NOTE: This article has been modified from an earlier version, published in August 2016. In a March 29, 2017 order, the United States District Court for the Eastern District of Texas dismissed the featured lawsuit on jurisdictional grounds. Nonetheless, the ruling does not change the article’s analysis of defendant class certification.
In July 2016, the fight over training compensation and solidarity in United States soccer got a little more serious. Three U.S. youth clubs – Crossfire Premier (WA), Dallas Texans, and Sockers FC Chicago – filed a lawsuit against the Major League Soccer Players Union and a class of current and future American soccer players, asking for a declaratory judgment that would clear the way for them to receive both forms of payment. At present, all three plaintiff clubs have claims pending before FIFA’s Dispute Resolution Center. If successful, these would entitle the clubs to solidarity (and for one of Sockers’ claims, training compensation) for players who trained with them as youth players and later became professionals. The MLSPU has threatened to file an antitrust suit against any club that receives these payments, as, according to the union, they constitute illegal restraints on trade. So the youth clubs are now seeking a declaratory judgment holding that training compensation and solidarity comply with U.S. antitrust law. In this way, their suit is a kind of preemptory strike, meant to eliminate the defendants’ threatened lawsuit before it can get started.
There are two components to the clubs’ suit: (1) an individual action against the MLSPU and (2) a class action against two classes of players. It is this second component, the class action, where the clubs may encounter roadblocks. Specifically, for a case to proceed as a class action, the court must certify the class. This is a ruling that the class meets a set of standards in the Federal Rules of Civil Procedure. These standards are meant to determine whether conducting one case with a class of litigants, as opposed to several suits with individual litigants, is the fairest and most efficient way to resolve a particular dispute.
By far, the more common type of class action is a plaintiff class action. This is where the class sues an individual or several individual defendants. The youth clubs, on the other hand, are bringing a defendant class action. That is, they are individual plaintiffs suing proposed classes of defendants. Comparatively, these types of class actions are rare. Follette v. Vitanza, 658 F. Supp. 492, 507 (N.D.N.Y. 1987).
Further, federal courts are more reluctant to certify defendant classes than plaintiff classes. For the most part, the reasons for this are due process-related. Namely, unlike a plaintiff class member, who stands to benefit from litigation on his behalf, an unnamed defendant class member can be saddled with a judgment without having the opportunity to defend himself. Thillens v. Community Currency Exchange Ass’n of Illinois, 97 F.R.D. 668, 674 (N.D. Ill. 1983); Follette, 658 F. Supp. at 507. So understandably, when courts certify a defendant class, they want to be sure it is appropriate.
THE PROPOSED CLASSES
The clubs have proposed two classes: (1) all U.S. soccer players whose signing with an MLS team or whose transfer into or out of the United States would trigger training compensation or solidarity as set forth in the FIFA Regulations on the Status and Transfer of Players; and (2) all other U.S. amateur and professional soccer players whose professional contract signing or transfer between U.S. professional teams would trigger training compensation or solidarity should U.S. Soccer implement a domestic system similar to the RSTP. (Cmpt. ¶35). In addition, the clubs have named three class representatives: (1) Clint Dempsey, a former youth player for Texans, who currently plays for MLS’ Seattle Sounders; (2) DeAndre Yedlin, a former youth player for Crossfire, who currently plays for Tottenham Hotspur of the English Premier League; and (3) Michael Bradley, a former youth player for Sockers, who currently plays for MLS’ Toronto FC. (Cmplt. ¶35). Each plaintiff club’s solidarity claim at the DRC corresponds with the class representative who played there. So for instance, Texans have filed a solidarity claim relating to one of Dempsey’s transfers, Crossfire for one of Yedlin’s transfers and Sockers for one of Bradley’s. (Cmplt. ¶¶21, 23, 25). Sockers is also pursuing a training compensation claim relating to Eric Pothast, a former player who signed his first professional contract with Angelholms FF, a club that plays in the Swedish second tier. (Cmplt. ¶27). Pothast is not one of the class representatives.
CLASS CERTIFICATION – RULE 23
Class certification is governed by Rule 23 of the Federal Rules of Civil Procedure. Within this rule, there are two subsections that the plaintiff clubs will need to confront. The first is 23(a). This provision outlines four elements, all of which the class must satisfy in order to be certified. The elements are
- The class is so numerous that joinder of all members is impracticable;
- There are questions of law or fact common to the class;
- The claims or defenses of the representative parties are typical of the claims or defenses of the class; and
- The representative parties will fairly and adequately protect the interests of the class.
