Class actions can be intimidating, both for the parties involved and the lawyers representing them.The aggregation of a multitude of individual claims into one lawsuit raises the stakes compared to single-party litigation.Adding to the pressure are the unique procedural mechanics required to ensure that any class action proceeds in an efficient manner while fully complying with constitutional due process requirements.
To provide greater clarity in this area, on Dec. 21, 2017, the Wisconsin Supreme Court entered an order1 amending Wisconsin’s state class action statute, Wis. Stat. section 803.08, to align it with Fed. R. Civ. P. 23 (hereinafter Rule 23). These amendments (“new section 803.08”) replace Wisconsin’s old class action rule – a one-sentence holdover from the 19th-century Field Code – with Rule 23’s detailed requirements and procedures, which themselves have been subject to continual refinement by the federal courts over the past 80 years. Most of new section 803.08 is taken verbatim from its federal counterpart. It will go into effect on July 1, 2018, but will also presumptively apply to any cases then pending, unless such retroactive application would be unfeasible or unjust.
While the new rule provides Wisconsin judges and litigators with clearer, affirmative guidance about the class action mechanics to be used in Wisconsin state court, the ins and outs of Rule 23 practice – and the associated jargon – can be somewhat daunting. This article explains the basics of class action procedure under new section 803.08. It is not an exhaustive review, which could fill an entire treatise, nor does it cover every important nuance of the law. It does, however, highlight the essential requirements and concepts with which Wisconsin lawyers should become familiar.
The old version of Wis. Stat. section 803.08 originated with the 19th-century Field Code2 and remained unchanged in Wisconsin for more than 150 years. The relevant portion of the statute states, in bare-bones terms, the following:
Michael D. Leffel, Michigan 1997, is a litigation partner with Foley & Lardner LLP, Madison, focusing on appeals and class actions, and is vice chair of the firm’s Consumer Law, Finance & Class Action group.
Elizabeth A.N. Haas, Michigan 2005, is a litigation partner with the firm’s Milwaukee office and vice chair of its national Antitrust group.
Aaron R. Wegrzyn, Chicago 2013, is an associate in the firm’s Milwaukee office, focusing on class action defense.
“When the question before the court is one of a common or general interest of many persons or when the parties are very numerous and it may be impracticable to bring them all before the court, one or more may sue or defend for the benefit of the whole.…”
From this, Wisconsin courts distilled three basic requirements for class actions filed in Wisconsin state court: 1) the class members must share a common interest, 2) the class representative must adequately represent the common interest, and 3) joinder of all class members must be impractical.3
The simplistic terms of the statute left Wisconsin courts and lawyers with little practical guidance regarding the procedural mechanics of actually conducting a class action case.4 The Wisconsin Supreme Court stressed that federal class action case law was not binding on Wisconsin courts due to the different origins of the applicable rules, but, in practice, state court judges often relied on federal authority given the dearth of Wisconsin guidance.5 Because the Wisconsin Supreme Court has stated that the recent amendments are “intended to align Wis. Stats. §§ 803.08 and 426.110 with the federal class action rule,”6 the commonplace reliance on federal case law will now have a stronger legal foundation.
Basic Requirements for a Class Action
As with Rule 23, new section 803.08 begins by laying out the fundamental requirements necessary for a case to proceed as a class action. These are often referred to as “the Rule 23(a) factors” – a reference to their placement in the Federal Rules of Civil Procedure. Any party seeking class action status must demonstrate four things: 1) numerosity, 2) commonality, 3) typicality, and 4) adequacy. While these prerequisites have transformed into terms of art over the years, their basic contours are relatively straightforward, as described below.
