applicable state law doctrine of unconscionability, applied to the specific terms of an arbitration agreement, is still required. In sum, Concepcion has not relieved courts from their obligation to scrutinize arbitration agreements for enforceability on a case-by-case basis where one party resists arbitration; rather, Concepcion provides guidance as to what courts may consider when fulfilling that obligation. Order at 9-10.

The court then analyzed the five agreements at issue under each agreement's controlling state law. It found four of the five to be substantively unconscionable when applying each state's general common law on unconscionability to the agreements as a whole. The court denied the motion to compel relating to the fifth agreement on separate grounds, holding that the scope of the arbitration agreement did not cover the claims at issue between the parties.

The court focused on each agreement's fee-shifting provisions, which allowed the banks to automatically recover its costs and attorneys' fees if they prevailed -- and further allowed the banks to simply take the fees and costs directly from a plaintiff's bank account if the plaintiff lost in arbitration. The court found these provisions to be overly oppressive and one-sided in favor of the banks. It was clear from the order that the arbitration agreements the banks used did not contain the kind of consumer-friendly provisions that were lauded by the Supreme Court in Concepcion, such as paying for all costs for non-frivolous claims by its customers, holding arbitrations in the county were the customer was billed, allowing the parties to opt to bring a claim in small claims court in lieu of arbitration, allowing arbitration by telephone or based on submissions for claims under $10,000, and allowing arbitrators to award any form of individual relief, such as an injunction or punitive damages.

In a ruling similar to that in Checking Account Overdraft Litigation, New Jersey's highest court invalidated an arbitration agreement on the grounds that it was too confusing, too vague and too inconsistent to be enforced. NAACP of Camden County East v. Foulke Management Corp., -- A.3d -- , 2011 WL 3273896, August 2, 2011, Superior Court of New Jersey. The court came to this conclusion despite stating that the agreement's class action waiver itself could not be invalidated in light of Concepcion. Nevertheless, the New Jersey Superior Court turned to Justice Thomas's concurring opinion in Concepcion, in which he stated that the majority opinion in Concepcion did not leave litigants bereft of other contract defenses, including the procedural conscionability question of contract formation or contract interpretation principles. The New Jersey court ultimately found that the arbitration provision at issue could not be enforced because it lacked sufficient clarity and consistency to be reasonably understood by the consumer.

The Supreme Court of New Mexico also invalidated an arbitration provision in an auto dealership sales contract that it found could not be enforced because the named arbitration service was no longer available to conduct the arbitrations. Despite the technical reason for reversing the lower court's order compelling arbitration, the court found the arbitration to be unfairly one-sided and substantively unconscionable irrespective of Concepcion. Rivera v. American General Financial Service, Inc., -- P.3d -- , 2011 WL 3687624, New Mexico Supreme Court, July 27, 2011.

The lesson here is to avoid terms that are oppressive to the consumer or employee. When drafting an arbitration agreement with a class action waiver, include easily understandable, balanced provisions or even consumer-friendly provisions so that the agreement is not overly one-sided and unfair to the individual. Ensuring that the employee or consumer has a forum in which to fairly air a grievance will help the provisions surpass the unconscionability test and other contract defenses. And, make sure the agreement provides for alternative arbitration services should one not be available or refuse to act in a particular case.

For more information about how the foregoing can impact your business, contact any member of Baker Hostetler's Employment Class Actions Team.

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By Gregory V. Mersol and George Skupski

The United States Supreme Court's recent decision in Wal-Mart Stores, Inc. v. Dukes[1] has rightly drawn attention from commentators on a host of class action issues ranging from the standards for commonality to limitations on classes seeking back pay awards. One less discussed part of its holding, however, relates to the use of expert testimony at the class certification stage. The Dukes decision settles a split in the circuits over the standards for such testimony and makes it clear that Daubert [2] standards apply when a party introduces expert testimony to obtain class certification.

Prior to Dukes, lower courts were divided over the treatment of expert testimony offered at the class certification stage. A minority did not engage in a Daubert analysis when considering the plaintiffs' expert testimony. These courts commonly cited the concern that weighing the expert's credibility at certification would constitute a premature evaluation of the merits of the underlying case. Most courts, however, took the view that district courts must scrutinize expert testimony as a part of their class certification decision. Some of these courts ended their analysis at Daubert scrutiny, while others required that the district court also conclusively resolve any challenges to the reliability of the information provided by the plaintiffs' expert at the certification stage below. As explained below, Dukes settled this issue in favor of Daubert scrutiny.