Fed. R. Civ. P. 23(a)(1)-(4).
Next, if the class meets all four conditions, the party seeking certification must also demonstrate that the case satisfies one of the three requirements in subsection 23(b). These are as follows:
- Prosecuting separate actions by or against individual class members would create a risk of: (A) inconsistent or varying adjudications with respect to individual class members that would establish incompatible standards of conduct for the party opposing the class; or (B) adjudications with respect to individual class members that, as a practical matter, would be dispositive of the interests of the other members not parties to the individual adjudications or would substantially impair or impede their ability to protect their interests;
- The party opposing the class has acted or refused to act on grounds that apply generally to the class, so that final injunctive relief or corresponding declaratory relief is appropriate respecting the class as a whole; or
- 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.
Fed. R. Civ. P. 23(b)(1)-(3). Here, the youth clubs are only requesting certification under (b)(1) and (b)(2). So in total, they must establish the four elements in 23(a) and the requirements in either 23(b)(1) or 23(b)(2).
Rules 23(a) – Typicality and adequacy may present challenges for the youth clubs
Of the four 23(a) elements, the youth clubs should have no trouble satisfying numerosity or commonality. But the remaining two – typicality and adequacy – will be challenging. Under 23(a)(3), the class representative’s claims and defenses must be typical of the class members’ claims and defenses. Fed. R. Civ. P. 23(a)(3). And if they are not typical, the representative cannot adequately represent the class, as it would have little incentive to advance class member defenses it does not share. In re Itel Securities Litigation, 89 F.R.D. 104, 118-119 (N.D. Cal. 1981); See Fed R. Civ. P. 23(a)(4).
Here, the youth clubs have a typicality problem because several class members have no apparent dispute with the youth clubs. This gives them a defense to the declaratory judgment claim that the class representatives lack. Indeed, to establish a claim for declaratory judgment, the plaintiff must demonstrate that an actual controversy exists between the parties. American States Insurance v. Bailey, 133 F.R.D. 363, 368 (5th Cir. 1998); Trinity Universal Insurance v. Sweatt, 978 S.W.2d 267, 270 (Texas App. – Fort Worth 1998). The youth clubs have proposed broad classes that encompass “thousands” of American soccer players, regardless of their club affiliations. (Cmplt. ¶36). These would include players who did not play for any of the plaintiff clubs. As such, the plaintiffs cannot obtain training compensation or solidarity for these players. Likewise, the players would have no reason to file an antitrust suit against the plaintiff clubs to prevent them from collecting these payments. Therefore, no controversy exists between the plaintiff clubs and many of the proposed class members. This lack of controversy gives these class members a strong defense to the clubs’ declaratory judgment claims.
And it is a defense that the class representatives, each of whom played for a plaintiff club, do not have. Thus, the representatives’ claims and defenses are not typical of a wide swath of class members. Further, beyond the typicality problem, the representatives may not be adequate because they would have little incentive to spend time and money pressing the “no controversy” defense. So the youth clubs could struggle to establish typicality or adequacy.
Nonetheless, the Court could refuse certification but allow the clubs to amend their complaint. This would allow them to narrow their proposed classes to players who played for them. These classes would not be exposed to the same typicality or adequacy issues as the current classes and would, therefore, probably satisfy 23(a).
Rule 23(b)
If the youth clubs satisfy Rule 23(a), they will still have to establish either 23(b)(1) or 23(b)(2). Subsection (b)(1) breaks down into two further subsections: (b)(1)(A) and (b)(1)(B). Fed. R. Civ. P. 23(b)(1)(A)-(B). The youth clubs can satisfy 23(b) by meeting the requirements in either subsection of (b)(1) or the requirements in (b)(2). See Itel, 89 F.R.D. at 123-126.
Rule 23(b)(1)(A) – Individual suits would not leave the clubs with incompatible standards
Rule 23(b)(1)(A) provides that a class can be certified if prosecuting the same dispute through individual actions would “create the risk of… inconsistent or varying adjudications with respect to individual class members that would establish incompatible standards of conduct for the party opposing the class.” Fed. R. Civ. P. 23(b)(1)(A). In other words, for certification under this rule, individual suits would have to leave the party opposing the class in a position where it could not comply with one judgment without violating the other. Alexander Grant & Co. v. McAlister, 116 F.R.D. 583, 589-590 (S.D. Ohio 1987); Winder v. King Instruments, 130 F.R.D. 392, 394 (N.D. Ill. 1990); See Itel, 89 F.R.D. at 124-125. This goes beyond the possibility that separate trials would lead to conflicting judgments against different defendants. Winder, 130 F.R.D. at 394; See Itel, 89 F.R.D. at 124-125. There, a party could enforce the judgment against one defendant without violating a judgment in favor of a different defendant. Winder, 130 F.R.D. at 394; McBirney v. Autrey, 106 F.R.D. 240, 245 (N.D. Tex. 1985). Rather, to satisfy (b)(1)(A), the inconsistent judgments must relate to the same defendant on the same issue. Winder, 130 F.R.D. at 394; See Itel, 89 F.R.D. at 124-125.
