On August 16, the Third Circuit gave the plaintiff a pass for failing to pursue evidence necessary to determine whether its proposed class was ascertainable and took the opportunity to clarify that affidavits may be used, at least in some circumstances, to establish class membership. In City Select Auto Sales v. BMW Bank of North America, No. 15-3931 (3d Cir. Aug. 16, 2017), the appellate court reversed and remanded a decision denying class certification on ascertainability grounds and directed the lower court to require production of an electronic contacts database that might help determine class membership but that the plaintiff had intentionally agreed not to pursue in class discovery. The Third Circuit strongly suggested that the class should be certified on remand, noting that the class would be circumscribed by the contacts database and could be further whittled by individual affidavits, if necessary.

In light of this decision, defendants facing class claims in the Third Circuit should:

• Consider whether to pursue affirmative discovery and debunk its usefulness in the ascertainability inquiry, despite not bearing the burden of proof.

• Include arguments explaining why the rationales for the Third Circuit’s still-heightened ascertainability standard require denial of class certification.

• Stay abreast of circuit court and Supreme Court activity in the ever-changing ascertainability realm.

Third Circuit’s Decision

Defendants BMW Bank of North America and BMW Financial Services NA, LLC offer direct automotive financing and rely in part on the services of defendant Creditsmarts Corporation to connect them with potential borrowers. BMW compensates Creditsmarts for customer referrals. In late 2012, Creditsmarts used a fax broadcaster to send approximately 20,000 faxes to car dealerships, urging the dealerships to steer their customers toward BMW financing. One automobile dealership sued on behalf of a class of dealerships that received the fax, claiming entitlement to damages under state conversion law and the TCPA, which prohibits using fax machines to send “an unsolicited advertisement,” 47 U.S.C. § 227(b)(1)(C).

Neither Creditsmarts nor the fax broadcaster kept records of the dealerships to which the advertisement was faxed, creating a potential class certification problem for the plaintiff. Class certification requires that the class is “currently and readily ascertainable based on objective criteria.” Marcus v. BMW of N. Am. LLC, 687 F.3d 583, 593 (3d Cir. 2012). To satisfy this standard in the Third Circuit, the plaintiff must show that “(1) the class is ‘defined with reference to objective criteria’; and (2) there is ‘a reliable and administratively feasible mechanism for determining whether putative class members fall within the class definition.’” Byrd v. Aaron’s Inc., 784 F.3d 154, 163 (3d Cir. 2015) (quoting Hayes v. Wal-Mart Stores, Inc., 725 F.3d 349, 355 (3d Cir. 2013)).

During class discovery in City Select, the plaintiff sought to overcome the potential ascertainability problem created by the lack of fax records by moving to compel production of a Creditsmarts database from which the fax numbers had been obtained. The magistrate judge denied the plaintiff’s motion, however, because the plaintiff “agreed early in the case not to seek production of the database before a ruling on the motion for class certification, delayed seeking to compel production, and given the exemplars that had been provided, had not shown that disclosure of the entire database was needed to address the certification issue.” City Select, slip op. at 7, n.1. The plaintiff did not appeal the magistrate’s decision to the district court judge.

Presented with a class certification motion that relied only on exemplars, the district court held that the plaintiff had not met its burden to establish a reliable and administratively feasible means of determining whether putative class members fell within the class definition. “[E]ven though Plaintiff may be able to identify the potential universe of fax recipients,” the district court held, “there is no objective way of determining which customers were actually sent BMW fax.” Id. at 9.

The Third Circuit granted the dealership’s petition for permissive appellate review under Rule 23(f) to determine whether the district court erred by concluding that the plaintiff had not met the second prong of the ascertainability test. The court vacated and remanded for two reasons. First, it found that the Third Circuit’s “ascertainability precedents do not categorically preclude affidavits from potential class members, in combination with the Creditsmarts database, from satisfying the ascertainability standard.” Id. at 14. While the Court acknowledged that “[a]ffidavits from potential class members, standing alone, without ‘records to identify class members or a method to weed out unreliable affidavits,’ will not constitute a reliable and administratively feasible means of determining class membership,” it found the Creditsmarts database to be a class-limiting and cross-checking tool potentially sufficient to render use of affidavits appropriate for ascertainability. Id. at 16 (quoting Byrd, 784 F.3d at 171).

The court bolstered this holding by drawing on past precedent to articulate “three principle rationales” for requiring ascertainability: (1) to permit class members to identify themselves and opt out; (2) to protect defendants’ due process rights by ensuring that class members bound by the final judgment can be identified; and (3) to ensure the efficiencies associated with class actions. Id. at 11. Because the Creditsmarts database circumscribed the class, the court found the first two rationales satisfied. The database provided an ideal mechanism for notifying all potential class members to permit opt-outs, the court noted. Moreover, in the court’s view, defendants’ due process rights would be protected because dealerships not in the database would not be bound by a class judgment. Id. at 14-15.

