New Circuit Decisions Highlight When Individualized Damages Issues May Preclude Class Certification

Under Federal Rule of Civil Procedure 23(b)(3), a district court may certify a damages class if “the court finds that the questions of law or fact common to class members predominate over any questions affecting only individual members, and that a class action is superior to other available methods for fairly and efficiently adjudicating the controversy.” Plaintiffs will often argue that the need for individualized calculation of the amount of damages that class members suffered is not sufficient to defeat a finding that common questions of law or fact predominate under Rule 23(b)(3). But recent decisions from the Fifth and Ninth Circuits highlight that individualized questions about whether class members in fact suffered damages can be grounds for refusing to certify a damages class based on lack of predominance. 

In Sampson v. United Services Automobile Association, 83 F.4th 414 (5th Cir. 2023), the Fifth Circuit vacated an order certifying a damages class in an action alleging that the defendant insurance company relied on a method for calculating the actual cash value of vehicles totaled in an accident that was improper under Louisiana law. Central to the Fifth Circuit’s decision was the fact that some members of the proposed class may have received an amount equal to or even greater than their vehicles’ actual cash value (as defined by Louisiana law), despite the use of an allegedly improper valuation method. Individuals who suffered no damages could not establish that they were injured — an essential element of their claims for breach of contract and bad faith. Because individualized questions of injury implicated the merits of the proposed class’s claims, rather than merely the amount of damages suffered by individual class members, the Fifth Circuit concluded that Rule 23(b)(3)’s predominance requirement was not satisfied: “[I]it is well established that common questions may predominate under Rule 23(b)(3) ‘even though other important matters will have to be tried separately, such as damages.’ But while damages are specifically described among these other important matters, liability and injury are not.” Sampson, 83 F.4th at 422 (quoting Tyson Foods, Inc. v. Bouaphakeo, 577 U.S. 442, 453 (2016)) (original emphasis).

The Ninth Circuit reached a similar conclusion in Lara v. First National Insurance Company of America, 25 F.4th 1134 (9th Cir. 2022), a decision that the Fifth Circuit highlighted in Sampson as “particularly instructive.” Lara likewise involved a challenge to the defendant insurer’s method for calculating the actual cash value of totaled vehicles as inconsistent with the requirements of Washington law. The district court below refused to certify a damages class based on lack of predominance because some members of the proposed class may have received an amount equal to or greater than their vehicles’ actual cash value (as defined by Washington law), despite the use of an allegedly improper valuation method. The plaintiffs argued that any such individualized questions were “damages issues” that were not sufficient to defeat a finding of predominance under Rule 23(b)(3). The Ninth Circuit disagreed, explaining that individual class members who suffered no damages could not establish that they were injured, which was an essential element of their claims for breach of contract and unfair trade practices under Washington law. As the Ninth Circuit succinctly put it: “[I]f there’s no injury, then the breach of contract and unfair trade practices claims must fail. That’s not a damages issue; that’s a merits issue.” Lara, 25 F.4th at 1139.

The key takeaway from Sampson and Lara is that not all “damages issues” are created equal for purposes of the predominance analysis under Rule 23(b)(3). If injury is an essential element of the claims at issue, individualized questions regarding the fact — as opposed to the amount — of damage implicates the merits of the proposed class’s claims and may be grounds for defeating class certification based on lack of predominance under Rule 23(b)(3).