Building Products Class Actions
Building products class actions are evolving, but—then again—so are all the rest of class actions. This paper aims to identify how global class-action trends are affecting building-products classes, and then will also pick out a few trends affecting the industry in particular, with a particular focus on where we see such classes heading in the future.
Before the death of the late Justice Scalia, the Supreme Court’s recent decisions reflected a five-member coalition skeptical of the class action device as a miracle drug. To chart this trend, it helps to have a brief refresher on class actions. A class action is a procedural device governed by Federal Rule of Civil Procedure 23. Class actions are a form of aggregate litigation where representatives of a class litigate the claims of all of the similarly-situated parties. To certify a class, the representatives have to meet all the requirements of Rule 23(a) and at least one of the requirements of Rule 23(b). There is also a hidden element—often called “ascertainability”—that is implied by all of the other elements.
The Rule 23(a) factors are numerosity, commonality, typicality, and adequacy of representation. The numerosity element looks to whether the dispute involves a large enough number of prospective class members that joining all of them into one action is not practical. Commonality asks whether common questions of law or fact between the class members exist. Typicality looks at whether the class representative’s claims are typical of the class’s claims— e.g., whether any unique defenses may apply or whether any unique and distinguishing facts relating to liability may exist. The adequacy element has two components. First, the class representative must be adequate to undertake the work of representing the absent class members. Second, the representative’s lawyers must be capable of handling a high-stakes case.
While there are four possible ways to satisfy the Rule 23(b) factors, the vast majority of class actions involve Rule 23(b)(3). This type of class action requires the class representative to show that common issues among the class members predominate over individualized issues between the class members. The class representative also has to show that a class action is a superior method to adjudicate the dispute as compared to other procedural devices. Some plaintiffs will seek class certification under Rule 23(b)(2), which allows class certification for classes seeking injunctive relief. It may be easier to obtain Rule 23(b)(2) certification, but—as with many things in the class-action world—a major practical impediment is that class counsel have a harder time obtaining and justifying a large damage award and accompanying large fee.
Plaintiff’s near universal reliance on Rule 23(b)(3) limits the kinds of claims they can bring. While an individual building-product plaintiff may have a high opinion of his fraud claim (and the punitive damages that come along with it), that claim is very difficult to certify on a class-wide basis. Fraud requires each plaintiff to show some species of reliance—whether “reasonable” or “justifiable” depends on your state—and reliance is almost always an individualized question of fact that would require individual trials for each plaintiff in a class action. As a result, courts routinely refuse to certify fraud claims as class actions. See, e.g., Simon v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 482 F.2d 880, 882 (5th Cir. 1973) (“If there is any material variation in the representations made or in the degrees of reliance thereupon, a fraud case may be unsuited for treatment as a class action.
Lastly, there is the embedded element of ascertainability. While this element does not appear in the text of Rule 23, courts have noted that the rule assumes a class that can be defined according to ascertainable, objective criteria. For building products cases, this element may play an important role, as products travel through a complex and often multi-layered distribution network before installation. As a result, a manufacturer often may not have any way to identify the ultimate consumers of its products, which makes identifying them difficult. Note, however, that the relatively recent appearance of the ascertainability element as a distinct portion of the Rule 23 inquiry means that courts are still wrestling with its boundaries and importance. The Eleventh Circuit has stated the element as an outright requirement––see Little v. T-Mobile USA, Inc., 691 F.3d 1302, 1304 (11th Cir. 2012)  ––while the Third Circuit has gone from having one of the strongest ascertainability requirements––see Carrera v. Bayer Corp., 727 F.3d 300, 306–07 (3d Cir. 2013)––to backing off of it considerably—see Byrd v. Aaron’s, Inc., 784 F.3d 154 (3d Cir. 2015)––all in the span of just a couple years. In the building products context, the early results have not refused certification on ascertainability grounds. See, e.g., Saltzman v. Pella Corp., 257 F.R.D. 471, 476–77 (N.D. Ill. 2009) (certifying class over ascertainability challenge)
It has been conventional wisdom that the Rule 23(a) factors are easier to establish than the Rule 23(b) factors. While that rule still holds, the Supreme Court raised the Rule 23(a) bar in Wal-Mart Stores, Inc v. Dukes, 131 S. Ct. 2541 (2011). The majority in that case required the class representative to do more than just propound common factual and legal questions to satisfy the commonality element: the representative has to show that the common questions are susceptible to common answers or common proof. 131 S. Ct. at 2551-52. This case requires courts to look past the pleadings to determine whether commonality exists at the factual level. Id.
