                                                                                                                           Opinions of the United
2006 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


6-30-2006

Wachtel v. Guardian Life Ins Co
Precedential or Non-Precedential: Precedential

Docket No. 04-4304




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PRECEDENTIAL

       UNITED STATES COURT OF APPEALS
            FOR THE THIRD CIRCUIT

                   Case No: 04-4304

ZEV WACHTEL; LINDA WACHTEL, individually and on
                         behalf of
  of their minor children, Tory Jesse and Brett Wachtel,
       and on behalf of all others similarly situated;

                               v.

  GUARDIAN LIFE INSURANCE CO. OF AMERICA;
     PHYSICIANS HEALTH SERVICES, INC.;
 PHYSICIANS HEALTH SERVICES OF NEW JERSEY,
                    INC.;
    HEALTH NET, INC.; HEALTH NET OF THE
              NORTHEAST, INC.;
       HEALTH NET OF NEW JERSEY, INC.

           (District of New Jersey D.C. 01-CV-04183)


     RENEE MCCOY, individually and on behalf of
            all others similarly situated

                              v.

              HEALTH NET, INC.;
      HEALTH NET OF THE NORTHEAST, INC.;
      HEALTH NET OF NEW JERSEY, INC.

         (District of New Jersey D.C. 03-CV-01801)


     Health Net, Inc.; Health Net of the Northeast, Inc.;
             Health Net of New Jersey, Inc.,

                                 Appellants




                 Case No: 04-4433

                ZEV WACHTEL;
  LINDA WACHTEL, individually and on behalf of
      their minor children, Torrey Jesse and
     Brett Wachtell, and on behalf of all others
                similarly situated


                            v.

 GUARDIAN LIFE INSURANCE CO. OF AMERICA;
     PHYSICIANS HEALTH SERVICES, INC;
PHYSICIANS HEALTH SERVICES OF NEW JERSEY,
                   INC.;
   HEALTH NET, INC.; HEALTH NET OF THE
             NORTHEAST, INC.;
      HEALTH NET OF NEW JERSEY, INC.
  Health Net Inc., Health Net of the Northeast, Inc.,
          Health Net of New Jersey, Inc.;

                                Appellants




               Case No: 04-4434

     RENEE MCCOY, individually and on
      behalf of all others similarly situated


                           v.

         HEALTH NET, INC.;
 HEALTH NET OF THE NORTHEAST, INC.,
   HEALTH NET OF NEW JERSEY, INC.

                          Appellants




On Appeal from the United States District Court
           for the District of New Jersey
District Court Nos. 01-CV-04183; 03-CV-01801
District Judge: The Honorable Faith S. Hochberg




          Argued December 15, 2005
Before: SLOVITER, SMITH, and VAN ANTWERPEN,
                 Circuit Judges


              (Filed: June 30, 2006)




   Counsel:   Peter Buscemi (Argued)
              Morgan, Lewis & Bockius
              1111 Pennsylvania Avenue, N.W.
              Washington, DC 20004

              Theodore D. Aden
              Herve Gouraige
              Epstein, Becker & Green
              Two Gateway Center
              12th Floor
              Newark, NJ 07102

              John J. Gibbons
              Gibbons, Del Deo, Dolan, Griffinger &
              Vecchione
              One Riverfront Plaza
              Newark, NJ 07102-5497

              Joseph B.G. Fay
              Jay H. Calvert, Jr.
              Morgan, Lewis & Bockius
              1701 Market Street
              Philadelphia, PA 19103

                        4
  William S. Greenberg
  B. John Pendleton, Jr.
  McCarter & English
  100 Mulberry Street
  Four Gateway Center
  Newark, NJ 07102-0652
  Counsel for Appellants

  Stanley M. Grossman (Argued)
  D. Brian Hufford
  Pomerantz, Haudek, Block, Grossman &
  Gross
  100 Park Avenue
  26th Floor
  New York, NY 10017

  Stuart M. Feinblatt
  Sills, Cummis, Epstein & Gross
  One Riverfront Plaza
  Newark, NJ 07102
  Counsel for Appellees

