     Case: 15-30010   Document: 00513984771        Page: 1    Date Filed: 05/09/2017




        IN THE UNITED STATES COURT OF APPEALS
                 FOR THE FIFTH CIRCUIT
                                                                       United States Court of Appeals
                                                                                Fifth Circuit
                                    No. 15-30010                              FILED
                                                                           May 9, 2017

CHERYL SLADE,                                                            Lyle W. Cayce
                                                                              Clerk
             Plaintiff - Appellee

v.

PROGRESSIVE SECURITY INSURANCE COMPANY,

             Defendant - Appellant




                Appeal from the United States District Court
                   for the Western District of Louisiana


Before OWEN, GRAVES, and HIGGINSON, Circuit Judges.
STEPHEN A. HIGGINSON, Circuit Judge:
      The court has carefully considered this appeal in light of the briefs, oral
argument, and pertinent portions of the record. Having done so, we REMAND
the certification of the contract and Louisiana-insurance law class.                    We
REVERSE the district court’s certification of a fraud class. We elaborate on
only three points.
                                         I
      Defendant-Appellant      Progressive    Security       Insurance       Company
(“Progressive”) contends that Comcast Corp. v. Behrend, 133 S. Ct. 1426 (2013),
requires reversal; it does not. In Comcast, plaintiffs brought antitrust claims
asserting four separate liability theories. Id. at 1430–31. The district court
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rejected all but one. Id. at 1431. Nonetheless, the district court certified a
class action after finding that damages could be calculated on a class-wide
basis.    Id. at 1431.   The district court based its certification decision on
plaintiffs’ damages model, which calculated damages based on all four liability
theories and did not isolate damages from any one theory. Id. The Supreme
Court reversed. Id. at 1432. It reasoned that “a model purporting to serve as
evidence of damages in this class action must measure only those damages
attributable to that theory. If the model does not even attempt to do that, it
cannot possibly establish that damages are susceptible of measurement across
the entire class . . . .” Id. at 1433. Accordingly, Comcast held that when
plaintiffs argue that damages can be decided on a class-wide basis, plaintiffs
must put forward a damages methodology that maps onto plaintiffs’ liability
theory. Id. at 1433.
         Our cases interpreting Comcast confirm that what Comcast demands is
fit between plaintiffs’ class-wide liability theory and plaintiffs’ class-wide
damages theory. See, e.g., Ludlow v. BP, P.L.C., 800 F.3d 674, 683 (5th Cir.
2015), cert. denied, 136 S. Ct. 1824 (2016); In re Deepwater Horizon, 739 F.3d
790, 817 (5th Cir.), cert. denied sub nom. BP Expl. & Prod. Inc. v. Lake Eugenie
Land & Dev., Inc., 135 S. Ct. 754 (2014). For example, in Deepwater Horizon,
we noted that “[t]he principal holding of Comcast was that a model purporting
to serve as evidence of damages must measure only those damages attributable
to the theory of liability on which the class action is premised.” Deepwater
Horizon, 739 F.3d at 817 (internal quotation marks, citation, and alterations
removed).
         Here, Plaintiffs’ liability theory is that Defendant unlawfully used
WorkCenter Total Loss (WCTL) to calculate the base value of total loss
vehicles. Plaintiffs claim that using WCTL, instead of lawful sources such as
the National Automobile Dealers Association (NADA) Guidebook or the Kelly
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                                No. 15-30010
Blue Book (KBB), resulted in their vehicles being assigned a lower base value
and accordingly resulted in Plaintiffs receiving lower payouts on their
insurance claims.
      Plaintiffs’ damages theory aligns with that liability theory. Plaintiffs
contend that damages can be calculated by replacing Defendant’s allegedly
unlawful WCTL base value with a lawful base value, derived from either
NADA or KBB, and then adjusting that new base value using Defendant’s
current system for condition adjustment.       Plaintiffs contend that such a
calculation can be done on a class-wide basis because Defendant already
possesses NADA scores for most of the class, NADA or KBB scores are
otherwise publicly available, and Defendant already has condition scores for
each vehicle. In fact, Plaintiffs’ damages expert opined that she could apply
Defendant’s condition adjustment to Defendant’s NADA scores or publicly
available NADA or KBB data. This damages methodology fits with Plaintiffs’
liability scheme because it isolates the effect of the allegedly unlawful base
value. That is, by essentially rerunning Defendant’s calculation of actual cash
value but with a lawful base value, Plaintiffs’ damages theory only pays
damages resulting from the allegedly unlawful base value.
      And Plaintiffs’ damages methodology is sound. Defendant calculates the
base value and the condition adjustment separately. Under either the WCTL
system or a NADA or KBB system, base value purports to measure the retail
cost of a vehicle of the same make, model, and year of the loss vehicle. From
this base value, an adjustment can be made to consider the condition of the
loss vehicle. Because this condition adjustment is a separate and unrelated
step from the calculation of base value, there is no principled reason why
Defendant’s own condition adjustment scores could not be used to adjust base
values derived from NADA or KBB.          Indeed, Plaintiffs’ damages expert