Another oft-cited rule that the Supreme Court has backed away from is that “individualized damages issues will not preclude class certification under Rule 23(b)(3).” In Comcast Corp v. Behrend, 133 S. Ct. 1426 (2014), the Supreme Court brought that rule back to reality. The plaintiff-side expert in that case had four theories of liability, but the plaintiffs had only relied on one of them. The Court found the expert’s overly-broad opinions to foreclose class certification because his model could not quantify the effect of the plaintiffs’ theory on damages.
These two cases—both of which were 5-4 votes (at least in part)—have strengthened defendants’ arguments against class certification in every context, not just building products. They are not silver bullets (see Herrera v. JFK Med. Center Ltd. P’ship, 2016 WL 1637826 11th Cir. Apr. 26, 2016) (applying pre-Comcast rule regarding predominance and damages)), but these cases make class certification more difficult. For example, a recent Fourth Circuit opinion affirmed a district court’s decision to decertify a building products class, noting the individualized questions inherent in the plaintiffs’ theory and citing Dukes as the controlling standard. Hart v. Louisiana-Pacific Corp., 2016 WL 908878 at *10 (4th Cir. Mar. 16, 2016).
So what is the current state of play for building-products plaintiffs? Answer: Warranty claims—both express and implied. These claims give plaintiffs their best hope for class certification. The Seventh Circuit’s 2014 opinion in In re IKO Roofing Shingle Products Liability Litig., 757 F. 3d 599 (7th Cir. 2014) provides plaintiffs their roadmap. That case involved warranty claims against a manufacturer of roofing tiles: specifically, that certain roofing tiles did not meet substantive standards and testing standards. The defendant showed that tiles that did not meet those standards might still last for years, and that tiles that met the standards might still fail for reasons unrelated to any manufacturing defect—such as severe weathering or improper installation. The Seventh Circuit brushed these concerns aside. It read Dukes and Comcast narrowly and focused on plaintiffs’ two theories of liability:
The first is that every purchaser of a tile is injured (and in the same amount per tile) by delivery of a tile that does not meet the quality standard represented by the manufacturer. Damages reflect the difference in market price between a tile as represented and a tile that does not satisfy the D225 standard. See Uniform Commercial Code § 2-714(2). This remedy could be applied to every member of the class.
The second theory is that purchasers whose tiles actually failed are entitled to recover damages, if nonconformity to the D225 standard caused the failure.
IKO , 757 F.3d at 603. According to the Seventh Circuit, the first theory presented no problem, and the second theory could be handled through the use of so-called “issue classes” on four issues:
It is not hard to frame liability issues suited to class-wide resolution. (1) Did IKO’s tiles generally conform to the substantive aspects of the D225 specification? (“Generally” is an important qualifier. In any mass production operation, defects or deviations are inevitable.) (2) Did IKO test the tiles according to the D228 procedure? (3) If IKO failed to use the D228 procedure, did it nonetheless test its output in a way that would verify compliance? (If yes, this implies that a negative answer to Question 2 would not play a causal role in buyers’ losses.) (4) Did any failure to satisfy the D225 standard cause the sorts of problems plaintiffs reported, or would roughly the same failure rate have been experienced with complying tiles? (The answer could be “no causation” because the difference between D225-compliant tiles and other organic tiles is sufficiently small that it would not lead to a materially different failure rate.)
A brief aside: This use of issue classes is particularly problematic for defendants because it seems to give to back to plaintiffs what Dukes gave to defendants: namely, that a plaintiff can artfully define a smaller set of issues that will satisfy the Rule 23(a) and (b)(3) factors. Watch for developments here: the Seventh and Third Circuits are on board with these kinds of actions. See Id.; Gates v. Rohm & Haas Co., 655 F.3d 255 (3d Cir. 2011). The Fifth Circuit all but forbids them. See Castano v. Am. Tobacco Co., 84 F.3d 734 (5th Cir. 1996). The Advisory Committee to Rule 23 is leaning towards the permissive view of issue classes. This area bears carefully watching: a building-products plaintiff would love to seek a class-wide determination on the issue of product defect (to pick one issue) and use that as leverage to force a class-wide settlement that would never have been possible if the plaintiff had to seek certification on all issues in the case.
