In a class action litigation, one or more named plaintiffs represent a larger class of plaintiffs who may be unaware of the litigation until an advanced stage. This representation requires the class to be certified. Economic and statistical experts are routinely involved in the class certification stage and in calculating damages if the class is certified. This page discusses how economic and statistical experts may address class certification and damage issues.
Rule 23 of the Federal Rules of Civil Procedure permits one or more named plaintiffs to litigate as representative of a larger class of plaintiffs if four conditions are met:
|Numerosity:||The class is so numerous that joinder of all members is impracticable;|
|Commonality:||There are questions of law or fact common to the class;|
|Typicality:||The claims or defenses of the representative parties are typical of the claims or defenses of the class; and|
|Adequacy:||The representative parties will fairly and adequately protect the interests of the class.|
Oftentimes, the calculations required to buttress or challenge these conditions interact with—and are complicated by—the damages theory.
In a typical scenario, the plaintiffs retain an expert to analyze often-voluminous records—produced by the defendant or obtained otherwise—that relate to the alleged wrongdoing. The analysis would identify and count individuals who were allegedly affected. For example, an AACG expert determined health plan participants and dependents who were charged amounts (through co-payments, co-insurance, and deductibles) as a result of an allegedly improper practice by a health insurance company.
The defendant’s expert may argue that the data do not support the analysis, challenge the plaintiffs’ expert’s analysis of the effects of the alleged practice (“but-for” world), address the integrity of the plaintiffs’ expert’s calculations, or point at putative class members who in fact benefitted from the alleged wrongdoing. More generally, an expert may find that certain individuals may have been affected by the alleged wrongdoing, but did not suffer any (net) harm. For example, an AACG expert determined that owners of annuity products were not harmed by allegedly excessive sales commissions because the value of the annuity was not affected by the size of the sales commission. Separately, an AACG expert found that damages, if any, could not be determined because the data were insufficiently complete to support “but-for” calculations.
The mere existence of common questions of law or fact is not sufficient; the Supreme Court ruled in Wal-Mart v. Dukes that the action must have the capacity to generate common answers apt to drive the resolution of the litigation. Economic or statistical expert testimony with respect to commonality therefore tends to focus on the (lack of) variability in factors that affect liability or damages. In the Wal-Mart v. Dukes employment discrimination case, class certification was denied because pay and promotion decision were made by local managers, and the plaintiffs’ economic expert’s statistical analysis failed to demonstrate commonality in those decisions. On the other hand, in Tyson v. Bouaphakeo, the Supreme Court upheld the use of the plaintiff’s expert’s survey to estimate time for which employees should have been paid for overtime work.
An economic or statistical expert’s opinion about commonality often interacts with his or her damages theory. For example, in Comcast v. Behrend, the Supreme Court denied class certification on the grounds that the plaintiff’s method for identifying damaged class members did not align with practices alleged to have harmed consumers. If potential damages can be calculated for all class members using a general mathematical formula, the balance may tip in favor of commonality. For example, damages in a securities class action may vary across investors, but if the damage is $0.50 per mutual fund share, the damage to each class member is readily calculated by multiplying that member’s number of shares by $0.50. Similarly, in telecommunications class actions, damages stemming from violations of contractual provisions and/or regulatory pricing rules can be calculated by determining how much the alleged violation increased calling prices and then applying this increase to class members’ calling volumes. However, if individual inquiry is needed to establish liability or calculate damages for certain class members, the class action may not provide the common answers necessary to resolve the dispute. For example, in a case over a casualty insurer’s responsibility for attorney fees, the damage was equal to a known amount multiplied by an unknown percentage collected by class members’ attorneys in unrelated cases. An AACG economic expert argued that damages could not be determined for most class members because individual inquiry would be required to uncover the contingency fee arrangement with their attorneys in prior cases. Separately, in a case over allegedly inferior performance of a financial product, an AACG expert demonstrated that class members had diverse investment objectives, including tax considerations and estate planning, in which the financial product had succeeded.
The typicality condition hinges on whether the circumstances of the named plaintiffs are sufficiently reflective of those of all class members. An economic or statistical expect may approach this condition by documenting relevant features of the proposed class. For example, in a putative class action over investment fees in a 401(k) pension plan, at issue is whether the named plaintiffs were invested in all funds with allegedly excessive fees and whether any putative class members were not invested in any such fund. Separately, in a putative class action over denial of coverage of a specific medical procedure, a potential issue is whether any class member was reimbursed by secondary insurance.
Adequacy of representation rarely involves economic or statistical issues in our experience.