Given the low probability that a class action will go to trial and the high probability that a settlement favorable to plaintiffs and their attorneys will be reached after class certification, there is a consistent “race to certification” in many consumer class action matters. The plaintiffs’ bar frequently frames claims with an eye towards meeting Rule 23 requirements, with little regard to whether or not the evidence actually exists to prove the merits of the claims.
While many defendants are disheartened when a class is certified, a recent decision out of the Second Circuit reminds that certification is not the coup de gras of any defense, and plaintiffs are always at risk (even after trial), of losing this status.
In Mazzei v. The Money Store, plaintiff Joseph Mazzei brought claims against The Money Store (a loan servicer and mortgage lender), alleging breach of contract for the assessment of late fees after his defaulted loan was accelerated (i.e., the entire sum of principal and interest was due). Mazzei argued that “post-acceleration” late fees violated the terms of the mortgage loan.
Based on these claims, Mazzei sought and obtained certification of a national class of borrowers whose loans were either owned or serviced by The Money Store. He prevailed on his late fee claims at a jury trial, obtaining a class award of approximately $32 million plus prejudgment interest. However, after the jury verdict and before entry of final judgment, The Money Store successfully moved to decertify the class, on the grounds that Mazzei’s failure to prove privity of contract for absent class members failed to meet Rule 23 requirements of typicality and predominance. This ruling left Mazzei, although successful at trial, an award of only $133.80.
Unsurprisingly, Mazzei appealed the decertification, arguing that 1) decertification is unavailable after a jury trial, 2) decertification findings were incompatible with the Seventh Amendment, and 3) Rule 23 elements were satisfied. The Second Circuit ruled against Mazzei on all three grounds.
First, the Court found that decertification could be granted at any time prior to final judgment. The panel cited the “affirmative duty” of the district court to monitor its class decisions because the results of class proceedings are “binding on absent class members.” Rule 23, the Court held, not only authorized decertification after trial, but the process was “corollary” to the rule’s purpose.
The Court was also not persuaded that decertification after trial impugned any parties’ Seventh Amendment right to a jury trial. Mazzei was able to present his claims to the jury. And absent class members’ right to a jury trial was not impaired because they were still able to file individual claims, since the statute of limitations on any action was tolled up until decertification.
Finally, decertification was justified because the district court had the power to determine that the jury’s factual findings supporting certification were “seriously erroneous,” a “miscarriage of justice,” or “egregious.” The Second Circuit panel agreed with the district court’s assessment that Mazzei was not typical of class members whose loans were serviced (not owned) by The Money Store, and common issues did not predominate because fact-finders would have to look at every class member’s loan documents to determine whether there was privity of contract. Based on the lack of classwide evidence of privity of contract, Rule 23 was not satisfied.
The Court further refused to create subclasses of individuals whose loans were owned by The Money Store, and those whose loans were merely serviced by the company. There was no evidence in the record to enable the Court to determine what types of loans each of the class members had, making subclasses impossible to determine.
This decision is a powerful reminder that a class can be decertified at any stage in a litigation, enabling defendants to snatch victory from the jaws of defeat after a disfavorable jury verdict. Hopefully, plaintiffs will become more thoughtful about their cases, with the realization that making factual allegations to get past class certification will do them no good if they can’t back them up.
