District Court certifies class of borrowers allegedly subjected to discrimination based on race

United States District Court Judge Thelton E. Henderson (Northern District of California) certified a class of African-American and Hispanic borrowers allegedly charged higher rates on mortgage loans compared to whites as a result of Defendant GreenPoint Mortgage Funding, Inc.'s practice of allowing its brokers to mark up the price of wholesale loans.  Ramirez v. Greenpoint Mortg. Funding, Inc., ___ F.R.D. ___, 2010 WL 2867068 (July 20, 2010).  The suit alleges violation of federal fair lending and housing laws.  The alleged conduct presents an interesting theory:

The pricing of GreenPoint's mortgage loans consisted of an objective and a subjective component. GreenPoint relied on objective risk factors-such as FICO score, property value, and loan-to-value ratio-to determine credit parameters and set prices for its loan products. This information was communicated to brokers on a rate sheet listing GreenPoint's “par” interest rate, which did not result in any broker compensation. That objective component of loan pricing is not at issue here.

Plaintiffs' allegations relate to GreenPoint's discretionary pricing policy, which governed brokers' compensation for their services. GreenPoint paid brokers a “yield spread premium” or “rebate” when they set the interest rate higher than par; brokers were also permitted to charge loan origination and processing fees. GreenPoint did not set any objective criteria for the imposition of these higher rates and fees, which were set by the brokers according to their discretion. Brokers were paid more for loans that cost more to the borrower, but their compensation was capped at 5 percent of the loan amount. GreenPoint monitored the fees charged by its brokers to ensure they complied with its policies.

Slip op., at 1-2.

Breaking News: Ninth Circuit issues en banc decision in Dukes v. Wal-Mart Stores, Inc.

The Ninth Circuit has issued its long-awaited, en banc Opinion in Dukes v. Wal-Mart Stores, Inc. (9th Cir. Apr. 26, 2010).  Of course, I have no idea if you were actually waiting for it, so I am only referring to myself.  As for how long it took to issue the Opinion, it took some time to write an Opinion that is about 136 pages long.  The majority described the holding as follows:

Plaintiffs allege that Wal-Mart, Inc., discriminates against women in violation of Title VII of the Civil Rights Act of 1964. After detailed briefing and hearing, the district court certified a class encompassing all women employed by Wal-Mart at any time after December 26, 1998, and encompassing all Plaintiffs’ claims for injunctive relief, declaratory relief, and back pay, while creating a separate opt-out class encompassing the same employees for punitive damages. We affirm the district court’s certification of a Federal Rule of Civil Procedure 23(b)(2) class of current employees with respect to their claims for injunctive relief, declaratory relief, and back pay. With respect to the claims for punitive damages, we remand so that the district court may consider whether to certify the class under Rule 23(b)(2) or (b)(3). We also remand with respect to the claims of putative class members who no longer worked for Wal-Mart when the complaint was filed so that the district court may consider whether to certify an additional class or classes under Rule 23(b)(3).

Slip op., at 6146-47.  The massive opinion and dissent are simply too long for me to thoroughly cover this morning.  However, Circuit Judge Graber offered this brief comment on the entirety of the opinion:

GRABER, Circuit Judge, concurring: 

The majority and the dissent have written scholarly and complete explanations of their positions. What the length of their opinions may mask is the simplicity of the majority’s unremarkable holding:

Current female employees may maintain a Rule 23(b)(2) class action against their employer, seeking injunctive and declaratory relief and back pay on behalf of all the current female employees, when they challenge as discriminatory the effects of their employer’s company-wide policies.

If the employer had 500 female employees, I doubt that any of my colleagues would question the certification of such a class. Certification does not become an abuse of discretion merely because the class has 500,000 members. I therefore concur fully in the majority opinion.

Slip op., at 6237-38.

I will write more on this Opinion as soon as I am able, but a quick perusal suggests that this decision will have a lasting impact on certification motions in the Ninth Circuit.  Unless the U.S. Supreme Court wants to weigh in on this decision.

