TILA Class Action Defense Cases-McKenna v. First Horizon: First Circuit Holds As Matter Of First Impression That Rescission Relief Under Federal Truth In Lending Act (TILA) Not Appropriate For Class Action Treatment

As Matter of First Impression, Class Action Treatment for Rescission Claims Under TILA (Truth in Lending Act) is not Proper First Circuit Holds Plaintiffs filed a putative class action in Massachusetts federal court against First Horizon Home Loan alleging that it violated the federal Truth in Lending Act (TILA) and its state law equivalent, the Massachusetts Consumer Credit Cost Disclosure Act (MCCCDA) by failing to accurately disclose to borrowers their statutory rescission rights.

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Class Action Defense Cases-Bishop’s v. Protective Life: Georgia Federal Court Denies Defense Motion To Dismiss Class Action Based On Defense Tender Of Damage Check To Class Representative

Post-Class Action Complaint Tender of Amount Sought by Class Action Plaintiff does not Render Claim Moot or Deprive Federal Court of Subject Matter Jurisdiction Georgia Court Holds

Plaintiff filed a putative class action against his credit insurance coverage carrier, Protective Life, alleging that it refused to refund unearned premiums for early termination of insurance coverage. Bishop’s Prop. & Investments, LLC v. Protective Life Ins. Co., 463 F.Supp.2d 1375, 1376 (M.D. Ga. 2006). The credit insurance in question involved vehicle loans: in return for a single premium, Protective Life promised to make the loan payments in the event of the insured’s death or disability. In plaintiff’s case, he purchased a vehicle with a 72-month loan term, but he paid off the loan in only 11 months. Id. Because the loan had been paid in full, the insurance policy terminated. The class action alleged that insureds who paid off their loans early were entitled to refunds of the “unearned premiums.” Id., at 1376-77. After the filing of the class action complaint, defendant tendered a refund to plaintiff, which he refused to accept. Id., at 1376. Defense attorneys then moved for summary judgment arguing that, despite his refusal to accept the check, the tender mooted plaintiff’s claim thereby depriving the court of subject matter jurisdiction over the class action. Id. Under the defense theory, Protective Life “issued a check for the total amount of unearned premiums owed to Plaintiff under its credit insurance policy,” and that tender divested the federal court of jurisdiction because “Plaintiff’s personal claims became moot the moment [Protective Life] ‘refunded in full the unearned premiums that [Plaintiff] claims are due.'” Id., at 1377. The district court denied the motion.

The district court phrased the issue at page 1377 as follows: “Under what circumstances does a legal controversy for Article III purposes continue to exist in a class action after the named plaintiff’s individual claims become moot?” The court recognized that generally the claims of the class representative must be “live” not only at the time the class action is filed but at the time of class certification as well; if it is not, then “the court lacks a justiciable controversy” and the class action must be dismissed. Id. (citation omitted). The district court provided a concise explanation behind the purpose of the rule at pages 1377 and 1378:

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Class Action Defense Cases-Ramirez v. Smart Corp.: Illinois State Court Affirms In Part And Reverses In Part Summary Judgment In Favor Of Defense In Class Action Against Hospital Record Retrieval/Copy Service

Voluntary Payment Doctrine did not Apply where Plaintiff Could only get Copies of Hospital Records through Service Company and Plaintiff is an Adequate Class Representative if her Agent Requests and Pays for Hospital Records Illinois Court Holds

Plaintiff filed a putative class action against Smart Corporation, a company which contracted with hospitals to place its own employees on site to retrieve and copy hospital medical records for patients, alleging that it overcharged hospital patients for such services in violation of common law, Illinois’ Inspection of Hospital Records Act and Consumer Fraud and Deceptive Business Practices Act, and claiming also unjust enrichment. Ramirez v. Smart Corp., ___ Ill.App.3d ___ (Ill.App. February 16, 2007). Plaintiff’s lawyer sought class certification, and defense attorneys moved for summary judgment. Slip Opn., at 1-2. The trial court granted the defense motion and denied class certification.

Plaintiff had suffered an injury and received treatment at a hospital. As part of her workers compensation claim, plaintiff’s lawyer sought her hospital records. Smart retrieved and copied the records – consisting of 6 pages – and sent a bill for $34.78 itemized as follows: a basic fee of $15 and a $1 per page copy fee bringing the total photocopy charge to $21, a retrieval/search fee of $10, and shipping/handling fee of $3.78. Ramirez, at 2. Plaintiff’s law firm paid the bill before plaintiff reviewed it. Id., at 3. The trial court denied class certification and granted the defense motion for summary judgment. The court refused to certify a class action because it found plaintiff to be an inadequate class representative in that her lawyer had reviewed and paid the bill, not the plaintiff. Id., at 4. The court granted summary judgment in favor of the defense holding that plaintiff’s claims were barred by the voluntary payment doctrine, and additionally finding that the charges were not deceptive or unfair within the meaning of the Consumer Fraud Act and that plaintiff could not seek damages under the Hospital Records Act because that statute allows a patient to compel production of hospital records. Id.