For example, in Itel, a 1981 case from the Northern District of California, a plaintiff class attempted to certify four defendant classes consisting of underwriters who sold them debentures based on allegedly fraudulent financial statements. Itel, 89 F.R.D. at 108. The proposed defendant classes included two classes of underwriters who violated §11 of the Securities Act (1933) and two classes of underwriters who violated §12(2) of the Act. The factual and legal issues between the two classes overlapped significantly. That is, the class members were mostly the same, as were the relevant financial statements and the elements of claims under both sections. Most notably, to establish a claim under either section, plaintiffs had to show that the financial statements were materially misleading. After certifying the §11 classes under Rule 23(b)(3), the Court ruled that the §12(2) classes must be certified under (b)(1)(A). According to the Court, if it did not certify the §12(2) classes, the plaintiff class would be forced to conduct a class action against the §11 classes and individual actions against the §12(2) class members. This could lead to a decision in the §11 action holding that the financial statements were materially misleading and decisions in the §12 actions holding that they were not. As a result, the plaintiff class would have inconsistent adjudications as to the same defendants on the same issue – one relating to each defendant as a §11 class member and one relating to the same defendants in their individual §12(2) actions. Therefore, the §12(2) classes fell within (b)(1)(A).
By contrast, in Winder, a 1990 case from the Northern District of Illinois, a class of patent holders brought a patent infringement suit against a proposed class of alleged infringers. Winder, 130 F.R.D. at 393. The plaintiffs tried to certify the class under (b)(1)(A) on the theory that individual suits could lead to the patents being held enforceable as to some defendants but unenforceable as to others. The Court denied certification on this basis, holding that, for the judgments to be incompatible, they would have to be inconsistent as to the same defendant. These judgments would not be incompatible because the plaintiffs could enforce the patent against one defendant and not the other.
Likewise, in National Union Fire Insurance, a 1994 case from the District of Kansas, the plaintiff brought a two-count complaint seeking a declaratory judgment rescinding an insurance policy that allegedly covered two proposed defendant classes of officers and directors. National Union Fire Insurance of Pittsburgh v. Midland Bancor, Inc., 198 F.R.D. 681, 684 (D. Kansas 1994). The plaintiff alleged that it issued the policy as a result of materially false statements by the financial institutions that employed the defendant class members. The plaintiff attempted to certify the classes under (b)(1)(A), arguing that, without certification, it would be “forced to litigate multiple declaratory judgment actions, each having the potential to produce an inconsistent judgment.” The Court ruled that this did not establish the situation contemplated by the rule, where the plaintiffs would suffer incompatible judgments and could not comply with one without violating the other. So it denied to certification under (b)(1)(A).
Based on these standards, the youth clubs’ case does not fit (b)(1)(A). If the clubs were forced to prosecute individual suits, the scenario would play out similarly to the ones predicted in the Winder/National Union line of cases. One of the clubs could get a judgment against one proposed class member declaring that training compensation and solidarity do not violate antitrust law. Conversely, the same club could lose a suit against a different class member. So the club would have two adjudications, one holding that receiving training compensation and solidarity for one player complied with antitrust law and a different one holding that receiving the payments for another player would not. These would be different judgments as to different defendants. They would not, therefore, be incompatible. The club could receive the payments from the first player and refrain from pursuing them for the second player. As such, the clubs would risk nothing more than the plaintiffs in the Winder/National Union line: inconsistent adjudications as to different defendants. This is not enough to satisfy 23(b)(1)(A).