Wells Fargo's attempt to decertify a consumer class action bounces

You can't blame them for trying.  Unless you are a judge.  Then you can.  In Gutierrez v. Wells Fargo & Co., 2010 WL 1233810 (N.D. Cal. Mar. 26, 2010, Judge William Alsup was not impressed with defendant's attempt to decertify a consumer class action involving over 1 million class members.  First, some background is in order.

Plaintiffs alleged that defendants Wells Fargo & Company and Wells Fargo Bank, N.A. improperly assessed overdraft charges on their customers' debit card transactions.  Two separate practices were allegedly employed by defendants: (1) the publication, in the “online banking” section of the Wells Fargo Bank website, of inaccurate available-balance information to their customers, and (2) the re-sequencing of debit card transactions from highest to lowest value-rather than in the order in which purchases were completed-prior to being posted against a customer's account. Plaintiffs alleged that the false balance information was employed to increase the likelihood that customers would incur overdraft charges, while the resequencing was employed to maximize the number of overdraft charges defendants could assess against their customers. Defendants denied these allegations. A few months into the dispute, defendant Wells Fargo & Company was voluntarily dismissed from the action, leaving only Wells Fargo Bank.  Both practices were used to certify classes, but the court later decertified claims resting upon the inaccuare balance theory.

Wells Fargo Bank then moved for summary judgment or decertificaiton of the re-sequencing class.  The court denied the request for decertification:

Counsel have been reminded on various occasions that the presence of individualized issues is not fatal to class actions brought under Rule 23 ( see, e.g., Dkt. No. 245 at 9). Rather, the rule tolerates some individualized issues, so long as “questions of law or fact common to the members of the class predominate over any questions affecting only individual members.” FRCP 23(b)(3). Rule 23 also requires a court to be ever cognizant of whether the class action device “is superior to other available methods for the fair and efficient adjudication of the controversy.”

The legal claims of the “re-sequencing” class target the alleged overcharging of overdraft fees for over a million different Wells Fargo customers (Dkt. No. 285, Exh. A at 37-38). All members of the “re-sequencing” class were charged overdraft fees due to defendant's accused high-to-low posting of transactions. The fees themselves, however, were only around $34 each. Given this backdrop, it cannot be disputed that a denial of class-certification would close the door of justice to a staggering amount of claimants. The deterrent value of class litigation and the desirability of providing recourse for the injured consumer who would otherwise be financially incapable of bringing suit clearly render the class action a viable and important mechanism in challenging an alleged fraud on the public. This is especially important here, where the allegedly unlawful practice disproportionately gouges those who maintain, due to choice or (more likely) financial hardship, a shallow amount of funds in their checking accounts.

On the other hand, this order must give full consideration to whether plaintiffs' revised damages study is sufficient to establish class-wide proof of actual injury and/or damages for each absent class member. Otherwise, Rule 23 would be used to truncate the required substantive elements of proof by each claimant in violation of the Rules Enabling Act, 28 U.S.C.2071-77. Having considered the various limitations inherent in Wells Fargo's transaction data (discussed in detail by this order), and the fact that proving actual injury if suits were brought individually would still require the same types of assumptions made by Olsen in his report, this order finds that plaintiffs have presented sufficient class-wide proof of actual injury to survive defendant's motion for decertification. Given this showing, there is no question that common questions predominate in this action. As such, defendant's motion for class decertification is Denied.

Slip op., at 13 -14.  It is interesting that the weaknesses in defendant's transaction data was used by the court to nullify challenges to the methodology used by plaintiffs' expert to assess damages for the class.  The court found that the same flaws in data would impact an individual's attempt to prove damages.  The opinion contains a detailed discussion, with an example, of the allged practices and the damage extrapolation methodology used by plaintiffs' expert.

Court of Appeal reverses order decertifying a class in Harper v. 24 Hour Fitness, Inc.

