First Class Defense

Court Lowers the Bar for Numerosity Requirement in Nexium Antitrust Litigation

On the heels of his November 14, 2013 order certifying a class of individual consumers and other payors who alleged that defendant pharmaceutical companies engaged in anti-competitive practices resulting in overcharges for the drug Nexium, Judge William G. Young of the District of Massachusetts entered an order on December 11, 2013, this time certifying a class of “Direct Purchaser” wholesalers and retailers who purchased branded Nexium directly from defendant AstraZeneca.  While Judge Young’s November 14, 2013 memorandum and order focused primarily on discussion concerning the Rule 23(b)(3) damages class including members lacking any injury from the defendants’ alleged practices, the most notable aspect of this most recent order is the Court’s discussion of Rule 23(a)’s numerosity requirement. Download In re Nexium Antitrust Litigation Civil Action No. 12 md 02409 WGY December

Wholesalers, retailers, and consumers brought this putative class action against several defendants for alleged violations of federal antitrust laws involving AstraZeneca’s heartburn medication, Nexium.  Wholesaler and retailer plaintiffs sought certification of a class of “Direct Purchasers” who purchased Nexium directly from AstraZeneca and who will purchase generic Nexium directly from one or more of the other “Generic Defendants.”  Unlike the defendants’ opposition to the previous consumers’ motion for class certification, this time the defendants strongly contested whether the Direct Purchaser plaintiffs satisfied Rule 23(a)’s numerosity requirement. 

At the outset, the Court noted the general rule that classes exceeding forty plaintiffs are deemed sufficient for Rule 23(a) purposes.  However, the Court noted that some classes of fewer plaintiffs have previously been certified in the District of Massachusetts.  Specifically, the Court referenced In re Prograf Antitrust Litig., No. 1:11-cv-10344-RWZ, 2013 WL 2395083 (D. Mass. Spr. 23, 2013) (Judge Zobel certified a class of twenty-five pharmaceutical wholesalers) and In re Citigroup, Inc. Capital Accumulation Plan Litig., No. 00cv11912-NG, 2010 WL 9067986 (D. Mass. Jan. 6, 2010) (Judge Gertner certified a subclass of twenty participants in an employee stock compensation program).  In Nexium, the Direct Purchaser plaintiffs and defendants presented conflicting evidence as to the number of putative class members.  Plaintiffs’ expert measured the putative class according to two “but-for” generic drug entry dates, April 14, 2008 and January 1, 2012, resulting in either thirty-one or twenty-six class members.  Alternatively, defendants pegged the proper figures at twenty-nine or twenty-four members, which they argued accounted for consolidation of entities with their respective parent companies.  The Court adopted defendants’ proposed numbers of twenty-nine or twenty-four.  Despite both ranges falling well below the general forty-member threshold for satisfying numerosity, the Court opined “…it is clear that district courts have taken a more flexible approach to the numerosity analysis.”  Nexium, p. 4.  The Court reasoned that the test for numerosity requires courts to address whether joinder of all members is impracticable. 

Explaining that because size of the putative class alone does not establish a “clear case for numerosity,” the Court identified several “non-numeric” factors which must be considered in determining whether joinder is impracticable.  They include geographic location of the proposed class members, the nature of the action, and matters of judicial economy.

First, the Court agreed with the Direct Purchasers that, because members of the putative class are geographically dispersed throughout the country, joinder would be difficult, inconvenient, and costly.  Second, the Court recognized that many courts have given favorable treatment to class actions in the private enforcement of antitrust laws, in part because a class action is a fitting mechanism for such enforcement.  Third, the Court concluded that judicial economy would be served through a class action where members seek damages stemming from the same transactions between AstraZeneca and the other generic drug defendants.  The Court determined that plaintiffs had met Rule 23(a)(1)’s numerosity requirement in light of the foregoing analysis of objective and subjective factors.

