Posts belonging to Category Certification Rulings

An Alabama federal court has certified a class of investors who allege that they were defrauded by the defendant’s misleading statements regarding the performance of a real estate portfolio.  See Local 703 v. Regions Fin. Corp., No. 10-cv-02847 (N.D. Ala. June 14, 2012) (Memorandum Opinion re certification) (available here).  The plaintiffs claim that the defendant artificially inflated the value of its real estate holdings by misrepresenting tens of millions of dollars in non-accrual loans.  Memorandum Opinion at 21.  The at-issue stock was trading at $23.22 at the beginning of the class period, but plummeted to $4.60 per share by the end of the class period.  Id. at 2. 

Defendant Regions mounted a strong challenge to Rule 23’s “typicality” requirement, arguing that the named plaintiffs did not have claims typical of the rest of the class, since they actually benefited from the alleged fraud by holding some shares for only a short period and then selling them at a profit.  Id. at 8-9.  However, the court found that, since the named plaintiffs did not divest themselves of all holdings during the class period, the typicality requirement was met, notwithstanding plaintiffs’ profits.  Id. at 9.

As to the predominance requirement, Regions argued (1) that plaintiffs failed to establish a presumption of class-wide reliance based on a “fraud-on-the-market” theory, and (2) even if plaintiffs had established such a presumption, Regions rebutted it.  Id. at 19-20.  The defendant reasoned that, since plaintiffs had not proven a link between defendant’s alleged misrepresentations and the drop in stock price, there could be no presumption of reliance.  In a sprawling analysis, Judge Inge Prytz Johnson found loss causation to be a trial issue, agreeing with the plaintiffs and numerous other courts that it was “not a relevant consideration for a court at this juncture.”  Id. at 34.  In so ruling, the court relied considerably on Erica P. John Fund, Inc. v. Halliburton Co., 131 S. Ct. 2179, 2185 (2011).  Judge Johnson concluded that plaintiffs had, in fact, established the presumption of reliance, and that defendants failed to rebut it.  Memorandum Opinion at 31-33, 38-39.  She consequently granted plaintiffs’ certification motion, finding all of the class action prerequisites to be satisfied. The certified action now proceeds to the merits phase.

Judge Margaret M. Morrow of California’s Central District has certified two classes of Honda Civic owners and lessees alleging that certain model years of the vehicles have a rear-suspension defect that could cause uneven and premature wear on the rear tires.  See Keegan v. American Honda Motor Co., No. 10-cv-09508 (C.D. Cal. June 12, 2012) (Order Granting in Part and Denying in Part Plaintiffs’ Motion for Class Certification) (available here).  Plaintiffs are seeking relief pursuant to California’s Consumer Legal Remedies Act (CLRA), Unfair Competition Law (UCL), Song-Beverly Act, and Commercial Code § 2313, as well as the federal Magnuson-Moss Warranty Act and consumer protection and implied warranty statutes of various other states.  Order at 1.

The certification ruling is notable in that a full Daubert analysis of the plaintiffs’ and defendant’s proffered experts was conducted, and expert testimony that failed to satisfy the Daubert threshold was excluded.  See id. at 9-19.  Though such decisions by a federal district court do not have binding precedential effect, Judge Morrow’s choice to conduct a full Daubert analysis is likely to become more the rule than the exception, particularly after the U.S. Supreme Court, in Wal-Mart v. Dukes, expressed skepticism of a district court’s finding that Daubert does not apply to class certification proceedings. See Wal-Mart v. Dukes, 131 S. Ct. 2541, 2554 (2011).

The Keegan court extensively considered the parties’ opposing views of commonality, concluding that the defendant’s arguments were “based on a misapprehension of what commonality demands.”  Order at 25.  Honda had argued (as many defendants opposing class certification do) that particular differences between class members’ experiences resulted in the predominance of individual issues, and that “proving liability will require determining whether the tire wear each class vehicle suffered was premature or excessive.”  Id. at 25-26.  Judge Morrow disagreed, however, explaining that commonality requires only that class members’ allegations share common issues of law or fact such that all claims for relief will be sufficiently presented, and “[t]he fact that some vehicles have not yet manifested premature or excessive tire wear is not sufficient, standing alone, to defeat commonality.”  Id. at 26.