  Mary Ellen Signorille
  American Associations of Retired
  Persons
  601 E. Street N.W.
  Washington, DC 20049
  Counsel for Amicus-Appellee


OPINION OF THE COURT

           5
SMITH, Circuit Judge

       The central question presented by this interlocutory
appeal is whether the District Court properly certified the
underlying consolidated matters as class actions. Appellants
Health Net, Inc., Health Net of the Northeast, Inc., and Health
Net of New Jersey, Inc. (collectively, “Health Net”) attack the
District Court’s Certification Order based, inter alia, on the
assertion that the Order failed properly to define the class
claims, issues or defenses pursuant to Federal Rule of Civil
Procedure 23(c)(1)(B). Because we agree with Health Net that
the District Court erred by failing to define the claims, issues, or
defenses to be treated on a class basis, we will vacate the
Certification Order and remand the case to the District Court.1


  1
   Health Net also argues: (1) that as a substantive matter, the
District Court should have parsed the issues presented in the
case and designated some for class treatment and some for
individual treatment under Federal Rule of Civil Procedure
24(c)(4)(A); (2) that the Court abused its discretion by
concluding that issues common to the class predominate over
individual issues for purposes of Rule 23(b)(3); and (3) that the
District Court improperly made a class-wide merits
determination by finding that exhaustion of administrative
remedies was futile as to the entire class, such that its Rule
23(b)(3) predominance analysis was fatally flawed. Because we
conclude that analysis of these questions is best conducted with

                                 6
                                 I.

                                A.

        Health Net appeals the District Court’s Order certifying
two nationwide classes in actions against Health Net, Wachtel
v. Guardian Life Ins. Co.2 (“Wachtel”) and McCoy v. Health
Net, Inc. (“McCoy”). Health Net of New Jersey is a New Jersey
health benefit plan that provides medical benefits to members;
its corporate parent is Health Net of the Northeast, and Health
Net, Inc. is the ultimate corporate parent of both companies.
Health Net of the Northeast is Health Net, Inc.’s eastern division
and also owns Health Net of New York, Inc. and Health Net of
Connecticut, Inc. Health Net, Inc. (the nationwide corporate
parent of all Health Net subsidiaries) also owns licensed state
plans in three western states, Health Net of California, Inc.,
Health Net of Arizona, Inc., and Health Net of Oregon, Inc.


the benefit of a clear initial definition of the claims, issues, and
defenses to be treated on a class basis, and because we are
remanding for further proceedings, we will not address them in
this Opinion.
     2
      Guardian Life Insurance Company was dismissed by
stipulation of the parties on March 22, 2004 and is no longer a
party to the litigation. Health Net, Inc. and its subsidiaries are
the only remaining defendant-appellants.

                                 7
       Within the relevant states, Health Net subsidiaries offer
medical benefits through three different types of network health
plans: health maintenance organizations (“HMOs”), preferred
provider organizations (“PPOs”), and point-of-service (“POS”)
plans. Plaintiff-appellees Zev and Linda Wachtel and Renee
McCoy (“Plaintiffs”) are beneficiaries in POS plans offered and
administered by Health Net.3 A POS plan permits a participant
to obtain health care from either in-network (“INET”) or out-of-
network (“ONET”) medical providers. Providers are INET by
virtue of negotiating with a Health Net subsidiary to offer cost
savings to plan subscribers via significantly discounted fee rates.
ONET providers have not negotiated lower rates and are free to
charge their normal fees. Beneficiaries pay higher premiums for
POS and other plans that permit access to ONET providers.

       The issues in these consolidated cases involve
reimbursement in connection with services from ONET
providers. As noted by the District Court, “Health Net’s plan
contracts do not cover an entire fee charged by an out-of-
network provider.” Plan participants may be held responsible
(through “balance billing”) by such providers for charges in


  3
   For the purpose of class action certification, Plaintiffs allege
that Health Net, Inc. is a fiduciary and plan “administrator”
under the Employee Retirement Income Security Act
(“ERISA”).       Whether Health Net Inc. qualifies as an
“administrator” under ERISA for trial purposes will be litigated
in the District Court through further pre-trial motions.