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testified that it would not be difficult to apply Defendant’s condition
adjustment to NADA base values.
       The court finds, for essentially the reasons stated by the district court,
that Plaintiffs’ damages methodology does not preclude class treatment.
                                               II
       Defendant argues—for the first time on appeal—that by accepting
Defendant’s      condition     score    calculation      as   is,   Plaintiffs    may      have
impermissibly waived unnamed class members’ ability to assert a future claim
contesting Defendant’s computation of the condition factor. 1 Because this
argument was not expressly raised to the district court, and may present
important certification questions, we remand.
       At the outset, it is important to position Defendant’s argument into the
broader class certification framework. If Plaintiffs had raised challenges to
both the condition adjustment and the base value calculation, Plaintiffs’ class
certification motion may have run into predominance problems because
condition adjustments appear to be highly individualized. Perhaps recognizing
this concern, Plaintiffs disclaimed any challenge to the condition adjustment.
This waiver may have resolved the predominance problem 2—all parties agree




       1 Defendant’s failure to raise this specific adequacy argument before the district court
is understandable. Before the district court, Plaintiffs never explicitly agreed to waive claims
related to the condition adjustment. Instead, the district court gleaned that Plaintiffs had
“no quarrel” with the condition adjustment from the parties’ presentation of the issues raised
by the class. Plaintiffs did not explicitly disclaim challenges to the condition adjustment until
they arrived at this court.
        2 The predominance problem may re-emerge, or may morph into a superiority

problem, if too many unnamed plaintiffs wish to bring individual condition adjustment
claims. See Lee Anderson, Preserving Adequacy of Representation When Dropping Claims in
Class Actions, 74 UMKC L. Rev. 105, 124 (2005) (“[C]lass representatives may elect to drop
claims to improve the likelihood of meeting Rule 23(b)(3)’s ‘predominance’ requirement.
However, the related 23(b)(3) requirement that the class suit prove ‘superior to other
available methods for the fair and efficient adjudication of the controversy’ may wind up
undermined if too many individual suits appear likely to follow.”). On remand, the district
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that the base value calculation is formulaic and non-individualized.                      But
resolving the predominance problem with a waiver of claims raises a separate
potential bar to class certification—adequacy.
       Adequacy encompasses three separate but related inquiries (1) “the zeal
and competence of the representative[s’] counsel”; (2) “the willinginess and
ability of the representative[s] to take an active role in and control the
litigation and to protect the interests of absentees”; and (3) the risk of “conflicts
of interest between the named plaintiffs and the class they seek to represent.”
Feder v. Elec. Data Sys. Corp., 429 F.3d 125, 130 (5th Cir. 2005) (quoting Berger
v. Compaq Comp.Corp., 279 F.3d 313, 313–14 (5th Cir. 2002)). When the class
representative proposes waiving some of the class’s claims, the decision risks
creating an irreconcilable conflict of interest with the class. See, e.g., Back
Doctors Ltd. v. Metro. Prop. & Cas. Ins. Co., 637 F.3d 827, 830–31 (7th Cir.
2011) (“A representative can’t throw away what could be a major component of
the class’s recovery.”). And for this reason, Defendant expressly couches its
waiver argument not as an attack on predominance but as an attack on a
purported conflict of interest.
       Of course, not all purported conflicts between a class representative and
members of the class will defeat adequacy. O’Connor v. Uber Techs., Inc., 311
F.R.D. 547, 566 (N.D. Cal. 2015) (“[A] decision to abandon a claim that may not
be certifiable does not automatically render a plaintiff inadequate, particularly
when they seek the majority of the claims.”); Stanich v. Travelers Indem. Co.,
259 F.R.D. 294, 307 (N.D. Ohio 2009) (“[C]ourts have found that concerns
related to the potential res judicata effect of abandoning a certain claim in
favor of another claim do not necessarily create a conflict between the class