Rule 23(b)(1)(B) – Individual suits would not impair absent class members’ interests
Rule 23(b)(1)(B) provides that a class can be certified if individual suits would “create the risk of…adjudications with respect to individual class members that, as a practical matter, would be dispositive of the interests of the other members not parties to the individual adjudications or would substantially impair or impede their ability to protect their interests.” Fed. R. Civ. P. 23(b)(1)(B). The rule contemplates situations where “judgment in a non-class action by or against an individual” class member practically, though perhaps not technically, concludes claims against other members. See Fed. R. Civ. P. 23(b)(1)(B), Advisory Committee’s Notes; Itel, 89 F.R.D. at 125. In these instances, the problem is that other members would have their claims decided without being represented in the lawsuit. Id. So (b)(1)(B) guards against these situations by allowing a class to represent those absent defendants’ interests. Courts have identified the particular factors that lead to (b)(1)(B) certification on a case-by-case basis. Nonetheless, they have consistently held that, where the precedential effect of individual actions is the only prejudice to absent class members, certification under (b)(1)(B) is inappropriate. In re Dennis Greenman Securities Litigation, 829 F.2d 1539, 1546 (11th Cir. 1987); Itel, 89 F.R.D. at 126; National Union Fire Insurance of Pittsburgh, 198 F.R.D. at 687-688; McBirney, 106 F.R.D. at 246.
The reasons courts have granted (b)(1)(B) certification are varied. For example, some courts have certified defendant classes where an individual judgment against one defendant land owner would have, for practical purposes, eliminated the value of the other defendants’ land interests. Canadian St. Regis Band of Mohawk Indians v. State of New York, 97 F.R.D. 453, 458-459 (N.D.N.Y. 1983); Wyandotte Nation v. City of Kansas City, No. 01-2303-CM, 2002 WL 31941041, at *4-5 (D. Kansas, Dec. 2, 2002). Other courts have certified (b)(1)(B) defendant classes when judgment against one class member would necessarily result in liability against other class members, such as when the class members are all members of a partnership. In re Phar-Mor Securities Litigation, 875 F. Supp. 277, 280-281 (W.D. Penn. 1994). Another situation that leads to (b)(1)(B) certification is where the defendants draw from a common defense fund and individual suits could exhaust or diminish the fund. Alexander Grant & Co., 116 F.R.D. at 590; Phar-Mor, 875 F. Supp. at 280. None of these factors apply to the youth clubs’ suit.
Rather, the youth clubs’ position more closely resembles a common, yet unsuccessful, argument for (b)(1)(B) certification: if individual suits were required, an adverse ruling against one defendant could be used against the other class members in the individual suits against them. Dennis Greenman, 829 F.2d at 1545-1546; Itel, 89 F.R.D. at 125-126; National Union Fire Insurance of Pittsburgh, 198 F.R.D. at 687-688. Universally, courts hold that this alone does not go beyond the precedential impact of one action on another. Dennis Greenman, 829 F.2d at 1546; Itel, 89 F.R.D. at 126; National Union Fire Insurance of Pittsburgh, 198 F.R.D. at 687-688. So the argument does not justify (b)(1)(B) certification.
Courts have indicated, however, that they will certify (b)(1)(B) defendant classes where the plaintiff can demonstrate a precedential impact plus other factors. Phar-Mor, 875 F. Supp. at 280; Tilley v. TJX Companies, 345 F.3d 34, 42-43 (1st Cir. 2003). In Phar-Mor, for example, the Court noted that, beyond the precedential impact, any admission by one partner in an individual action could be used as a statement against interest in a subsequent suit against another partner. Phar-Mor, 875 F. Supp. at 280. The Court determined that this extended beyond the effect of the prior precedent and supported certification under (b)(1)(B).
But the youth clubs have no such additional factors on their side. That is, the only effect individual suits would have on absent defendants is that a ruling for the clubs in one individual suit would stand as precedent that training compensation and solidarity complied with antitrust law. In a subsequent suit against an absent defendant, this ruling would be persuasive authority in favor of the clubs. But it would have no other impact on the rights of either the clubs or the defendants. As such, the earlier ruling would have no impact beyond its precedential value. So again, certification under (b)(1)(B) would be unlikely.
Rule 23(b)(2) – Classes could be certified via the “reverse declaratory judgment””exception
While the usual rule is that defendant classes cannot be certified under 23(b)(2), the youth clubs may be able to achieve certification through an exception.
Federal courts claim to disagree over whether defendant classes can be certified under 23(b)(2). Some courts have held explicitly that (b)(2) defendant classes cannot be certified. Henson v. East Lincoln Township, 814 F.2d 410, 414 (7th Cir. 1987); Paxman v. Campbell, 612 F.2d 848, 854 (4th Cir. 1980). Nonetheless, at least one of these courts, the Seventh Circuit, hinted at potential exceptions under which a (b)(2) defendant class could be certified. Henson, 814 F.2d at 413. Similarly, other federal courts have suggested that (b)(2) defendant classes can be certified, but only in limited circumstances. Clark v. McDonald’s Corp., 213 F.R.D. 198, 220-221 (3rd Cir. 2003); Thompson v. Board of Education of Romeo Community Schools, 709 F.2d 1200, 1204 (6th Cir. 1983). These circumstances match the potential exceptions identified by the Seventh Circuit when it claimed to bar (b)(2) certification altogether. So from a practical standpoint, although courts claim to disagree about certification under (b)(2), their decisions congeal around the same general philosophy – (b)(2) defendant classes are barred, except under a few defined circumstances.