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Pierce v. NovaStar-Class Action Defense Cases: Washington Federal Court Certifies Truth-In-Lending/Real Estate Settlement Procedures Act Class Action Against NovaStar Mortgage Based On Failure To Disclose Yield Spread Premiums (YSPs)

Whether Lender Violated TILA, RESPA or State’s Consumer Loan Act Irrelevant to Determination of Class Certification Motion because Plaintiffs Adequately Alleged such Violations Washington Federal Court Holds

Plaintiffs filed a class action against their lender NovaStar Mortgage for violations of Washington’s Consumer Protection Act (CPA) alleging that it failed to disclose it paid mortgage brokers a yield spread premium (YSP) in connection with their loans; the class action complaint was premised on NovaStar’s purported failure to provide written disclosures required by the federal Real Estate Settlement Procedures Act (RESPA), the federal Truth in Lending Act (TILA), Washington’s Consumer Loan Act (CLA), and the plaintiffs’ deeds. Pierce v. NovaStar Mortgage, Inc., 238 F.R.D. 624, 625 (W.D. Wash. 2006). In response to plaintiffs’ first motion to certify the lawsuit as a class action, the district court agreed with defense attorneys that plaintiffs had failed to demonstrate numerosity or typicality as required by Rule 23(a) and also failed to establish the predominance and superiority elements required by Rule 23(b); it therefore denied the motion, but did so without prejudice. Id. On plaintiffs’ renewed motion for class certification, the court rejected defense objections and granted the motion.

By way of background, to establish a violation of the CPA one must prove “(1) an unfair or deceptive act or practice; (2) occurring in trade or commerce; (3) that impacts the public interest; (4) and causes injury to the plaintiff in his or her business or property; and (5) such injury is causally linked to the unfair or deceptive act.” Pierce, at 626 (citation omitted). A plaintiff may satisfy the first two elements by proving that the act in question is a per se unfair trade practice: “A per se unfair trade practice exists when, by statute, the Legislature declares an unfair or *627 deceptive act in trade or commerce and the statute has been violated.” Id., at 626-27 (citations omitted). Under Washington law, “[a] violation of the CLA . . . is explicitly deemed a violation of the first and second elements of the CPA,” id., at 627 (citation omitted). In denying the first motion for class certification, the district court believed that “verbal disclosures and independent knowledge of the YSP were relevant to determining whether NovaStar violated the CPA.” Id., at 626. Plaintiffs’ lawyers disagreed, arguing in the renewed motion that “verbal disclosures are irrelevant to class certification because they seek to establish a per se violation of the Consumer Protection Act by proving that NovaStar violation the Consumer Loan Act.” Id.

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TILA Class Action Defense Cases-LaLiberte v. Pacific Mercantile Bank: As Matter Of First Impression California Court Holds That Rescission Under Federal Truth-In-Lending Act (TILA) Not Suitable For Class Action Treatment

California Court Surprisingly Holds that Under Certain Circumstances Plaintiffs need not be Members of Class to Serve as Class Representatives and that, as Matter of First Impression, Rescission Under TILA (Truth-in-Lending Act) is a Personal Remedy Unsuitable for Class Action Treatment

Plaintiffs filed a putative class-action lawsuit against their lender alleging inter alia violations of the federal Truth In Lending Act (TILA) arising from the lender’s failure to disclose certain closing fees charged in connection with refinance loans. LaLiberte v. Pacific Merc. Bank, 147 Cal.App.4th 1. 53 Cal.Rptr.3d 745, 746 (Cal.App. 2007). Defense attorneys demurred to the class-action complaint on the ground that the class allegations failed to establish commonality; the trial court agreed but granted plaintiffs leave to amend. After extensive motion practice, plaintiffs filed a third amended class-action complaint seeking to represent a single class of borrowers who obtained loans after November 20, 2002. Id., at 746-47. Defense attorneys again demurred, this time on the ground that because the putative class representatives secured their loans in April 2002, they were not members of the class they sought to represent. Id., at 747. The trial court agreed, and sustained the demurred to the class action allegations without leave to amend. Id. as a matter of first impression, the California appellate court affirmed the trial court’s order, holding that rescission under TILA was not suitable for class action treatment.

