Mandatory Class Types

Mandatory Class Types

Rule 23(b) is the second gate. A class action may be maintained if Rule 23(a) is satisfied and the case also fits one of the categories that subdivision (b) lists,¹ and the Supreme Court has read that language as a categorical rule: a plaintiff whose suit meets the specified criteria may pursue it as a class action.² Two of the categories, (b)(1) and (b)(2), produce mandatory classes.

Rule 23(b)(1)(A) reaches the case in which separate actions would risk inconsistent or varying adjudications and thereby establish incompatible standards of conduct for the party opposing the class.³ Rule 23(b)(1)(B) reaches the case in which individual adjudications would, as a practical matter, dispose of the interests of members who are not parties to them or would substantially impair their ability to protect those interests.⁴ Rule 23(b)(2) reaches the case in which the party opposing the class has acted or refused to act on grounds that apply generally to the class, so that final injunctive relief or corresponding declaratory relief is appropriate respecting the class as a whole.⁵ The damages class under Rule 23(b)(3) rests on different logic and appears in the next part of this chapter.

Wal-Mart Stores, Inc. v. Dukes identified what unites the first two categories. Classes under (b)(1) and (b)(2) “share the most traditional justifications for class treatment”: either individual adjudications would be impossible or unworkable, as in a (b)(1) class, or the relief sought must perforce affect the entire class at once, as in a (b)(2) class.⁶ The categories also correspond to problems familiar from the joinder rules: responding to competing demands on insufficient resources, handling a remedy that cannot be divided, and aggregating small claims that would not merit prosecution on their own.⁷ The first two problems correspond to the mandatory classes, and the third corresponds to the damages class.

Because these classes exist for disputes that cannot sensibly be resolved member by member, they are mandatory. The Rule gives (b)(1) and (b)(2) class members no opportunity to opt out and does not even oblige the court to give them notice.⁸ The judgment binds every member, whether or not the member chooses to be part of the action.⁹ The court keeps discretion to direct appropriate notice, and Rule 23(c)(3)(A) requires the judgment to describe the class members.¹⁰ A member's objection to the suit is no obstacle. In any conceivable case some members will want to assert their rights and others will not, and stockholders' derivative suits and taxpayer challenges to proposed public expenditures are routinely treated as appropriate class suits.¹¹

Rule 23(b)(3) supplies the contrast. The Court called it an “adventuresome innovation” of the 1966 amendments, and it carries predominance, superiority, mandatory notice, and the right to opt out. Where a class seeks an indivisible injunction that benefits all its members at once, predominance and superiority are self-evident, and the Rule demands no case-specific inquiry into either.¹² Mandatory status also raises the stakes of representation. Members who cannot leave have their rights decided in absentia, and the quality of the representation they receive is what justifies that departure from each person's usual right to control litigation that threatens liability or the loss of a claim.¹³

The 1966 drafters built these categories from function. Dissatisfied with the arbitrary and conceptualistic tripartite division that preceded it, the Advisory Committee rewrote Rule 23 to ask whether a class action is proper in functional terms.¹⁴ In practice, most class actions proceed under (b)(3), (b)(2) classes are also frequent, and the two (b)(1) clauses appear much less often.¹⁵ The discussion below takes the mandatory categories in turn, beginning with clause (A).

Inconsistent Adjudications

Rule 23(b)(1)(A) permits a class action when separate suits would create a risk of “inconsistent or varying adjudications with respect to individual class members that would establish incompatible standards of conduct for the party opposing the class.”¹⁷ The clause protects the defendant, or whoever else opposes the class, from being pulled in two directions at once. In the Advisory Committee's words, the class device “can be used effectively to obviate the actual or virtual dilemma which would thus confront the party opposing the class.”¹⁸ Clause (B) takes the opposite vantage point, that of the absent members, and so stands as the mirror image of this clause.¹⁹

The dilemma comes from the nature of a command. A party can obey two orders only if some course of conduct satisfies both. When one court tells the party to act one way and another tells it to act differently, compliance with the first order can mean violation of the second. A single class judgment settles the question once, and the party then faces one standard.