Daubert Scrutiny and the Tension with Rule 23

Expert testimony can play an important part in class action employment litigation. Plaintiffs often present expert opinions to show that the contested issues in the case can be decided on the basis of common proofs that apply to all class members. Defendants may counter with expert testimony to show that trial of the claims would instead depend on individual proofs specific to each plaintiff's case. These battle lines are commonly drawn in employment class actions where the plaintiffs offer statistical and other evidence of discrimination in the aggregate, and the defense counters with an expert pointing out flaws in the plaintiffs' expert's methodology. This expert testimony usually bears on the commonality and predominance requirements of Rule 23,[3] but it also likely implicates the merits of the case to a large extent.

Rule 702 of the Federal Rules of Evidence governs the use of expert testimony, permitting its admission if the testimony is based on "sufficient facts or data," uses "reliable principles and methods," and applies those principles and methods "reliably to the facts of the case."[4] In Daubert, a case involving medical experts, the Supreme Court held that under Rule 702, district judges should act as "gatekeepers" who look beyond the surface of expert opinions. Under Daubert, a district court should scrutinize the methodologies and validity of scientific expert testimony, and exclude testimony that is irrelevant or unreliable.[5] The Daubert decision was important for the integrity of the judicial process because it obligated trial courts to ferret out and exclude junk science for consideration by the finder of fact.

Until Dukes, the Supreme Court had not directly addressed whether the Daubert requirements apply to expert testimony presented at a class certification hearing, resulting in a split of authority among the lower courts.

These differing holdings and standards exposed employers to the risk of having classes certified against them based on inadmissible expert testimony in some jurisdictions but not in others. The question of Daubert's application at the class certification stage was clouded by the uncertain relationship between Daubert scrutiny and the court's ability to weigh in on the merits of the case in analyzing the Rule 23 requirements. Initially, in Eisen v. Carlisle & Jacquelin, the Supreme Court suggested that Rule 23 did not grant the court authority to conduct a preliminary inquiry into the merits of the suit. [6] The Court later clarified its position, stating that class certification is proper only "if the trial court is satisfied, after a rigorous analysis, that the prerequisites" of Rule 23 have been fulfilled.[7] These decisions left open the interplay between the appropriate degree of "rigorous analysis" in evaluating competing expert testimony and an undue examination of the underlying merits at the certification stage. In the absence of Supreme Court guidance, the courts wrestled with this tension in applying varied, and in some cases, inadequate, degrees of scrutiny to testimony supporting and opposing class certification.

Giving Daubert the Cold Shoulder

A few circuits declined to engage in a Daubert analysis based on the rationale that this practice would constitute a premature inquiry into the merits of the plaintiffs' claims, stepping on the toes of Eisen. In 2001, the Second Circuit became the leading proponent of this highly deferential approach, under which the district court was only required to find that the basis of the expert's opinion is not so "fatally flawed" as to be inadmissible as a matter of law,[8] in line with its position that "some showing" of meeting the Rule 23 requirements sufficed to certify the class.[9] Five years later, however, the Second Circuit, reflecting the trend among most circuits to engage in more extensive scrutiny, expressly disavowed the use of this modest standard. Instead, it held that district courts may certify a class only after resolving any factual disputes relevant to each Rule 23 requirements, despite any overlap with a merits issue.[10]

Despite the Second Circuit's renunciation of minimal expert scrutiny standards, a handful of courts continued to find that Daubert did not apply at the certification stage. The most prominent example was found in the Ninth Circuit's own decision in Dukes v. Wal-Mart Stores, Inc.[11] The primary focus of the Daubert discussion in Dukes related to the testimony of William Bielby, a sociologist.[12] Bielby is the leading courtroom proponent of "unconscious bias," his theory that "gender stereotypes are especially likely to influence personnel decisions when they are based on subjective factors, because substantial decision maker discretion tends to allow people to seek out and retain stereotyping-confirming information and ignore or minimize information that defies stereotypes."[13] In short, Bielby opines that corporations giving discretion in promotion decisions will inevitably slight women.

