By Gerald L. Maatman, Jr., Jennifer A. Riley, and Michael DeMarino
Duane Morris Takeaways – In Elson v. Black, No. 21-20349, 2023 WL 111317, at *1 (5th Cir. Jan. 5, 2023), the U.S. Court of Appeals for the Fifth Circuit affirmed the District Court’s decision to strike the class allegations in a nationwide class action alleging false and deceptive marketing practices. The decision in Elson is an important one for companies because it serves as reminder that, although sometimes discouraged, motions to strike class allegations are still a key weapon for defeating a class action lawsuit and cutting off class-wide discovery.
Background Of The Case
Plaintiffs were a group of women who alleged that Defendants falsely advertised the benefits and effectiveness of Defendants’ beauty product. In their complaint, Plaintiffs asserted claims under the Magnuson-Moss Warranty Act, 15 U.S.C. § 2301 and multiple state statutes on behalf of a nationwide class and seven sub-classes representing the seven states in which Plaintiffs resided. Id. at *1.
Defendants moved to strike Plaintiffs’ class allegations and, after a hearing and some limited discovery, the District Court agreed with that position and struck the class allegations. The District Court concluded that “[b]ecause the basis for the claims are misrepresentations, reliance on them will be a key factor with every potential plaintiff” and it was “not convinced that commonality is present as each potential plaintiff would have to show that their reliance was justified.” Id. at *2. The District Court also dismissed Plaintiffs’ individual claims for failure to state a claim. Plaintiffs then appealed the order striking the class allegations, as well as the dismissal of their individual claims. Id.
The Fifth Circuit’s Ruling
On appeal, Plaintiffs mainly argued that the District Court failed to conduct the “rigorous analysis” required by Rule 23 of the Federal Rules of Civil Procedure and, in turn, overlooked the fact that reliance is not an element of many of the state statutes at issue. Id. The Fifth Circuit disagreed. Applying an abuse of discretion standard, the Fifth Circuit concluded that Plaintiffs were unable to establish Rule 23(b)(3)’s requirement that “questions common to the class predominate over other questions.” Id.
Specifically, the Fifth Circuit noted that the burden was on Plaintiff to show that the differences in state law would not predominate over issues individual to each plaintiff in the litigation. The Fifth Circuit therefore concluded that, by failing to present a sufficient choice of law analysis, Plaintiffs failed to meet their burden of showing that common questions of law predominate and, in fact “variations in state law . . . swamp any common issues and defeat predominance.” Id. at *3.
Just as important, the Fifth Circuit also held that Plaintiffs could not establish predominance because “Plaintiffs’ allegations introduce numerous factual differences that in no way comprise a coherent class.” Id. In reaching that holding, the Fifth Circuit observed that the named plaintiffs did not complain “about the same alleged misrepresentations.” Id. As a result, the Fifth Circuit opined that “discerning the truth or falsity of each representation would require a group-by-group analysis, complicated by the fact that the members of each group are from different states.” Id.
In response, Plaintiffs proposed seven state-specific sub-classes under Rule 23(c)(5). However, the Fifth Circuit rejected that solution. ‘‘Sub-class,” the Fifth Circuit opined, “is not a magic word that remedies defects of predominance. The burden is on Plaintiffs to demonstrate to the district court how certain proposed sub-classes would alleviate existing obstacles to certification.” Id. at *4. Ultimately, the Fifth Circuit held that Plaintiffs failed make that showing.
At the end of the day, the Fifth Circuit ruled that “[d]espite the brevity of the . . . order, we see no reason to reverse the district court formalistically for its further elaboration on what is clear from the face of the pleadings” and concluded that it did not abuse its discretion in striking the class allegations.
Implications For Companies Facing Class Actions
The ruling in Elson underscores the importance that a motion to strike can play in defeating class action claims as a first strike response and is a reminder that sub-classes are not a cure-all for predominance problems. Although some jurisdictions have viewed such motions with a bit of skepticism, corporate defendants are well-advised to consider whether to bring such a motion at the outset of the case, as an order striking class allegations is functionally equivalent to an order denying class certification and thus could put an early end to what otherwise might be tedious and lengthy litigation.