Class Action Defense Cases-Grays v. Carrier: Washington Federal Court Rejects Defense Arguments Against Certification Of Class Action Holding The Presumption Of Reliance Applied In This Fraud Class Action

Presumption of Reliance may be Applied in Fraud Class Action Lawsuit Where Defendant’s Omission is Primarily at Issue, and Existence of Individual Statute of Limitations Defenses does not Preclude Certification of Class Action Washington Federal Court Holds

Plaintiffs filed a putative class action against Carrier Corporation for misrepresentation, violation of Washington’s Consumer Protection Act (WCPA), unjust enrichment and breach of warranty alleging that the company “concealed a known defect in its high-efficiency condensing furnaces.” Grays Harbor Adventist Christian School v. Carrier Corp., _\_F.Supp.2d __ (W.D. Wash. May 1, 2007) [Slip Opn., at 2]. Plaintiffs moved to certify the lawsuit as a class action, id., at 1; defense attorneys opposed certification as a class action, primarily arguing that the commonality and superiority requirements of Rule 23(b)(3) had not been met, id., at 5. The district court certified the class action as requested, concluding that the requirements of FRCP Rule 23(a) and (b)(3) have been met.

The district court first addressed the requirements of Rule 23(a). Because the putative class consists of thousands of members, the court found that Rule 23(a)(1)’s numerosity requirement had been met. Grays, at 3. The federal court further found that the proposed class action “clearly” satisfied Rule 23(a)(2)’s commonality requirement, explaining at page 3:

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Class Action Defense Cases-Fireside Bank v. Superior Court: California Court Reaffirms Importance Of One-Way Intervention Rule In Class Action Alleging Fair Debt Collection And Unfair Competition Violations

Trial Court Order on Motion for Judgment on the Pleadings in Fair Debt Collection/Unfair Competition Law Class Action Violated One-Way Intervention Rule but Remedy is Vacating of Order Rather than Barring Class Action to Proceed California Supreme Court Holds

Sandra Gonzalez filed a class action cross-complaint against Fireside Bank alleging inter alia violations of California’s Consumer Legal Remedies Act (CLRA) and Unfair Competition Law (UCL) for failing to comply with the statutory notice requirements for collection of a deficiency judgment on vehicle sales contracts. Fireside Bank v. Superior Court, 56 Cal.Rptr.3d 861, 2007 WL 1112020, *1 (Cal. April 16, 2007). Gonzalez moved for judgment on the pleadings, and for an order certifying her lawsuit as a class action. The bank objected to any ruling on the merits of the class action until after the court first ruled on the motion to certify a class action, arguing that the one-way intervention rule required that procedure be followed. The trial court promised to rule on the class action certification first, but instead it simultaneously granted both motions. The Supreme Court held that this was error, and vacated the order granting the motion for judgment on the pleadings.

Gonzalez purchased a vehicle for her father, obtaining dealer financing but intending that her father use and pay for the vehicle. Fireside, at *1. The sales contract was assigned to Fireside Bank, and the loan went into default so the bank repossessed the vehicle, id. The bank sent Gonzalez a notice advising her of her redemption rights but overstating the amount due by $2700. Id. The bank then filed a lawsuit against Gonzalez seeking a deficiency judgment; Gonzalez filed a cross-complaint alleging that the bank failed to comply with the Rees-Levering Motor Vehicle Sales and Finance Act (Rees-Levering) in that the bank’s notice of intent was defective, thereby precluding the bank from seeking a deficiency judgment. Id., at *2. In part, the cross-complaint alleged violations of Rees-Levering and of California’s unfair competition law (UCL), id. The bank conceded that the notice contained a mistake, attributing it to a “computer error” and admitting that 3,000 other borrowers also received inaccurate notices. Id. Gonzalez moved for judgment on the pleadings on the bank’s complaint; the bank opposed the motion arguing, in part, that “before obtaining a ruling on the motion Gonzalez must seek or forswear certification of a class . . . and the trial court should take the motion off calendar or deny it without prejudice until class issues, if any, were resolved.” Id. The trial court postponed ruling on the motion, id.

