First Circuit Discusses Degree of Merits Inquiry Required at Class Certification Stage for Novel or Complex Theories of Injury

Per In re New Motor Vehicles Canadian Export Antitrust Litigation, 522 F.3d 6 (1st Cir. Mar. 28, 2008):

In challenging the certification of the state damages classes, defendants primarily argue that the district court did not engage in a sufficiently searching inquiry into the relevant merits issues. It is a settled question that some inquiry into the merits at the class certification stage is not only permissible but appropriate to the extent that the merits overlap the Rule 23 criteria. Falcon, 457 U.S. at 160, 102 S.Ct. 2364; PolyMedica, 432 F.3d at 6; Mowbray, 208 F.3d at 297-98. It is less settled what degree of merits inquiry is required at the class certification stage, and the Supreme Court has not yet addressed the issue.

Our sister circuits agree that when class criteria and merits overlap, the district court must conduct a searching inquiry regarding the Rule 23 criteria, but how they articulate the necessary degree of inquiry ranges along a spectrum which suggests substantial differences. The Second, Fourth, Fifth, and Seventh Circuits coalesce around the more rigorous end of this spectrum, forbidding district courts from relying on plaintiffs' allegations of sufficiently common proof and requiring the courts to make specific findings that each Rule 23 criterion is met. Miles v. Merrill Lynch & Co. ( In re Initial Pub. Offering Sec. Litig.), 471 F.3d 24, 33, 41 (2d Cir.2006) [hereinafter In re IPO ] (requiring a “definitive assessment of Rule 23 requirements,” including the resolution of relevant factual disputes); Unger v. Amedisys Inc., 401 F.3d 316, 321-22 (5th Cir.2005) (requiring courts to find facts favoring class certification through the use of “rigorous, though preliminary, standards of proof”); Gariety v. Grant Thornton, LLP, 368 F.3d 356, 366 (4th Cir.2004) (requiring that “the factors spelled out in Rule 23 ... be addressed through findings”); Szabo v. Bridgeport Machs., Inc., 249 F.3d 672, 675-76 (7th Cir.2001) (requiring “whatever factual and legal inquiries are necessary under Rule 23” to “resolve the disputes before deciding whether to certify the class”). These circuits' use of the term “findings” in this context should not be confused with binding findings on the merits. The judge's consideration of merits issues at the class certification stage pertains only to that stage; the ultimate factfinder, whether judge or jury, must still reach its own determination on these issues. In re IPO, 471 F.3d at 39; Gariety, 368 F.3d at 366.

On the other end of the spectrum, the Third and Eighth Circuits sometimes require an inquiry into and preliminary resolution of disputes, but they do not require findings and do not hold that such inquiry will always be necessary. Blades, 400 F.3d at 567, 575 (holding that sometimes courts will be required to resolve factual disputes preliminarily at the class certification stage but voicing caution); Newton v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 259 F.3d 154, 166 (3d Cir.2001) (“A class certification decision requires a thorough examination of the factual and legal allegations.”); id. at 168 (“In reviewing a motion for class certification, a preliminary inquiry into the merits is sometimes necessary to determine whether the alleged claims can be properly resolved as a class action.”).

This court has grappled with this issue as well. We have said in Smilow that “a district court must conduct a rigorous analysis” of Rule 23's prerequisites, 323 F.3d at 38, and in Mowbray that “a district court must formulate some prediction as to how specific issues will play out,” 208 F.3d at 298. See also Tardiff, 365 F.3d at 4-5 (noting that the common presumption at early stages of litigation that “the complaint's allegations are necessarily controlling” does not apply in class certification situations because “class action machinery is expensive and in our view a court has the power to test disputed premises early on if and when the class action would be proper on one premise but not another”).

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We do not need to resolve now whether “findings” regarding the class certification criteria are ever necessary, but we do hold that when a Rule 23 requirement relies on a novel or complex theory as to injury, as the predominance inquiry does in this case, the district court must engage in a searching inquiry into the viability of that theory and the existence of the facts necessary for the theory to succeed.