                                8
excess of the amount Health Net determines to be usual,
customary, and reasonable charges (“UCR”) for the services
provided. The amount for which beneficiaries are liable for
ONET services is almost entirely dependent on how Health Net
calculates UCR. Health Net plan terms, contained in various
Health Net contracts, or Evidence of Coverage (“EOCs”) 4 state
that Health Net uses a national third-party database to determine
UCR. The District Court found that Health Net relies on two
“substantially similar” databases provided by Ingenix, Inc.,
known as the Prevailing Health Charge System (“PHCS”) and
Medical Data Research (“MDR”) (collectively, the “Ingenix
databases”).

       Plaintiffs sue under four provisions of the Employee
Retirement Income Security Act (“ERISA”). The first is ERISA
§ 502(a)(1)(B), 29 U.S.C. § 1132(a)(1)(B), which permits a civil
action by a plan participant or beneficiary “to recover benefits
due to him under the terms of his plan, to enforce his rights
under the terms of the plan, or to clarify his rights to future
benefits under the terms of the plan.” Id. The second is §
502(a)(3), 29 U.S.C. § 1132(a)(3), which permits a participant
or beneficiary to “(A) enjoin any act or practice which violates
any provision of this subchapter or the terms of the plan, or (B)


  4
   Beneficiaries receive EOCs (plan contracts) and Summary
Plan Descriptions (“SPDs”). ERISA requires that these
documents be given to all beneficiaries for the purpose of
explaining the terms and coverages of their health plans.

                               9
to obtain other appropriate equitable relief (i) to redress such
violations or (ii) to enforce any provisions of this subchapter or
the terms of the plan.” Id. Plaintiffs sue under § 502(a)(3) for
various alleged breaches of fiduciary duties. Plaintiffs also
bring claims under ERISA § 104(b)(4), 29 U.S.C. § 1024(b)(4),
for failure to supply information upon request and under ERISA
§ 102, 29 U.S.C. § 1022, for failure to issue appropriate SPDs.

       Plaintiffs allege that, although Health Net admits that it
is required to use databases that are “valid and appropriate for
determining UCR,” 5 Health Net uniformly uses the Ingenix
databases, which Plaintiffs allege are invalid in that fundamental
flaws in the data “result in the systematic manipulation and
downward skewing of the database UCR numbers.” Assuming
the Ingenix databases are invalid, their use to calculate UCR
charges breaches the terms of the plans and leads to systematic
under-reimbursement of providers, resulting in inappropriately
high financial liability for beneficiaries in the form of
outstanding “balances” to providers. Plaintiffs allege actual out-
of-pocket losses as a result of under-reimbursement. Plaintiffs
contend that Health Net must pay unpaid benefits to class
members either by using a valid database or by paying the
providers’ billed charges, whichever is less.



  5
   Health Net contests that it has made such an admission. That
said, the District Court properly observed that “the merits of
disputed facts are not reached” at the class certification stage.

                               10
        Plaintiffs also challenge other Health Net policies and
practices, which they allege Health Net applies uniformly across
various plans, providers, and beneficiaries to determine ONET
reimbursements. These policies include: (1) relying on an
outdated version of an Ingenix database (“outdated data”); (2)
reducing ONET reimbursements when multiple procedures are
performed on the same day (the “multiple surgery rule”), despite
the fact that plan terms fail to disclose the existence or substance
of such a rule; (3) systematically reducing or terminating ONET
reimbursements for services provided by assistant surgeons or
co-surgeons (the “assistant surgeon rule”) by use of an
undisclosed and incomplete list of services; (4) determining
UCR amounts for pharmaceuticals using the Average Wholesale
Price (“AWP”), a national number of manufacturers’ list prices
that is inappropriate for UCR and not disclosed by Health Net;
and (5) failing to disclose reimbursement policies in EOCs and
SPDs as required by ERISA.

                                B.

