Last week, in Grandalski v. Quest Diagnostics, Inc., No. 13-4329, slip op. (3d Cir. Sept. 11, 2014), the Third Circuit issued a precedential opinion affirming the denial of class certification in a nationwide medical billing class action. The ruling is noteworthy because it reinforces strict adherence to the requirements of Rule 23 and underscores that, properly applied, the rule poses meaningful obstacles to certification where individualized evidence must be considered to determine liability. To read the opinion, please click here.
In Grandalski, plaintiffs alleged that they had been overcharged for medical laboratory services performed by Quest Diagnostics Incorporated, the nation’s largest provider of diagnostic and clinical testing services. Plaintiffs alleged that Quest systematically overbilled them for testing services by charging more than the stated amount of patient responsibility listed in the Explanations of Benefits forms provided by their insurers, thereby violating the consumer fraud acts of several states and constituting unjust enrichment. The plaintiffs sought to certify several classes, most notably a nationwide class of people whose insurers had a participating provider contract with Quest and who were billed in excess of their stated patient responsibility in an Explanation of Benefits.
The District Court twice denied class certification. It found that the class certification record revealed that patients rarely were overbilled, and that determining whether any patient had been overbilled required an examination of each patient’s individual circumstances. The District Court also held that the variations in state law and the individualized evidence needed to prove each class member’s claim meant that the class could not satisfy the predominance requirement of Rule 23(b)(3).
The Third Circuit affirmed, ruling that the proposed classes did not satisfy the predominance requirement. In light of the highly individualized nature of patient billing and the wide range of unintended errors that can affect the billing process (i.e., the absence of common conduct with respect to each class member), the Court held that plaintiffs could not prove that a class member had been unjustly or fraudulently overbilled without individual inquiries.1 “Such specific evidence,” the Court emphasized, “is incompatible with representative litigation.”2
The Court’s opinion is noteworthy because it addressed three issues, each of which is commonly litigated in consumer class actions.
First, the Court held that a court may properly consider choice-of-law issues at the class certification stage because the choice of applicable law affects its ability to manage any trial of a multi-state class action. Plaintiffs argued that other courts had rejected consideration of such issues at the class certification stage, but the Third Circuit concluded that the cases plaintiffs mentioned involved settlement classes, in which manageability was not an issue. The Third Circuit held that it was reasonable to “inquire at the certification stage as to whether the classes posed intractable management problems for trial,”3 and that it may constitute error if the court does not do so.4 The Court also ruled that the district court properly concluded that numerous state laws would apply in any trial, making the class action unmanageable.
Second, the Court considered a technique commonly proposed by class action plaintiffs to circumvent problems posed by multi-state class actions: the use of groupings of various state laws as a way to make the case manageable as a class action. The Court held that while plaintiffs offered a proposed grouping of state consumer fraud laws, they offered no explanation of how those groupings would have promoted manageability. The Court held that plaintiffs proposing nationwide or multi-state classes face a “significant burden” in demonstrating that groupings within a class are a workable solution to case management and predominance issues that would otherwise preclude certification.5 To group on the basis of state law, plaintiffs “must do more than provide their own ipse dixit, citation to a similar case, and a generic assessment of statute consumer fraud statutes to justify grouping.”6
Third, the Court made clear that ascertainability and predominance are distinct requirements and that courts and litigants should be careful to address each one separately. The Court held that the District Court had “conflated ascertainability with the predominance requirement,” correctly highlighting the individualized evidence required to prove each class member’s claim, but improperly labeling that problem as one of ascertainability rather than predominance. Ascertainability, the Court clarified, focuses on “whether objective records could readily identify class members,” while predominance focuses on whether individualized proof is needed to determine liability with respect to each class member.
Sidley represented Quest in this case.
Grandalski makes clear that the “predominance” requirement of Rule 23(b)(3) has teeth. The opinion also underlines that a viable trial plan is critical to representative litigation, not only because the organization of the litigation implicates predominance, but also because in multi-state class actions implicating the laws of various states, case management remains a real obstacle to certification.
If you have any questions regarding this update, please contact the Sidley lawyer with whom you usually work or
Mark B. Blocker
Joel S. Feldman
James A. Huizinga
John J. Kuster
1 Slip op. at 19-20.
2 Id. at 20.
3 Id. at 9-10 (internal quotation omitted).
5 Id. at 16-18.
6 Id. at 17.
Sidley Financial Services and Consumer Class Actions Practice
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