Encouraged  by the U.S. Supreme Court’s recent watershed decision in Wal-Mart v. Dukes, the latest defense trend in class action litigation is to lodge an early challenge in the form of a motion to strike all class claims at the pleading stage.

The trend—which aims to avoid the exorbitant costs of class discovery when the proposed class suffers from obvious flaws—is sure to be bolstered now that the U.S. Court of Appeals for the Sixth Circuit has affirmed an Ohio federal judge’s decision to strike class claims from a consumer fraud suit.

The November 10 decision in Pilgrim v. Universal Health Card marks the first time a federal appeals court has addressed the propriety of such challenges since the Supreme Court’s decision in Dukes, which admonished lower courts to examine more carefully the plaintiff's satisfaction of the commonality requirement of Rule 23(a)(2).

In Pilgrim, the plaintiffs filed a class action complaint in the Northern District of Ohio against Universal Health Card and Coverdell & Company, alleging that a healthcare discount program was falsely advertised as “free” even though it included a non-refundable registration fee and a monthly membership fee.

Citing violations of Ohio’s Consumer Protection Sales Practices Act and unjust enrichment on behalf of a nationwide class, the suit alleged that the program was “worthless” because the advertised healthcare providers did not offer the featured discounts.

Universal moved to strike the class allegations, arguing that a nationwide class would be unworkable because the court would be forced to analyze each putative class member’s claims under the consumer protection law of his or her home state. U.S. District Judge John R. Adams agreed and entered an order striking the class allegations.

Now the Sixth Circuit has affirmed, concluding that the proposed nationwide class could never be certified for three reasons: (1) the consumer protection laws of the state where each putative class member resided or entered into the program would govern that individual’s claims, and the application of “more than a few” states’ laws rendered the class unmanageable; (2) the program operated differently in different states, which would require individualized showings of wrongdoing and harm in different parts of the country; and (3) other courts had similarly found that a national class action would be unmanageable if the court had to apply differing states’ consumer fraud laws.

Turning to the early timing of the defense motion, the appellate court rejected the plaintiffs’ argument that ruling on the propriety of class certification at the pleading stage without first allowing class discovery was “reversibly premature.”

Instead, the Sixth Circuit fully endorsed the defense tactic, saying “a defendant may freely move for resolution of the class-certification question whenever it wishes” and that the district court may properly rule on such a motion provided it engages in the requisite “rigorous analysis.”

Such an early resolution is appropriate, the appeals panel found, in cases where the class certification issues are “a largely legal determination,” and the trial judge determines that “no proffered or potential factual development offers any hope of altering that conclusion.”

Ballard Spahr’s Consumer Financial Services Group produces the CFPB Monitor, a blog that focuses exclusively on important developments at the Consumer Financial Protection Bureau. To subscribe, use the links provided to the right.

The Consumer Financial Services Group is nationally recognized for its skill in litigation defense, its guidance in structuring and documenting new consumer financial services products, and its experience with the full range of federal and state consumer credit laws throughout the country. For further information, please contact Practice Leader Alan S. Kaplinsky, 215.864.8544 or kaplinsky@ballardspahr.com; Practice Leader Jeremy T. Rosenblum, 215.864.8505 or rosenblum@ballardspahr.com; Burt Rublin, 215.864.8116 or rublin@ballardspahr.com; Martin C. Bryce, Jr., 215.864.8238 or bryce@ballardspahr.com; or Daniel J. T. McKenna, 215.864.8321 or mckennad@ballardspahr.com.


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