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Manufacturer’s Corner: Supreme Court Considering Case With Important Implications for Manufacturers

We take a break from our series on incorporating software into your products to talk about a case the Supreme Court is considering that may prove significant to manufacturers.  This column is not typically the place to go for predictions on what the Supreme Court may do, but I want to bring this case to your attention, and circumstances are forcing me to do it now rather than later.[1]

Oddly enough, the case arises from the Deep Water Horizon oil spill.  “I thought BP settled that case,” you might reasonably say, and you would be right.   The thing is, the settlement called for certain distribution procedures that, according to BP, the trial court interpreted as eliminating any requirement that those claiming a share of the settlement proceeds show they were actually damaged by the oil spill.  BP thinks that, you know, probably all that money it’s paying should go to the people who were actually harmed by the oil spill,[2] so after a stop at the Fifth Circuit Court of Appeals, it petitioned the Supreme Court to review the trial court’s decision.  BP’s petition was considered during the Supreme Court’s conference on Friday, and the Court is expected to grant or deny review of the case on Monday.  [Updated 11-17-14: That did not happen!  The case was relisted for the Court’s 11-25-14 conference. – RCH]

The precise question posed to the Court is whether federal district courts can, consistent with Article III of the U.S. Constitution and Federal Rule of Civil Procedure 23, certify classes that include numerous members who have not suffered any injury caused by the defendant.  As you would expect, the usual people are saying the usual things.  Here: enjoy an op-ed from The Hill and one from the Wall Street Journal.

By way of background, it is well-settled that Article III of the Constitution only permits federal lawsuits by those who have “standing” to bring them.[3]  One aspect of standing is that the plaintiff must actually have suffered some injury caused by the defendant.  The Federal Rules of Civil Procedure – including Rule 23, which permits class actions – were implemented pursuant to the Rules Enabling Act which, by its terms, does not allow any rules implemented under its authority to enlarge or otherwise alter substantive rights, so the rules can’t grant standing to those who otherwise wouldn’t have it.  Hence the question presented to the Court: does a district court violate Article III and Rule 23 by certifying a plaintiff class that includes a lot of people who haven’t suffered any injury?[4]

This is an important question for manufacturers.  Consider two types of cases generally brought as class actions against manufacturers: breach of warranty and products liability.  In each type of case, it is rarely true that each purchaser of the product at issue will have suffered damages.  Maybe many purchasers never suffered the defect complained of in the breach of warranty suit, or they did but the company provided the remedies called for in its express warranty.  Maybe many purchasers never suffered personal injury from the defect complained of in the products liability suit.  A favorable ruling in the BP case may essentially spell the end of class actions in these types of cases except in rare instances where the plaintiff class can show – at the certification stage – that the defect has or will inevitably injure each member of the putative plaintiff class.[5]

Now, this is not necessarily the case as a practical matter.  As the good people at Whirlpool and Sears may tell you, some Courts of Appeals have been driven to find injury to putative class members even where there isn’t one, which has allowed for certification of breach of warranty classes even when it’s established that a large number of purchasers have never experienced the defect complained of.  That’s a troubling issue for another day, however – and one largely governed by state law concepts of when one is “injured” – and I still think we could see a steep drop in the number of class actions certified against manufacturers if the Supreme Court agrees with BP.  Thus, this is a case to keep a close eye on, and I’ll be sure to keep you posted on the outcome.


 

[1] I have a court appearance in Saint Louis County tomorrow morning.  Also scheduled for tomorrow morning: snowstorms and Ferguson protestors shutting down the area.  You can see why I’m not optimistic about getting to my desktop very early.

[2] Maybe?  I’ve never actually read the settlement agreement, so perhaps BP denies anyone was harmed by the spill or that the spill was BP’s fault.  A lot of settlements provide that they aren’t admissions of wrongdoing.  You can ask the big banks about that.

[3] Incidentally, “standing” cannot be conferred by agreement of the parties or by waiver.  So when you read that BP should just be bound by the terms of its settlement, you can rest assured that the person writing what you’re reading either doesn’t understand basic tenets of law, or has a hidden agenda.  I think the worst you could say about BP’s position is that it’s being unsporting by not following the agreement as written, and that’s pretty much the position taken in that Hill op-ed I linked above.

[4] By way of further background, the plaintiff class in the BP case had to be certified before the settlement could be approved.  That’s why this issue is lingering even though the parties settled the case.

 

[5] Or at least most of them.  The question presented is phrased the way it is to emphasize the split in authority among the Circuit Courts of Appeals.  The Seventh Circuit has suggested it may be permissible to certify a class that includes small numbers of plaintiffs who have not been injured.  That seems untenable to me, because Article III isn’t limited to the non-class context.  However, I wonder whether making this an all-or-nothing proposition – that is, requiring the Supreme Court to determine whether a class that includes a single uninjured person cannot be certified – may make BP’s position unpalatable to a majority of the Court.  I think BP’s lawyers made a good decision by phrasing the question the way they did, even if I might like to see the Court go further and hold simply that a class can’t be certified if it includes any uninjured plaintiff.  By the way, this seems like a good place to remind you that the opinions expressed in this column are mine and mine alone.

Separately, plaintiffs’ counsel couldn’t circumvent the holding simply by redefining the class only to include injured individuals.  That’s called a failsafe class, and it’s not allowed.