The Court next reviewed the issue of adequacy.  Defendants disputed whether two assignees of Direct Purchaser claims, both of which were excluded from plaintiffs’ expert’s report identifying Direct Purchasers, could be included in the proposed class and serve as class representatives.  The Court rejected defendants’ arguments. 

The Court then reviewed the requirements of Rule 23(b)(3).  It held that the Direct Purchasers had established that they could prove common damages using a reasonable and acceptable methodology based on sales data and benchmarked against a similar drug, Prevacid, and its generic equivalent.  With regard to superiority, the Court noted that it was a “close call” as to whether the requirement had been satisfied.  Defendants  made “powerful” arguments that these class members are economically well-suited for individual suits because of their alleged one billion dollars in damages claimed per plaintiff.  However, despite the close call, “the complex nature of this litigation, the fact that complete joinder of the Direct Purchaser class is impracticable, and the ‘desirability’ of concentrating litigation in this single forum” led the Court to its ultimate conclusion that class treatment is superior to other methods of adjudication.  Accordingly, the Court certified a class of all persons or entities in the United States who purchased branded Nexium directly from AstraZeneca at any time during the relevant period.

Comcast and the Nexium Antitrust Case

On November 14, 2013, Judge William G. Young of the District of Massachusetts entered an order certifying a class of individual consumers and other payors who alleged that anti-competitive practices of the defendant pharmaceutical companies resulted in overcharges for the drug Nexium.   Download In re Nexium Antitrust Litigation Civil Action No 12 md 02409 WGY.  Judge Young's order covers a lot of territory, including his rejection of defendants' challenges to Rule 23(a)(4) adequacy, his rejection of plaintiffs' request to certify a Rule 23(b)(2) injunctive class, and even a gratuitous swipe at the federal sentencing guidelines (which, Judge Young asserts, apply a lower standard to sentencing decisions than the "rigorous analysis" courts are required to apply to rulings on class certification).  

A major theme in the decision is what to make of the fact that the Rule 23(b)(3) damages class includes members that were not injured by the alleged practices.  Judge Young found that plaintiffs' expert adequately demonstrated "that all class members have been exposed to purchasing or paying for esomeprazole magnesium at a supracompetitive price," but also concluded from the defense expert's report "that certain class members were not actually injured, including more than a de minimis number of TPPs [third-party payors] and consumers who - through rebates, contracts, and brand-loyal purchasing - suffered no damages from the foreclosure of a generic version of Nexium to the market."  Still, he found the plaintiffs' expert's rebuttal to these challenges persuasive, concluding:  "At this stage in class certification, the Court determines that the incidience of uninjured consumers and TPPs are insufficient to overcome the showing of common antitrust impact to the putative class, but the Court preserves the Defendants' right to challenge individual damage claims at trial."

Defendants argued that the Supreme Court's decision in Wal-Mart Stores, Inc. v. Dukes requires the moving party to show that each class member was injured by the defendants' allegedly wrongful conduct.  Judge Young rejected this argument, choosing to follow federal appellate precedents holding that the inclusion of uninjured class members is not fatal to class certification, and concluding that these precedents are consistent with Wal-Mart.  

The court did not stop there, however, but went on to ask:  "What is one to make of the 5-4 decision of the Supreme Court in Comcast?"  And then, as if to answer his own question, Judge Young responded:  "Not much, say Justices Ginsburg and Breyer writing for the dissenters."  The problem the Court faced in Comcast, Judge Young observed, was that "the putative class was unable to calculate damages resulting solely from the overbuilder theory of antitrust impact . . . ."  In contrast, plaintiffs in Nexium asserted three theories of liability, all of which "arise from a singular set of transactions."  Because plaintiffs' expert's aggregate damages calculation reflected all three theories, the court found, the expert testimony offered to show a common impact was aligned with the damages theories in a way that the expert testimony in Comcast was not.