Gonzalez amended her cross-complaint to assert the Rees-Levering Act and UCL claims on behalf of “all persons who had received postrepossession [sic] notices from Fireside Bank on accounts started in California in which the listed redemption amount failed to subtract the credit for unearned finance charges,” and then moved the court to certify the action as a class action. Fireside, at *2. The bank opposed the motion, id. The trial court set the hearing on the motion to certify a class action for the same date as the hearing on the motion for judgment on the pleadings; in so doing, the court indicated that it would likely certify a class action. Id., at *3. The bank also objected to any ruling on the motion for judgment on the pleadings until after the class certification issue was resolved, id. The Supreme Court noted at page *3 that “The trial court assured counsel that it was ‘not going to rule’ on the motion for judgment on the pleadings ‘until I decide the issue of certification.’” Id. But the trial court issued orders not only granting the motion to certify a class action, but also granting the motion for judgment on the pleadings based on its finding that the bank had “failed to comply with the notice requirements under the Rees-Levering Act” and therefore the bank could not recover a deficiency judgment. Id.

Certification of Class Actions Class Action Court Decisions Uncategorized

Class Action Defense Cases-Bodner v. Oreck: California Federal Court Refuses To Certify Class Action And Criticizes Ethics Of Plaintiff’s Counsel Westrup, Klick

Federal Court Refuses to “Participate in Scheme” by Class Action Plaintiff Law Firm to Formulate Theory for Class Action Lawsuit and then Solicit “Stand-In Plaintiffs” to Serve as Class Representatives

Plaintiff filed a class action against Oreck Direct alleging unfair business practices in the advertisement and sale of its air purifiers. Bodner v. Oreck Direct, LLC, ___ F.Supp.2d ___, (N.D. Cal. April 25, 2007) [Slip Opn., at 1]. Plaintiff’s lawyer moved the court to certify the lawsuit as a class action and for appointment of lead plaintiff and lead counsel; defense attorneys opposed the motion. _Id._ The district court denied the motion, criticizing plaintiff’s law firm for formulating a class action lawsuit and then going in search of a class action plaintiff regardless of “the lack of a fitting plaintiff or the lack of ethical scruples.” _Id._, at 4.

Plaintiff alleges that he suffers from allergies and purchased an Oreck air purifier in reliance on defendant’s infomercial claiming that the product “would remove allergens, bacteria, dirt and dust from the air”; the thrust of his class action complaint is that the air purifier did nothing to alleviate his allergies. Bodner, at 1-2. The district court noted, however, that plaintiff did not even know what he was allergic to, had never been diagnosed or treated for allergies, frequently left open the window to his apartment, and was “exposed to allergens in other locations throughout the day,” id., at 2. Moreover, plaintiff’s air purifier was never tested to determine whether it performed as represented, id. The federal court also detailed that the class action had been formulated by plaintiff’s law firm before the firm “found” plaintiff, summarizing at page 2:

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CAFA Class Action Defense Cases-Lowdermilk v. U.S. Bank: Ninth Circuit Holds Class Action Fairness Act (CAFA) Requires Defense Prove Certainty of Jurisdictional Amount For Removal When Class Action Claims Less Than $5 Million

As Matter of First Impression, if Class Action Complaint Alleges Less than $5 Million in Damages then Defense Bears Burden of Proving “Legal Certainty” that Jurisdictional Amount Required by CAFA (Class Action Fairness Act of 2005) is Satisfied Ninth Circuit Holds

Plaintiff filed a class action against her former employer in Oregon state court alleging violations of state labor laws and stating that the damages sought would not exceed $5 million. Lowdermilk v. U. S. Bank Nat’l Ass’n, 479 F.3d 994, 995 (9th Cir. 2007). Defense attorneys removed the class action to federal court under the Class Action Fairness Act of 2005 (CAFA); plaintiff filed a motion to remand the class action to state court, arguing that the amount in controversy did not exceed $5 million based on the allegations in the class action complaint. The district court held that unless plaintiff’s $5 million limitation on the amount in controversy was made in bad faith, then it was bound by the limitation stated therein; accordingly, it remanded the class action on the ground that the defense had not demonstrated that the damages limitation had been made in bad faith so the amount in controversy did not meet the $5 million threshold required by CAFA, id., at 996. The Ninth Circuit granted the employer’s request for leave to appeal. Id. As a matter of first impression, the Ninth Circuit held that when a class action complaint specifically alleges less than $5 million in damages, then CAFA requires that “the party seeking removal must prove with ‘legal certainty’ that the amount in controversy is satisfied, notwithstanding the prayer for relief in the complaint.” Id.

