Class Certification, Review of Order Granting

Except as indicated, all indented material is copied directly from the court’s opinion.

Decisions of the Tennessee Supreme Court

Decisions of the Tennessee Court of Appeals

In re SmileDirectClub, Inc. Securities Litigation, No. M2021-00469-COA-R3-CV (Tenn. Ct. App. Mar. 18, 2022).

Concerning the standard of review for class action certifications, this Court has previously elucidated:

A trial court’s decision on class certification is entitled to deference. See Meighan v. U.S. Sprint Commc’ns Co., 924 S.W.2d 632, 637 (Tenn. 1996). The grant or denial of class certification is discretionary, and the court’s decision will stand absent abuse of that discretion. Id. (citing Sterling v. Velsicol Chem. Corp., 855 F.2d 1188, 1197 (6th Cir. 1988)). The abuse of discretion standard typically applies when a choice exists in the trial court among several acceptable alternatives. Lee Med., Inc. v. Beecher, 312 S.W.3d 515, 524 (Tenn. 2010) (citing Overstreet v. Shoney’s, Inc., 4 S.W.3d 694, 708 (Tenn. Ct. App. 1999)). Because the trial court is vested with the responsibility to make that choice, a reviewing court cannot second-guess the lower court’s judgment or merely substitute an alternative it finds preferable. Id. at 524 (citations omitted). A reviewing court must instead affirm the discretionary decision so long as reasonable legal minds can disagree about its correctness. Eldridge v. Eldridge, 42 S.W.3d 82, 85 (Tenn. 2001) (citing State v. Scott, 33 S.W.3d 746, 752 (Tenn. 2000); State v. Gilliland, 22 S.W.3d 266, 273 (Tenn. 2000)). The same principles apply here; a trial court’s certification decision must stand if reasonable judicial minds can differ about the soundness of its conclusion. Freeman v. Blue Ridge Paper Prod., Inc., 229 S.W.3d 694, 703 (Tenn. Ct. App. 2007) (citing White v. Vanderbilt Univ., 21 S.W.3d 215, 223 (Tenn. Ct. App. 1999)). “The abuse of discretion standard of review does not, however, immunize a lower court’s decision from any meaningful appellate scrutiny.” Beecher, 312 S.W.3d at 524 (citing Boyd v. Comdata Network, Inc., 88 S.W.3d 203, 211 (Tenn. Ct. App. 2002)).

A trial court’s discretion is not unbounded. Cf. Gulf Oil Co. v. Bernard, 452 U.S. 89, 100, 101 S.Ct. 2193, 68 L.Ed.2d 693 (1981). A trial court must consider controlling legal principles and relevant facts when making a discretionary decision. Beecher, 312 S.W.3d at 524 (citing Konvalinka v. Chattanooga-Hamilton Cnty. Hosp. Auth., 249 S.W.3d 346, 358 (Tenn. 2008); Ballard v. Herzke, 924 S.W.2d 652, 661 (Tenn. 1996)). A trial court abuses its discretion if it (1) applies an incorrect legal standard, (2) reaches an illogical or unreasonable decision, or (3) bases its decision on a clearly erroneous evaluation of the evidence. Elliott v. Cobb, 320 S.W.3d 246, 249-50 (Tenn. 2010) (citation omitted); see also Walker v. Sunrise Pontiac-GMC Truck, Inc., 249 S.W.3d 301, 308 (Tenn. 2008) (citation omitted). Additionally, a trial court abuses its discretion if it “strays beyond the applicable legal standards or when it fails to properly consider the factors customarily used to guide the particular discretionary decision.” Beecher, 312 S.W.3d at 524 (citing State v. Lewis, 235 S.W.3d 136, 141 (Tenn. 2007)).

Appellate courts review a trial court’s discretionary decision to determine “(1) whether the factual basis for the decision is properly supported by evidence in the record, (2) whether the lower court properly identified and applied the most appropriate legal principles applicable to the decision, and (3) whether the lower court’s decision was within the range of acceptable alternative dispositions.” Id. at 524-25 (citing Flautt & Mann v. Council of Memphis, 285 S.W.3d 856, 872-73 (Tenn. Ct. App. 2008)). We review the trial court’s legal conclusions de novo with no presumption of correctness. Id. at 525 (citing Johnson v. Nissan N. Am., Inc., 146 S.W.3d 600, 604 (Tenn. Ct. App. 2004); Boyd v. Comdata Network, Inc., 88 S.W.3d 203, 212 (Tenn. Ct. App. 2002)). We review the trial court’s factual conclusions under the preponderance of the evidence standard. Id. (citations omitted).

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Wofford v. M.J. Edwards & Sons Funeral Home Inc., 528 S.W.3d 524, 537-39 (Tenn. Ct. App. 2017).

Furthermore, this Court has explained that it is necessary to conduct a “rigorous analysis” when reviewing a class certification, stating:

The trial court has the responsibility to conduct its own inquiry into whether the requirements of Rule 23 have been met. Valley Drug Co. v. Geneva Pharmaceuticals, Inc., 350 F.3d 1181, 1188 (11th Cir. 2003). In this case, that means an evaluation of whether common questions of law or fact predominate over individual questions and whether class action provides the superior method of resolving the claims.  The extent and components of a thorough or rigorous analysis necessary for a class certification decision depend upon the claims and defenses presented, the type of class certification requested, the issues raised regarding the compliance with the rule’s requirements, the members of the purported class, and other questions presented by the particular case and the requirements of Rule 23. The trial court must “understand the claims, defenses, relevant facts, and applicable substantive law in order to make a meaningful determination of the certification issues.” Castano v. Am. Tobacco Co., 84 F.3d [734,] 744 [(5th Cir. 1996)]; see also Carroll v. Cellco Partnership, 313 N.J. Super. 488, 713 A.2d 509, 512 (1998).

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Where the trial court fails to look beyond the pleadings and conduct a rigorous analysis of the issues, the case must be remanded to permit the trial court to make that analysis and to make the findings required by Rule 23. Geriarty v. Grant Thornton, LLP, 368 F.3d 356, 367 (4th Cir. 2004) (the trial court indicated it was relying on plaintiff’s assertions regarding the factual issue of the efficiency of the market which triggered the presumption of reliance).

Wofford, 528 S.W.3d at 539-40 (quoting Gov’t Emps. Ins. Co. v. Bloodworth, No. M2003-02986-COA-R10-CV, 2007 WL 1966022, at *22 (Tenn. Ct. App. June 29, 2007).