Second Circuit Rejects Implied Ascertainability Standard in In re Petrobras Securities

Jan. 18, 2018, 5:52 PM

Whether class members are sufficiently ascertainable – that is, whether there is a reliable method for identifying potential class members at the class certification stage – is an intensely contested issue.

There has been a sharp Circuit Courts of Appeals split as to whether class plaintiffs must prove ascertainability or not and what ascertainability itself entails at the class certification stage. See Sandusky Wellness Center, LLC v. Medtox Scientific, Inc., 821 F.3d 992, 995 (8th Cir. 2016) (collecting cases and holding no heightened ascertainability requirement for class certification); see also, e.g., Brecher v. Republic of Argentina, 806 F.3d 22, 24 (2nd Cir. 2015) (discussed below, requiring some type of ascertainability standard); City Select Auto Sales Inc. v. BMW Bank of North America Inc., 867 F.3d 434, 439-40 (3d Cir. 2017) (affirming heightened ascertainability requirement set forth in Byrd v. Aaron’s Inc., 784 F.3d 154, 166 (3d Cir. 2015)); Mullins v. Direct Digital, LLC, 795 F.3d 654, 659 (7th Cir. 2015) (no heightened ascertainability standard); Rikos v. Procter & Gamble Co., 799 F.3d 497, 524-25 (6th Cir. 2015) (declining to follow heightened ascertainability threshold required in the Third Circuit); Berger v. Home Depo USA, Inc., 741 F.3d 1061, 1071 n. 3 (9th Cir. 2014) (abrogated on other grounds by Microsoft Corp. v. Baker, 137 S.Ct. 1702 (2017)) (mentioning ascertainability but not requiring a heightened ascertainability standard); EQT Prod. Co. v. Adair, 764 F.3d 347, 358 (4th Cir. 2014) (discussing ascertainability requirement for class certification); Union Asset Management Holding A.G. v. Dell, Inc., 669 F.3d 632, 639 (5th Cir. 2012) (ascertainability required for class certification); Little v. T–Mobile USA, Inc., 691 F.3d 1302, 1304 (11th Cir. 2012) (plaintiff must establish the proposed class is adequately defined and clearly ascertainable).

In 2017, the question of ascertainability was before the United States Supreme Court; however, the Supreme Court denied certiorari, thus leaving in place the circuit divide. Conagra Brands, Inc. v. Briseno, et. al., No. 16-1221, 138 S.Ct. 313 (Oct. 10, 2017).

Recently, the Second Circuit rejected a heighted ascertainability standard in In re Petrobras Securities, 862 F.3d 250 (2nd Cir. 2017). Previously, the Second Circuit recognized an “implied requirement of ascertainability in Rule 23” demanding the class be “sufficiently definite so that it is administratively feasible for the court to determine whether a particular individual is a member.” Brecher, 806 F.3d at 24 (internal quotations and citations omitted). The In re Petrobras decision is thus a critical a reversal of this implied requirement.

In In re Petrobras, the United States District Court for the Southern District of New York certified two classes in a securities fraud action against Petrobras and other, related defendants. Both classes were certified under Federal Rule of Civil Procedure 23(b)(3), seeking monetary damages. In re Petrobras, 862 F.3d at 256. Both sets of class plaintiffs generally alleged similar facts – that there was a conspiracy between a cartel of contractors and suppliers and Petrobras executives to rig Petrobras’ bids for capital expenditures (including constructing oil facilities and pipelines) at grossly inflated prices. Id. at 257-58. This scheme had the effect of artificially increasing the value of Petrobras’ assets. Id.

The class plaintiffs were Petrobras investors who had purchased shares of Petrobras, and/or were holders of notes representing debt securities. Id. at 258-59. The District Court certified the two classes – one under the Securities and Exchange Act of 1934 consisting of all purchasers of Petrobras securities or debt securities issued on the New York Stock Exchange or other domestic transactions; and the other under the Securities Act of 1933 consisting of all purchasers who purchased or otherwise acquired Petrobras notes in domestic transactions. Id. at 259. Petrobras appealed class certification because it claimed, among other reasons, that the class definitions did not meet the implied ascertainability threshold because the District Court would be required to assess each class member’s transactions to ensure that the transactions were purchased in connection with U.S. transactions. In re Petrobras, 862 F.3d at 256-57. Thus, the question of whether there is an implied ascertainability requirement was directly before the Second Circuit.

As the Second Circuit summarized, a plaintiff seeking class certification under Federal Rule of Civil Procedure 23(b)(3) has the burden to satisfy the requirements of Rule 23(a) – numerosity, commonality, typicality, and adequacy of representation, and the requirements of Rule 23(b)(3) that common questions of law and fact predominate over any questions affecting only individual class members and that a class action is superior to other available methods for fairly and efficiently adjudicating the controversy. Id. at 260; see also Fed. R. Civ. P. 23. There is no heightened ascertainability standard expressly in Rule 23 and, ultimately, the Second Circuit held that the ascertainability question was never intended to be a separate standard; rather, it was the rationale behind the other requirements in Rule 23.