Keegan is viewed as a major victory for plaintiffs, and will likely be invoked to support certification in other consumer class actions, whether involving automobile defects or otherwise.

A federal court has certified a class of Arkansas drivers alleging that the defendant purchased their personal information from a database maintained by the state, in violation of the Driver’s Privacy Protection Act (DPPA).  See Haney v. Recall Center, No. 10-cv-04003 (W.D. Ark. May 9, 2012) (order on motion to certify class) (available here).  Particularly significant is the size of the certified class, estimated to be two million members.  Order at 5.  This decision runs contrary to widespread speculation that classes with millions of members would be difficult (if not impossible) to certify  post-Wal-Mart v. Dukes.

Haney stands to be a notable case not only due to its sheer size and potentially monumental damages (plaintiffs are seeking $2500 for each violation), but also because the underlying privacy issues have considerable resonance with the mass public, as technology increasingly puts private information at risk.  Further, in redefining the class to comport with the applicable statute of limitations, the court underscored that courts should use their discretion to do so rather than denying class certification on an easily remedied ground.  See id. at 2-3.  The Haney certification order also reasserted the division between consideration of class certification criteria and the underlying merits.  Id. at 3, quoting Eisen v. Carlisle & Jacquelin, 417 U.S. 156, 178 (1974) (“In determining whether to certify a class action, ‘the question is not whether the plaintiff or plaintiffs have stated a cause of action or will prevail on the merits, but rather whether the requirements of Rule 23 are met.’”).

As to the often-decisive Rule 23 “commonality” requirement, the defendant argued that each transaction in which private data was obtained would require an intrinsically individualized inquiry, in particular as to the affirmative defense that information was acquired for a permissible purpose.  See id. at 6.  The defendant also argued that the DPPA requires that a violation cause actual injury, which would likewise require individual analysis.  Id.  The court rejected both of defendant’s arguments, finding that the DPPA does not require proof of actual damages, and that, although individual answers to questions regarding the data transactions might vary as to each class member, “Rule 23(a) requires common questions, not common answers.” Id. at 6-7.

A district court judge in the Southern District of New York has certified a class of benefit plans alleging that they lost money when fiduciaries placed investments with the now-incarcerated Bernard Madoff. See In re Beacon Assocs. Litig., No. 09-CV-00777 (S.D.N.Y. May 3, 2012) (order on motion to certify class) (available here).  Plaintiffs allege that Ivy Asset Management (“Ivy”) breached its fiduciary duty to the plans principally by failing to perform due diligence on Bernard L. Madoff Investment Securities LLC (“Madoff Securities”), particularly in light of the extraordinary rates of return claimed by Madoff, well above the historical returns for even the most successful investors.  See Order at 2-4.  Moreover, plaintiffs allege that J.P. Jeanneret Associates, Inc. (“JPJA”), was negligent in its lax supervision of Ivy’s work.  See id.

On the pivotal commonality determination, Judge Leonard B. Sand found questions common to the entire class, thus satisfying this prerequisite.  Id. at 12.  He determined that (1) whether Ivy was acting as a fiduciary when it invested benefit plan assets in Madoff Securities, and (2) whether Ivy breached the attendant duties to the plans when it invested despite the implausible rates of return claimed by Madoff, were among the common questions capable of determining liability.  Id. at 9-12.

While the numerosity element is rarely seriously contested, defendants raised issues in this case that might have precluded certification; the plaintiff class consists of only 29 plans, at the lower end of the federal numerosity threshold.  See id. at 6-9.  However, Judge Sand held that numerosity was to be assessed with reference to the plans’ roughly 100 trustees — easily satisfying the requirement — rather than the 29 plans.  Id.  Thus, despite agreeing with the defendant that the number of plans is pertinent, Judge Sand concluded that because the numerosity analysis focuses on whether joinder is practicable, and joinder of the 100 trustees would not be practicable, numerosity was satisfied.  Id.  Moreover, in dicta potentially useful to plaintiffs moving to certify small classes, the court also took issue with the defendant’s contention that 29 plans could not satisfy this prerequisite, stating that the geographic dispersal of the plans could in fact support numerosity.  See id. at 8.