Greatsealcal100This is proving to be a busy day in the world of class actions.  And once again, Division Seven in the Second Appellate District is in the mix.  Division Seven seems to be one of those lucky divisions that attracts interesting class action issue appeals (I don't know if they consider themselves "lucky" to be the beneficiaries of these questions).  Just the last year was a busy one for them.  Division Seven recently took some of the sting out of Alvarez v. May Dept. Stores Co., 143 Cal.App.4th 1223 (2006) with their decision in Johnson v. Glaxosmithkline, Inc., 166 Cal.App.4th 1497 (September 19, 2008), as modified (October 14, 2008).  In Lee v. Dynamex (2008) 166 Cal.App.4th 1325 (discussed here), Division Seven reversed an Order denying class certification after the trial court refused to allow discovery of class member identity and contact information.  And in Puerto v. Superior Court (2008) 158 Cal.App.4th 1242, Division Seven added to the body of post-Pioneer decisions confirming the right to discovery putative class member (witness) identity.  And that's just the published decisions.

Division Seven also decided Belaire-West Landscape, Inc. v. Superior Court (2007) 149 Cal.App.4th 554, the first post-Pioneer decision confirming the right to discovery putative class member identity.  Other notable, fairly recent opinions include: Aron v. U-Haul Co. of California (2006) 143 Cal.App.4th 796; Aguiar v. Cintas Corp. No. 2 (2006) 144 Cal.App.4th 121; Singh v. Superior Court (2006) 140 Cal.App.4th 387; Caliber Bodyworks, Inc. v. Superior Court (2005) 134 Cal.App.4th 365; Consumer Cause, Inc. v. Mrs. Gooch's Natural Food Markets, Inc. (2005) 127 Cal.App.4th 387; and, Newell v. State Farm General Ins. Co. (2004) 118 Cal. App. 4th 1094.  There are many substantial class action issues implicated in that list, including fee awards, insurance claims arising out of the Northridge earthquake, PAGA interpretation, and wage & hour law issues.  And the list includes decisions both favorable and unfavorable to positions advocated by the respective class action proponents.  But, uniformly, this Division endeavors to correctly state and apply highly nuanced issues arising in class actions.

Division Seven's latest opinion in the class action arena, Harper v. 24 Hour Fitness, Inc. (October 22, 2008), in a 2-1 opinion, reverses a trial court order decertifying a class action.  The bulk of the opinion examines the trial court's reliance on the pre-Proposition 64 formulation of the UCL.  I will leave discussion of that aspect of the opinion to the UCL Practitioner.  However, the opinion also offers some confirming language as to how the "ascertainability" requisite is measured.  The Court explains that "ascertainability" exists when the class members can tell if they are included, irrespective of whether anyone else knows the constituency of the class:

With respect to the difficulty in confirming the identity of all class members prior to a determination on the merits, Division One of this court recently affirmed certification of a class consisting of FedEx drivers over FedEx’s objection “the members of this class shifted ‘in and out, sometimes on a day-to-day basis.’” (Estrada v. FedEx Ground Package System, Inc. (2007) 154 Cal.App.4th 1, 14.) The court explained, “The class is ascertainable if it identifies a group of unnamed plaintiffs by describing a set of common characteristics sufficient to allow a member of that group to identify himself as having a right to recover based on the description. [Citation.] [¶] . . . If FedEx’s claim is that every member of the class had to be identified from the outset, FedEx is simply wrong.” (Ibid.; accord, Lee v. Dynamex, Inc., supra, 166 Cal.App.4th at p. 1335; see also Sav-On Drug Stores, supra, 34 Cal.4th at p. 333 [“‘a class action is not inappropriate simply because each member of the class may at some point be required to make an individual showing as to his or her eligibility for recovery’”]; Bufil v. Dollar Financial Group, Inc. (2008) 162 Cal.App.4th 1193, 1207 [class of employees ascertainable in spite of absence of specific rest period records; “speculation that goes to the merits of ultimate recovery [is] an inappropriate focus for the ascertainability inquiry”]; Bell v. Farmers Ins. Exchange (2004) 115 Cal.App.4th 715, 744 [fact that class may ultimately turn out to be overinclusive not determinative; most class actions contemplate eventual individual proof of damages, including possibility some class members will have none].)