Although the district court was troubled by the database’s potential over-inclusiveness, the Third Circuit concluded that a relatively limited factual inquiry would be required to determine which of those dealerships received a BMW fax, and that such a limited inquiry might be administratively feasible. In the court’s view, the degree to which the database is over-inclusive of class membership is “critical” to the administrative feasibility inquiry. Id. at 16-17. The Court found it could not determine ascertainability without understanding the degree to which the database is over-inclusive, prompting a second ground to vacate and remand: “[B]ecause the Creditsmarts database was not produced during discovery, plaintiff was denied the opportunity to demonstrate whether a reliable, administratively feasible method of ascertaining the class exists based, in whole or in part, on that database.” Id. at 14. In reaching this second holding, the court forgave the plaintiff’s failure to appeal the magistrate judge’s discovery ruling regarding the database, finding that exceptional circumstances existed to accept an arguably waived basis for appeal. Id. at 7, n.1.

Implications

Uncertainty in Third Circuit

The Third Circuit’s opinion reads as if it were the first to address whether and how the over-inclusiveness of a potential class member list impacts ascertainability. That is not the case. In Marcus, the court considered using affidavits to determine which of the BMWs listed on lease and purchase records were equipped with allegedly defective Bridgestone tires. The lease and purchase records were over-inclusive, and the court cautioned against allowing the plaintiffs to narrow the list with class member affidavits. Similarly, in Hayes, the court rejected using affidavits to narrow the list of individuals who purchased particular discounted items and service policies to include only those who, by virtue of the discounted item they purchased, could not take advantage of the service policy. Simply put, the Third Circuit has grappled with the over-inclusive list problem several times and has rejected at every turn the use of affidavits to narrow them.

The City Select court, however, endorsed Marcus and Hayes on the one hand and suggested that the Creditsmarts list could be narrowed by affidavits on the other. Despite straining to reach the affidavit question, the court’s holding provides little clarity. It merely shifts the debate from whether affidavits are allowed to ascertain class membership in any circumstance to when a list of potential class members presents the “right” amount of over-inclusiveness to make using affidavits appropriate. The Third Circuit failed to provide any meaningful guidance on this issue.

Confusion in “Junk Fax” Cases

The Sixth Circuit has rejected the Third Circuit’s two-pronged ascertainability standard, opting to require only objective class criteria. Just last month, however, the Sixth Circuit affirmed denial of a “junk fax” TCPA class in Sandusky Wellness Center v. ASD Specialty Healthcare, No. 16-3741 (6th Cir. July 11, 2017), on facts nearly identical to those in City Select. The court there held that a fax distribution list could not be narrowed by cross-referencing the list with consent forms from potential class members or by relying on affidavits to determine who successfully received the fax. The court expressly affirmed that class member affidavits were “not feasible” because “the reliability of an individual’s recollection of having received a seven-year-old, single-page fax would be dubious at best.” Slip op. at 17. Given the Sixth Circuit’s previously pro-class stance on ascertainability, some thought that Sandusky had sounded the death knell in TCPA cases when no fax records exist. The fact that the Third Circuit arguably walked back its ascertainability jurisprudence in a TCPA case strongly suggests to the contrary.

Supreme Court Review

City Select is the third ascertainability decision from a circuit court in the past six weeks. The first two cases, Sandusky and In re Petrobras Securities, No. 16-1914-cv (2d Cir. July 7, 2017), recorded substantial intra-circuit jurisprudential shifts. As noted above, until Sandusky, the Sixth Circuit was definitively counted among the circuits that had rejected the administrative feasibility prong of ascertainability. The Second Circuit also did an about-face in Petrobas. While previous precedent suggested that the Second Circuit had adopted the two-prong ascertainability standard initially articulated by the Third Circuit, the court in Petrobas instead found the Second Circuit aligned with the Seventh and Ninth Circuits in rejecting the Third Circuit test.

Though City Select did not make any sweeping changes to the Third Circuit’s jurisprudence, it did alter the relevant ascertainability analysis slightly — and that may prove an important development in the court that created the two-pronged approach in the first place. Equally illuminating, Judge Fuentes concurred in the court’s judgment in City Select, but wrote separately to condemn the administrative feasibility prong. As our colleagues wrote in April of this year, it is high time for the Supreme Court to review ascertainability in class actions. Recent developments only reinforce their analysis.

Discovery Strategy Considerations

Finally, although City Select may be an anomaly, the court’s willingness to resurrect an abandoned discovery battle to clarify its ascertainability precedent is worth a second look. Third Circuit and Supreme Court precedent hold that the proponent of a class bears the burden to establish that a class action is a proper vehicle to resolve a claim. See, e.g., Comcast Corp. v. Behrend, 133 S. Ct. 1426, 1432 (2013); In re Hydrogen Peroxide, 552 F.3d 305, 320 (3d Cir. 2008). The City Select plaintiff did not meet that burden and did not appeal the magistrate judge’s decision that the Creditsmarts database need not be produced. And yet, rather than make a routine burden- or waiver-related pronouncement, the Third Circuit sua sponte vacated and remanded in part because the database had not been produced. Although the court likely took this unusual tack to clarify its affidavit precedent and is unlikely to excuse failures of proof on a routine basis, City Select serves as a cautionary tale. If evidence that plaintiffs fail to pursue might establish that the class mechanism is not appropriate, defendants should consider offering or seeking that evidence affirmatively, despite not bearing the burden themselves.