Under California law, “An order sustaining demurs to class action allegations ‘is appealable to the extent that it prevents further proceedings as a class action.’” LaLiberte, at 747 (citation omitted). In this case, two standards of review apply on appeal. The first involves the independent judgment exercised by an appellate court in reviewing an order sustaining a demurrer; the second involves whether the trial court abused its discretion in denying leave to amend. Id., at 747-48 (citations omitted). The trial court had relied upon Payne v. United California Bank, 23 Cal.App.3d 850 (Cal.App. 1972), in support of its conclusion that plaintiffs lacked standing to sue on behalf of the proposed class because they were never members of that class. See id., at 748. The Court of Appeal disagreed, holding that La Sala v. American Sav. & Loan Ass’n, 5 Cal.3d 864 (Cal. 1971), was more on point. Id.

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Dukes v. Wal-Mart Class Action Defense Case: Ninth Circuit Upholds Certification Of Nationwide Sex Discrimination Class Action Creating Largest Class Ever Agreeing With District Court That Class Action Was Nonetheless Manageable

District Court did not Abuse its “Broad Discretion” in Certifying Nationwide Sex Discrimination Class Action Against Wal-Mart Creating “the Largest Certified Class in History” Ninth Circuit Holds

In June 2001, plaintiffs filed a putative class action against Wal-Mart in the San Francisco federal court alleging sex discrimination in the payment of wages and in promotions. In April 2003, plaintiffs moved to certify a nationwide class action on behalf of 1.5 million former and present female employees “employed in a range of Wal-Mart positions – from part-time, entry-level, hourly employees to salaried managers.” Dukes v. Wal-Mart, Inc., 474 F.3d 1214 (9th Cir. February 06, 2007) [Slip Opn., at 1340]. Defense attorneys argued that the requirements of Rule 23 had not been satisfied, stressing in particular several problems inherent in litigating a class of record size. More than a year later, in an 84-page decision handed down in June 2004, the district court rejected all but one of the defense arguments and, save for that one point, certified the class action as requested by plaintiffs. Both sides appealed, but the Ninth Circuit affirmed the district court order in all respects.

Plaintiffs’ motion sought certification of a nationwide class action on behalf of “All women employed at any Wal-Mart domestic retail store at any time since December 26, 1998, who have been or may be subjected to Wal-Mart’s challenged pay and management track promotions policies and practices.” Dukes, at 1340. Wal-Mart stressed the “‘historic’ nature of Plaintiffs’ motion, inasmuch as it concerns a class of approximately 1.5 million women who work or worked in one or more of Wal-Mart’s 3,400 stores in 41 regions at any time since 1998.” Id. The district court recognized Wal-Mart’s concerns but concluded that “while the class size was large, the issues were not unusual.” Id. The Ninth Circuit summarized the district court’s order at page 1341 as follows:

On June 21, 2004, the district court issued an eighty-four-page order granting in part and denying in part Plaintiffs’ motion for class certification. [Citation.] With respect to Plaintiffs’ claims for equal pay, the district court granted Plaintiffs’ motion as to issues of alleged discrimination and all forms of requested relief. With respect to Plaintiffs’ promotion claim, the court’s finding was mixed. The court certified the proposed class as it related to issues of alleged discrimination (including liability for punitive damages) as well as injunctive and declaratory relief. However, the court denied Plaintiffs’ request for certification with respect to backpay because data relating to challenged promotions were not available for all class members.

On appeal, Wal-Mart focused its attack on three points: (1) that the commonality and typicality requirements of Rule 23(a) had not been satisfied, (2) that the class action complaint primarily sought monetary relief thus barring certification under Rule 23(b)(2), and (3) that the district court order prejudiced its ability to respond to individual claims. Dukes, at 1341. Plaintiffs, in turn, argued that the district court erred in limiting backpay relief. Id. The Ninth Circuit held that the district court did not abuse its discretion in certifying the nationwide class.