Using his theory, Bielby testified that he employed "social framework analysis," and had examined Wal-Mart's policies and practices, including its strong corporate culture and the subjective discretion permitted in promotion decisions. Based on that review, he claimed that it was "vulnerable" to bias or gender stereotyping.[14] The plaintiffs argued that this "vulnerability" sufficed to satisfy their required showing of common discrimination under Rule 23 even though Bielby failed to identify any specific discriminatory policy at Wal-Mart. [15]

The trial court admitted Bielby's testimony and granted certification, and the panel of the Ninth Circuit affirmed. These courts relied heavily on the overruled Second Circuit precedent, holding that the district court need not apply full Daubert scrutiny at the certification stage, but instead, some form of Daubert-lite scrutiny.[16] In its revised opinion, while carefully avoiding the overruled Second Circuit language, the Ninth Circuit reasoned that Bielby's opinion would have passed muster even if Daubert were applied because Wal-Mart had merely challenged the persuasiveness of his conclusions, not his methodologies.[17] The court expressed reluctance to judge the ultimate merits of the case,[18] and the later Ninth Circuit en banc panel stated that it was "not convinced...that Daubert has exactly the same application at the class certification stage."[19] Thus, the Ninth Circuit applied at best a watered-down Daubert analysis.

The Ninth Circuit was not alone. At least one court in the Sixth Circuit followed the view that a Daubert inquiry is inappropriate at the certification stage.[20] The Tenth Circuit also appeared to apply a lesser showing at the certification stage, expressing a reluctance to test the merits of the plaintiff's claims in ruling on Rule 23 certification.[21]

The courts disregarding the Daubert admissibility standard improperly transformed Rule 23 into a mere pleading rule, circumventing its filtering function, and unjustifiably exposing defendants to potentially illegitimate pressure to settle meritless class action claims. While class actions can serve a useful role, they also create "insurmountable pressure" on the defendant to settle.[22]

Daubert Scrutiny and Beyond

More sensible courts rejected the notion that Eisen forbids a Daubert analysis at the class certification stage. In In re IPO, the Second Circuit rejected its past "fatally flawed" approach of not employing Daubert standards. Although pieces of the opinion indicate a desire that district courts dig deeper to resolve underlying factual disputes at the certification stage,[23] it simultaneously expressed reluctance to authorize factual findings due to fears of creating a "mini-trial." [24] The Eighth Circuit also employed this approach.[25]

The majority of Circuits put further teeth into the Daubert reliability and relevance standards, requiring in addition that the district court actually resolve challenges to the reliability of the information provided by plaintiffs' experts at the time of certification. The Seventh Circuit was the leading proponent of this position, holding that, after a full Daubert analysis scrutinizing the expert's experience, training and methodology used, "a district court must conclusively rule on any challenge to the expert's qualifications or submissions prior to ruling on a class certification motion." [26] The First,[27] Fifth[28] and Eleventh[29] Circuits followed the same arguably enhanced Daubert analysis. The Fourth Circuit did not expressly square itself with these circuits, but it seemed likely to eventually follow suit, as it relied heavily on the Seventh Circuit in acknowledging the necessary overlap with a merits inquiry in analyzing the Rule 23 requirements at the certification stage.[30]

The Third Circuit, in In re Hydrogen Peroxide Antitrust Litigation,[31] articulated the required scrutiny of the certification requirements as a heightened burden of proof for establishing each of the Rule 23 elements. In confronting conflicting expert testimony, the court rejected the argument that Eisen confined Rule 23 to a mere pleading rule where weighing expert testimony also implicated the merits of the case.[32] Instead, it concluded that: "[f]actual determinations necessary to make Rule 23 findings must be made by a preponderance of the evidence. In other words, to certify a class, the district court must find that the evidence more likely than not establishes each fact necessary to meet the requirements of Rule 23."[33] Under this approach, the district court may only find commonality "after considering all relevant evidence."[34]

The Decision in Dukes

The Supreme Court's decision in Dukes, of course, addressed a wide variety of important topics in the class action realm. Among its most important holdings, the court reiterated and tightened the standards for commonality and typicality under Rule 23(a). The court also held that classes pursuant to Rule 23(b)(2) were inappropriate when the plaintiffs sought back pay.