Amchem Products, Inc. v. Windsor mapped the clause's territory. It takes in cases in which the party is obliged by law to treat class members alike, such as a utility acting toward its customers or a government imposing a tax, and cases in which the party must treat everyone alike as a matter of practical necessity, such as a riparian owner using water as against downriver owners.²⁰ Wal-Mart Stores, Inc. v. Dukes described the clause in the same terms.²¹ A taxpayer suit that challenges a proposed public expenditure fits the pattern, and such suits are familiar class suits.²²

Money claims rarely fit the clause. Courts have held (b)(1)(A) certification improper where investors suing an allegedly dishonest stockbroker sought only monetary damages.²³ The holding follows from the dilemma the clause targets: a verdict for one investor and a verdict against another leave the broker able to pay the first and owe nothing to the second, so no command in either judgment conflicts with the other. A request for a declaration of liability does not change the analysis when the real aim is damages, as the Ninth Circuit concluded in McDonnell Douglas Corp. v. U.S. District Court, an airplane-crash case in which the plaintiffs sought damages and a declaration of liability. The Supreme Court has since questioned whether certification of a mandatory class is ever appropriate where the plaintiffs seek monetary damages, a doubt that weighs against any damages class under this clause.²⁴

The risk must also be real. The proponent must establish a realistic probability that the opposing party will face separate actions exposing it to inconsistent adjudications, and a risk that is hypothetical or speculative does not qualify.²⁵ Small claims illustrate the limit. In Eisen v. Carlisle & Jacquelin, the court of appeals held (b)(1)(A) inapplicable because the prospective class consisted entirely of small claimants, none of whom could afford to litigate an individual claim, so there was little chance of inconsistent or varying adjudications.²⁶ The Supreme Court described the same economics: the named plaintiff's stake was only $70, no competent attorney would undertake the complex antitrust action to recover so little, and the suit would proceed as a class action or not at all.²⁷ Other courts have generalized the point. When many claimants hold claims too small to justify any suit but a class action, the separate-actions requirement fails because, apart from the class suit, the defendant faces no likelihood of separate actions.²⁸

Like every (b)(1) class, a (b)(1)(A) class is mandatory, and its judgment binds all members.²⁹ An opt-out right would reopen the dilemma, because a member who stepped outside could win an order that conflicts with the class judgment.

Limited Fund and Impairment

Rule 23(b)(1)(B) allows a class action when individual adjudications would, “as a practical matter,” be dispositive of the interests of members who are not parties to them, or would substantially impair or impede their ability to protect their interests.³¹ The practical-effect wording matters, because a judgment in one member's suit does not technically bind the others, yet it can decide their fate in fact. The Supreme Court has described the clause as speaking “from a vantage point within the class,” where the Advisory Committee “spied out situations where lawsuits conducted with individual members of the class would have the practical if not technical effect of concluding the interests of the other members as well.”³² The clause therefore protects the putative class members and mirrors clause (A).³³ Two settings fall within it: a fund too small to pay everyone, and shared rights that one decree would fix for all.

Limited fund cases are the core of the clause. Amchem described them as cases “in which numerous persons make claims against a fund insufficient to satisfy all claims.”³⁴ A fund that cannot pay everyone turns the claimants into competitors, because whatever one collects comes out of the pot the others are chasing. The class resolves that competition the way interpleader does. Interpleader leaves the collective resolution to a stakeholder, the party with the least interest in an equitable division of scarce assets, while a limited fund class puts the claimants themselves in charge of a single distribution.³⁵ The insurer in State Farm Fire & Casualty Co. v. Tashire, for example, could just as easily have paid its policy limits into court as a stakeholder.³⁶

The older equity cases show what makes a fund limited. In those cases, of which Dickinson v. Burnham is an example, the idea driving the suit was insufficiency, which alone justified the limit on “an early feast to avoid a later famine,” and the equity of the limitation was its necessity.³⁷ The most distinctive feature was that the aggregated liquidated claims and the fund available to pay them, each set definitely at its maximum, demonstrated that the fund could not pay every claim.³⁸

A limited fund class must reach every claimant on the fund, and so it is mandatory. In limited fund class actions, opt-outs may well defeat the entire purpose of certification,³⁹ because a claimant who left to sue separately would draw on the same pot. Clause (B) imposes no predominance requirement, which is one reason the showing of a genuine limited fund deserves close scrutiny. Amchem noted that its own case involved no limited fund capable of supporting class treatment under (b)(1)(B).⁴⁰

Ortiz v. Fibreboard Corp. tested how far a court may stretch the clause. The district court there certified a settlement class under (b)(1)(B), citing the risk that Fibreboard might lose or fare poorly on appeal of its insurance coverage case or lose the assignment-settlement dispute, which would leave it without funds to pay all claims. Individual adjudications, the district court reasoned, would have destroyed the opportunity to compromise the coverage dispute by creating the settlement fund and would have exposed class members to the very risks the settlement addresses. It also ruled that although the subdivision is not restricted to limited funds, this case would qualify if it were.⁴¹

The Supreme Court's analysis shows why that reasoning cannot support a mandatory class. A limited fund rationale for mandatory class treatment of a settlement-only action, the Court said, requires assurance that claimants are receiving the maximum fund, not a potentially significant fraction less, and conflict-free counsel might have negotiated a different figure. If an allowance for exigency could lower the level of Rule 23 scrutiny, the economic temptations facing class counsel would supply enough exigencies to unsettle the line between mandatory (b)(1)(B) classes and opt-out (b)(3) classes.⁴²

