District Court Erred in Granting Class Action Certification because Expert Testimony Establishing Rule 23(b)(3)’s Predominance Prong was Unreliable and District Court’s Daubert Analysis Inadequate Seventh Circuit Holds

Plaintiffs filed a putative class action against American Honda and Honda of America (collectively “Honda”) alleging product defect liability concerning Honda’s Gold Wing GL1800 motorcycle; specifically, the class action complaint alleged that a design defect in the steering assembly causes the motorcycle to “wobble.” American Honda Motor Co., Inc. v. Allen, 600 F.3d 813, 814 (7th Cir. 2010). Plaintiffs moved the district court to certify the litigation as a class action under Rule 23(b)(3), relying heavily on an expert’s opinion that common issues predominate; Honda opposed class action treatment and challenged the expert opinion relied upon by plaintiffs in their motion. Id. Defense attorneys moved under Daubert v. Merrell Dow Pharms., Inc., 509 U.S. 579 (1993), to strike plaintiffs’ expert report on the grounds that the expert’s “wobble decay standard was unreliable because it was not supported by empirical testing, was not developed through a recognized standard-setting procedure, was not generally accepted in the relevant scientific, technical, or professional community, and was not the product of independent research.” Id. The district court agreed to rule on the admissibility of the report prior to ruling on class certification because the report was central to the motion, id. But while the court announced “definite reservations about the reliability of [the expert’s] wobble decay standard,” it refused to exclude the report entirely “at this early stage of the proceedings.” Id., at 814-15. The district court granted class action certification, id., at 815, and Honda sought leave to appeal, id., at 814. The Seventh Circuit granted Honda’s request and reversed.

The Circuit Court explained that the issue before it was “whether the district court must conclusively rule on the admissibility of an expert opinion prior to class certification in this case because that opinion is essential to the certification decision.” American Honda, at 814. The Court summarized the expert’s “wobble decay” opinion, which was based on a standard the expert himself had devised and that he himself characterized as “reasonable.” Id. The expert opinion was important because “most of Plaintiffs' predominance arguments rest upon the theories advanced by [their expert].” Id. (quoting Allen v. Am. Honda Motor Co., 264 F.R.D. 412, 425 (N.D. Ill. 2009)). In response to Honda’s objections and following the Daubert hearing, the district court “noted that it was concerned that, among other things, [the expert’s] wobble decay standard may not be supported by empirical evidence, the standard has not been generally accepted by the engineering community, and [his] test sample of one may be inadequate to conclude that the entire fleet of GL1800s is defective.” Id., at 814-15. Nevertheless, the lower court believed it was too early in the litigation to dismiss the expert’s opinion in its entirety, and so it granted class action treatment without prejudice to Honda moving to exclude the expert’s opinion. Id., at 815.

As a matter of first impression in the Seventh Circuit, the Court “specifically addressed whether a district court must resolve a Daubert challenge prior to ruling on class certification if the testimony challenged is integral to the plaintiffs' satisfaction of Rule 23's requirements.” American Honda, at 815. The Circuit Court held “that when an expert's report or testimony is critical to class certification, as it is here…, a district court must conclusively rule on any challenge to the expert's qualifications or submissions prior to ruling on a class certification motion.” Id., at 815-16. Thus, in the Seventh Circuit’s view, “the district court must perform a full Daubert analysis before certifying the class if the situation warrants.” Id., at 816. This includes not only the expert’s qualifications, but “any challenge to the reliability of information provided by an expert if that information is relevant to establishing any of the Rule 23 requirements for class certification.” Id.

In this case, the district court “started off on the right foot by beginning to undertake what might have become a fairly extensive Daubert analysis,” and both acknowledged “and largely agreed with” Honda’s concerns about the reliability of the testimony of plaintiff’s expert, “[y]et the district court ultimately declined, without further explanation, ‘to exclude the report in its entirety at this early stage of the proceedings.’” American Honda, at 816. The Circuit Court explained at page 816 that the district court’s analysis (or lack thereof) constituted an abuse of discretion: “The court's effective statement of admissibility here is not even conclusory; it leaves open the questions of what portions of [the expert’s] testimony it may have decided (or will decide) to exclude, whether [the expert] reliably applied the standard to the facts of the case, and, ultimately, whether Plaintiffs have satisfied Rule 23(b)(3)'s predominance requirement. As a result, the district court never actually reached a conclusion about whether [the] expert report was reliable enough to support Plaintiffs’ class certification request. Instead it denied Honda's motion to exclude without prejudice and noted that the case was in an ‘early stage of the proceedings.’”

Reviewing the expert’s report on the merits, the Seventh Circuit held that “our examination of the record reveals that exclusion is the inescapable result when the Daubert analysis is carried to its conclusion.” American Honda, at 817. The issue here was one of reliability rather than qualifications, but the Circuit Court noted that “even the most ‘supremely qualified expert cannot waltz into the courtroom and render opinions unless those opinions are based upon some recognized scientific method and are reliable and relevant under the test set forth by the Supreme Court in Daubert.’” Id. (citing Clark v. Takata Corp., 192 F.3d 750, 759 n.5 (7th Cir.1999)). Based on the Court’s analysis, the expert’s testimony was unreliable, see id., at 817-18, and “expert testimony that is not scientifically reliable should not be admitted, even ‘at this early stage of the proceedings,’” id., at 819 (citation omitted). Because the expert’s testimony formed the foundation for Rule 23(b)(3)’s predominance test, class action certification could not stand. Id. Accordingly, the Seventh Circuit granted Honda’s petition for leave to appeal and vacated the denial of Honda’s motion to strike and the district court’s order grant of class action treatment. Id.

NOTE: In response to plaintiffs’ request that the Circuit Court deny leave to appeal, the Seventh Circuit explained, “Given the uncertainty surrounding the propriety of conducting a Daubert analysis at the class certification stage, and the frequency with which this issue arises, we find the question to be one appropriate for resolution under Rule 23(f).” American Honda, at 815 (citation omitted).