Numerosity. Wisconsin already has joinder rules, at Wis. Stat. sections 803.02-.04, designed to address handling the claims of a few similarly situated parties. To justify proceeding as a class action, the moving party must demonstrate that joinder would be impracticable given the number of parties involved. However, one does not need a tremendous number of parties to meet this burden. In federal court, a proposed class of 40 or more persons, or even fewer, can be sufficient.7
Commonality. A class action needs to address “questions of law or fact common to the class.” The issue is not how many common questions there are – one can be sufficient.8 Rather, the relevant inquiry is whether the answers to those common questions are central to the class members’ claims and can be resolved the same way across the class.9
The aggregation of a multitude of individual claims into one lawsuit raises the stakes compared to single-party litigation.
Typicality. The claims (or defenses) of the proposed representative of the putative class must be typical of those of absent class members and not subject to any unique set of circumstances or defenses. Courts analyze whether the class representative’s claims or defenses arise from the same event or pattern of practice as those of the class as a whole and whether they are based on the same legal theory, although some variation is permitted.10 Given their similar contours, the U.S. Supreme Court has noted that the commonality and typicality requirements tend to merge.11
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Adequacy. The class representative and class counsel are fiduciaries of absent class members and, therefore, they must not have conflicts of interest with the class they seek to represent.12 The court must assess 1) whether the proposed class representative’s interest is antagonistic to the class; and 2) whether prospective class counsel possesses the qualifications, experience, and capabilities to handle the case as a class action.13
Types of Classes
In addition to satisfying all the prerequisites discussed above, a case only may be certified as a class action when the putative class fits into one of four specific categories listed in Rule 23(b). Certain procedural elements, such as class notice, will vary depending on which provision of Rule 23(b) is used to certify the class.
Rule 23(b)(1)(A) Classes. These classes are appropriate in situations when proceeding with all class members’ claims individually would risk creating incompatible standards of conduct for the party opposing the class. The concern here is that a defendant might end up in a “conflicted position” in which they cannot possibly comply with the requirements imposed by judgments in separate cases.14
Rule 23(b)(1)(B) Classes. The flip side of Rule 23(b)(1)(A) classes, this category is concerned with potential prejudice to the interests of the putative class members by proceeding separately. This problem most commonly arises when the amount available to compensate class members is a “limited fund” that might not be sufficient to satisfy all claims if litigated individually.
Any party seeking class action status must demonstrate four things: 1) numerosity, 2) commonality, 3) typicality, and 4) adequacy.
Rule 23(b)(2) Classes. Used when the class is seeking common injunctive relief, such as in civil rights antidiscrimination litigation, these class actions address situations in which the party opposing the class “has acted or refused to act on grounds that apply generally to the class.” Rule 23(b)(2) may not be used to certify a class of plaintiffs who are pursuing individualized monetary damages.15 Under Rule 23(b)(2), the class must seek “final injunctive relief or corresponding declaratory relief.”
Rule 23(b)(3) Classes. This category covers claims for money damages. For obvious reasons, it is the most sought-after class type in federal litigation. To certify a Rule 23(b)(3) class, the court must find that common questions of fact or law “predominate” over individualized issues and that class action procedures are the “superior” method of adjudication.
Individualized issues need not be absent, but the common questions must be a “significant aspect” of the case that can be resolved universally in a single action.16 The superiority requirement is designed to make sure that proceeding as a class action is “the most efficient and effective means of resolving the controversy.”17
The Class Certification Motion
The requirements outlined above are typically raised in a motion for class certification filed by the prospective class representative, although there is nothing in Rule 23 that prohibits a defendant from bringing a motion to deny class certification or a motion for certification of a class according to its own specifications. (Though rare, a party can also seek certification of a “defendant class.”) While the rule directs the court to decide the class certification issue at “an early practicable time,” courts often allow (and parties typically seek) pre-certification discovery before any such motion is filed and may defer class certification issues until after the completion of discovery concerning the merits of the claim.
New section 803.08 requires a circuit court’s order certifying a class to also appoint class counsel.