The Ninth Circuit concisely summarized the issue as follows: “In this case we are called upon to resolve a question of first impression: Under the Class Action Fairness Act of 2005 . . ., when the plaintiff has pled damages less than the jurisdictional amount, what must the defendant prove in order to remove the case to federal court?” Lowdermilk, at 995-96. The Circuit Court began its analysis by noting that the defense bears the burden of establishing removal jurisdiction, id., at 997 (citing Abrego Abrego v. Dow Chemical Co., 443 F.3d 676, 685 (9th Cir. 2006) (per curiam)), and that it was not disputed that CAFA’s minimal diversity and numerosity requirements had been met, id.

The class action complaint sought damages “in total, less than five million dollars” plus attorney fees. Lowdermilk, at 997-98. The defense submitted evidence that the damages will exceed $5 million, and argued additionally that attorney fees should be included in determining the amount in controversy. Id., at 998. The Ninth Circuit began its analysis by rejecting defense claims that plaintiff failed to specify an amount in controversy; rather, it held that this case presented the precise situation reserved in Abrego Abrego – “What proof must the defendant adduce to contradict the plaintiff’s claim that her damages are less than the jurisdictional amount?” Id. It answered this question of first impression by requiring “that where the plaintiff has pled an amount in controversy less than $5,000,000, the party seeking removal must prove with legal certainty that CAFA’s jurisdictional amount is met.” Id., at 1000.

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Class Action Defense Cases-Griffith v. Javitch: Ohio Court Holds Debtor’s Federal Fair Debt Collection Practices Act (FDCPA) Class Action Claim Belongs To Bankruptcy Trustee And Approves Settlement Of Individual Claim

FDCPA Class Action Claim Belonged to Bankruptcy Estate and Settlement of Individual Claim Appropriate because Trustee could not Prosecute Class Action Ohio Federal Court Holds

After a law firm filed an action to collect a debt from her, plaintiff filed a putative class action against the law firm alleging violations of the federal Fair Debt Collection Practices Act (FDCPA). Griffith v. Javitch, Block & Rathbone, LLP, 358 B.R. 338, 340 (S.D. Ohio 2007). Shortly thereafter, plaintiff and her husband filed a Chapter 7 bankruptcy petition in the federal court for the Southern District of Ohio, staying the underlying action, and plaintiff listed the class action as a contingent claim her creditor, Great Seneca Financial Corporation, but did not separately list her class action against the law firm. Id. The bankruptcy trustee determined that it was a no-asset case, and plaintiff and her husband received a bankruptcy discharge in October 2004; less than a month later, the underlying lawsuit was reopened. Id. The parties jointly requested a stay pending a decision by the federal Court of Appeals for the Sixth Circuit in a case concerning “several defenses to an FDCPA suit that are raised by [the law firm] here on essentially identical factual allegations,” id. (citing Todd v. Weltman, Weinberg & Reis, 434 F.3d 432 (6th Cir. 2006). The underlying class action again became active in June 2006.

Defense attorneys moved for dismissal or summary judgment, arguing that the class action claim belonged to the bankruptcy trustee because it was not properly listed on the bankruptcy petition schedules; accordingly, the defense argued, plaintiff lacked standing to prosecute the class action. Griffith, at 340. Plaintiff countered that a “class action claim” had been listed on the petition, and advised the court that the bankruptcy trustee would be filing a formal abandonment of the claim so that her class action could proceed; instead, the trustee advised plaintiff’s lawyer that it would not be in the best interests of the bankruptcy estate to abandon the claim. Id. The court issued an order to show cause why the complaint should not be dismissed for lack of standing, but the defense motions were held in abeyance pending further bankruptcy court proceedings. Id. The trustee moved to reopen the bankruptcy case, and to hire plaintiff’s lawyer to prosecute the class action on behalf of the estate. Id.