Amid these rulings, however, two aspects of the opinion suggest strongly that Daubert standards should apply at the certification level. First, the court found that it was appropriate for the trial court to consider the merits when determining certification issues, and that in fact such review could be a necessity.[35] This finding is central to the expert testimony issue because those courts refusing to apply Daubert standards did so because of their belief that it was inappropriate for the court to examine the merits at the certification stage. Since, as the Court in Dukes found, such an inquiry is appropriate, Dukes removes the analytical underpinnings that led the minority of courts to conclude that Daubert did not apply in the class action content.

Although Wal-Mart had identified the Ninth Circuit's refusal to apply Daubert as grounds for review in its petition for certiorari, the Supreme Court's decision does not explicitly overrule the Ninth Circuit's apparent endorsement at a lesser standard. With respect to the expert testimony offered by the plaintiffs (primarily Bielby's testimony that individuals with subjective decision-making authority may tend to discriminate), the Court found that the conclusions were so weak and flawed as to have no bearing on the issue of certification at all.[36] Thus, the Court assumed that even if the testimony were admitted, it would not justify certification.

During that discussion, the Court indicated that Daubert standards in all likelihood would apply. Specifically, the court stated that:

The District Court concluded that Daubert did not apply to expert testimony at the certification stage of class action proceedings. 222 F.R.D., at 191. We doubt that is so . . . .[37]

Thus, although the Supreme Court did not explicitly overrule Dukes with respect to the application of Daubert, the opinion leaves little doubt that a refusal to apply those standards would constitute error. Between its finding that a court not only can but should engage in a merits analysis, and its curt dismissal of the district court's refusal to assess the validity of expert testimony, Dukes reflects that Daubert standards should apply at class certification stage.

Post-Dukes Decisions

In the three months since Dukes was decided, two Circuit Courts of Appeal have been called upon to decide whether Daubert standards will apply in the certification context. Most recently, in Ellis v. Costco,[38] the Ninth Circuit reviewed the district court's decision to certify a class that was similar to that in Dukes, one in which the plaintiffs challenged promotional decisions at the Costco retail chain. Unlike Dukes, however, the district court had performed a Daubert analysis. The Ninth Circuit, citing the language quoted above, found that the district court had "correctly" applied Daubert, but had improperly ended its analysis with a determination of whether the evidence was simply admissible. The court of appeals found that this constituted error because, after concluding that the evidence was admissible, the trial court should have then gone on to subject the expert's findings to the rigorous analysis Dukes required.

One court of appeals has rendered a decision that is difficult to square with Dukes. In In re Zurn Pex Plumbing Products Liability Litigation,[39] a case decided two weeks after Dukes, the Eighth Circuit reviewed the certification of a class in a products liability case in which the district court had applied a less stringent Daubert analysis. Two members of the three judge panel found that decision appropriate because it construed Daubert as being focused on potential jury confusion and saw no risk of such confusion at the certification stage. The majority did not meaningfully discuss Dukes. The dissent, by contrast, agreed with the defendant that a Daubert analysis is appropriate at the certification stage. It cited and would have followed the statements in Dukes, and would have required a full Daubert hearing before certification. The Zurn Pex case seems at odds with the pronouncement in Dukes, but it remains to be seen whether any other courts will follow it.


Prior to the United States Supreme Court's decision in Dukes, there was a split of authority as to whether Daubert standards should apply to expert testimony at the class certification phase. The decisions that did not apply Daubert exposed defendants to the risk and great expense of class action litigation even when there was no competent testimony that they had engaged in any wrongdoing, let alone on a class-wide basis. The decisions of the majority of courts, now buttressed by the Dukes decision, reflects a more common sense approach that courts should resolve expert testimony issues at the time of certification. Practitioners should continue to follow developments in this area.

