In a Groundbreaking Decision, Third Circuit Provides Framework for Evaluating Numerosity

One of the least disputed elements of class certification is Rule 23(a)(1) numerosity, and so there is relatively little analysis from the courts about it. Last month, however, a divided panel of the Third Circuit provided a detailed analysis of the purposes of numerosity and the factors that district courts should employ in making numerosity determinations. In doing so, the court has broken new ground, and its decision will likely be cited by other courts and parties for years to come.

Plaintiffs in In re: Modafinil Antitrust Litigation, No. 15-3475, 2016 WL 4757793 (3d Cir. Sept. 13, 2016) were direct wholesale purchasers of Provigil, a wakefulness-promoting agent used to treat narcolepsy and other sleep disorders.  Defendant Cephalon owned the patent for modafinil and had FDA approval for the branded version.  Plaintiffs alleged an antitrust conspiracy between Cephalon and the four generic modafinil manufacturers for entering into reverse-payment settlements.  Plaintiffs also brought a monopoly claim against Cephalon.

The district court certified a 22-member class, in part because the case had gone through exhaustive discovery over a period of several years and, the court held, judicial economy would not be served by denying class certification at such a late stage of litigation. In so holding, the district court did not consider the ability of individual class members to pursue their case through joinder.  The Third Circuit reversed and remanded, holding that the district court’s consideration of the late stage of litigation and its failure to consider the availability of joinder were both abuses of discretion. In the process, the court set forth what may be the most comprehensive analysis of numerosity in any federal appellate decision to date.

Numerosity is satisfied when “the class is so numerous that joinder of all members is impracticable.” Fed. R. Civ. P. 23(a)(1). The Third Circuit noted that the text of Rule 23(a)(1) “is conspicuously devoid of any numerical minimum required for class certification.” Id. at 24.  Guideposts exist where joinder is presumed impracticable if the potential number of plaintiffs exceeds 40. Id. at 25. On the other end of the spectrum, the Supreme Court has stated in dicta that a class of fifteen was too small to satisfy the numerosity requirement. Id. (citing Gen Tel. Co. of the Northwest, Inc. v. EEOC, 446 U.S. 318, 331 (1980)).  In declining to specify a “floor,” the Third Circuit instructed that the size of the class was the starting point of a numerosity analysis and that the impracticability of joinder inquiry for putative classes of fewer than forty members should be “particularly rigorous.” Id. at 25-26.

In setting out what such rigorous analysis should entail, the court first identified from a prior decision three “core purposes” of the Rule 23(a)(1) numerosity requirement:

  1. To ensure judicial economy by freeing the federal courts from compulsory joinder and sparing them “from the burden of having to decide numerous, sufficiently similar individual actions seriatim” Id. at 31.
  2. To create greater access to judicial relief, particularly for persons with claims that would be uneconomical to litigate individually. Id.; and
  3. To prevent putative class representatives and counsel from unnecessarily depriving members of a small class the right to their day in court when joinder can be easily accomplished. Id.

The court then forged new ground, recognizing a non-exhaustive list of six factors to be considered: (1) judicial economy; (2) the claimants’ ability and motivation to litigate as joined plaintiffs; (3) class members’ financial resources; (4) the geographical dispersion of class members; (5) the ability to identify future claimants; and (6) whether the claims are for injunctive relief or for damages.  Id. (citing 5 Moore’s Federal Practice § 23.22; 5 Newberg on Class Actions § 3.12; Pa. Pub. Sch. Emps. Ret. Sys. v. Morgan Stanley & Co., 772 F.3d 111,120 (2d Cir. 2014)).   While all factors are relevant, the first two: (1) judicial economy and (2) ability to litigate as joined parties are “of primary importance.” Id. at 33.

In analyzing judicial economy, the court held, the focus is on “whether the class action mechanism is substantially more efficient than joinder of parties.” Id. at 35. The district court erred in considering the late stage of litigation, sunk costs and the need for further discovery if the class is not certified. Id. at 35-36, 38-39.  Instead, the appropriate inquiries are docket control and practicalities as simple as every attorney having to file an appearance on the record. The district court is free to rely on its superior understanding of the life of the case at bar and whether the class mechanisms would have been a substantially more efficient use of judicial resources than joinder. Id. at 41.

The second factor is to provide those with small or negative value claims reasonable access to a judicial forum for resolution of those claims. Id. at 41-42.  District courts are to consider the stakes at issue for the individual claims and the complexity of the litigation, which will typically correlate with the costs of pursuing those claims. Id. at 42.  The Third Circuit held that the district court erred in focusing on the alternative of Plaintiffs bringing individual suits (a focus of the superiority requirement in cases under Rule 23(b)(3)), rather than the alternative of joinder, which is the only alternative envisioned in Rule 23(a)(1). Id. at 44-45.

Further, the district court failed to show that joinder was impracticable where three absent class members made up over 97% of the total value of the class claim and thus hardly needed the advantages of the class device; where thirteen other class members had claims greater than $1 million; and where there was no showing that it would be uneconomical for the six remaining class members with claims below $ 1 million to be individually joined. Id. at 46.  The Third Circuit was especially critical of the fact that three class members with billions of dollars at stake and close to 100% of the total value of the class claims “have been allowed to sit on the side lines as unnamed class members” not subject to individual discovery or traditional litigation. Id. at 48.

In re Modafinil Antitrust Litigation establishes a clear framework for analyzing numerosity in cases where the number of class members falls within that gray area of more than 15 but fewer than 40. Parties litigating class certification in such cases would do well to build their arguments around it.