court will be better equipped to address this concern, either initially or following the notice
and opt-out period.
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representative and the absent class members.”). Instead, deciding whether a
class representative’s decision to forego certain claims defeats adequacy
requires an inquiry into, at least: (1) the risk that unnamed class members will
forfeit their right to pursue the waived claim in future litigation, (2) the value
of the waived claim, and (3) the strategic value of the waiver, which can include
the value of proceeding as a class (if the waiver is key to certification). See,
e.g., Murray v. GMAC Mortg. Corp., 434 F.3d 948, 953 (7th Cir. 2006)
(Easterbrook, J.) (weighing the value of the purportedly waived claim against
the value of proceeding as a class on the un-waived claims); Todd v. Tempur-
Sealy Int’l, Inc., No. 13-CV-04984-JST, 2016 WL 5746364, at *5 (N.D. Cal.
Sept. 30, 2016) (“A strategic decision to pursue those claims a plaintiff believes
to be most viable does not render her inadequate as a class representative.”);
O’Connor, 311 F.R.D. at 566 (finding no adequacy problems where the
Plaintiffs provided evidence that the waived claims were low value and may
have been difficult to prove on a class-wide basis); Bowe v. Pub. Storage, 318
F.R.D.   160,   175   (S.D.   Fla.    2015)   (“[C]ourts      have   found   proposed
representatives inadequate where they had strategically abandoned or did not
have standing to bring substantial and meaningful claims that many absent
class members could potentially bring and prevail upon.”); Coleman v. Gen.
Motors Acceptance Corp., 220 F.R.D. 64, 84 (M.D. Tenn. 2004) (finding no
adequacy problems where the risk of future preclusion was low). A class
representative’s decision to waive unnamed class members’ claims will defeat
adequacy where the lost value of the waived claims (percent risk of future
preclusion multiplied by the value of the waived claim) is greater than the
strategic value of the decision to waive. See, e.g., Murray, 434 F.3d at 953; In
re Universal Serv. Fund Tel. Billing Practices Litig., 219 F.R.D. 661, 670 (D.
Kan. 2004) (“While the court can certainly appreciate the fact that a named
plaintiff’s failure to assert certain claims of the absent class members might
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give rise to a conflict of interest when the named plaintiff is advancing his or
her own interests at the expense of the class, the mere fact that a named
plaintiff elects not to pursue one particular claim does not necessarily create
such a conflict. Here, the named plaintiffs’ decision to abandon the fraud claim
appears to have been a choice that advances the named plaintiffs’ interests as
well as the interests of the absent class members, and therefore the court is
unpersuaded that any impermissible conflict of interest exists.”).
      The risk of preclusion here is uncertain. Part of this risk is inherent
whenever a party waives claims to secure class certification because “[a] court
conducting an action cannot predetermine the res judicata effect of the
judgment; that effect can be tested only in a subsequent action.” Matsushita
Elec. Indus. Co. v. Epstein, 516 U.S. 367, 396 (1996) (Ginsburg, J., concurring
in part and dissenting in part) (citing 7B C. Wright, A. Miller, & M. Kane,
Federal Practice and Procedure § 1789, p. 245 (2d ed. 1986)). Moreover, courts
have inconsistently applied claim preclusion to class actions. See, e.g., In re
Skelaxin (Metaxalone) Antitrust Litig., 299 F.R.D. 555, 578 (E.D. Tenn. 2014)
(noting “considerable disagreement among courts on this issue”). On one hand,
class actions are “one of the recognized exceptions to the rule against claim-
splitting.” Gunnells v. Healthplan Servs., Inc., 348 F.3d 417, 431–32 (4th Cir.
2003); accord Gooch v. Life Inv’rs Ins. Co. of Am., 672 F.3d 402, 429 (6th Cir.
2012) (same); Verde v. Stoneridge, Inc., 137 F. Supp. 3d 963, 974 (E.D. Tex.
2015) (noting that “other courts recognize an exception to the rule against
claim splitting for class actions”). At the same time, courts have also refused
to certify class actions because of perceived risk of down the line preclusion.
See, e.g., McClain v. Lufkin Indus., Inc., 519 F.3d 264, 283 (5th Cir. 2008)
(noting that “if the price of a Rule 23(b)(2) disparate treatment class both limits
individual opt outs and sacrifices class members’ rights to avail themselves of
significant legal remedies, it is too high a price to impose”); Fosmire v.
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                                 No. 15-30010
Progressive Max Ins. Co., 277 F.R.D. 625, 634 (W.D. Wash. 2011) (finding that
“[plaintiff’s] attempt to split her putative class members’ claim by excluding
stigma damages creates a conflict between her interests and the interests of
the putative class”); Sanchez v. Wal Mart Stores, No. 06-CV-02573 (JAM)
(KJM), 2009 WL 1514435, at *3 (E.D. Cal. May 28, 2009) (finding that a class
representative was inadequate because her decision to forego personal injury
damages could harm the class).
      We note that the risk to unnamed class members is smaller than usual
here because of the opportunity for opt outs. Plaintiffs sought certification
under Rule 23(b)(3), which allows opting out. See Fed. R. Civ. P. 23(b)(3)
(allowing opt outs from a Rule 23(b)(3) class). Thus, if unnamed class members
thought that the risk of preclusion were cogent and wished to protect their
claim, they could do so. See 7AA Charles Alan Wright et al., Fed. Prac. & Proc.
§ 1777 (3d ed. 2005) (“The notice requirement and the option to exclude oneself
from the judgment recognize the special character of Rule 23(b)(3) classes.”).
And if the number of plaintiffs opting out demonstrated a cogent conflict, the
district court could decertify the class. Therefore, here, to the extent there is
any risk of preclusion, the class can protect itself. See Murray, 434 F.3d at 953
(“Unless a district court finds that personal injuries are large in relation to
statutory damages, a representative plaintiff must be allowed to forego claims
for compensatory damages in order to achieve class certification. When a few
class members’ injuries prove to be substantial, they may opt out and litigate
independently.”); Edward F. Sherman, “Abandoned Claims” in Class Actions:
Implications for Preclusion and Adequacy of Counsel, 79 Geo. Wash. L. Rev.
483 (2011) (“But if abandoned claims are made an issue as to adequacy of
representation for purposes of class certification, and the court determines that
there is a genuine risk of preclusion, then there are strong reasons for it to