In reaching this holding, the Second Circuit analyzed its prior holding in Brecher v. Republic of Argentina, 806 F.3d 22, 24 (2nd Cir. 2015), which discussed an implied requirement of ascertainability in Rule 23. This discussion was the basis for the Petrobras Defendants’ argument in favor of a “heightened” ascertainability requirement. In re Petrobras, 862 F.3d at 264. But, the Second Circuit held that its prior decision in Brecher was not properly interpreted as creating a new standard – it was providing the rationale behind other requirements under Rule 23. Id. at 266. Thus, the language in Brecher discussing “administrative feasibility” and the need to ensure the court needn’t conduct “mini-hearings” was not intended to create a separate ascertainability test. Id. Rather, what is required is that the class be “sufficiently definite so that it is administratively feasible for the court to determine whether a particular individual is a member” and that it be “defined by objective criteria so that it will not be necessary to hold a mini-hearing on the merits of each case.” Id. at 266-67. (internal quotations omitted; emphasis in original). Thus, the ascertainability standard was not a requirement, but instead, the purpose behind the definiteness and objectivity prerequisites already contained in Rule 23.

In rejecting a heightened ascertainability standard in favor of the requirement “only that a class be defined using objective criteria that establish[es] a membership with definite boundaries[,]” the Second Circuit also relied heavily upon the text of Rule 23. Id. at 265. First, the Court discussed Rule 23’s requirement that courts consider the likely difficulties in managing a class action – the manageability component. Id. at 268. The manageability requirement, however, is a component of the superiority analysis, which requires courts to ask whether a class action is superior to other available methods for fairly and efficiently adjudicating the dispute. Id.; Fed. R. Civ. P. 23(b)(3). Because the superiority analysis requires a comparative inquiry, requiring a heightened ascertainability standard could be in opposition to the inquiry as to whether there are alternatives to class treatment. In re Petrobras, 862 F.3d at 268. Stated differently, there could be administrative feasibility issues – such as in consumer class actions where there is a lack of proof of purchase for the product at issue – but where there is no realistic alternative to a class action for the efficient adjudication of the dispute.

Similarly, a heightened ascertainability standard would be inconsistent with Rule 23’s predominance requirement, which mandates that common questions of law and fact predominate over the class members. Predominance, is a comparative standard as well and requiring a heightened ascertainability requirement would be inconsistent with this balance. Id.

In sum, a heightened ascertainability requirement would be inconsistent with Rule 23’s balance directing the courts to weigh competing interests in deciding whether to certify a class. Id. In rejecting a heightened ascertainability standard, the Second Circuit joined the Sixth, Seventh, Eight, and Ninth Circuits.


While practitioners in the Second Circuit can no longer argue a heightened ascertainability threshold in opposition to class certification, the general ascertainability principles that the class members be defined by objective criteria that do not require mini-hearings can be cited as reasons to not certify the class under the requirements of Rule 23.

The analysis of whether membership in a proposed class can be determined in a manner that is administratively feasible without resorting to mini-hearings and numerous individualized determinations remains an important consideration for courts considering class certification.

Thus, the primary impact of the Second Circuit’s decision in In re Petrobras is that “the ‘administrative feasibility’ of ascertaining a class should be evaluated under the predominance and superiority elements of class certification under Rule 23(b).” Hughes v. Ester C. Co., 320 F.R.D. 337, 341 (E.D.N.Y. 2017) (denying motion to reconsider based on In re Petrobras of refusal to certify class of purchasers of allegedly mislabeled dietary supplements).

While the Petrobras defendants initially filed a Petition for a Writ of Certiorari on November 1, 2017, which included the question of whether Rule 23 requires an administratively feasible method of ascertaining class members and cited the Circuit split, the plaintiffs and defendants subsequently filed a Joint Emergency Motion to Defer Consideration of Petition for a Writ of Certiorari pending approval of a class action settlement. See Petroleo Brasileiro S.A. – Petrobras, et. al. v. Universities Superannuation Scheme Ltd., Docket No. 17-664. On January 3, 2017, it was announced that a tentative settlement had been reached, meaning this question will not be in front of the Supreme Court and the Circuit split remains unresolved.

But, the tentative settlement of this class action also underscores the importance of class certification – if a class is certified, the majority of class action cases are resolved without trial. It is likely that the Second Circuit’s ruling provided a catalyst for the settlement. This decision is of particular importance in class action cases where it may be difficult to identify the class members because they have no proof of purchase, or where they have to rely on their memories to determine whether they are indeed class members affected by the product or service at issue.

Frank Spano, a shareholder at Polsinelli, focuses his practice on international litigation and arbitration as well as the defense of consumer class actions. Caitlin Morgan, an associate at Polsinelli, focuses her practice on complex commercial litigation, including antitrust and class actions. Both are members of Polsinelli PC’s Class Action Working Group.

To read more articles log in.

Learn more about a Bloomberg Law subscription.