What do you get when no one has been injured and the most you can say is that maybe someone received medicine made from an active pharmaceutical ingredient that may have contained—but was never actually observed to contain—a harmless contaminant?  Add to that that you can’t really tell who might have used the product that may (or may not) have been affected.  Why, of course, you get a consumer class action—one where patients received exactly the therapeutic benefit they bargained for and probably did not pay for it themselves anyway, but they still want money.

This is what class actions in the pharmaceutical space often look like—no-injury classes seeking partial or full refunds of the purchases prices for products that worked, but allegedly were not all they were supposed to be.  Take for example a New Jersey case from a couple of months ago, Fenwick v. Ranbaxy Pharmaceuticals, Inc., No. 3:12-cv-07354, 2018 WL 5994473 (D.N.J. Nov. 13, 2018), where the district court denied certification of a putative nationwide class on the basis that it was impossible to ascertain who would be in the class and that individualized issues predominated.

In Fenwick, the defendant voluntarily recalled multiple lots of its generic cholesterol medicine after manufacturing employees noticed blue particles in the raw material used to make the product.  The tiny particles were glass from glass liners on machines used in the manufacturing process, so the manufacturer discarded that batch.  Id. at *1.  Another batch was later shipped from the same facility to another facility, where it was made into pills, which were then sent to the distribution center of 35 different companies.  No one had actually observed particles in this later batch, but the manufacturer nevertheless voluntarily recalled the pills made from the batch and eventually recovered about 85 percent of the bottles shipped.

The rest were distributed to pharmacies, where some portion was further repackaged and dispensed to patients.  Id. at *1-*2.  Exactly who those patients were was anyone’s guess, and whether any of the recalled product was actually affected by any manufacturing issue was similarly a matter of speculation.  The manufacturer and the FDA agreed that the possibility of any health consequences was “extremely low” and that “patients who have the recalled medicine can continue taking it.”  Id. at *1.

Five individuals who allegedly purchased the drug filed a class action purporting to represent a nationwide class of consumers who were not injured and did not even necessarily use a contaminated product.

The heart of the order denying class cert is the district court’s discussion of the ascertainability of the proposed class.  There was a time when federal courts did not necessarily require that plaintiffs prove that it was possible to ascertain a class’s members, but the requirement is now well established.  The district court described it in the following very quotable passage:

Ascertainability functions as a necessary prerequisite (or implicit requirement) because it allows a trial court effectively to evaluate the explicit requirements of Rule 23.  In other words, the independent ascertainability inquiry ensures that a proposed class will actually function as a class. . . .  The ascertainability inquiry is two-fold, requiring a plaintiff to show that: (1) the class is ‘defined with reference to objective criteria’; and (2) there is ‘a reliable and administratively feasible mechanism for determining whether putative class members fall within the class definition.’ . . .  [A]scertainability only requires the plaintiff to show that class members can be identified. . . .  However, a party cannot merely provide assurances to the district court that it will later meet Rule 23’s requirements . . . [n]or may a party ‘merely propose a method of ascertaining a class without any evidentiary support that the method will be successful.’

Id. at *4 (internal quotations and citations omitted).  The gist is that the putative class representatives do not have to identify each class member before moving for class certification, but they have to prove that they can do it through an objective and reliably feasible method.

And that is where the class in Fenwick failed.  The plaintiffs relied on their damages expert, who sampled dispensing information from four retailers and opined that he could identify class members by reference to the timeframe during which recalled and non-recalled pills were available and National Drug Code, the unique FDA number that identifies a drug and its manufacturer.  Id at *6.  This method, however, did not pan out:  It was based on a sample of only four companies; it did not include consumer-level data for most of the companies; it did not identify any individual consumers; and it included consumers who bought pills from non-recalled lots.  Id.  If there were ever a case calling for application of the Daubert reliability standard at the class certification phase, this was it.  Regardless, the opinion was not close to meeting the objective and reliably feasible standard for ascertaining putative class members.

At bottom, it is simply not possible to identify class members based primarily on NDC numbers, at least not without a host of additional information, including “a means to identify consumers.”  Id.  “Plaintiffs have not shown that the data they have provided includes this necessary information.”  Id.