Defendants nevertheless challenged the sufficiency of the expert testimony under Comcast, arguing that, because some class members suffered no injury, individual damages inquiries would be necessary.  Judge Young, however, cited First Circuit and other precedent holding that the use of aggregate damages calculations, including "averages," is sufficient to establish predominance despite variations in damages among class members.  In doing so, he stated:  "This is not the allocation stage of litigation.  Apportioning damages ought wait until liability is decided on the merits."  In doing so, he accepted the narrow reading of Comcast set out in Justices Ginsburg's and Breyer's dissent:

As outlined above, Comcast has not changed the rule on what is required for damages models in establishing Rule 23(b)(3) predominance. . . . Comcast simply requires the moving party to present a damages model that directly reflects and is linked to an accepted theory of liability under Rule 23(b)(3).

Judge Young adds that a number of considerations may come up for managing the case for trial, a process that he refers to as "dynamic."  For example, he states that, at the pretrial conference, "[i]t may be necessary to revisit the class certified in this order.  Perhaps a liability-only class may prove fairest and most manageable," he posits, citing the 7th Circuit's decision in Butler v. Sears, Roebuck and Co.  If, he muses, a jury finds liability and an average amount of an overcharge, the average may become a baseline for further proceedings in which individual class members may seek greater damages, or defendants may seek to extinguish damages.  Presumably, what makes the possibility of such individual damages litigation following class-wide findings tolerable is the possibility that "[m]any of the litigants may accept this baseline figure as an appropriate measure of damages."

The Nexium decision represents a thoughtful and bold venture into new territory opened up by the majority decision in Comcast.  In light of the complex trial management issues that it leaves open, however, it is a venture fraught with peril.  Defendants will be disappointed by the court's treatment of Comcast, and especially its failure to give effect to that portion of the Comcast majority opinion that would preclude certification of cases involving predominant individualized issues of damages.  As some of our earlier posts suggest, even the most intelligent and creative approaches to managing such cases after they are certified merely delay, rather than avoid, the need to resolve individual issues.  And certification of a case that leaves open the need for eventual resolution of such substantial individual issues conflicts with the proper application of Rule 23 as elucidated by the majority in Comcast.  Only time will tell whether and where the seed the Comcast majority planted will take root.  

 

District of Massachusetts Denies Certification in Home Loan Modification Case

The home mortgage crisis of the last several years has spawned its share of new government regulation and litigation.  On September 4th, Judge Rya Zobel denied plaintiffs' motion for class certification in an MDL proceeding alleging that Bank of America was liable to members of classes in twenty-six states for alleged breach of contract, breach of the implied covenant of good faith and fair dealing, promissory estoppel, and unfair and deceptive practices.  In re Bank of America Home Affordable Modification Program (HAMP) Contract Litigation, M.D.L. No. 10-21930RWZ (D.Mass.).

The plaintiffs were individuals who had entered into Trial Period Plans with the bank, pursuant to a Department of the Treasury home loan modification program, under which eligible homeowners who made reduced monthly payments for a brief trial period, provided required financial documents, and met other stated conditions would become entitled to modifications of their loans.  Plaintiffs claimed that they made all of the required payments and met all of the conditions, but did not receive either a permanent loan modification or a written denial of eligibility by the Modification Effective Date.  They sought certification of classes of individuals who also had entered into TPP Agreements, met all of the requirements, but failed to receive either the loan modifications or written denials of eligibility prior to the specified dates.

Plaintiffs sought certification of a liability-only class pursuant to Rule 23(b)(3).  In a thorough and well-crafted opinion, Judge Zobel denied plaintiffs' motion for class certification for failure to satisfy the requirements of predominance and superiority.

The court's analysis began with the implied requirement of ascertainability.  Citing Wright & Miller, Judge Zobel explained that "the class must be defined by objective criteria that make it 'administratively feasible for the court to determine whether a particular individual is a member'" of the class.  Because there existed centralized databases from which class membership could readily be determined, the court held, the requirement of ascertainability was satisfied.

