militaryplanningCompanies facing potential class-action liability often have limited means of defeating class certification. Last month, a federal appellate court approved a class defense that other jurisdictions typically reject. The ruling, if adopted by other courts, could protect many businesses from class threats.

The case, Slade v. Progressive Security Insurance Company, was decided by the United States Court of Appeals for the Fifth Circuit. That tribunal presides over federal courts in Texas, Louisiana, and Mississippi. It is among the most conservative appellate courts in the country. The plaintiff in Slade alleged that his auto insurer, Progressive Security, systematically cheats customers on the value of vehicles it declares a total loss.

The insurance company argued that the plaintiff created an impermissible conflict between himself and absent class members by challenging only one of the two variables that Progressive Security uses to calculate a wrecked car’s value. That conflict, the insurer asserted, should disqualify him as a potential class representative.

Of course, the reason why the plaintiff did not challenge the other variable (relating to the individual damages adjustment on a vehicle) is because that would bar class certification. That variable is simply too unique to each car to be decided on a classwide basis. So the plaintiff elected to waive any claims he and other class members might have regarding the condition-adjustment variable.

The Fifth Circuit held that, when a putative class representative choses to drop potentially viable claims like that, the trial court must apply a balancing test to determine if that decision renders the person inadequate to represent the class. The test weighs “(1) the risk that unnamed class members will forfeit their right to pursue the waived claim in future litigation; (2) the value of the waived claim; and (3) the strategic value of the waiver, which can include the value of proceeding as a class (if the waiver is key to certification).”

This scenario occurs in nearly every class action, so the potential benefit to defendants is high. The argument will require defense counsel to isolate potentially waived causes of action and to assess the likelihood of waiver. The Fifth Circuit noted that the ability to opt out of a class action can solve some, but not all, of the problems created by waived claims. Future cases will show how receptive courts will be to these arguments.