It is the burden of the party seeking class certification to demonstrate, by a preponderance of the evidence, that all the requirements discussed above are satisfied.18 The court must conduct a “rigorous analysis,” which “will frequently entail overlap with the merits of the plaintiff’s underlying claim.”19 Even if the class certification issues overlap with the merits, the court “must make whatever factual and legal inquiries are necessary and must consider all relevant evidence and arguments presented by the parties.”20 In other words, evidence related to the prima facie case as well as any defenses must be considered.21
New section 803.08 also adopts Rule 23’s narrow exception to the final judgment rule, allowing parties to file a petition for appellate review of any order either granting or denying class certification. According to new section 803.08, the Wisconsin Court of Appeals will have discretion with respect to permitting such appeals,22 and while the federal courts of appeals differ in their approaches, the Seventh Circuit has outlined the circumstances when such interlocutory review is warranted (for example, when denial of class certification serves as the “death knell” of the litigation due to the small size of individual claims).23 As with any other interlocutory appeal, the party pursuing it must file its petition within 14 days after the challenged decision pursuant to Wis. Stat. section 809.50.
One of the major features, and administrative expenses, of class action litigation under Rule 23 is its notice requirements. Notices to absent class members are required by constitutional due process.24 These notices typically involve hard copy mailings; newspaper, television, or radio advertisements; and a website devoted to the class action, although newer, less costly notice procedures (such as email) are becoming more widely accepted. Notices are required in the following situations.
Class Certification. Absent class members must be notified whenever the court certifies a class pursuant to Rule 23(b)(3) (that is, a class pursuing money damages claims). Whether to provide notice to a class certified under any of the other provisions of Rule 23(b) is within the discretion of the trial judge. The class certification notice must be “the best notice practicable under the circumstances” and “clearly and concisely state in plain, easily understood language” the nature of the case, the definition of the class, the claims brought by the class, that absent class members may appear individually or choose to opt out of the class, and that any judgment will be binding on all class members.
Settlement. Before the court may approve any settlement, dismissal, or compromise of claims brought on behalf of the class, notice to the absent class members in a “reasonable manner” is required, which allows them to object or opt out of the settlement class.
Aside from renumbering, cross-references, and other technical edits, new section 803.08 tracks Rule 23 verbatim in all but two places.
Requests for Attorney’s Fees. Whenever class counsel files a motion for attorney’s fees, “reasonable” notice must be given to the absent class members to allow them to object.
Discretionary Notices. The court also has the discretion to direct that “appropriate notice” be given to absent class members whenever necessary “to protect class members and fairly conduct the action.”
Appointment of Class Counsel
New section 803.08 requires a circuit court’s order certifying a class to also appoint class counsel. In making this appointment, the circuit court is to consider the work done by the prospective class counsel to date, their experience handling class actions, their knowledge of the applicable law, the resources they will commit to the case, and any other matters relevant to their ability to represent the interests of the class.
When more than one group of lawyers seeks to serve as class counsel, the circuit court must appoint the most qualified group according to the above factors. Before deciding class certification, a circuit court may designate “interim class counsel” to represent the purported class in the proceedings leading up to the class certification decision.
Settlement and Attorney’s Fees
If a class has not been certified, the individual plaintiff and defendant can resolve those claims, without court approval, as they would in typical individual actions. After a class has been certified, or if the parties seek to settle the claims on a class basis, any settlement or voluntary dismissal of the claims of the class requires court approval. To initiate the process, the named parties must file a motion for preliminary approval of the planned settlement, which is followed by notice to the class (as described above) and a court hearing for a final determination that the proposed settlement is “fair, reasonable, and adequate.”
In money damages classes certified pursuant to Rule 23(b)(3), the court may also require that the settlement afford absent class members with a second opportunity to opt out of the class. Alternatively, an absent class member is always allowed to file an objection to the proposed settlement.25
The Seventh Circuit Court of Appeals has cautioned district courts to “exercise the highest degree of vigilance in scrutinizing proposed settlements of class actions.”26 This entails an analysis of the strength of the class’s claims on the merits against the amount offered in the settlement, considering the range of possible outcomes of the litigation and the probabilities of each actually occurring.27 Proposed settlements that provide “meaningless relief” to absent class members while enriching class counsel and giving the defendant peace will likely draw ire from a reviewing court.28
Deviations from Rule 23
Aside from renumbering, cross-references, and other technical edits, new section 803.08 tracks Rule 23 verbatim in all but two places.