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First American Title Class Action Defense Case-California Court Bars Plaintiff’s Attorney From Conducting “Fishing Expedition” Discovery To Find Prospective Client

California Court Holds that if Class Representative Plaintiff is not and Never was Member of Class then Trial Court Abuses it Discretion if it Permits Precertification Discovery for the Purpose of Identifying Class Member Willing to Serve as Plaintiff

Plaintiff filed a putative class action against his title insurer (First American Title Insurance) and his lender (Wilmington Finance) alleging that “title insurers in the State of California are paying money for referral business from lenders,” that “[the] payments to lenders are rewards for channeling business to them,” and that “[t]hese kickbacks may be disguised as payments for bogus reinsurance which is purchased from captive insurers operated by the firms sending business to the title insurers.” First American Title Ins. Co. v. Superior Court, 146 Cal.App.4th 1564 (Cal.App. 2007) [Slip Opn., at 4]. Plaintiff brought the class action on behalf of those persons who “paid in whole or in part for a title insurance policy [from First American] which provided coverage for property located in the State of California . . . [f]or whom part of the premium paid for the title insurance policy was received by Wilmington Finance,” id., at 5. As it turned out, plaintiff was not a member of the class he proposed to represent, and no such scheme existed involving Wilmington Finance; accordingly, he propounded discovery on First American for the purpose of identifying someone willing to serve as class representative so the class action could proceed. Id., at 8. Defense attorneys objected on the ground that “[plaintiff] was never a member of the class alleged in his complaint, and therefore lacked standing to obtain discovery to locate a proper class representative.” Id., at 11. The trial court ultimately rejected the arguments of defense attorneys and granted plaintiff’s motion. The Court of Appeal granted First American’s petition for writ of mandate and directed the trial court to disallow the precertification discovery requested. Id., at 13.

Plaintiff purchased a home in February 2004. He claims the seller’s agent and the escrow company insisted that First American issue title insurance on the property, and he suspected that the escrow company or First American paid a kickback to the seller’s agent. Slip Opn., at 2. In November 2004, Colorado’s Division of Insurance “uncovered a reinsurance kickback scheme” under which “certain homebuilders, lenders and realtors formed their own reinsurance companies, known as ‘captive insurers'” and then referred business to title companies that agreed to “reinsure” the policies through the captive insurer. Id., at 3. In essence, “the reinsurance agreement was simply a way for the title insurer to transfer funds to the captive insurer as a payment for the referral of customers.” Id. California’s Department of Insurance initiated its own investigation in January 2005, one month before Colorado reached a settlement with First American. Id. A few days after the announcement that Colorado and First American had reached a settlement, plaintiff filed suit. Id.

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Costco Class Action Defense Case-Ellis v. Costco: California Federal Court Rejects Defense Arguments And Certifies Class Action Alleging Sex Discrimination

California Federal Court Holds that Plaintiffs Satisfied Rule 23 Requirements for Certification of Class Action Alleging Gender Discrimination in Promotion and Management Practices by Costco

Plaintiff filed a class action against their employer for violations of Title VII of the Civil Rights Act of 1964 and California’s Fair Employment and Housing Act alleging “that Costco’s promotion system has a disparate impact on female employees, that Costco’s management discriminates against women in promotions, and that defendant has retaliated against persons seeking redress for discrimination.” Ellis v. Costco Wholesale Corp., ___ F.Supp.2d ___, 2007 WL 127800-, *1 (N.D. Cal. January 11, 2007). Plaintiffs’ lawyer moved the federal court to certify a nationwide class action on behalf of at least 700 women; defense attorneys opposed the motion and moved to strike the declarations of plaintiffs’ experts in support of the motion. _Id._, at *4, *7. The defense also argued against class action treatment on the grounds that plaintiffs failed to exhaust administrative remedies, _id._, at *5, and lacked standing, _id._, at *6. The district court rejected defense arguments and certified a nationwide class action as requested by plaintiffs.

Plaintiffs sought certification of a nationwide class action on behalf of “current and former female employees who have been denied promotion to GM [General Manager] or AGM [Assistant General Manager] or denied Senior Staff jobs important to AGM promotion since January 3, 2002.” Ellis, at *5. The district court first addressed the procedural objections raised by defense attorneys . The administrative remedies defense was premised on the argument that plaintiffs’ EEOC claim was limited to discriminatory practices in promotion to general manager positions. Id.. Plaintiffs disagreed, and argued that even if it had been limited to GM claims that their other claims were “reasonably related to the allegations in the EEOC charge.” Id. The district court agreed, noting that Ninth Circuit case law instructs courts “to construe the EEOC charge ‘with utmost liberality.'” Id. (citation omitted). Plaintiffs’ EEOC claim provided adequate notice to Costco of the claims asserted in the class action complaint. Id. With respect to Costco’s standing arguments, the district court held (1) that former employees may seek injunctive relief on behalf of current employees, because “[t]o hold that employees must continue to work in jobs where they face discrimination in order to challenge discrimination would pervert Article III’s injury-in-fact requirement,” Ellis, at *6, and (2) that a current AGM may seek injunctive relief on behalf of women denied promotion to AGM and that it would not “delve into the merits” of the discrimination claims at the class certification stage, id.