Next, the court reviewed the element of numerosity.  Relying on plaintiffs' expert's analysis of a sample of loans, and extrapolating from the sample, Judge Zobel concluded that each of the twenty-six classes was sufficiently numerous to satisfy Rule 23(a)(1).

With respect to Rule 23(a)(2) commonality, the court cited Justice Scalia's opinion in Wal-Mart Stores, Inc. v. Dukes, but held that commonality was satisfied despite the presence of individualized questions, because the question of interpretation of the TPPs was common to the putative classes. In a footnote, the court rejected plaintiffs' arguement that the bank's alleged unscrupulous practices was a common issue because plaintiffs failed to show that any of the alleged practices "affected each class member individually."  

The court also found that the requirements of typicality and adequacy were satisfied, except with respect to certain named plaintiffs who had entered into TPPs with an affiliate of the bank that had serviced the loans prior to all of these plaintiffs' loan modification effective dates.  The court held that the unique issues of whether the affiliated entity followed the same practices as the defendant and that the defendant should be liable for the affiliate's practices "frustrate any confidence in the ability of these named plaintiffs to represent the proposed classes."

Finally, the court reviewed predominance and superiority under Rule 23(b)(3).  Judge Zobel found that the common question about the bank's duties under the TPPs was "outweighed by the numerous individual questions affecting liability."  In particular, the requirement that plaintiffs show that they performed their obligations under their contracts were too individualized to support a finding of predominance.  The court explained:

Deciding whether each plaintiff fulfilled his obligations under his TPP depends on a nearly endless series of individual questions:  "did Plaintiff A provide accurate documents permitting verification of all his income?  Did Plaintiff A live in the property as his principal residence?  Did Plaintiff A obtain credit counseling if required to do so?  Did Plaintiff A make his trial payments on a timely basis?  Did Plaintiff B provide accurate documents permitting verification of all his income?  Did Plaintiff B live in the property as his principal residence? . . ."  And so on, and so on, and so on, for each obligation of each member of each of the twenty-six classes.

Because these questions could not "be resolved just by 'computer records, clerical assistance, and objective criteria,'" but would instead "require separate evidentiary hearings for many if not all of the proposed class members," the court found that individual questions predominated with respect to all of the plaintiffs' claims.

Finally, the court held that the presence of these individual questions precluded a finding of superiority:

As described above, plaintiffs' claims depend predominantly on individual factual questions.  A class action cannot sensibly adjudicate those individual questions.  It would either ignore them, denying the parties a fair trial on the merits of each plaintiffs' claim; or it would attempt to resolve them all, and wind up hopelessly entangled in each plaintiff's idiosyncratic facts.  Neither option is acceptable.

Additionally, because "individual plaintiffs are normally well-motivated to bring any claims they might have in order to save their homes," the court held that this was not a case where class action treatment was required to vindicate small claims.

District of Massachusetts Grants Class Certification in Wage Case

In George v. NWMCC, CA No. 10-10289-DJC (D. Mass., September 27, 2012), United States District Judge Denise Casper granted class certification to a group of employees and former employees of National Water Main Cleaning Company (NWMCC), a provider of sewer and catch basin cleaning services (among other things). The plaintiffs, who worked on municipal contracts subject to state prevailing wage laws, alleged that NWMCC failed to pay them the statutory prevailing wage rate for all work subject to that rate; failed to pay overtime based on a “blended formula” (i.e. used the lower rate to calculate overtime due); and deducted wages when employees failed to meet certain productivity quotas. Their motion for class certification proposed three subclasses, made up of workers subject to Massachusetts, Rhode Island, and Connecticut wage laws.

NWMCC opposed class certification, in large part on the ground that individual inquiries predominate over any common issues of law or fact. Specifically, NWMCC argued that its payroll practices were designed to satisfy its minimum wage obligations, that it paid the prevailing wage rate for certain work where it was not required to do so, and that it paid for certain benefits in addition to the cash wage. For these reasons, NWMCC took the position that the only way to determine liability was to (1) conduct a detailed week-by-week, employee-by-employee examination of the employees’ time cards and whether the time reported was accurate; (2) calculate the amount of wages due at the prevailing rate; (3) calculate the amount of wages due for non-prevailing wage rate work; and (4) compare the amount actually received by each employee to the sum of prevailing wages and non-prevailing wages due.