First, subsection (10) of the new statute carries forward Order No. 15-06, issued by the Wisconsin Supreme Court on June 24, 2016,29 which addresses what is to be done with “residual funds” remaining unclaimed at the end of a class action case. New section 803.08(10) requires that “not less than 50 percent” of any residual funds be directed to support noncriminal legal services for low-income and indigent people in Wisconsin. In contrast, federal class actions often employ the cy pres doctrine to distribute such residual funds to charity.
Second, subsection (14) retains the prohibition against filing state-tax-related class actions against the state of Wisconsin. The Wisconsin Legislature added this provision to the old version of Wis. Stat. section 803.08 in 2011.
To prevent confusion, the supreme court’s order will also repeal the class action procedures incorporated into the Wisconsin Consumer Act, Wis. Stat. section 426.110(5)-(13), which were based on the version of Rule 23 in place before the federal rule was substantially amended in 2003.30
The amendment of Wis. Stat. section 803.08 modernizes and brings needed clarity to class action practice in Wisconsin state courts. Procedural guidance in this area has been sought by courts and litigators alike, and precedent from the federal courts should help immensely as Wisconsin transitions under the new rule. Whether that translates to more class action litigation in Wisconsin state courts remains to be seen.31
Readers should also note that Wisconsin state legislators are currently considering a tort reform bill that proposes a few additional changes to Wisconsin class action procedure – beyond those in new section 803.08 and Rule 23 – such as making it mandatory for the Wisconsin Court of Appeals to accept interlocutory appeals regarding class certification decisions.32 Wisconsin lawyers handling class actions should monitor the bill’s progress through the state legislature this spring.
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In one of my first cases after I finished law school, I needed to review a box of pharmaceutical manufacturing records for potential production in discovery. The documents were not relevant to any issue in the case, but the other side demanded them and, rather than fight a motion to compel, we just decided to produce them. The only problem was that the documents were all written in Ukrainian.
Despite my Polish last name, I don’t know any Eastern European languages. But, with a little bit of coaching, I quickly got up to speed on the Cyrillic characters necessary to distinguish the documents that needed to be produced from those that did not. However, it still takes the cake as my oddest project as a lawyer.
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1 In re proposed amendments to Wisconsin Statutes §§ 803.08 and 426.110, 2017 WI 108 (Dec. 21, 2017).
2 The Field Code was the product of an early movement to codify state civil procedure laws, which Wisconsin partially adopted in 1856. See Charles D. Clausen & David P. Lowe, The New Wisconsin Rules of Civil Procedure: Chapters 801-803, 59 Marq. L. Rev. 1, 2 (1976); see generally Stephen N. Subrin, David Dudley Field and the Field Code: A Historical Analysis of an Earlier Procedural Vision, 6 L. & History Rev. 313 (1988).
3 See Hogan v. Musolf, 157 Wis. 2d 362, 379, 459 N.W.2d 865 (Ct. App. 1990).
4 See Mercury Records Prods. Inc. v. Economic Consultants Inc., 91 Wis. 2d 482, 490, 283 N.W.2d 613 (Ct. App. 1979) (“There is no case or statutory law in Wisconsin governing the procedural aspects of class action suits.…”).
5 Compare Browne v. Milwaukee Bd. of Sch. Dirs., 69 Wis. 2d 169, 183, 230 N.W.2d 704 (1975) (holding that Fed. R. Civ. P. 23 not binding on Wisconsin courts) with Mercury Records, 91 Wis. 2d at 492-95 (noting lack of Wisconsin authority and looking to federal sources for guidance).
