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March 17, 2016 by Susana Cruz HodgeDownload PDF

The Art of Drafting Safe (but not Fail-Safe) Class DefinitionsSusana  Cruz Hodge

One of the ways in which defendants attempt to defeat class certification is by arguing that a class is fail-safe. A fail-safe class is “one that is defined so that whether a person qualifies as a member depends on whether the person has a valid claim.” Zarichny v. Complete Payment Recovery Services, Inc., 80 F. Supp. 3d 610, 623 (E.D. Pa. 2015). In other words, a fail-safe class definition is one where the class members cannot be identified until liability is established.

The problem with a fail-safe class definition is that it “shields the putative class members from receiving an adverse judgment. Either the class members win or, by virtue of losing, they are not in the class and, therefore, not bound by the judgment.” Randleman v. Fid. Nat'l Title Ins. Co., 646 F.3d 347, 352 (6th Cir. 2011). This has been said to impermissibly skirt the bar of res judicata. Further, it may violate what the Supreme Court has criticized as “‘one-way intervention’ [that] unfair[ly] [] allows members of a class to benefit from a favorable judgment without subjecting themselves to the binding effect of an unfavorable one.” Am. Pipe & Constr. Co. v. Utah, 414 U.S. 538, 547 (U.S. 1974).

As the Seventh Circuit has stated, defining a class so as to avoid the fail-safe pitfall “is more of an art than a science.” Messner v. Northshore Univ. HealthSystem, 669 F.3d 802, 825 (7th Cir. 2012). Often times, the way to avoid a fail-safe class definition is by drafting a broad, or arguably overinclusive, class definition.

A good way to ensure that a class definition is not fail-safe is to examine whether the definition assumes liability for the alleged wrongdoing. In other words, if class member eligibility is “dependent upon a legal conclusion,” the class is fail-safe. Alberton v. Commonwealth Land Title Ins. Co., 264 F.R.D. 203, 207 (E.D. Pa. 2010).

The best way to explain the difference between a class definition that is fail-safe and one that is not is through comparison. For example, compare the class definitions in Alberton and Olney v., Inc., No. 1:12-CV-01724, 2013 U.S. Dist. LEXIS 141339 (E.D. Cal. Sept. 30, 2013). In Alberton, the class definition stated:

The class shall consist of all persons or entities who, from July 25, 2000 until August 1, 2005, paid premiums for the purchase of title insurance from defendant Commonwealth Title Insurance Company, in connection with a refinance of a mortgage or fee interest with respect to real property located in Pennsylvania that was insured by a prior title insurance policy within ten years of the refinance transaction, and were not charged the applicable Reissue Rate or Refinance Rate discount for title insurance on file with the Pennsylvania Insurance Commissioner.
264 F.R.D. at 205. In finding that the definition was not fail-safe, the court explained that membership in the class did not require a legal determination, and instead “it is only necessary to ascertain whether a person refinanced within the relative time period and whether he/she actually received a discounted rate.” Id. at 207. The ruling makes sense because these criteria are objective and do not go to the merits of plaintiffs’ claims.

In contrast, the class in Olney was defined as:

All persons within the United States who received any telephone call from Defendant to said person’s cellular telephone made through the use of any automated telephone dialing system or an artificial or prerecorded voice and such person had not previously consented to receiving such calls within the four years prior to the filing of this Complaint.
2013 U.S. Dist. LEXIS 141339, at *10. Since the Telephone Consumer Protection Act, (“TCPA”) prohibits calls made via automated telephone dialing systems without consent, the class included only persons who would prevail on the issue of whether defendant violated the TCPA. While the court found this to deem the class fail-safe, it cured the problem by redefining the class as:

All persons within the United States who received any telephone call/s from Defendant or its agent/s and/or employee/s to said person’s cellular telephone made through the use of any automatic telephone dialing system within the four years prior to the filling of the Complaint.
Id. The newly defined class eliminated the reference to consent and thus included persons other than those who had a valid claim against defendant. Additionally, the omission of the reference to consent eliminated the need to make individual inquiries in order to determine class eligibility.

It can be challenging to draft a class definition that will survive a fail-safe attack by defendants. However, keeping it simple and omitting any terms that require a merits issue determination in order to identify the class members are steps in the right direction. Minding these two key components is a surefire way to eliminate a potential attack on a class definition.