In her well-written decision, Judge Casper carefully addressed each of the Rule 23(a) and 23(b)(3) factors, concluding with relative ease that the plaintiffs established numerosity, typicality, and adequacy of representation. The bulk of the opinion discussed commonality and predominance, the more difficult questions.

First, Judge Casper rejected NWMCC’s argument that commonality was absent because liability could be established only after analyzing each class member’s individual circumstances. Citing Wal-Mart Stores, Inc. v. Dukes, she stated that “claims of harm arising from a truly common source, such as illegal bias arising from a particular supervisor, can provide the common contention required for a class action.” The named plaintiffs, she found, alleged harm from the same source: e.g. failing to pay laborers the statutory prevailing wage rate, failing to compute overtime pay using the legally required formula, and failing to compensate workers for travel time. Judge Casper concluded that what damages should flow to these workers if the injury was proven was a separate question, not relevant to commonality.

With respect to the predominance factor, NWMCC argued that individualized issues overwhelmingly predominated because, again, it would be impossible to ascertain violations without considering individual circumstances. NWMCC presented evidence that the amount of time spent performing prevailing wage rate tasks varied significantly from day-to-day and job-to-job and some of the plaintiffs overstated the hours worked on their time cards. These variables factored not simply into damages, NWMCC argued, but liability, since it could not be liable for a wage violation unless an employee was actually underpaid, which could not be determined without considering facts that necessarily vary from plaintiff to plaintiff.

Judge Casper rejected this argument too, finding that the common questions—such as whether NWMCC paid less than the prevailing wage rate for qualifying work, deducted wages when employees failed to achieve measures of productivity, used the correct overtime calculation, etc.—predominated and were amenable to class-wide resolution because they turned on NWMCC’s common policies and not on questions relevant to particular individuals.

It is perhaps not surprising that the questions, as characterized by the plaintiffs, were found to satisfy the commonality and predominance tests. But, unlike the example of the biased supervisor offered in Dukes, the answers to these questions will not necessarily dictate NWMCC’s liability. NWMCC’s point was that it is not enough for the plaintiffs to prove that it failed to pay the prevailing wage rate for certain work or that it failed to utilize the correct overtime formula. For NWMCC to be liable, the plaintiffs must prove that they were actually underpaid; and, considering the way that NWMCC paid its workers and the way its workers recorded and reported their time, to prove that they were underpaid, the judge or the jury will be required to delve into individualized facts.

These arguments were not lost on Judge Casper. However, she declined at this procedural juncture to address them, instead finding that “whether the alleged wage violation comes from use of a particular wage algorithm, or whether the violation only results if the employees are not paid at least their required wages over the pay period is part of the dispute . . . and one question that must be determined in the course of this lawsuit.” This case therefore illustrates the tension between the prohibition against judging the merits at the class certification stage and the need, at times, to resolve preliminary legal issues in order to determine whether the requirements of Rule 23 are met. Had Judge Casper taken on this preliminary legal question and concluded that violations arise from actual underpayment (and not any common practice in the abstract), then it seems relatively clear that the plaintiffs could establish liability only through an individual inquiry into each employee’s right to recover damages, making this case inherently unsuitable for class treatment.

Putative Class Action Tossed as Time-Barred

Last week, in Abdallah v. Bain Capital LLC, United States District Judge Joseph L. Tauro of the District of Massachusetts dismissed a putative class action lawsuit against Bain Capital LLC because the action was time-barred. As often happens when class action complaints are based on events occurring outside the relevant limitations periods, plaintiffs’ counsel attempted to avoid dismissal by invoking the discovery rule, the fraudulent concealment doctrine, and equitable estoppel. The court’s analysis in rejecting each of plaintiff’s theories on a Rule 12(b)(6) motion demonstrates the potential value of challenging plaintiffs’ tolling arguments at the earliest opportunity where they are not supported by specific factual allegations.