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[1] 564 U.S. __, 131 S. Ct. 2541 (2011).
[2] Daubert v. Merrell Dow Pharms., Inc., 509 U.S. 579, 589-90 (1993).
[3] Specifically, Fed. R. Civ. P. 23(a)(2) (requiring questions of law or fact common to the class); Fed. R. Civ. P. 23(b)(3) (requiring that the "questions of law or fact common to the class predominate over any questions affecting only individual members").
[4] Fed. R. Evid. 702.
[5] Daubert, 509 U.S. at 589-90. The Court later held in Kumho Tire Co. v. Carmichael, 526 U.S. 137, 147-48 (1999), that Daubert applies not only to scientific testimony, but to all expert testimony.
[6] 417 U.S. 156, 177-78 (1974).
[7] Gen. Tel. Co. of S.W. v. Falcon, 457 U.S. 147, 161 (1982) (emphasis added).
[8] In re Visa Check / Mastermoney Antitrust Litig., 280 F.3d 124, 135 (2d Cir. 2001), overruled by In re Initial Pub. Offerings Sec. Litig. (In re IPO), 471 F.3d 24, 42 (2d. Cir. 2006).
[9] Caridad v. Metro-North Commuter R.R., 191 F.3d 283, 292 (2d Cir. 1999).
[10] In re IPO, 471 F.3d at 41.
[11] Dukes v. Wal-Mart Stores, Inc., 603 F.3d 571 (9th Cir. 2010) (en banc), rev'd, 564 U.S. ___, 131 S. Ct. 2541 (2011).
[12] Dukes, 509 F.3d at 1179-80.
[13] Dukes, 603 F.3d 571, 601.
[14] 509 F. 3d at 1178-79.
[15] Id. at 1179.
[16] Dukes v. Wal-Mart, Inc., 474 F.3d 1214, 1227-28 (9th Cir.), withdrawn, 509 F.3d 1168 (9th Cir. 2007) (holding that the district court need not apply "the full Daubert 'gate keeper' standard at the class certification stage.").
[17] 509 F.3d at 1179 (reasoning that "Daubert does not require a court to admit or exclude evidence based on its persuasiveness, but rather, requires a court to admit or exclude evidence based upon its scientific reliability and relevance").
[18] Id. (noting that the question as to whether Bielby's opinion suffices to prove actual discrimination "must be left to the merits stage of the litigation").
[19] Dukes, 603 F.3d at 603.
[20] See, e.g., Bacon v. Honda of Am. Mfg., Inc., 205 F.R.D. 466, 470-71 (S.D. Ohio 2001), aff'd, 370 F.3d 565 (6th Cir. 2007) ("[A] Daubert inquiry is not warranted at [the certification] stage."). See also Beattie v. CenturyTel, Inc., 511 F.3d 554, 560 (6th Cir. 2007).
[21] See Shook v. Bd. Of Cnty. Commissioners, 386 F.3d 963, 968 (10th Cir. 2004) (holding that in conducting its rigorous analysis of the fulfillment of the prerequisites of Rule 23, "the court must accept the substantive allegations of the complaint as true") (citing Eisen, 417 U.S. at 178).
[22] See, e.g., Newton v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 259 F.3d 154, 164, 168 n.8 (3d Cir. 2001) (considering settlements forcibly induced by the small probability of an immense judgment "blackmail settlements"); see also Castano v. Am. Tobacco Co., 84 F.3d 734, 746 (5th Cir. 1996) (noting likely pressure to settle).
[23] In re IPO, 471 F.3d at 40 (holding that the "district court will often have to "resolve[] underlying factual disputes, and, as to these disputes, the judge must be persuaded that the fact at issue has been established").
[24] Id. at 40, 41. See also Hnot v. Willis Group Holdings, Ltd., 241 F.R.D. 204, 210 (S.D.N.Y. 2007) (construing In re IPO narrowly to forbid the weighing of conflicting expert opinions).
[25] See Blades v. Monsanto Co., 400 F.3d 562, 566 (8th Cir. 2005) ("[I]f, to make a prima facie showing on a given question, the members of a proposed class will need to present evidence that varies from member to member, then it is an individual question. If the same evidence will suffice for each member to make a prima facie showing, then it becomes a common question.").
[26] Am. Honda Motor Co., Inc. v. Allen, 600 F.3d 813, 816 (7th Cir. 2010). See also West v. Prudential Sec., Inc., 282 F.3d 935, 938 (7th Cir. 2002).
[27] See In re Polymedica Sec. Litig., 432 F.3d 1, 5-6 (1st Cir. 2005) (holding that the district court properly looked beyond the pleadings to consider both parties' expert reports in its evaluation of the applicability of the plaintiffs' expert opinion).
[28] See Regents of the Univ. of Cal. v. Credit Suisse First Boston (USA), 482 F.3d 372, 379-80 (5th Cir. 2007) (holding that appellate review of the district court's certification decision is appropriate, even though the analysis of plaintiffs' theory of commonality is intertwined with the merits of plaintiffs' theory of liability, where the certification decision turns on a novel or unsettled question of law or an order granting certification may coerce defendant to settle).
[29] Sher v. Raytheon Co., No. 09-15798, 2011 WL 814379, at *3 (11th Cir. Mar. 9, 2011) (citing the Seventh Circuit in holding that the district court erred as a matter of law by not sufficiently evaluating and weighing conflicting expert testimony on class certification).
[30] Gariety v. Grant Thornton, LLP, 368 F.3d 356, 366 (4th Cir. 2004) (citing Szabo v. Bridgeport Machs., Inc., 249 F.3d 672, 675-76 (7th Cir. 2001)).
[31] 552 F.3d 305 (3d Cir. 2008).
[32] Id. at 316-17.
[33] Id. at 320 (emphasis added).
[34] Id. at 325.
[35] See Dukes, 131 S. Ct. at 2551-52.
[36] See id. at 2553-54.
[37] Id. at 2554.
[38] Case No. 07-15838 (9th Cir. Sept. 16, 2011).
[39] 2011 WL 2623342 (8th Cir. July 6, 2011).