        The District Court, by its Opinion and Order dated
August 5, 2004, certified the Wachtel and McCoy lawsuits as
class actions under Federal Rule of Civil Procedure 23(b)(3),
and directed Plaintiffs to submit a plan for notification of the
certified classes. Health Net filed a petition in this Court under
Rule 23(f) requesting review of the certification order. Health
Net also moved the District Court to stay the distribution of the
notice pending resolution of the Rule 23(f) petition. The

                                11
District Court denied the stay on November 12, 2004. On that
same day, Health Net filed a notice of appeal and asked this
Court for immediate review of the District Court’s denial of a
stay of the class notice distribution. On November 15, 2004,
this Court granted Health Net’s Rule 23(f) petition (agreeing to
review the certification order) and granted a temporary stay of
class notice until November 30, 2004, which it later extended
indefinitely pending the resolution of the Rule 23(f) appeal.

        The instant appeal involves three consolidated
proceedings in this Court. On August 9, 2004, the Wachtel and
McCoy cases were consolidated by the District Court. On
November 12, 2004, Health Net filed a notice of appeal from the
District Court’s Order in the consolidated cases denying Health
Net’s motion to stay the issuance of class notice pending
resolution of the Rule 23(f) petition. That appeal was docketed
in this Court as No. 04-4304. Health Net’s appeal of the class
certification itself received new docket numbers after it was
granted. The Rule 23(f) appeal in Wachtel is docketed as 04-
4433, and the appeal in McCoy is docketed as 04-4434. These
three matters were all consolidated in this Court by Order
entered on November 24, 2004.

                              II.

      This Court certified the instant appeal. The claims of the
Wachtel and McCoy cases raise federal questions under § 502 of
ERISA, 29 U.S.C. § 1132. The District Court thus had original

                              12
jurisdiction under 28 U.S.C. § 1331. We exercise appellate
review under 28 U.S.C. § 1292(e), pursuant to which the
Supreme Court promulgated Federal Rule of Civil Procedure
23(f), which provides for interlocutory appeals of a district court
order granting or denying class certification.

        “We review the District Court’s decisions on class
certification for abuse of discretion.” Chiang v. Veneman, 385
F.3d 256, 264 (3d Cir. 2004). “The District Court abuses its
discretion only if its decision ‘rests upon a clearly erroneous
finding of fact, an errant conclusion of law, or an improper
application of law to fact.’” Id. (internal citation omitted).

                                III.

                                A.

         Federal Rule of Civil Procedure 23, which deals with
class actions, underwent substantial amendment in 2003, and the
amendments took effect on December 1 of that year. See 28
U.S.C. § 2074(a). Included as part of the 2003 amendments to
the rule was newly-created Subdivision (c)(1)(B), which
provides in relevant part that “[a]n order certifying a class action
must define the class and the class claims, issues, or defenses .
. . .” F ED. R. C IV. P. 23(c)(1)(B).

      In our efforts to determine precisely what district courts
must do in order properly to “define” those claims, issues, or

                                13
defenses appropriate for class treatment in a given matter, we
find ourselves in uncharted waters.          Not only are the
requirements of Rule 23(c)(1)(B) a matter of first impression for
this Court, but, to our knowledge, neither our sister courts of
appeals nor any other federal court has addressed the issue.
Furthermore, the Advisory Committee Notes accompanying the
text of Rule 23 make no explicit reference to Subdivision
(c)(1)(B). Nonetheless, we conclude that the plain text of the
Subdivision, especially when considered in light of the text and
structure of parallel provisions in Rule 23, indicate that Rule
23(c)(1)(B) requires district courts to include in class
certification orders a clear and complete summary of those
claims, issues, or defenses subject to class treatment.

        Current practice often falls short of that standard.
Certification orders tend to treat the parameters of the class itself
much more clearly and deliberately than the class claims, issues,
or defenses. In response to plaintiffs’ motions for class
certification, district courts often issue memorandum opinions
discussing the allegations in the complaint, the facts of the case,
and some combination of the substantive requirements for class
certification found in Rule 23(a) and (b). Several of these
substantive provisions may even lead to discussion of
“common” versus “individual” issues present in the case. See
F ED. R. C IV. P. 23(a)(2) (indicating that the existence of issues
of law and fact common to the class is required before
certification is appropriate); F ED. R. C IV. P. 23(b)(3) (requiring
that issues of law or fact common to the class “predominate”

                                14
over individual issues).