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Class Action Defense Cases-In re PolyMedica: Massachusetts Federal Court Refuses To Certify Securities Fraud Class Action For Contested Period Because Plaintiff Failed To Establish “Cause And Effect” And “Market Efficiency”

Defense Defeats Class Action Certification for Contested Time Period Because Plaintiff’s Evidence Failed to Demonstrate “Cause and Effect” and Only “Weakly” Showed Market Efficiency Massachusetts Court Holds

Plaintiff investors filed a putative class action against PolyMedica and others alleging securities fraud, relying on the “fraud on the market” doctrine to establish the reliance element of their securities fraud claim. In re PolyMedica Corp. Securities Litig., 453 F.Supp.2d 260, 264-65 (D. Mass. 2006). A Massachusetts federal court certified a class action for the time period of October 26, 1998 to August 21, 2001; the First Circuit reversed with respect to the time period of January 1, 2001 to August 21, 2001, and remanded the case for further proceedings. Id., at 264. The new district court explained at page 264, “The sole issue for further adjudication here is whether Rule 23(b)(3) can be satisfied in the circumstances of this case.” (Broadly, Rule 23(b)(3) requires that common questions of law or fact predominate over individual issues and that the class action device be the superior method for resolving the dispute.) The court agreed with defense attorneys that it could not, and refused to certify a class for the 2001 time period.

The federal court began by noting the special problem created by securities fraud class actions, explaining at page 264: “In the context of securities fraud allegations, the nature of Rule 23(b)(3) analysis is quite particularized. Securities frauds, like all frauds, entail proof of reliance. . . . While reliance is typically demonstrated on an individual basis, the Supreme Court has noted that such a rule would effectively foreclose securities fraud class actions because individual questions of reliance would inevitably overwhelm the common ones under Rule 23(b)(3). . . . To avoid this result, the Supreme Court has recognized the fraud-on-the-market theory, which relieves the plaintiff of the burden of proving individualized reliance on a defendant’s misstatement, by permitting a rebuttable presumption that the plaintiff relied on the ‘integrity of the market price’ which reflected that misstatement.” (Citations omitted.) The fraud on the market doctrine requires that the market be “efficient” – that is, “‘one in which the market price of the stock fully reflects all publicly available information,'” id., at 265 (quoting In re PolyMedica Corp. Securities Litig., 432 F.3d 1, 14 (1st Cir. 2005)).

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Jimenez v. Domino’s Pizza-Class Action Defense Cases: California Federal Court Agrees With Defense That Putative Labor Law Class Action Fails To Satisfy Requirements Of Rule 23 And Denies Plaintiffs’ Motion For Class Certification

California Federal Court Holds that Evidence Presented in Connection with Plaintiffs’ Motion for Certification of Class Action Established that Individual Questions as to Whether Employees were Misclassified Predominate over Common Questions of Fact, Thus Rendering Litigation Unsuitable for Class Action Treatment

Plaintiffs filed a putative class action in California state court against their former employer, Domino’s Pizza, for violations of California’s labor laws and unfair competition laws alleging failure to pay overtime and to provide rest and meal periods to its general managers by misclassifying them as exempt employees. Plaintiffs assert they were not exempt because most of their work consisted of making pizzas and cleaning stores, and that only about 20% of their workday was spent “performing their actual general manager duties.” Jimenez v. Domino’s Pizza, Inc., 238 F.R.D. 241, 245-46 (C.D. Cal. 2006). The defense removed the action to federal court, id., at 246, and plaintiffs moved the court to certify the lawsuit as a class action. The district court first addressed the requirements of Rule 23(a). Id., at 247. The court found that each of Rule 23(a)’s prerequisites – numerosity, commonality, typicality, and adequacy of representation – had been satisfied. Id., at 247-49. However, the district court agreed with defense attorneys that plaintiffs had not established the elements required by Rule 23(b), and so denied the motion.

Plaintiffs asserted that the putative class action satisfied each prong of Rule 23(b), so the court addressed each in turn., Jimenez, at 249. With respect to Rule 23(b)(1), the district court agreed with defense attorneys that plaintiffs misperceived the statute’s purpose. Rule 23(b)(1) authorizing class action treatment when separate lawsuits “create a risk of imposing incompatible standards of conduct on the defendant,” id. In this case, while it is possible that different courts may reach different conclusions in separate lawsuits as to whether a particular general manager is exempt or non-exempt, the fact remained that Domino’s “would not be incapable of fulfilling various judgments,” so certification under Rule 23(b)(1). Id., at 250.

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