6 See In re proposed amendments to Wisconsin Statutes §§ 803.08 and 426.110, 2017 WI 108 (Dec. 21, 2017).
7 See Mulvania v. Sheriff of Rock Island Cty., 850 F.3d 849, 859-60 (7th Cir. 2017).
8 See Wal-Mart Stores Inc. v. Dukes, 564 U.S. 338, 350 n.6 (2011).
9 See id. at 349-50.
10 See Spano v. Boeing Co., 633 F.3d 574, 586 (7th Cir. 2011).
11 See General Tel. Co. of the Sw. v. Falcon, 457 U.S. 147, 158 n.13 (1982).
12 See Levitt v. Southwest Airlines Co., 799 F.3d 701, 715 (7th Cir. 2015).
13 See Kolinek v. Walgreen Co., 311 F.R.D. 483, 491 (N.D. Ill. 2015).
14 See Mary Kay Kane et al., 7AA Wright & Miller’s Federal Practice and Procedure § 1773 (3d ed. Apr. 2017) (hereinafter Wright & Miller).
15 See Wal-Mart Stores, 564 U.S. at 360.
16 Messner v. Northshore Univ. HealthSystem, 669 F.3d 802, 815 (7th Cir. 2012).
17 Wright & Miller, supra note 14, § 1779.
18 See Bell v. PNC Bank N.A., 800 F.3d 360, 376 (7th Cir. 2015).
19 Comcast Corp. v. Behrend, 569 U.S. 27, 33-34 (2013).
20 In re Hydrogen Peroxide Antitrust Litig., 552 F.3d 305, 307 (3d Cir. 2008); see also American Honda Motor Co. v. Allen, 600 F.3d 813, 815 (7th Cir. 2010).
21 Clark v. Experian Information Inc., 233 F.R.D. 508, 512 (N.D. Ill. 2005), aff’d, 256 F. App’x 818 (7th Cir. 2007).
22 However, as mentioned in the conclusion, the discretionary nature of this appeal process is the subject of a tort reform bill currently pending in the Wisconsin Legislature.
23See Blair v. Equifax Check Servs. Inc., 181 F.3d 832, 834-35 (7th Cir. 1999).
24 See Mullane v. Central Hanover Bank & Tr. Co., 339 U.S. 306, 315 (1950).
25 See Pearson v. NBTY Inc., 772 F.3d 778, 787 (7th Cir. 2014) (noting that “objectors play an essential role in judicial review of proposed settlements of class actions”).
26 Synfuel Techs. Inc. v. DHL Express (USA) Inc., 463 F.3d 646, 652 (7th Cir. 2006) (quoting Reynolds v. Beneficial Nat’l Bank, 288 F.3d 277, 280 (7th Cir. 2002)).
27 See Kaufman v. American Express Travel Related Servs., 877 F.3d 276, 284 (7th Cir. 2017).
28See, e.g., In re Subway Footlong Sandwich Mktg. & Sales Prac. Litig., 869 F.3d 551, 556 (7th Cir. 2017); In re Walgreen Co. Stockholder Litig., 832 F.3d 718, 724 (7th Cir. 2016) (“No class action settlement that yields zero benefits for the class should be approved, and a class action that seeks only worthless benefits for the class should be dismissed out of hand.”).
29 See In re the matter of the proposed amendment to Wis. Stat. § 803.08, 2016 WI 50 (June 24, 2016).
30 See Wisconsin Judicial Council, Memorandum in Support of Petition No. 17-03 at 13-14 (Mar. 16, 2017).
31 Parties should also continue to consider the possibility of removing any class action case filed in Wisconsin state court to federal court under the provisions of the Class Action Fairness Act of 2005, 28 U.S.C. § 1332(d), 28 U.S.C. § 1453, and 28 U.S.C. §§ 1711–1715, which expanded federal subject-matter jurisdiction over class actions pursuant to detailed provisions regarding diversity and the amount in controversy.
32 2017 Assemb. Bill 773; 2017 S. Bill 645; see also Amber Otis, Wisconsin Legislative Council Amendment Memo 3 (Feb. 21, 2018).