        At the conclusion of this type of opinion, or in an
accompanying certification order, the court typically states that
it is certifying “the following class,” or uses some equivalent
language, followed by a block paragraph describing precisely
those individuals to be included as part of the relevant class or
classes. Although examples of common claims, issues, or
defenses presented by the case may be discussed as part of the
court’s commonality, typicality, or predominance analysis,
certification orders and memoranda are most often devoid of any
clear statement regarding the full scope and parameters of the
claims, issues or defenses to be treated on a class basis as the
matter is litigated.

        We conclude that the plain text of Rule 23(c) as amended
requires more specific and more deliberate treatment of the class
issues, claims, and defenses than the practice described above
has usually reflected. More specifically, in our view, the proper
substantive inquiry for an appellate tribunal reviewing a
certification order for Rule 23(c)(1)(B) compliance is whether
the precise parameters defining the class and a complete list of
the claims, issues, or defenses to be treated on a class basis are
readily discernible from the text either of the certification order
itself or of an incorporated memorandum opinion.

       We arrive at this conclusion primarily through textual
analysis of Rule 23(c)(1)(B) itself. To “define” a thing or

                                15
concept is “to state precisely or determinately [its boundaries];
to specify” or “[t]o frame or give a precise description” of a
thing. Oxford English Dictionary (2d ed. 1989). According to
the Rule, those things to be defined in a certification order
include the “class and the class claims, issues, or defenses . . . .”
F ED. R. C IV. P. 23(c)(1)(B) (emphasis added). The above
elements occur in a conjunctive, undifferentiated list, indicating
that the requirement to “define” the “class claims, issues or
defenses” is identical to the requirement to define the “class”
itself within a given certification order. Id. Furthermore, the
use of the definite article “the” before “class claims, issues, or
defenses” connotes comprehensiveness and specificity, rather
than illustrative or partial treatment, in defining those aspects of
class action certification.

        The substantive standard that we have laid out above also
comports with and facilitates compliance with the textual
requirements and apparent purpose of other provisions of Rule
23. For instance, Rule 23(c)(2) indicates that for any class
certified under Rule 23(b)(1) or (2), “the court may direct
appropriate notice to the class,” F ED. R. C IV. P. 23(c)(2)(A), and
that for any class certified under Rule 23(b)(3), “the court must
direct to class members the best notice practicable under the
circumstances.” F ED. R. C IV. P. 23(c)(2)(B) (emphasis added).
That notice must, inter alia, “concisely and clearly state . . . the
definition of the class certified” and “the class claims, issues or
defenses.” Id. Clear and complete treatment of both the class
and the class claims, issues, or defenses at the class certification

                                16
stage will unquestionably facilitate the timely execution of what
is almost always the next step – in fact, often a mandatory next
step, see F ED. R. C IV. P. 23(c)(2)(B) – in class action litigation,
namely the court-supervised distribution of class notice to class
members.6


    6
     The Advisory Committee notes accompanying the 2003
amendments to Rule 23 point out that in an attempt to aid courts
and practitioners in composing adequate class notices, the
Federal Judicial Center has created a series of sample class
notices pertaining to hypothetical class actions of different
types. The sample notice pertaining to an action against a
company – in which no settlement has been reached as of the
distribution of the notice – attempts to clearly and succinctly
answer a host of questions so that class members can make an
informed choice as to whether to opt out of the class. See
Federal Judicial Center, Employment Discrimination Class
Action       Certification:            Full     Notice,
http://www.fjc.gov/public/pdf.nsf/lookup/ClaActII.pdf/$file/
ClaActII.pdf (last visited June 15, 2006). Those questions
include, inter alia, “What does the lawsuit complain about?”;
“How does [the company] answer?”; “What are the Plaintiffs
asking for?”; “Who is in the Class[?]”; and “Am I a part of this
Class?”. Id. Just as a court’s clear summation of the class
parameters greatly aids the court and class counsel in providing
information regarding the latter two questions, a clear and
complete summation of the claims, issues, or defenses subject
to class treatment will facilitate the provision of more
informative and authoritative answers to the preceding
questions.

