Fourth Circuit Grapples with Effect of “Class-Action Waiver”

On Aug. 18, the United States Court of Appeals for the Fourth Circuit issued an opinion in the long-running Marriott Data Breach MDL Litigation. The Fourth Circuit reversed a district court’s class certification decision, holding that the district court erred in certifying damages classes against the Marriott defendants without first addressing, as a threshold issue, the potential enforceability of a “class-action waiver” that could be applicable to all members of the putative class. The Court of Appeals also reversed the district court’s certification of issue classes against Marriott’s co-defendant, Accenture. In certifying issue classes for the claims against Accenture, the district court primarily had relied on the potential efficiency of litigating the Accenture issue classes simultaneously with the Marriott damages classes; therefore, reversal of the Marriott damages classes required reversal of the Accenture issue classes.

The Fourth Circuit’s opinion provides a valuable precedent for defendants fortunate enough to have a class-action waiver argument. The opinion squarely holds that “the time to address a contractual class waiver is before, not after, a class is certified.” The Court of Appeals recognized that treating a waiver as a threshold issue reflects a “consensus practice,” but acknowledged the absence of precedent squarely on point. The opinion’s language is unequivocal, declaring:

[A] class-waiver defense is not a defense to liability but to being required to litigate a class action at all. If that defense is addressed only after a class action [has] already been litigated to the merits, then it is effectively lost [citing Mitchell v. Forsyth, 472 U.S. 511, 526 (1985)] and the defendant is denied the benefit of this contractual bargain.

The Court went on to note that even if the waiver were regarded as a merits defense, it would be appropriate under Walmart Stores, Inc. v. Dukes, 564 U.S. 338, 351 (2011), to address the effectiveness of the waiver at the certification stage.

The narrow holding of the Court’s opinion is logical and helpful to defendants. But the opinion leaves a number of interesting questions unanswered.

To start, the district court avoided Rule 23(b) and Rule 23(c) concerns by certifying a class comprising only Marriott customers who had signed agreements containing class-action waivers, excluding customers whose agreements did not include such a waiver. The Court of Appeals declined to address Marriott’s argument that this exclusion created an ascertainability problem, noting that the district court had reserved the ascertainability issue for later consideration, if required. In this regard, the opinion indicates that the parties in the trial court tried several “bellwether cases” prior to class certification, which is an unusual procedure, and that Marriott did not raise the “class-waiver” defense in any of these cases. The district court’s opinion implies that Marriott may have “waived the waiver argument” by not advancing it sooner. Ironically, if the district court concludes that the class-action waiver is not enforceable, Marriott’s appeal may well result in certification of a much larger class including all potential claimants.

The Fourth Circuit also declined to address when and under what circumstances a district court may certify an issue class under Fed. R. Civ. P. 28(c)(4). The Court of Appeals noted that, by definition, narrowing the issues sufficiently will, as a practical matter, eliminate the usual barriers (e.g., commonality, typicality, manageability) to class certification. The appellate court noted that it was appropriate for district courts to weigh the efficiencies associated with the certification of issue classes against the challenges and inefficiencies of proceeding to separate trials on issues related to causation, affirmative defenses and damages. Otherwise, the Fourth Circuit declined Accenture’s invitation to hold that, even had the district court certified damages classes against Marriott on remand, issue-class proceedings against Accenture would be improper.

Finally, the waiver at issue is interesting. Class-action waivers are often included in arbitration provisions and are enforceable after the Supreme Court’s decision in AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 344 (2011). The waiver at issue, which is included in the record on appeal (Docket 22-1744, Doc. 29-2, page 232 of 235), provides for exclusive jurisdiction in New York, application of New York substantive law and states that “[a]ny disputes . . . will be handled individually without any class action.”