The reason for barring (b)(2) defendant classes is fairly straightforward. The rule states that certification is only appropriate if “the party opposing the class has acted or refused to act on grounds that apply generally to the class, so that final injunctive relief or corresponding declaratory relief is appropriate respecting the class as a whole.” Typically, the party acting or refusing to act will be the defendant. Henson, 814 F.2d at 414. For example, defendant might be wrongfully occupying land or dumping toxic waste in a river. It is the rare instance where an act by the plaintiff will make injunctive relief appropriate. Tilley, 345 F.3d at 39; Henson, 814 F.2d at 413-414. And it is equally rare that the plaintiff would seek an injunction to stifle its own conduct.
This would appear to smother the youth clubs’ hope to certify (b)(2) defendant classes. But one prominent exception may offer them a lifeline. Courts have asserted that defendant classes could “conceivably” be certified under (b)(2) in “reverse declaratory judgment” cases. Henson, 814 F.2d at 414; See Leer v. Washington Education Ass’n, 172 F.R.D. 439, 452 (W.D. Wash. 1997). Those are cases where the plaintiff seeking the declaratory judgment would normally be the defendant and the defendant in the action would normally be the plaintiff. An example provided by multiple courts is where a debtor seeks a declaratory judgment that he is not liable on a debt. Henson, 814 F.2d at 414; Leer, 172 F.R.D. at 452. Ordinarily, it would be the creditor that sues the debtor for payment of the debt. Henson, 814 F.2d at 414. But in these “reverse” cases, the debtor would be moving proactively, essentially trying to defeat an action for payment of the debt by getting a declaratory judgment before that action is ever filed. As such, the roles are reversed. The creditor, who would normally be the plaintiff, is the defendant, and the debtor, who would normally be the defendant, is the plaintiff. Courts have noted that this form of defendant class could possibly be certified under (b)(2). In fact, in Henson,the Seventh Circuit case that claimed to bar (b)(2) defendant classes, the Court conceded that these “reverse declaratory judgments” may be amendable to certification. Henson, 814 F.2d at 414.
This approach makes sense from a textual standpoint. Returning to the debtor/creditor example, the party opposing the class is the debtor plaintiff. He is the one acting or refusing to act in that he is not paying his debt. Injunctive and “corresponding declaratory relief” is necessary to determine whether he will be forced to pay his debt or the creditor will be forced to abandon his efforts to collect it. So a reverse declaratory judgment case would fit the text of Rule 23(b)(2).
Likewise, it would fit the youth clubs’ situation. If the clubs did not sue, but obtained training compensation from the DRC, they could be subject to an antitrust suit from the MLSPU or the players. In such a case, the youth clubs would be the defendants and the union or the players would be the plaintiffs. So the roles would be reversed.
And like the debtor/creditor example, the facts conform to (b)(2)’s plain language. That is, the youth clubs are the party opposing the class. They have acted by seeking training compensation and solidarity from the DRC. Without the declaratory relief they are seeking, the clubs may be prevented from obtaining these payments. One might also characterize this relief as an injunction preventing the defendants from bringing antitrust suits. As such, injunctive and “corresponding declaratory relief” is necessary to determine whether the youth clubs can ultimately receive the payments. So despite courts disfavoring (b)(2) defendant classes, the youth clubs’ proposed classes may fit the exception.
THE BOTTOM LINE
The youth clubs have the ingredients for certification of the defendant classes. But the obstacles noted above are real. In their present form, there is a reasonable chance that the classes do not satisfy 23(a)(3) or (a)(4). And even if the clubs amended the classes, they would still struggle to meet 23(b)(1)(A) or (b)(1)(B).
The clubs’ most likely road to success would probably begin with amending the classes to include only players who played for the clubs. After that, they could attempt to certify under the “reverse declaratory judgment” exception to 23(b)(2). Nonetheless, courts are skeptical of (b)(2) defendant classes. So certification of the youth clubs’ defendant classes (even narrowed versions) is far from guaranteed.
Terry Brennan Law 