                                17
         Furthermore, compliance with the requirements of Rule
23(c)(1)(B) as we have defined them today will significantly aid
appellate review of a district court’s decision to certify a matter
as a class action. Most significantly, it seems self-evident that
a clear and complete statement of the claims, issues, or defenses
to be treated on a class basis will shed light on a district court’s
numerosity, commonality, typicality, and predominance analysis
under Rule 23(a) and (b). In addition, Rule 23(c)(4)(A) states
that “[w]hen appropriate (A) an action may be brought or
maintained as a class action with respect to particular issues . .
. .” Id. Not only is there overlap between compliance with Rule
23(c)(1)(B) and compliance with Rule 23(c)(4)(A), but
compliance with the former as we define it today will greatly
facilitate meaningful appellate review of complex certification
decisions regarding the latter.

        Although we regard the plain text argument outlined
above as sufficient to support our holding, we note that in
addition to comporting with the text of the Rule itself, the
standard for compliance with Rule 23(c)(1)(B) that we outline
today dovetails with the apparent purpose and goals of
amending the Rule as expressed in the Advisory Committee
Notes. As mentioned above, the Advisory Committee’s Notes
accompanying the 2003 amendments to the text of Rule 23
contain no explicit reference to Rule 23(c)(1)(B). Having said
that, the Notes to Rule 23(c)(1)(A) – dealing with the timing of
class action certification – state that in a certification context,
one “critical need is to determine how the case will be tried,”

                                18
such that in addition to requiring counsel to submit proposed
classes to the court prior to certification, “[a]n increasing
number of courts require a party requesting class certification to
present a ‘trial plan’ that describes the issues likely to be
presented at trial and tests whether they are susceptible to class-
wide proof.” 7 F ED. R. C IV. P. 23(c)(1)(A) advisory committee’s
note. The interpretation of Rule 23(c)(1)(B) that we adopt today
will aid courts and parties in meeting this “critical” need by
necessitating the full and clear articulation of the litigation’s
contours at the time of class certification.8



    7
     We believe that the pre-certification presentation of the
aforementioned trial plans represents an advisable practice
within the class action arena, and we note that such instruments
could be used by parties and trial courts to facilitate Rule
23(c)(1)(B) compliance regarding the claims, issues, or defenses
subject to class treatment in the same way that class language
proposed by the parties aids trial courts in defining the precise
parameters of a given class for certification purposes.
        8
        We acknowledge that class actions often present
extraordinarily complex factual and legal scenarios, such that a
complete list of the claims, issues, or defenses appropriate for
class treatment may be difficult to discern or articulate at the
time of certification. In addition, the 2003 amendments to the
Rule eliminated so-called “conditional” certifications – formerly
available under Rule 23(c)(1)(C) – such that a trial court may
not certify only a limited list of class claims or issues while
explicitly delaying decision on other claims. The potential

                                19
        In addition to the Advisory Committee’s Notes
accompanying the text, the published Report of the Standing
Committee on Rules of Practice and Procedure (“Committee
Report”), i.e., the Advisory Committee’s input to the Judicial
Conference as to whether to adopt certain amendments to the
Rule, reflects overwhelming support for the adoption of what is
now Rule 23(c)(1)(B). More specifically, members of the
Committee indicated that adoption of the amendment was
worthwhile inasmuch as its inclusion in the rule would aid
appellate review of class action certification decisions and
would facilitate the distribution of class notices that would
better enable class members to make informed opt out decisions.
See generally Report of the Standing Committee on Rules of
Practice and Procedure (published September 2002)
(encompassing Committee activity as of that date, including,
inter alia, comments that the inclusion of Rule 23(c)(1)(B) “will
clarify the issues for the parties and the appellate court,” that the


difficulty posed by the requirements of Rule 23(c)(1)(B),
however, is tacitly acknowledged and directly mitigated by
amended Rule 23(c)(1)(C), which allows that a certification
order may be “altered or amended” at any time “before final
judgment.” Furthermore, to the extent that circumstances
genuinely warrant some evolution in the matters to be treated on
a class basis in a given action, the full and clear articulation of
those claims, issues, or defenses intended to be treated on a class
basis at the time of the original certification order will provide
a defined status quo that likely will serve to streamline any later
process of adjustment.