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Baker Hostetler's Employment Class Action Blog provides updates for employers, clients and other interested parties on developing issues impacting employment class actions, including those involving employment discrimination, wage and hour, civil rights and benefits issues. Please visit the blog to see what trends are shaping the current landscape of employment class actions in the wake of Dukes and Concepcion. Included below are a few blog posts on these topics. Please feel to share information about our blog with your colleagues. The blog supplements our Class Actions Newsletter, which will continue to be published periodically.

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Second Circuit Finds FLSA Collective Actions and State Law Class Actions Compatible

One of the hottest topics in class/collective action litigation this year has been the availability of both an FLSA collective action and a state law class action in the same suit. We've already written several times about some of these cases, with a distinct difference in approach and outcome among the various courts. Some courts have found the two schemes incompatible, while others have found that the two different schemes could be maintained in the same lawsuit.

Eighth Circuit Affirms Enforcement of Class Action Waivers and Explores Case Disposition Issues

In a terse but well-reasoned decision, the Eighth Circuit recently affirmed the grant of a motion to compel arbitration and enforced a class action waiver despite arguments that it was unenforceable under Minnesota law. The Appellate panel also considered whether cases sent to arbitration should be stayed rather than dismissed.

Unaccepted Offers of Judgment Ineffective in FLSA Collective Cases

Plaintiffs frequently include collective action allegations in even run-of-the-mill FLSA cases. What if an employer concludes, however, that no matter how frivolous the underlying claim, the defense costs will be more than even an oversized settlement?

If At First You Don't Succeed....Your "Plan B" Will Probably Fail, Too

Having already struck out on a curveball they thought was a fastball over the middle of the plate, Schering Corp. is now 0 for 2 following the latest ruling from the Connecticut federal district court in Kuzinski et al. v. Schering Corp.pdf., Case No. 3:07-cv-0233-JBA (D. Conn. August 5, 2011). The case began over four years ago, when Schering's sales reps alleged that Schering intentionally misclassified them as exempt under the FLSA. In its first at-bat, Schering argued that the plaintiffs were subject to the FLSA's outside sales exemption, and thus not entitled to overtime. Given the decades of support for this proposition, the crowd (and, most likely, Schering) perhaps expected a long drive to deep centerfield...a-wayyyy back...gone.

Daubert Standards Should Apply to Experts at the Class Certification Stage

The Daubert case was important for the integrity of the federal justice system, in that it made clear that courts were not to accept expert testimony uncritically, but should act as "gatekeepers" by scrutinizing the methodology and validity of the expert's testimony and excluding testimony that is irrelevant or unreliable. Put another way, courts were not to accept "junk science" and could not simply submit incredible or baseless testimony to a jury simply because it came out of the mouth of an expert.

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