Third Circuit Sets Framework for Numerosity Inquiry and Lists Factors to Consider When Determining “Whether Joinder would be Impracticable” Under Rule 23(a)(1)

One of the prerequisites for class certification under Rule 23(a) is that “the class is so numerous that joinder of all members is impracticable,” which is commonly referred to as the “numerosity” requirement. Notably, Rule 23(a)(1) is “conspicuously devoid of any numerical minimum required for class certification.” For the first time, the Third Circuit has “provide[d] a framework for district courts to apply when conducting their numerosity analyses” in a recent precedential opinion. Defendants opposing class certification must be aware of this framework, particularly since numerosity is an often overlooked prerequisite yet may provide ample grounds for defeating certification in certain actions.

In the underlying lawsuit, In re Modafinil Antitrust Litigation, the District Court certified a class of 22 direct purchasers of a pharmaceutical drug who alleged a global conspiracy between the brand manufacturer and generic drug manufacturers in violation of various antitrust laws. In considering whether joinder was “impracticable,” the District Court considered the following factors: “(1) judicial economy, (2) geographic dispersion, (3) financial resources of class members, (4) the claimant’s ability to institute individual suits, and (5) requests for injunctive relief that could affect future class members.”

When considering the first factor of judicial economy, the District Court emphasized the late stage of the litigation, including “the exhaustive discovery” that was conducted, which it concluded weighed in favor of certification. Similarly, as to geographic dispersion, the District Court noted that without certification class members may bring individual actions in other jurisdictions. The District Court further observed that the 22 class members were sophisticated corporations with “vast financial resources,” so the third and fourth factors might weigh against class certification.

On appeal, the Third Circuit concluded that the District Court erred in its Rule 23(a)(1) analysis, vacated class certification, and remanded. Although the Third Circuit noted that the numerosity requirement is a fact-based analysis and district courts have “considerable discretion,” it concluded that the District Court “abused its discretion by improperly emphasizing the late stage of the proceedings and by not considering the ability of individual class members to pursue their cases through the use of joinder.”

By way of background, the Circuit Court cited leading authorities explaining that, in general, a class of 40 members will satisfy the numerosity requirement, but a class of 15 members is likely too small. The Third Circuit declined to specify a “floor,” but explained that the number of class members is the beginning of the Rule 23(a)(1) analysis: “Although district courts are always under an obligation to ensure that joinder is impracticable, their inquiry into impracticability should be particularly rigorous when the putative class consists of fewer than forty members.”

Before considering whether joinder was impracticable, the Third Circuit referred to the “three core purposes of the numerosity requirement” set forth in its seminal decision in Marcus v. BMW: ensuring judicial economy, creating greater access to judicial relief, and preventing putative class members and class counsel from “unnecessarily depriving members of a small class of their right to a day in court to adjudicate their own claims.” Building upon its analysis of Rule 23(a)(1) in Marcus, the Third Circuit took the further step of providing district courts with a non-exhaustive listing of factors in the In re Modafinil Antitrust Litigation opinion: “judicial economy, the claimants’ ability and motivation to litigate as joined plaintiffs, the financial resources of class members, the geographic dispersion of class members, the ability to identify future claimants, and whether the claims are for injunctive relief or for damages.” The Circuit Court labeled the first two factors “of primary importance.”

As to judicial economy, the Third Circuit explained that district courts must examine the potential administrative burden of multiple actions, focusing on whether a class action is substantially more efficient for the courts than joinder. The Third Circuit concluded that the District Court’s decision to certify a classplaced too great a weight on the late stage of the litigation and completion of extensive discovery. The Circuit Court reasoned that, in essence, the District Court’s analysis meant that any lengthy duration of time after filing a putative class action weighed in favor of a numerosity finding. Similarly, the Third Circuit discounted the District Court’s concern that additional discovery might be warranted if new parties were joined, rather than a class certified, reasoning that the District Court could exercise its discretion to limit cumulative or duplicative discovery. The Circuit Court instructed that on remand, the District Court should not consider “sunk costs” or further delay in trial when considering the judicial economy; instead, the District Court should focus on the efficiency of the class device instead of joinder, considering “practicalities as simple as that of every attorney making an appearance on the record.”

Turning next to the ability and motivation of class members to be joined as plaintiffs, the Circuit Court explained that this factor “primarily involves an examination of the stakes at issue for the individual claims and the complexity of the litigation, which will typically correlate with the costs of pursuing these claims.” The Third Circuit concluded that the District Court erred by considering whether absent class members could have brought their own suits because “the numerosity rule does not envision the alternative of individual suits; it considers only the alternative of joinder.” The Circuit Court noted that most of the absent class members’ claims were estimated at over $1 million to over $1 billion each, and, for the absent class members with claims under $1 million each, “there has been no showing that it would be uneconomical for these six class members to be individually joined as parties in a traditional lawsuit.”

Overall, the Third Circuit’s opinion emphasizes that a plaintiff seeking certification bears the burden to show why joinder is impracticable, particularly since the Third Circuit has repeatedly emphasized that a class action is an “exception to the usual rule that litigation is conducted by and on behalf of the individual named parties only.” When opposing certification, class action defendants must be aware of the new framework under which district courts must consider the numerosity requirement. Stay tuned to this blog for updates on how district courts apply this and other recent, precedential Third Circuit law regarding class certification.