Lienhart v. Dryvit Sys.

• Citation: 255 F.3d 138
• Decision Date: 27 February 2001
• Docket Number: No. 00-908,00-908
• Parties: (4th Cir. 2001) ROBERT B. LIENHART, et al.; DINAH J. LIENHART; MICHAEL SMITH; JOLEEN SMITH; DAVID P. ADAMS; PAMELA M. ADAMS; BENJAMIN BRASWELL; BARBARA W. BRASWELL, Respondents, v. DRYVIT SYSTEMS, INCORPORATED, Petitioner. Argued:
• Court: United States Courts of Appeals. United States Court of Appeals (4th Circuit)

Page 138

255 F.3d 138 (4th Cir. 2001)

ROBERT B. LIENHART, et al.; DINAH J. LIENHART; MICHAEL SMITH; JOLEEN SMITH; DAVID P. ADAMS; PAMELA M. ADAMS; BENJAMIN BRASWELL; BARBARA W. BRASWELL, Respondents, v. DRYVIT SYSTEMS, INCORPORATED, Petitioner.

No. 00-908

UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT

Argued: February 27, 2001

Decided: June 26, 2001

Appeal from the United States District Court for the Eastern District of North Carolina, at Raleigh. W. Earl Britt, Senior District Judge. (CA-99-470-5-BR) [Copyrighted Material Omitted]

[Copyrighted Material Omitted] COUNSEL ARGUED: Hada deVarona Haulsee, WOMBLE, CARLYLE, SAN- DRIDGE & RICE, P.L.L.C., Winston-Salem, North Carolina, for Petitioner. Gary Walker Jackson, MICHAELS, JACKSON & OET- TINGER, Raleigh, North Carolina, for Respondents. ON PLEAD- INGS: W. Andrew Copenhaver, F. Bruce Williams, Charles L. Becker, WOMBLE, CARLYLE, SANDRIDGE & RICE, P.L.L.C., Winston-Salem, North Carolina, for Petitioner. Joel R. Rhine, Wil- mington, North Carolina; Daniel K. Bryson, LEWIS & ROBERTS, P.L.L.C., Raleigh, North Carolina, for Respondents.

Before WIDENER, WILKINS, and WILLIAMS, Circuit Judges.

OPINION

WILLIAMS, Circuit Judge:

Dryvit Systems, Inc. petitions for review, pursuant to Federal Rule of Civil Procedure 23(f), of the district court's certification of a plain- tiff class of homeowners who allege that Dryvit's stucco siding prod- uct, "Fastrak System 4000" (Fastrak), was negligently designed and that Dryvit failed to warn purchasers of the product's alleged defects. This Circuit has not yet had occasion to articulate the standard gov- erning our consideration of petitions under Rule 23(f). We adopt a five-factor "sliding scale" test to guide the consideration of such peti- tions, grant the petition, and hold that certification of this class is inappropriate at this time because it is likely that individual issues necessary to adjudicate Dryvit's liability will predominate over class issues in a manner inconsistent with the dictates of Federal Rule of Civil Procedure 23(b)(3). We thus grant Dryvit's petition for review and vacate the district court's class certification order.

I.

A.

Fastrak is a stucco siding product that is installed on the exterior of a building in order to provide a water-resistant shield that protects the building from weather. Fastrak consists of several component parts: (a) a sheathing comprised of Georgia-Pacific Corporation's "Dens-Glass Gold" product; (b) Dryvit non-cementatious base coat (NCB); (c) reinforcing mesh; and (d) Dryvit finish coat. Dryvit sells the various components of the system to independent distributors and provides instructions and specifications to applicators, who buy the components from various suppliers and produce the final product. Applicators are usually hired by general contractors to install Fastrak on the exterior of a new building; responsibility for installing Fastrak and integrating it with other building components, such as windows, doors, flashing, and the roof is shared between applicators, general contractors, and subcontractors. Dryvit asserts that Fastrak can fail for various reasons related to the conduct of third parties, such as applica- tor error, use of incorrect materials, or improperly sealing Fastrak to other components of a building, such as windows or the roof.

Fastrak's design is based upon the premise that a properly face- sealed barrier can prevent the intrusion of water behind the siding product, eliminating the need for drainage between the siding and the wall of a structure. The plaintiff class argues that a face-sealed barrier of this sort cannot be installed correctly in the field and will inevitably lack water resistance and ability to resist applied loads.

B.