The lawsuit was brought by Murielle Abdallah, who lost her job at a French Samsonite factory when it was liquidated after the factory’s owner, HB Group, declared bankruptcy in 2007. Abdallah accused Bain of implementing a scheme to sell the factory to HB Group in order to avoid simply closing the factory, which would have triggered the obligation under the French Labor Code to create a costly ($75mm, according to the plaintiff) collective redundancy plan designed to assist displaced employees with benefits including training, financial aid, relocation assistance, and psychological support. She asserted claims for fraud, tortious interference and unjust enrichment (subject to a three-year statute of limitations) and violations of Massachusetts’ Consumer Protection Act, Chapter 93A (governed by a four-year limitations period).

Bain moved to dismiss, and in opposition Abdallah argued that the statutes of limitations were tolled. Noting that the discovery rule tolls limitations periods until the plaintiff knew or should have known of the alleged harm and has sufficient notice of its cause, Judge Tauro concluded that the cause of action accrued no later than February 15, 2007, more than four years before the complaint was filed, because that was when a French tribunal ordered the liquidation of the factory, and Abdallah likely was on notice of Bain’s involvement at that time.

Abdallah also relied on Mass. Gen.Laws ch. 260, § 12, Massachusetts’ fraudulent concealment statute. Noting that allegations of fraud are subject to the heightened pleading standard of Fed. R. Civ. P. 9(a), the court held that Abdallah could not rely upon a theory of fraudulent concealment to save her claims because she did not allege specific facts to show that Bain did anything to hide her cause of action.

Judge Tauro also declined to apply the doctrine of equitable tolling, which is appropriate only where the plaintiff “could not have discovered, with reasonable diligence, information that was essential to the cause of action within the statute of limitations.” Although Abdallah argued that certain information regarding Bain’s involvement in the alleged “scheme” was only recently acquired, the court found that she had not provided any evidence to demonstrate that the information could not have been found by diligent inquiry, and she did not contend that that information was essential to her causes of action (i.e. “that without [that] information . . . [she] could not have brought her causes of action in court.”) Emphasizing that equitable tolling applies only “sparingly,” Judge Tauro concluded that on the facts alleged it did not apply.

Finally, Judge Tauro addressed the propriety of ruling on Abdallah’s tolling arguments at the motion to dismiss stage. He concluded that, “[a]lthough determining whether the discovery rule, fraudulent concealment, or equitable tolling should apply in a case is a question of fact to be determined by the finder of fact,” he could grant the motion to dismiss because “Abdallah has not offered any facts that justify invoking” the tolling doctrines. The court dismissed the class action complaint without prejudice, leaving the door open for Abdallah to re-file, presenting specific facts that would justify application of the discovery rule, fraudulent concealment, or equitable tolling.

Twombly, Iqbal and Class Allegations

In 2007 and 2008, the United States Supreme Court issued landmark decisions clarifying the pleading standards that must be met for a complaint to survive a motion to dismiss under Fed. R. Civ. P. 12(b)(6).  After the decisions in Bell Atlantic Corp. v. Twombly and Ashcroft v. Iqbal, bare notice pleading is no longer sufficient.  Rather, a complaint must set forth enough facts to show that the plaintiff has a plausible entitlement to relief.

Twombly and Iqbal were hailed by defense attorneys as injecting greater rationality, and less waste, in federal civil practice.  The decisions were seen as substantially limiting the risk that defendants would be forced to spend enormous sums defending what they ultimately would be able to show was meritless litigation, but which could not be stopped at the outset because pleading standards were too liberal and  few judges were willing to award sanctions for frivolous claims.