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State Farm Class Action Defense Cases-Rios v. State Farm: Iowa Federal Circuit Denies Defense Motion To Strike Nationwide Class Action Allegations From Complaint

Defense Motion to Strike Class Action Allegations Must be Denied Pending Further Discovery to Develop Facts Needed to Evaluate Commonality and Superiority Requirements for Class Action Certification Iowa Federal Court Holds

This class action – Rios v. State Farm Fire & Cas. Co., 469 F.Supp.2d 727 (S.D. Iowa 2007) – has a tortured procedural past. The initial class action complaint was filed in Iowa state court in August 2004. Defense attorneys removed the class action to federal court on the basis of diversity jurisdiction, but the federal court remanded the action to state court for failure to establish the $75,000 threshold. See Varboncoeur v. State Farm Fire & Cas. Co., 356 F.Supp.2d 935 (S.D. Iowa 2005). Plaintiffs then filed a motion to amend the complaint so as to seek certification of a nationwide class, whereas the original complaint alleged only a statewide class action. Defense attorneys again removed the class action to federal court, this time on the basis of the Class Action Fairness Act of 2005 (CAFA); the federal court again remanded the action, holding that until the state court ruled on the motion to amend, the federal court lacked jurisdiction. Rios, at 730. Once the state court granted the motion to amend the class action complaint, defense attorneys removed the class action to federal court under CAFA. Id.

Plaintiffs filed a putative class action alleging that State Farm paid homeowner’s insurance policy benefits for roof repairs by paying the insured the cost of a roof “overlay” upfront, but withholding the balance of the policy benefits otherwise available to cover the cost of a roof “tear-off” until the insured had actually completed such repairs. Rios, at 731. As the district court explained at page 731, “For example, if a policyholder incurred roof damage that was covered under the policy, and the total replacement cost of the roof damage was $3,000.00, then under the standard policy, State Farm would only pay the policyholder the cost to overlay the roof (hypothetically $1,800.00) upfront, and withhold the rest of the replacement cost (hypothetically $1,200.00), i.e., tear-off costs plus depreciation, until actual repairs were made on the roof.” This provided a financial benefit to the insurer, because “[i]f the policyholder did not make the tear-off repairs within the two-year time period provided under the policy, then State Farm would not have to pay the $1,200.00 tear-off costs to the policyholder.” Id.

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RESPA Class Action Defense Cases-Benway v. Resource Real Estate Services: Maryland Federal Court Rejects Defense Arguments And Certifies Class Action Under RESPA (Real Estate Settlement Procedures Act)

Maryland Federal Court Redefines Class to Address Typicality Concerns In Federal Real Estate Settlement Procedures Act (RESPA) Class Action and then Certifies Class Action Alleging Illegal Kickbacks and Payment of Unearned Fees Under RESPA

Plaintiffs filed a class action in Maryland state court against various defendants alleging that they charged excessive fees in connection with mortgage brokerage, title or settlement services and would pay referral fees in violation of the federal Real Estate Settlement Procedures Act (RESPA); defense attorneys removed the class action to federal court. Benway v. Resource Real Estate Serv., LLC, 239 F.R.D. 419, 421 (D. Md. 2006). Plaintiffs moved to certify the lawsuit as a class action; defense attorneys objected that commonality, typicality and adequacy did not exist under Rule 23(a), and that the motion failed to establish that the requirements of Rule 23(b). Id., at 422. The district court granted the motion but limited the scope of the class action. Specifically, the court certified a class action on behalf of “All borrowers who entered into mortgage loan transactions using the services of Resource Real Estate where the HUD-1 Settlement Statement, or other documents in the loan file, included a charge for or payment to Clipper City Settlement Services, Inc.” Id., at 427.