The district court could have stopped there, but it also ruled that the plaintiffs failed to prove that common issues would predominate.  They were purporting to assert claims for breach of implied and express warranties and unjust enrichment on behalf of a nationwide class.  To avoid predominating individual issues inherent in the application of 50 states’ laws, the plaintiffs urged application of New Jersey law to the entire class.  The district court, however, conducted a choice-of-law analysis and concluded that each individual class member’s home state had the most significant relationship to the plaintiffs’ warranty claims.  With the application of multiple states’ laws, common issues could not predominate.

The story here is a lack of ascertainability, and this class died when the plaintiffs’ expert agreed that there is “likely no feasible way to accurately identify” individuals who actually bought the recalled product.  Id. at *8.  The correct result for the correct reason.

What happens when you have a class action where some putative class members suffered an injury while others did not? Can such a proposed class even be certified? The answer depends on whom you ask. The plaintiffs/class representatives will surely point out that whether any individual class member actually suffered a compensable injury is a mere administrative detail that can be sorted out after the fact. Trust us, Judge. Just certify the class, and we’ll make sure the right people get paid.

The defendants on the other hand will emphasize (correctly) that there is this little thing called due process, which prohibits certifying a class where individual class members have contested injuries or no injuries at all. That was the dilemma that the First Circuit addressed in In re Asacol Antitrust Litig., No. 18-1065, 2018 WL 4958856 (1st. Cir. Oct. 15, 2018), and the court came to the correct conclusion that a class that includes uninjured class members cannot be certified. The First Circuit also poured buckets of cold water on questionable concepts of aggregated proof and statistical modeling.

Here is what happened. The plaintiffs sued the defendant claiming that its discontinuation of one drug and introduction of similar substitute drugs violated the consumer protection and antitrust laws of twenty-six jurisdictions. Id. at *1. The district court later certified a class of “all Asacol purchasers who subsequently purchased [the alleged substitute drugs] in one of those twenty-six jurisdictions.” Id.

But here is the rub. In certifying the class, the district court found that approximately 10 percent of the class members (mostly if not entirely third-party payers) had not suffered any injury attributable to the defendants’ alleged wrongful conduct. Id. And here is the further rub. The defendants claimed that uninjured class members actually made up more than 10 percent of the class, and the plaintiffs claimed that the number actually was less. In other words, it was undisputed that some portion of the class had no compensable injury, and the fact of injury was contested for some additional and unknown portion of the class.

The district court determined nonetheless that the uninjured class members could be removed “in a proceeding conducted by a claims administrator.” Id. When someone suggests relying on a post-certification “claims process” to smooth over disputed individual issues in a class action, the red flags start to wave in our heads. The submission of a form to a “claims administrator” is not an adequate substitute for the due process to which defendants are entitled absent an agreement, such as with a class settlement.

Red flags waived in the heads of the First Circuit too, resulting in an opinion reversing class certification. First, there was the issue of standing. The defendants argued that the class representatives had never made purchases within twenty-two of the jurisdictions and thus lacked standing to sue under those states’ laws. Id. at *3. In the First Circuit’s view, the issue was whether the class representatives had the proper incentive to advance claims under all those states’ laws, and it ruled that they did. Id. at **3-5. The only carve out was New York, which uniquely requires proof of deception. Id.

Second, the First Circuit considered Rule 23(c)(3)’s requirement that common issues predominate over individual issues, and this is where this class action failed. It was undisputed that some number above or below ten percent of the certified class suffered no compensable injury. Id. at *6. The district court’s major error was its assumption that it would be possible “to establish a mechanism for distinguishing the injured from the uninjured class members” and that “Class members will be asked to submit a claim form, along with data and documentation that may be deemed necessary for consideration.” Id. at *7.

That process would not be sufficient, in part because “[o]ne can only guess what data and documentation may be deemed necessary, what the formula will be, and how the claims administrator will decide who suffered no injury.” Id. The First Circuit distinguished the situation where class members would establish their claims through “’unrebutted testimony’ contained in affidavits.” Id. (distinguishing In re Nexium Antitrust Litig., 777 F.3d 9 (1st Cir. 2015)). Here, the plaintiffs did not intend to rely on unrebutted testimony to eliminate uninjured class members, and the defendants had expressed their intention to challenge any affidavits that might be gathered. Id. Because such disputed individual issues cannot be resolved under Rule 23, the First Circuit’s “inability to fairly presume that these plaintiffs can rely on unrebutted testimony in affidavits to prove injury-in-fact is fatal to plaintiffs’ motion to certify this case.” Id. at *8.