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order notice and a right to opt out. This would give class members who value
those claims the opportunity to opt out and pursue them individually.”). 3
       Once again, because this precise argument was not raised below, the
district court never had an opportunity to weigh the value of the potentially
waived claim against the strategic value of the waiver (here the value of
proceeding as a class on the base-value claim). See Murray, 434 F.3d at 953
(“The district court’s second reason—that Murray should have sought
compensatory damages for herself and all class members rather than relying
on the statutory-damages remedy—would make consumer class actions
impossible. . . . Refusing to certify a class because the plaintiff decides not to
make the sort of person-specific arguments that render class treatment
infeasible would throw away the benefits of consolidated treatment. Unless a
district court finds that personal injuries are large in relation to statutory
damages, a representative plaintiff must be allowed to forego claims for
compensatory damages in order to achieve class certification. . . . Only when
all or almost all of the claims are likely to be large enough to justify individual
litigation is it wise to reject class treatment altogether.”). We do not attempt
this weighing in the first instance.
       Instead, on remand, the district court can consider the risk of preclusion,
the value of the potentially waived claims, and the relative strategic value of
Plaintiffs’ proffered waiver. In doing so, we note that the district court has a
number of options at its disposal, each of which may or may not be appropriate
depending on how the case develops, including, but not limited to:
           • Concluding the risks of preclusion are too great and declining to
             certify the class;



       3 The opt-out procedure is not a panacea. If the risk of future preclusion of a valuable
claim is disproportionately high, a class representative may be inadequate even assuming
opt-out protections.
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          • Certifying the class as is and then tailoring the notice and opt-out
            procedure to alert the class of the risk of preclusion;
          • Concluding that the benefits of proceeding as a class outweigh the
            risks of future preclusion and certifying the class as is; or
          • Defining the class in a way to exclude unnamed plaintiffs who may
            quarrel with the condition adjustment.

                                          III
      We reverse the district court’s order certifying the fraud class. This court
has held consistently that “a fraud class action cannot be certified when
individual reliance will be an issue.” Castano v. Am. Tobacco Co., 84 F.3d 734,
745 (5th Cir. 1996); see also Cole v. Gen. Motors Corp., 484 F.3d 717, 727 (5th
Cir. 2007) (“‘[T]he economies ordinarily associated with the class action device’
are defeated where plaintiffs are required to bring forth individual proof of
reliance.” (quoting Patterson v. Mobil Oil Co., 241 F.3d 417, 419 (5th Cir.
2001))); Sandwich Chef of Tex., Inc. v. Reliance Nat’l Indem. Ins. Co., 319 F.3d
205, 211 (5th Cir. 2003) (“Fraud actions that require proof of individual
reliance cannot be certified as Fed.R.Civ.P. 23(b)(3) class actions because
individual, rather than common, issues will predominate.”). True, there are
some cases where a plaintiff’s reliance theory is capable of class-wide
resolution. See In re Foodservice Inc. Pricing Litig., 729 F.3d 108, 119–20 (2d
Cir. 2013). But, this is not one of them. Slade’s surviving fraud claim is a
common-law fraud claim, which under Louisiana law requires proof of reliance.
Abbott v. Equity Grp., Inc., 2 F.3d 613, 624 (5th Cir. 1993) (“To prevail [on a
fraud claim], Louisiana requires proof of actual reliance.”).            Importantly,
showing    reliance   here   will   necessitate     individual    inquiries   because
Defendant’s loss-payout process allowed claimants to individually negotiate
their claims.    Because Slade has failed to show that class issues will
predominate, Slade’s common-law fraud claim should not have been certified.
                                      *         *   *

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                               No. 15-30010
     We REMAND the certification order as to the contract and statutory
claims and REVERSE the certification order as to the fraud claim.




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