The class action complaint alleged that Resource Real Estate Services provides real estate title and mortgage loan closing services and that Millard Rubenstein is its majority owner and its Managing Member, that Access One Mortgage Group provides mortgage broker services, and that Resource and Access One formed an affiliated business arrangement (ABA) called Clipper City Settlement Services “to appear on mortgage closing documents as an entity which had performed title work or settlement services.” Benway, at 421. The class action alleged “Resource and Access One conducted a scheme to extract referral fees from borrowers using ABAs like Clipper City”; specifically, Access One would refer borrowers to Resource for title work and Resource would perform the title work, but “the loan closing documents would attribute that work to Clipper City, and the fees charged for the work would exceed the customary fees charged by Resource.” Id. Plaintiffs also allege that Resource “would channel a portion of the fees collected by Clipper City to Access One as a referral reward, without notifying the borrower.” Id.

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State Farm/Hurricane Katrina Class Action Defense Cases—Guice v. State Farm: Mississippi Federal Court Rejects Effort To Certify “Slab Case” Class Action Against State Farm Due To Lack Of Typicality

Class Action Certification of Slab Case Insurance Claims Against Homeowners’ Insurer Inappropriate Because Individual Proof Issues Exist in Each Case so the Claims Fail to Satisfy the Typicality Requirement for Class Actions Under Rule 23 Mississippi Federal Court Holds

Plaintiff filed a class action against her homeowners insurance carrier, State Farm, alleging that after Hurricane Katrina totally destroyed her home, State Farm had improperly denied coverage “on the grounds that the destruction of the insured property was caused solely by water in the form of storm surge flooding, a peril excluded under the terms of the policy at issue.” Guice v. State Farm Fire & Cas. Co., Civil Action No.1:06CV001 LTS-RHW (S.D. Miss. March 22, 2007) [Slip Opn., at 1]. Plaintiff moved the court to certify a class action against State Farm on behalf of homeowners whose properties fall within the category of “slab cases” – viz., homes where Hurricane Katrina left only the foundation. Id. The district court denied plaintiff’s motion, id., at 2, and plaintiff requested reconsideration of the class action certification issue, id., at 1. The district court denied plaintiff’s motion, reaffirming that the slab cases against State Farm are not appropriate for class action treatment.

The federal court began its analysis by noting that the practical effect of granting plaintiff’s motion would be “entry of judgment as a matter of law for the liability limits application to the ‘slab cases’ under the State Farm homeowners policies that applied to those properties.” Slip Opn., at 1. However, while at the time of the first class action certification motion none of the individual “slab case” lawsuits against State Farm had been tried, the federal court now had the benefit of having presided over three such cases, explaining at page 2:

Certification of Class Actions Class Action Court Decisions Uncategorized

Enron Class Action Defense Case-Regents v. Credit Suisse: Certification Of Securities Class Action Seeking $40 Billion Overturned By Fifth Circuit Because Classwide Presumption Of Reliance Did Not Apply

Fifth Circuit Holds that District Court’s Erroneous Definition of “Deceptive Acts” Resulted in Mistaken Application of Presumption of Reliance in Certifying Class Action Against Banks, Necessitating Reversal of Class Certification Order

After Enron’s collapse in 2001, dozens of class action and individual lawsuits were filed against numerous defendants for violations of Section 10(b) of the Securities Exchange Act of 1924 and Rule 10b-5; more than 30 of these actions were consolidated in the district court for the Southern District of Texas and Regents of the University of California was named lead plaintiff. Regents of the Univ. of Cal. v. Credit Suisse First Boston (USA), Inc., 482 F.3d 372 (5th Cir. 2007) [Slip Opn., at 3]. “Years of discovery have ensued, and tens of millions of documents have been produced.” Id. In 2006, the district court granted plaintiff’s motion to certify the litigation as a class action, id., at 3-4. Defense attorneys sought and received permission from the Fifth Circuit to file an interlocutory appeal, id., at 2; the Circuit Court reversed.