In many courts, Twombly and Iqbal have lived up to their promise, but the application of the new pleading standard has not been uniform.  Some district judges, either because they disagree with the standard, don't understand it, or conclude that it does not apply to the case before them, continue to apply the low bar that existed pre-Twombly.  And, because it is virtually impossible to obtain appellate review of a denial of a motion to dismiss, the practical consequence in those courts is that defendants who should be entitled to dismissal of non-meritorious lawsuits must continue to spend large sums in discovery and motion practice before finally getting the case thrown out.  For all practical purposes, in some courts, it is as if Twombly and Iqbal were never decided.

 A district court decision that carefully analyzes each claim in a complaint and grants a well-supported motion to dismiss, applying the Twombly and Iqbal standards, therefore represents a welcome breath of fresh air to those businesses that hope for a rational and economically efficient judicial system.  Those of us who practice in the District of Massachusetts were treated to just such a decision when Judge Rya Zobel decided the case of Manning v. Boston Medical Center Corporation.

The plaintiffs in Manning sought to bring an opt-in collective action for alleged violations of the Fair Labor Standards Act, and an opt-out Rule 23 class action with respect to other statutory and common law claims.  Plaintiffs claimed that certain of defendants' employees had been forced to work off-the-clock and had unpaid meal periods automatically deducted from their time, resulting in unpaid straight time and overtime for the named plaintiffs and members of the putative class.  

Noting first that the class included people occupying more than 50 different categories of employees, Judge Zobel focused on the individualized inquiries that would be required to resolve each class member's claim.  She also found that the allegations that defendants knew that employees were working through unpaid meal breaks and that they did not have rules prohibiting such work, coupled with the lack of any specific allegations giving examples of employees being asked to work off the clock or identifying the number of hours that they did so, were insufficient to state a claim.  

Among the motions before the court was defendants' motion to strike class allegations.  After reciting the Twombly and Iqbal standards, Judge Zobel observed that "[a] motion to strike class allegations is also analyzed under the 12(b)(6) standard."  She went on to hold:

Before being permitted to proceed, a plaintiff must properly allege a factual basis showing that there are similarly situated persons entitled to relief pursuant to 29 U.S.C. Section 216(b) and/or that common issues of fact that predominate are sufficient to pass muster under the traditional Fed. R. Civ. P. 12(b)(6) standard [citing Iqbal and Twombly].

Under the analytical framework applied by Judge Zobel, district courts may take a first look at whether class certification standards will be met at the initial pleading stage.  By faithfully applying the Supreme Court's heightened pleading standards to the class allegations of a complaint, a district judge can serve an important gatekeeping function, preventing non-certifiable cases from proceeding through costly discovery and motion practice, and avoiding unnecessary delay, inefficiency and expense, which benefit no one.  Complaints containing sufficient factual support for plaintiffs' allegations that defendants engaged in wrongful conduct on a class-wide basis will and should survive such early scrutiny, and defense counsel should resist the temptation to move to strike class allegations in every case.  However, the savings to be gained by applying the Twombly/Iqbal standard to the class allegations of insufficiently supported complaints can well serve public and private interests alike.  

 

Denial of Class Certification in Litigation Alleging Wrongful Foreclosure of Consumer Mortgages: Manson et al. v. GMAC Mortgage, LLC et al.

In a recent Memorandum and Order, Judge Richard G. Stearns of the United States District Court for the District of Massachusetts denied class certification in a case brought on behalf of Massachusetts residents whose homes were foreclosed, or against whom an invalid foreclosure process was initiated, between November 20, 2004 and December 31, 2008.  Manson et al. v. GMAC Mortgage, LLC et al., No. 08-12166 (D. Mass. April 30, 2012).  Plaintiffs in their Complaint sought class wide relief consisting of declaratory relief, and reimbursement of costs and fees and consequential damages incurred as a result of the foreclosure process.  Defendants included servicers and the trustee for mortgages held in securitized pools, which mortgages secured loans originated by other entities, and the law firms that represented the servicers and the trustee during the foreclosure of those mortgages. 