                                20
amendment “will facilitate appellate review,” and that the
amendment will “reduce uncertainty and increase the likelihood
of settlement”).9 We agree that enforcement of Rule 23(c)(1)(B)
as written will help to streamline class action litigation
generally, will facilitate appellate review of class certification
decisions, and will help class members – the intended
beneficiaries of class action litigation – to make informed
decisions as to their rights and options in opting out of a
particular action.


  9
   Indeed, a full review of the Committee Report reveals ample
support for even more specificity than is currently required by
the amended Rule. One representative comment stated:

       The (c)(1)(B) provisions should be made more
       pointed. . . . [A]ppellate courts are finding that it
       is difficult to “figur[e] out what the District Court
       intended to treat on a class basis * * * I would
       urge that the proposed rule be clarified to specify
       that a District Court indicate which elements of
       the class claims and defenses thereto it intended
       to try on a class basis, thereby indicating by
       omission what elements of those claims would be
       left to be adjudicated on an individual basis.” The
       Note should state that one purpose is to facilitate
       appellate review.

Committee Report, comment and written statement by John
Beisner, Esq. (emphasis in original).

                               21
       In summary, we hold that the requirement of Rule
23(c)(1)(B) that a certification order “define the class and the
class claims, issues, or defenses,” means that the text of the
order or an incorporated opinion must include (1) a readily
discernible, clear, and precise statement of the parameters
defining the class or classes to be certified, and (2) a readily
discernible, clear, and complete list of the claims, issues or
defenses to be treated on a class basis.10

                               IV.

       Applying the above standard, we conclude that the
Certification Order and accompanying Memorandum Opinion
(collectively, the “Order”) in the instant case fail to meet the
substantive requirements of Rule 23(c)(1)(B). Although the
Order meets the requirements of the Rule as to the class


 10
    To be sure, no particular format is necessary in order to meet
the substantive requirement of the Rule, and we will not set
aside substantively conforming certification orders purely over
matters of form. That said, we reiterate our holding that the list
of claims, issues, or defenses to be treated on a class basis must
be readily discernible from the text of the order or memorandum
opinion, and we note that in future cases, the appearance within
a certification order of a concise paragraph – similar to
paragraphs often drafted to define the class itself and fully
listing the claims, issues or defenses to be treated on a class
basis – would come well within the parameters of the “readily
discernible” requirement.

                               22
composition, it nonetheless fails because it neglects to define the
claims, issues, or defenses to be treated on a class basis.

         As an initial matter, we note that the Order easily meets
the requirements of Rule 23(c)(1)(B) with respect to the
definition of the class itself. Near the end of its Opinion, the
District Court, pursuant to its “superiority” determination,11
engaged in substantial discussion on the issue of whether to
include certain members or health plans within the classes it will
certify. The Court ultimately determined that at this initial
stage, it would include members of all of Health Net’s plans
within the scope of the class. The Court also pointed out that,
if necessary, it could divide the classes into subclasses should
the case prove unmanageable or should it otherwise become
appropriate. In addition to that more general analysis, the Court
included section “E. Definition of the Classes:” at the end of its
Memorandum Opinion. Under that heading, the Court stated
that it “grants class certification for the following classes,” after
which the Court explicitly and precisely defined the two classes




   11
     In addition to requiring that issues common to the class
“predominate” over individual issues, Rule 23(b)(3) also
requires a determination that “a class action is superior to other
available methods for the fair and efficient adjudication of the
controversy.” F ED. R. C IV. P. 23(b)(3).