Back to warranty. Many products’ warranties include limitations on liability, and many suits involving these products seek to have the warranty declared unconscionable. See In re AZEK Building Prods., Inc. Marketing & Sales Practices Litig., 82 F. Supp. 3d 608, 616–17 (D.N.J. 2015) (discussing individualized nature of unconscionability analysis under New Jersey law); Harbison v. Louisiana-Pacific Corp., 602 F. App’x 884, 886–88 (3d Cir. 2015) (analyzing unconscionability under Pennsylvania law and dismissing warranty claim); Brown v. Louisiana-Pacific Corp., 2016 WL 1425824 at *12–14 (8th Cir. April 12, 2016) (same, applying Iowa law). Plaintiffs are having trouble getting traction with substantive issues of law relating to unconscionability; I would predict still greater problems certifying classes that depend on class-wide determinations of unconscionability. The recent Hart case is a prime example: the Fourth Circuit noted that, once it had disposed of the plaintiffs’ unconscionability arguments, the bases on which the case could be certified were “call[ed] into serious doubt.” Hart, 2016 WL 908878 at *10.
Another factor at play is the importance of single-state actions. Variation in state law can make common-law and statutory claims unsuitable for class treatment. See Gonzales v. Corning, 2016 WL 1252988 at *43 (W.D. Pa. Mar. 31, 2016) (“Plaintiffs did not propose any method by which the court could determine, on a classwide basis, when class members’ claims arose under the laws of all fifty states, for the variety of substantive legal claims being asserted by the named plaintiffs, and what circumstances surround each class members’ ownership of [the product].”); Haley v. Kolbe & Kilbe Millwork Co., Inc., 2015 WL 9255571 at *10–11 (W.D. Wisc. Dec. 18, 2015) (cataloguing choice-of-law problems for implied warranty claims and denying certification). Trade practices acts often demonstrate a high degree of variability between states—especially on the issue of reliance, which can be practically determinative of whether class certification is possible. Privity in the warranty context is another notable issue where state-law variables come into play. See Voelker v. Porsche Cars North America, Inc., 353 F.3d 516, 525 (7th Cir. 2003); Haley , 2015 WL 9255571 at *14 (cataloguing different states’ requirements).
Building products continue to attract litigation in general and class-action litigation in particular. As a result, these cases will continue to reflect the same broader trends in class action jurisprudence. In particular, expect to see the increasing use of warranty claims in which damage is measured as a function of purchase price instead of in terms of individualized damage resulting from a defect. That theory, which is being applied broadly in the products context, looks to prove that the plaintiff class a whole would (or should) have paid less for the product if its defects had been known or revealed. This theory has gained more attention in the wake of Comcast as plaintiffs look to avoid the difficulties that case poses for more traditional certification theories. Another area to be watched (as mentioned above) is certification of issue classes. If courts or the Rules Advisory Committee allows plaintiffs to plead around certification problems, class action exposure will rise. Lastly, keep an eye on the state attorneys general. Aggressive AGs have brought consumer protection claims on an aggregate basis seeking damages for every plaintiff injured in the state. See, e.g., Mississippi ex rel. Hood v. AU Optronics Corp., 134 S. Ct. 736 (2014). But, unlike true class or mass actions, the state is the sole plaintiff in these cases. The state prosecutes the action, but individuals may be the real parties in interest or recipients of any recovery. These cases do not provide defendants with the same procedural protections as class actions, but yet impose all the risk and liability. While these cases have not yet appeared in the buildings products arena, it is not hard to imagine a confluence of events that could bring an active attorney general into the arena.
1 See also EQT Production Co. v. Adair , 764 F.3d 347, 359 (4th Cir. 2014) (reversing class certification over ascertain ability issues, among others).
Republished with permission. This article first appeared in ALFA International - Construction Practice Group Seminar on July 27, 2016.