As the Circuit Court admitted, the facts of this case are “difficult to detail” so we simply quote the Court’s broad summary: “Plaintiffs allege that defendants Credit Suisse First Boston (“Credit Suisse”), Merrill Lynch & Company, Inc. (“Merrill Lynch”), and Barclays Bank PLC (“Barclays Bank”) (collectively “the banks”) entered into partnerships and transactions that allowed Enron Corporation (“Enron”) to take liabilities off of its books temporarily and to book revenue from the transactions when it was actually incurring debt. The common feature of these transactions is that they allowed Enron to misstate its financial condition; there is no allegation that the banks were fiduciaries of the plaintiffs, that they improperly filed financial reports on Enron’s behalf, or that they engaged in wash sales or other manipulative activities directly in the market for Enron securities.” Slip Opn., at 2. In essence, the class actions alleged that the banks knew Enron executives were manipulating financial information to inflate the company’s stock price to maximize their personal compensation. Id.

In certifying the class action, the district court concluded that a “deceptive act” under Rule 10b-5(c)3 includes participation in a “transaction whose principal purpose and effect is to create a false appearance of revenues,” and that Rule 10b-5(a)’s prohibition of any “scheme . . . to defraud” creates joint and several liability for individuals who commit deceptive acts in furtherance of such a scheme. Slip Opn., at 3. At the Fifth Circuit explained, “The court’s theory of scheme liability considerably simplified finding commonality among the plaintiffs with respect to loss causation. The court stated that ‘a reasonable argument can be made that where a defendant knowingly engaged in a primary violation of the federal securities laws that was in furtherance of a larger scheme, it should be jointly and severally liable for the loss caused by the entire overarching scheme, including conduct of other scheme participants about which it knew nothing.’” Id., at 3-4. The district court also concluded that plaintiffs could rely on “classwide presumptions of reliance for omissions and fraud on the market” because it believed the banks breached a “duty not to engage in a fraudulent ‘scheme,’” and concluded that plaintiffs need not demonstrate market efficiency or reliance to invoke the fraud-on-the market presumption of reliance under Rule 10-5(a) or (c), believing this to be required only for claims under Rule 10-5(b). Id.

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Class Action Defense Cases-Sperry v. Crompton: New York Law Precludes Class Action Lawsuits That Seek To Collect Penalties Unless Expressly Allowed By Statute

CPLR 901(b) Precludes Antitrust Class Action Lawsuits Because Treble Damages Award Under the Donnelly Act is a Penalty New York Court of Appeals Holds

Plaintiff filed a putative class action against various defendants seeking damages under New York’s antitrust statute (the Donnelly Act) and deceptive practices statute, and an unjust enrichment theory, alleging that defendants overcharged tire manufacturers for chemicals used in the processing of rubber for tires. Based on the Donnelly Act, the class action complaint prayed for treble damages, costs and attorney fees. Sperry v. Crompton Corp., ___ N.E.2d ___, 2007 WL 527726 (N.Y. February 22, 2007) [Slip Opn., at 2-3.]. Defense attorneys moved to dismiss the class action. The trial court granted the motion, holding that “CPLR 901(b), which precludes a class action to collect a penalty unless specifically authorized by statute, barred the Donnelly Act claim.” _Id._, at 3. The lower court dismissed the remaining counts on grounds not relevant here. The New York Court of Appeals affirmed.

Plaintiff argued that a treble damages award under the Donnelly Act did not constitute a penalty within the meaning of CPLR 901(b), citing both New York law and federal case law that treble damages in antitrust actions “are primarily remedial in nature.” Sperry, at 3-4. The Court of Appeals disagreed. The High Court found it “evident” that the Legislature intended the penalty exception in CPLR 901(b) to preclude class action relief “where individual plaintiffs were afforded sufficient economic encouragement to institute actions (through statutory provisions awarding something beyond or unrelated to actual damages), unless a statute expressly authorized the option of class action status.” Id., at 9. The Court explained at page 9, “This means sense, given that class actions are designed in large part to incentivize plaintiffs to sue when the economic benefit would otherwise be too small, particularly when taking into account the court costs and attorneys’ fees typically incurred.”

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