                                23
to be certified.12   Finally, the Order itself stated that class


   12
      Both classes referred to in the original Order have since
been amended and will likely undergo further amendment. The
first class, as amended upon Health Net’s motion on October 7,
2004, is the Wachtel class, defined as

        All persons in the United States who are, or were,
        from April 1997 to August 2004 subscribers or
        beneficiaries in any large or small employer plan,
        other than in a New Jersey small employer plan,
        who received medical services or supplies
        (including, inter alia, surgery, anesthesia, and the
        like) from an out-of-network provider and for
        whom Defendants made reimbursement
        determinations less than the providers’ actual
        charge.

Jt. App. 52. The second class, also as amended, is the McCoy
class, defined as

        All persons in the United States who are, or were,
        from July 1995 through August 2004 subscribers
        or beneficiaries in any New Jersey small employer
        plan, who received medical services or supplies
        (including, inter alia, surgery, anesthesia, and the
        like) from an out-of-network provider and for
        whom Defendants made reimbursement
        determinations less than the providers’ actual
        charge.

                                24
certification would be granted “for the classes defined in the
Opinion accompanying this Order . . . .” The Order clearly and
precisely defines the classes themselves and therefore meets that
requirement of Rule 23(c)(1)(B).

        By contrast, the Order’s discussion of class claims,
issues, or defenses is unclear, intermittent, and incomplete, and
nothing in the Order evidences an intent to explicitly define
which claims, issues, or defenses are to be treated on a class
basis for the remainder of the litigation. For example, in a
footnote explaining why the cases have been consolidated, the
Court made the general statement that both the Wachtel and
McCoy cases “contain significant common questions of law and
fact,” and also stated that the common questions in both cases
“relate to allegations that, inter alia, Health New [sic] used
outdated data to determine Usual, Customary, and Reasonable
charges, applied improper reimbursement methods, and failed to
provide adequate disclosures to beneficiaries.” The very use of
the phrase “inter alia” (“among other things”) in the latter
statement suggests that it is intentionally incomplete.
Furthermore, as mentioned above, the context in which the
statements occurred indicates that they were meant to justify the
Court’s preliminary decision to consolidate the cases – not to
address issues or claims to be treated on a class basis.

       Other statements in the Order suffer similar inadequacies.


Id.

                               25
As part of its “Commonality and Predominance” analysis, the
Court stated that the “issues of law and fact relating to whether
Health Net fully disclosed and properly applied its
reimbursement mechanisms for out-of-network provider
services are common to the class members and predominate
over individual questions.” Ten pages later, in reaffirming its
previous conclusion that common issues predominate individual
issues such that class certification is generally appropriate, the
Court stated that the “legal and factual issues regarding Health
Net’s alleged use of improper reimbursement practices are
central to the determination of Health Net’s liability to each
class member.” Although both of the above statements touch on
categories of issues that are common to the class members, both
are general, non-exclusive statements that fail to articulate the
particular claims asserted by Plaintiffs; neither statement
mentions any legal provisions allegedly violated by Health Net;
both statements are made in the course of analysis that is distinct
from analysis meant to define class claims, issues, or defenses;
and as a practical matter, neither statement addresses with any
precision or formality which claims, issues, or defenses will be
litigated on a class basis moving forward. In addition, the Order
itself – which serves formally to certify the class action and
which explicitly incorporates the language of the Opinion
defining the classes – makes no reference to these or any other
statements relating to claims, issues, or defenses to be treated on
a class basis.

       It is conceivable that we could cobble together the

                                26
various statements quoted above and reach a general inference
as to some categories of issues that the District Court believes
are appropriate for class treatment. As we have discussed at
length, however, that level of direction in a certification order is
insufficient under Rule 23(c)(1)(B). A certification order or
opinion that requires a reviewing appellate court to comb the
entirety of its text searching for isolated statements that may add
up to a partial list of class claims, issues, or defenses falls short
of the readily discernible and complete list of class claims,
issues, or defenses required by the Rule. Under Rule
23(c)(1)(B), a sufficient certification order must, in some clear
and cogent form, define the claims, issues, or defenses to be
treated on a class basis. The instant Order fails to meet that
requirement.

                                 V.

        For the reasons stated above, we will vacate the
Certification Order and remand to the District Court for a
definition of the claims, issues, or defenses to be treated on a
class basis.




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