The settlement's proponents also pressed the benefits of a grand-scale compensation scheme. The Court had given that argument no weight in Amchem, observing that such benefits are a matter for legislative consideration and that the cohesiveness inquiry must focus on questions that preexist any settlement, and it saw the proponents as trying once again to rewrite Rule 23. Rule 23 requires the protections of subdivisions (a) and (b) at the precertification stage, quite independently of the postcertification fairness review under subdivision (e), and a fairness hearing can no more swallow those protections in a (b)(1)(B) action than in a (b)(3) action.⁴³

The impairment prong reaches beyond limited funds. Classic examples are suits to reorganize fraternal-benefit societies, shareholder actions to declare a dividend or otherwise fix the shareholders' rights, and actions charging an indenture trustee or other fiduciary with a breach of trust that affects a large class of beneficiaries. In each, the shared character of the rights claimed or the relief awarded means that any individual adjudication disposes of, or substantially affects, the interests of absent members.⁴⁴ Problems of the same kind can arise without a fund. A negative or mandatory injunction secured by one member of a numerous class may disable the opposing party from performing claimed duties toward the other members or materially affect its ability to do so.⁴⁵

The retailer example marks a limit that courts apply: the prospect that one ruling will serve as precedent in later suits does not by itself invoke clause (B). Every class shares common questions under Rule 23(a)(2), so any member's suit could influence the others. If that influence sufficed, every case that satisfied commonality would satisfy (b)(1)(B), and the other subdivisions would become superfluous, a result the drafters cannot have contemplated.⁴⁶

Injunctive and Declaratory Classes

Rule 23(b)(2) allows a class action when “the party opposing the class has acted or refused to act on grounds that apply generally to the class, so that final injunctive relief or corresponding declaratory relief is appropriate respecting the class as a whole.”⁴⁸ The first requirement concerns the defendant's conduct. The grounds must apply generally to the class, but the conduct need not have injured every member: action is directed to the class even if it has taken effect, or is threatened, only as to one or a few members, provided it rests on grounds with general application.⁴⁹ The second requirement concerns the remedy. The court need not examine the viability of each member's claim; it asks only whether class members seek uniform relief from a practice applicable to all of them.⁵⁰

The remedy requirement carries the weight of the category. Wal-Mart Stores, Inc. v. Dukes described the key to a (b)(2) class as “the indivisible nature of the injunctive or declaratory remedy warranted—the notion that the conduct is such that it can be enjoined or declared unlawful only as to all of the class members or as to none of them.”⁵¹ Rule 23(b)(2) therefore applies only when a single injunction or declaratory judgment would provide relief to each member of the class. It does not authorize certification when each member would be entitled to a different injunction or declaration, or to an individualized award of money.⁵²

A school desegregation suit in the mold of Brown v. Board of Education shows the idea. Either a district's segregated schools are unlawful or they are not, and no order can run in favor of some schoolchildren and not others. That pattern is the Rule's origin. The Rule reflects decisions challenging racial segregation, which a single classwide order remedied, and none of the cases the Advisory Committee cited as antecedents combined a claim for individualized relief with a classwide injunction.⁵³ Civil rights suits are the paradigm without being the whole category. The Advisory Committee's notes also refer to patent suits and suits alleging unlawful pricing practices, and additional examples include due process, First Amendment, and other constitutional challenges, suits to enforce statutory entitlement programs, and mass tort suits seeking injunctive relief.⁵⁴

A standard illustration involves about 700 applicants whose applications for a housing project were rejected without a statement of reasons. The class seeks only a declaration that the failure to give reasons violates due process and an injunction against further violations, and the defendant's practice applies to every member, so the case fits (b)(2).⁵⁵ Floyd v. City of New York shows the category at work in a contested case. The plaintiffs challenged the New York Police Department's stop-and-frisk practices, and the court found overwhelming evidence of a centralized program that had led to thousands of unlawful stops. Because the vast majority of people unlawfully stopped will never sue, the court concluded that “[i]t is precisely for cases such as this that Rule 23(b)(2) was designed.”⁵⁶ Unlike the Wal-Mart plaintiffs, the Floyd plaintiffs asked for no individualized backpay or damages, and not even an individualized injunction against stopping any one of them. They sought injunctive relief against department-wide policies and practices, for which common answers would be crucial.⁵⁷ The absence of damages also relaxed the definition of the class. The court thought it illogical to require precise ascertainability in a suit that seeks no class damages, and it found the general demarcation of people unlawfully stopped or likely to be stopped sufficient.⁵⁸