This is an important holding. The predominance of individual issues should preclude class certification under Rule 23(c) in every instance, and that rule applies with no less force when the predominating individual issue is whether each class member has suffered an injury in fact. It is not sufficient, as the First Circuit held, to certify the class based on vague promises of sorting it out later.

Nor is it acceptable to promise proof of “class-wide impact” through purported expert testimony. According to the plaintiffs, proof of “class-wide impact” would result in some uninjured class members receiving compensation, but it will all “net out” in the end and “should be of no concern” to the defendants. Id. at *9. Such rough justice ignores that when a defendant is not liable to particular individuals because they suffered no injury, the amount of total damages should be reduced. Id. Moreover, when relief depends on determining whether an individual has been injured, the defendant must have an opportunity to challenge each class member’s proof. Id.

Finally, the First Circuit condemned the reliance on statistical analysis at the expense of due process. The following quote is long, but you should read it because it is powerful:

Accepting plaintiffs’ proposed procedure for class litigation would also put us on a slippery slope, at risk of an escalating disregard of the difference between representative civil litigation and statistical observations of tendencies and distributions. Once one accepts plaintiffs’ “no harm, no foul” position there would be no logical reason to prevent a named plaintiff from bringing suit on behalf of a large class of people, forty-nine percent or even ninety-nine percent of whom were not injured, so long as aggregate damages on behalf of “the class” were reduced proportionately. Such a result would fly in the face of the core principle that class actions are the aggregation of individual claims, and do not create a class entity or re-apportion substantive claims.

Id. at *10 (emphasis added). Read that last line again because it re-emphasizes that Rule 23 is a rule of procedure. It does not bestow substantive rights, nor could it alter substantive law—such as laws requiring proof of an injury in fact before someone can sue—without running afoul of the Rules Enabling Act.

The First Circuit here applied the predominance requirement in a way that essentially enforces the requirement of ascertainability—i.e., you can’t certify a class if you can’t ascertain who would be in the class before certification. The First Circuit also walked back from the Neurontin trilogy, which pushed concepts of aggregated proof beyond the breaking point, which we discussed here. Both are welcome developments.

We’ve seen it before.  The Southern District of Illinois will certify class actions with no real cause of action and no real damages.  While not as bad as the drive-through-class-certification state courts in southern Illinois, the nearby federal court will also perform doctrinal somersaults to benefit the local plaintiffs’ bar.  With both the lower state and federal courts in that otherwise lovely corner of the Midwest, an out of state corporate defendant must tough out absurd hijinks, then cross its corporate fingers and seek relief from the (usually) more rational appellate courts.  The Seventh Circuit, in particular, makes a full-time job out of spotting and reversing errors.

That not only happened in Eike  v. Allergan, Inc., 2017 WL 881834 (7th Cir. March 6, 2017), it happened courtesy of the pen of Judge Richard Posner.  In nine short paragraphs, with his typical absence of footnotes, Judge Posner exposes the purported class actions for the exercises in silliness they were.  So devastating is the reversal, so sharp is his prose, that Judge Posner’s miniature masterpiece must be viewed as a judicial thumb in the eye of the lower court.  The Seventh Circuit not only reversed the district court’s certification of the classes, it also ordered the case dismissed with prejudice for lack of standing.

Illinois calls itself the Land of Lincoln.  Lincoln said a lot of famous things.  One was, “Never stir up litigation.  A worse man can scarcely be found than one who does this.”  Imagine what Lincoln would have said if he had a look at a claim as batty as the one in Eike.  The plaintiffs sued pharmaceutical manufacturers of eye drops used for the treatment of glaucoma because the drops were bigger than they needed to be.  The theory is that the plaintiffs were paying more than they would have if the drops were smaller.  The plaintiffs alleged no conspiracy among the defendants.  This was not an antitrust case.   (Woe unto the plaintiffs if it were, and then they drew Judge Posner on the panel!) Nor did the plaintiffs allege any misrepresentations.  Rather, the plaintiffs simply sought, because they thought it would be less expensive, a smaller dose product that nobody made.

Continue Reading There’ll Always Be Posner: Reversal of Class Certification in the Blink of an Eye