On July 25, 1999, plaintiff Robert E. Lienhart and others (collec- tively "Lienhart") filed a complaint in the Superior Court for Wake County, North Carolina against defendant Dryvit, for themselves and on behalf of a class comprised of all entities in North Carolina whose buildings were constructed after January 1, 1992 using Fastrak. Lien- hart alleged that Dryvit had committed negligence, gross negligence, negligent misrepresentation, fraud, and unfair and deceptive trade practices. Lienhart alleged that Fastrak caused damage to their struc- tures by "trapping" water within each structure's walls. On July 22, 1999, Dryvit removed this action to the United States District Court for the Eastern District of North Carolina based on diversity of citi- zenship. On December 18, 2000, the district court certified the pro- posed class. Certification was limited to the issues of (1) whether Dryvit's product was defectively designed; and (2) whether Dryvit had breached a duty to warn homeowners of the hazards inherent in the use of its product.

Dryvit timely filed a Petition for Review pursuant to Rule 23(f) with this Court.¹

II.

A.

This Circuit has not yet had occasion to consider the standards for granting a petition to appeal class certification under Federal Rule of Civil Procedure 23(f), a new provision added in 1998 to Rule 23, the rule governing class actions.

Rule 23(f) provides:

A court of appeals may in its discretion permit an appeal from an order of a district court granting or denying class action certification under this rule if application is made to it within ten days after entry of the order. An appeal does not stay proceedings in the district court unless the district judge or the court of appeals so orders.

Fed. R. Civ. P. 23(f).

The advisory committee note to Rule 23(f) states that "the court of appeals is given unfettered discretion whether to permit" a Rule 23(f) appeal, "akin to the discretion exercised by the Supreme Court in act- ing on a petition for certiorari." Fed. R. Civ. P. 23(f) advisory com- mittee note. Noting that "[t]he courts of appeals will develop standards for granting review that reflect the changing areas of uncer- tainty in class litigation," the advisory committee note states that "[p]ermission to appeal may be granted or denied on the basis of any consideration that the court of appeals finds persuasive." Id. The note discusses three circumstances in which such review may be especially appropriate: where an order denying certification effectively ends the litigation because the individual claims are uneconomical to litigate, so that no review will in practice be available from a final judgment; where an order granting certification effectively ends the litigation because it produces irresistible pressure on the defendant to settle; and "when the certification decision turns on a novel or unsettled question of law." Id.

The first federal court of appeals decision addressing the standards for granting a Rule 23(f) petition was the Seventh Circuit's opinion in Blair v. Equifax Check Serv., Inc., 181 F.3d 832 (7th Cir. 1999). The Seventh Circuit noted that in light of the discretionary nature of Rule 23(f), it would be inappropriate to adopt a bright-line approach which would unduly constrain the court's discretion. Id. at 834. How- ever, the court discussed and elaborated upon some circumstances which may justify the grant of a Rule 23(f) petition. First, the court stated that "when denial of class status seems likely to be fatal, and when the plaintiff has a solid argument in opposition to the district court's decision," review is warranted. Id. In this area, however, the Seventh Circuit cautioned that courts entertaining such "death knell" Rule 23(f) claims must be "wary lest the mind hear a bell that is not tolling," noting that even where individual claims would ordinarily be too small to litigate individually, law firms with substantial resources may pursue an individual claim to final judgment in the hope of win- ning a favorable ruling on class certification on appeal from final judgment. Id. Second, the court stated that review may be appropriate where a grant of class certification creates irresistible pressure on the defendant to settle, especially where the plaintiff's probability of suc- cess on the merits is slight. Id. Noting that "some plaintiffs or even some district judges may be tempted to use the class device to wring settlements from defendants whose legal positions are justified but unpopular," the court suggested that the "interaction of procedure with the merits justifies an earlier appellate look."² Id. Third, the Seventh Circuit held that whether hearing an appeal would help to "facilitate the development of the law" by clearing up a significant unresolved issue also is relevant. Id. at 835. The court reasoned that one of the purposes of Rule 23(f) was to promote the development of case law regarding certain fundamental class action issues which tend to be under-litigated because so many class actions are settled or oth- erwise resolved in ways that preclude eventual appellate consideration of procedural issues. The court noted that when the basis for granting review is to contribute to the development of the law, "it is less important to show that the district judge's decision is shaky," as affir- mances as well as reversals may serve to illuminate important ques- tions. Id. Thus, the court granted the Rule 23(f) petition before it to resolve issues related to the propriety of multiple, overlapping, con- currently litigated class actions, but it ultimately affirmed the district court's certification order. Id. at 838-39.

The First Circuit, in Waste Management Holdings, Inc. v. Mow- bray, 208 F.3d 288 (1st Cir. 2000), adopted several variations on the Seventh Circuit's approach in Blair. The court noted that it "ordinar- ily will grant leave to appeal when a Rule 23(f) application falls into one of the three [Blair] categories," but noted its ongoing discretion in this area. Id. at 294. The court also restricted the third Blair cate- gory to those instances in which "an appeal will permit the resolution of an unsettled legal issue...