Because injunctive and declaratory relief look forward, members must also have a continuing stake in the order. In Berni v. Barilla S.p.A., the Second Circuit overturned a class settlement, holding that the members had “at most, alleged a past harm” and were “not likely to encounter future harm of the kind that makes injunctive relief appropriate,” because most would not buy the product again and any who did would buy with the information they claimed to have lacked. Damages under (b)(3), not injunctive relief, were the proper remedy.⁵⁹ Dukes made a related point about former employees. Those who left their jobs have no more need for prospective relief than anyone else who left, so about half the class the Ninth Circuit approved had no claim for injunctive or declaratory relief at all.⁶⁰ One court went further and invoked a cohesiveness requirement, reasoning that because (b)(2) classes do not permit opt-outs they may require more cohesiveness than a (b)(3) class, even though (b)(2) does not require that common issues predominate.⁶¹

Because the remedy cannot be divided, the Rule withholds from (b)(2) members the protections it gives (b)(3) members. Predominance, superiority, mandatory notice, and the right to opt out are missing from (b)(2) “not because the Rule considers them unnecessary, but because it considers them unnecessary to a (b)(2) class.”⁶² An injunction against a uniform policy cannot exempt a member who steps outside the class, so an opt-out right would have nothing to operate on. Notice exists mainly to let members decide whether to leave, and it matters little when leaving is impossible. Rule 23(c)(2)(A) accordingly provides only that the court “may direct appropriate notice” in a (b)(1) or (b)(2) class, and that notice is discretionary and need not be individual or at the plaintiffs' expense.⁶³ The mandatory notice and opt-out rights belong to the (b)(3) class.⁶⁴

That structure explains the holding for which Dukes is best known here: individualized monetary claims do not belong in (b)(2). The question was not new. The Court had earlier voiced serious doubt about monetary claims in (b)(2) classes in the per curiam decision in Ticor Title Insurance Co. v. Brown. In Dukes, the Court declined to decide whether (b)(2) permits certification of any monetary claims, because claims for individualized relief such as the backpay at issue fail the Rule at a minimum.⁶⁵ Those claims belong in (b)(3). For an indivisible injunction, predominance and superiority are self-evident, but for each member's individualized claim for money they are not, which is why (b)(3) requires findings on both.⁶⁶ Due process supplies a second reason. In a class action predominantly for money damages, the absence of notice and opt-out violates due process under Phillips Petroleum Co. v. Shutts. The Court has never held the same where the monetary claims do not predominate, but the serious possibility that it may be so counsels against reading (b)(2) to include the monetary claims.⁶⁷

Nor does it help to pair monetary claims with a predominating request for an injunction. The Rule itself, not the Advisory Committee's description of it, governs, and a negative inference from that description cannot establish a disposition that has no basis in the text and does “obvious violence” to the Rule's structure. The mere predominance of a proper (b)(2) injunctive claim neither establishes the superiority of class adjudication over individual adjudication nor cures the notice and opt-out problems.⁶⁸ It also does not matter that backpay is equitable. The Rule speaks of injunctions and declaratory judgments, not of equitable remedies generally, and under Title VII backpay is neither.⁶⁹ Wal-Mart was entitled to individualized determinations of each employee's eligibility for backpay. Once a plaintiff establishes a pattern or practice of discrimination, a court must usually conduct additional proceedings to determine the scope of individual relief, and the employer may then raise individual affirmative defenses. The Ninth Circuit erred in replacing those proceedings with Trial by Formula, because Rule 23 cannot be interpreted to “abridge, enlarge or modify any substantive right.”⁷⁰

The holding is narrower than students often assume. Dukes did not decide whether incidental monetary relief may ever be certified under (b)(2). The Fifth Circuit in Allison v. Citgo Petroleum Corp. had defined incidental damages as damages that flow directly from liability to the class as a whole on the claims forming the basis of the injunctive or declaratory relief, requiring no additional hearings and no complex individualized determinations. The Court left open whether such relief is consistent with Rule 23(b)(2) and due process, because the respondents did not argue that they could satisfy that standard and in any event could not.⁷¹ A sound answer therefore says that individualized monetary claims such as backpay cannot be certified under (b)(2) and that the status of truly incidental relief remains open. It does not claim that (b)(2) forbids every monetary request, and it does not claim that equitable relief is automatically eligible.

The separate opinion that disagreed with the Court's commonality ruling agreed on this point. It said the class should not have been certified under (b)(2) because the monetary relief sought was not merely incidental, and it would have left certification under (b)(3) open on a showing of predominance and superiority.⁷² The practical effect is to relegate most discrimination suits seeking backpay to (b)(3), with its added costs and opt-out rights.⁷³ Those costs explain why class counsel try to fit a case within (b)(1) or (b)(2) in the first place, since predominance, superiority, individual notice, and exclusion are burdensome. Dukes closed that route for actions that include damages claims that are not merely incidental.⁷⁴