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United States Court of Appeals for the Seventh Circuit Reverses Class Certification for Failure of the District Court to Perform a Rigorous Analysis Before Finding Predominance

January 28, 2014

In Parko, et al. v. Shell Oil Co. et al., Nos. 13-8023 & 8024 (7th Cir. Jan. 17, 2014), Judge Posner of the United States Court of Appeals for the Seventh Circuit recently reversed an order from the United States District Court for the Southern District of Illinois granting class certification to a group of plaintiffs who alleged that an industrial site leaked benzene and other contaminants into the groundwater under the proposed class members’ properties, thereby damaging the value of these properties.  Judge Posner distinguished the case from an opinion he authored in Mejdrech v. Met-Coil Systems Corp., 319 F.3d 910 (7th Cir. 2003) (approving certification of class of homeowners who were complaining about groundwater contamination from a nearby industrial site), explaining that unlike Parko, Mejdrech involved a single source of groundwater pollution and that the groundwater pollution was alleged to have contaminated the water supply.

In reversing class certification, the Court of Appeals found that the district court failed to perform a “rigorous analysis” before determining that issues common to the class predominate over issues that differ among the individual class members.  The Court further held that when factual disputes bear on issues vital to certification—such as predominance—it is not enough that the plaintiffs intend to rely on common evidence and a single methodology to prove injury and damages.  Rather, the court “should have investigated the realism of the plaintiffs’ injury and damage model in light of the defendants’ counterarguments, and to that end should have taken evidence.”

Specifically, the Seventh Circuit noted that the district court failed to make any findings related to the variance in property values and observed that the greater the variance in property values, the less likely it is that contamination would affect property value by the same amount of money or same percentage of market value.  The Court also noted, “[i]t’s not even clear that the plaintiffs have identified a common issue” because the class members’ water supply did not come from the groundwater and there was no suggestion that the village supplied the class with water from the aquifer because of groundwater pollution.

Finally, the Court noted that, because there are numerous potential reasons for a drop in property value, it could not assume that the decline in residential property value was the proximate result of groundwater contamination.  Noting that plaintiffs failed to present any theory or credible evidence of a connection between the leaks and property values or between specific defendants and the leaks and property values that would justify class certification, the Court reversed certification of the class.