Plaintiffs’ class claims, which included wrongful foreclosure, improper notice, breach of the duty of good faith and reasonable diligence, violations of the Fair Debt Collection Practices Act, and violations of Mass. Gen. Laws chapter 93A, arose out of an issue addressed by the Massachusetts Supreme Judicial Court in U.S. Bank Nat’l Ass’n v. Ibanez, 458 Mass. 637 (2011).  In Ibanez, the Court held that under Massachusetts law a foreclosure by sale that does not strictly comply with the terms of Mass. Gen. Laws chapter 244, § 14, including the requirement that a foreclosing party that is not the original mortgagee obtain a valid assignment of the underlying mortgage before commencing foreclosure, is void and not merely voidable.  For this reason, Plaintiffs wanted all members of the putative class notified that, despite being declared in default on their mortgages, they may nonetheless have a property interest in their present or former homes, and also for Defendants to reimburse those putative class members for costs, fees, and consequential damages incurred as a result of the allegedly flawed foreclosure process. 

In denying class certification, Judge Stearns found that Plaintiffs failed to satisfy the necessary elements of commonality and typicality under Fed. R. Civ. P. 23(a).  He also determined that Plaintiffs could not meet the required criteria under Fed. R. Civ. P. 23(b), including predominance and superiority for a damages class under Rule 23(b)(3), and the heightened standard for an injunctive relief class under Rule 23(b)(2) after the Supreme Court’s decision in Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011). 

The primary stumbling block for Plaintiffs was the lack of any common “glue” to bind the proposed classes together.  As Judge Stearns put it:  “[T]he determination of whether [Mass. Gen. Laws ch. 244, § 14] was in fact violated would require 8,000 highly individualized and case-specific inquiries,” thereby defeating the policy behind certifying a class in the first place.  The Court made this determination not only with respect to the more rigorous requirement of predominance under Rule 23(b)(3), but also concerning the basic prerequisite of commonality under Rule 23(a)(2).  Nor was a class action superior, in the Court’s view, to other alternatives such as an action by the Massachusetts Attorney General seeking injunctive relief on behalf of affected consumers, and separate actions by individual putative class members, not all of whom may even want to pursue restoration of their interest in their former property. 

Regarding Plaintiffs’ claims for injunctive relief, Judge Stearns echoed Wal-Mart’s recent teachings that class certification under Rule 23(b)(2) is not authorized when individual members of the putative class seek different injunctions or declaratory relief, or when they seek individualized awards of monetary damages.  In the words of the Court:  “Here, given their differing circumstances, and the differing types of equitable relief they seek, plaintiffs’ request is precisely that which the Supreme Court said in Wal-Mart cannot be granted.” 

Mortgage lenders, servicers, and foreclosure counsel are currently facing a variety of lawsuits, including class actions, in a number of jurisdictions asserting broad based attacks on the foreclosure process.  Massachusetts is a non-judicial foreclosure state.  In judicial foreclosure states, for instance Maine, the claims asserted on behalf of the putative class relate to alleged defects in court filings, such as summary judgment affidavits, in addition to the documents necessary to perfect the foreclosing party’s mortgage interest, such as mortgage assignments.  Although plaintiffs’ counsel in these cases focus on the same type of documentary error allegedly occurring across multiple foreclosure proceedings as a basis to proceed with class litigation, Judge Stearns’ decision in the Manson case recognizes the individualized nature of each separate foreclosure proceeding, in particular how each individual mortgagor is impacted adversely, if at all, by the conduct complained of.  This is not just a question of damages, but goes also to causation as an essential element of the causes of action class counsel assert.  In addition, the rationale of the Manson decision supports recognizing the superiority of other remedies already available to the foreclosed parties, both in the individual foreclosure proceedings themselves and through states’ attorneys general, as a basis to deny class certification in these cases in judicial as well as non-judicial foreclosure states.