Fourth Circuit Vacates Five Related Class Certifications

As the saying goes, one person’s trash is another person’s treasure. Judge Diaz issued a decision yesterday pertaining to five class actions concerning coalbed methane gas, long thought to be a “dangerous waste product,” but later discovered to be an energy resource and the source of a “distinct mineral estate.” The Fourth Circuit granted Rule 23(f) review and held that “class certification in this case was manifestly improper.” The Court emphasized, in its holding, that to sustain a class, “the party must present evidence that the putative class complies with Rule 23;” pleading a class does not suffice. The Court said that the certification decision was an abuse of discretion for two reasons: (1) “it failed to rigorously analyze whether the administrative burden of identifying class members in the ownership cases would render class proceedings too onerous” and (2) the court “improperly lowered the burden of proof the plaintiffs must satisfy to demonstrate compliance with Rule 23(a)(1)’s commonality requirement.” The panel emphasized that “a class cannot be certified unless a court can readily identify the class members in reference to objective criteria,” noting that the proposed classes raise “serious ascertainability issues.” In a footnote, the Court observed that the district court should address whether the class could be defined without designating a “fail-safe class,” something we have discussed in this post. The Court remanded on the commonality issue, noting that the district court must determine whether ownership can be established under a Virginia precedent; if not, there is “no way for the district court to answer the ownership question on a common basis.” The Fourth Circuit also concluded that the district court had abused its discretion under Rule 23(b)(3), noting that “the mere fact that the defendants engaged in uniform conduct is not, by itself, sufficient to satisfy” the predominance requirement. In addition, the Court cautioned the district court about certifying individual contract claims, something that is hard to do, and about ignoring individual statute of limitations issues. The panel also provided tutorial advice to the district court about potential predominance of state-law issues, always a challenge in certification proceedings. Although the Court reversed the district court, it did not hold that a class action could never proceed in the case – leaving that decision to the district court on remand.