Eighth Circuit Reinforces that All Aspects of Class Action Litigation Require Rigorous Analysis

January 26, 2015

The Eighth Circuit started off 2015 with rulings that dramatically affect class action litigation. In the first two weeks of the new year, the Court issued two opinions reversing District Court orders on class action issues—one addressing the requirements for class certification and the other addressing the appropriate distribution of class settlement funds. As these cases demonstrate, the Eighth Circuit takes seriously the federal courts' duty to closely scrutinize all aspects of class action litigation to ensure that the rights of putative and absent class members are protected.

Requirements for Class Certification

In Powers v. Credit Management Services, Inc., No. 13-2831, — F.3d — (8th Cir. Jan. 13, 2015), the Eighth Circuit reversed a district court order certifying four classes asserting claims under the federal Fair Debt Collection Practices Act (FDCPA) and Nebraska's state law counterpart. Although the Eighth Circuit recognized that classes are regularly certified in "[r]un-of-the-mill" FDCPA actions involving "standard-form collection letters sent directly to consumers before the filing of collection lawsuits," the Court noted that this case presented a different scenario. The plaintiffs in Powers were not challenging standard-form debt collection letters, but were instead challenging standard form pleadings—petitions and discovery requests—filed in debt collection lawsuits in Nebraska state court. The Court found that the district court failed to conduct the required "rigorous analysis" of "what plaintiffs must prove to prevail" on their legal theories. In conducting its own analysis, the Eighth Circuit determined that the Rule 23 requirements for class certification could not be met for any of the four classes. With this holding, the Court not only reminded the district courts of their duty to conduct a detailed inquiry into the propriety of class certification, but set a boundary on the widespread use of class actions in FDCPA litigation.

Distribution of Class Settlement Funds

In In re: BankAmerica Corporation Securities Litigation, No. 13-2620, --- F.3d --- (8th Cir. Jan. 8, 2015), the Eighth Circuit reversed a District Court order approving a distribution to Legal Services of the Eastern District of Missouri of over $2.3 million remaining in a class settlement fund created a decade earlier as a result of litigation against Nations Bank and Bank of America. The Court noted that cy pres distributions (i.e., distributions made to charitable entities in place of class members) "have been controversial in the courts of appeals," and that there was therefore a need to clarify the legal principles governing them.

After endorsing the American Law Institute's recommend guidelines, the Court identified several factors to determine whether a cy pres distribution of unclaimed settlement funds is appropriate. First, a cy pres distribution is permissible only when it is not feasible to make further distributions to class members, unless class members would receive a windfall on account of the additional distribution. Second, language in the settlement agreement giving the district court sole discretion over whether and how to make cy pres distributions does not excuse the district court from following the Eighth Circuit's guidance on such distributions. Third, unless a cy pres distribution is de minimis, notice of the distribution should be provided to the class. Finally, any cy pres distribution should be made to a charitable institution with the "next best use for indirect class benefits" and "for uses consistent with the nature of the underlying action and with the judicial function." The Eighth Circuit's holding in this case makes clear that the district courts' duty to closely scrutinize class action litigation extends well past the class certification phase, to the completion of the litigation.

Businesses facing a putative class action should consult with an experienced attorney to discuss how best to navigate the complex issues that arise in collective litigation at both the trial and appellate levels.

Lewis Rice has an extensive appellate litigation practice. The Firm's attorneys have prosecuted and defended appeals in state appellate courts throughout Missouri and Illinois, and in federal courts nationwide.

The Firm's Class Action Litigation Practice Group has substantial experience in defending many types of class actions claims involving banking practices, securities, insurance payments, environmental torts, medical monitoring, race discrimination, sex discrimination, age discrimination, unequal pay, unequal worth, and wage and hour.