Rules Enabling Act Key to New Ninth Circuit Decision on Class Certification
A sometimes-overlooked aspect of class action law is how class certification rules interact with the Rules Enabling Act, which provides that rules of procedure and evidence “shall not abridge, enlarge or modify any substantive right.” 28 U.S.C. § 2072(b). Some class actions attempt to use the class action device to evade obstacles to obtaining individual relief under the applicable substantive law, or to short circuit the substantive law where it requires individualized proof. The Ninth Circuit recently focused on the Rules Enabling Act in reversing (in large part) a class certification order.
In Wit v. United Behavioral Health, — F.4th –, 2023 WL 411441 (9th Cir. Jan. 26, 2023), the plaintiffs brought claims under the Employee Retirement Income Security Act (ERISA), asserting that the defendant utilized internal guidelines for reviewing claims for behavioral health services under health benefit plans that were allegedly more restrictive than the terms of the plans. The plaintiffs attempted to avoid individualized issues by seeking as their remedy an order requiring the defendant to “reprocess” claims of putative class members, without the court deciding whether there was an actual entitlement to benefits. The district court certified a class on this theory. It reasoned that to order “reprocessing” it would not have to make determinations about entitlement to benefits (which would implicate “a multitude of individualized circumstances” regarding each class member’s medical condition). After a bench trial, the district court issued declaratory and injunctive relief in favor of the class, including ordering the defendant to utilize new guidelines, ordering “reprocessing” of claims in accordance with the new guidelines, and appointing a special master to oversee compliance for ten years. Some might characterize that as a court effectively overseeing the operations of an insurer.
The Ninth Circuit reversed the class certification order to the extent it was based on the “reprocessing” remedy (but not with respect to a breach of fiduciary duty claim). The Ninth Circuit reasoned that, under ERISA, “reprocessing is not truly the remedy that Plaintiffs seek, it is the means to the remedy that they seek,” i.e., entitlement to benefits. The district court thus “improperly allowed Plaintiffs to use Rule 23 as a vehicle for enlarging or modifying their substantive rights where ERISA does not provide reprocessing as a standalone remedy.”
The Ninth Circuit also held that the district court erred in excusing absent class members from complying with the requirements under their benefit plans that they exhaust administrative remedies, including pursuing an administrative appeal. This was likewise inconsistent with the Rules Enabling Act because “the district court abridged [defendant’s] affirmative defense of failure to exhaust and expanded many absent class members’ right to seek judicial remedies under Rule 23(b)(3).” It noted that the Supreme Court has held that a class cannot be certified by effectively depriving the defendant of its individualized defenses.
I see potential implications here beyond ERISA plans, to putative class actions involving other contractual and statutory rights. Defendants often can argue that the terms of the contract or other applicable substantive law require an individualized analysis, or that the putative class members must take individualized steps to establish their rights. Under this decision, a court cannot ignore those obstacles to class certification.