(Slip op., at pp. 11-12.)  This is an important distinction.  Too many trial courts succumb to arguments that the class identity can't be explicitly stated at the time of certification.

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ClassActionBlawg.com offers a useful practice tip

Paul Karlsgodt ClassActionBlawg author Paul Karlsgodt has a post based upon an insightful thesis:  "Trial plans can be an effective pre-certification tool for both plaintiffs and defendants in class action lawsuits."  (Karlsgodt, Practice Tip: Trial Plans Can Be an Effective Pre-Certification Tool (April 28, 2008) www.classactionblawg.com.)  The interesting aspect of the post is that it is essentially neutral, discussing instances where either plaintiffs or defendants would benefit from the requirement of an early, detailed trial plan:

For defense counsel, asking the court to require the plaintiff to provide a trial plan illustrating the expected course of proceedings if the class is certified can help the defendant to persuade the court of practical manageability problems. . . . On the other hand, voluntarily providing a specific trial plan can be also be an effective tool for plaintiffs in seeking class certification. Provide a trial plan illustrating a reasonable and efficient process for resolving both common issues and any individualized issues can give even a skeptical court a level of comfort in certifying a class in the face of more abstract manageability arguments being raised by the defendant.

(Ibid.)  The potential value of Karlsgodt's observation is that it might facilitate a process where the cream rises to the top and the junk sinks (with greater reliability that we seem to have now). In other words, if the class action has major structural flaws, the trial plan may illuminate them, but if the class action is indeed legitimate, then the trial plan may provide the confirmation of what the pleadings and sample evidence already strongly suggest. Perhaps a greater emphasis on the need for a thorough discussion of “superiority” of the class action device (required in California state class action) would promote movement in this direction without specifically imposing a pre-certification trial plan requirement, such as that required by Texas courts.

The complete post is worth a read.

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The value of precedent depends on perspective: Bell v. Superior Court (H.F. Cox, Inc.)

Greatsealcal100 In a post from earlier today, The UCL Practitioner reported that "[o]n Wednesday, the Supreme Court denied review and depublication in Bell v. Superior Court (H.F. Cox, Inc.), no. S160423."  (Kralowec, "Supreme Court denies review and depublication in class certification case: Bell v. Superior Court (H.F. Cox, Inc.)," The UCL Practioner, www.theuclpractitioner.com.)   In an earlier post on that same blog, The UCL Practitioner, noting that the Bell decision contained "some interesting language on the 'superiority' element of class certification," quoted from the opinion:

The opinion contains some interesting language on the "superiority" element of class certification: The party seeking class certification has the burden to establish that class action will be a superior means of resolving the dispute. (Aguiar v. Cintas Corp. No. 2, supra, 144 Cal.App.4th at pp. 132-133.) Our Supreme Court recently addressed the issue of the superiority of a class action in a wage and hour case. In Gentry v. Superior Court (2007) 42 Cal.4th 443, the Supreme Court concluded that both factors on which the trial court relied in this case – the size of some claims suggesting individual enforcement and the possibility of administrative proceedings before the Labor Commissioner – were insufficient to deny class certification. The court noted that there are many other factors in favor of class resolution in such cases, including that current employees might not bring individual claims out of a fear of retaliation, that current employees might not know of their rights (especially where, as here, the employer has affirmatively told them they are not eligible for overtime), and the necessity of class actions to give teeth to wage and hour laws even when some employees may have claims large enough for individual enforcement. (Id. at p. 459-462.) The court specifically held that an administrative action before the Labor Commissioner was an inadequate substitute for a class action. (Id. at p. 465.) As such, the trial court’s conclusion that a class action is not superior cannot stand.

(Kralowec, "New class certification decision: Bell v. Superior Court (H.F. Cox, Inc.)," The UCL Practioner, www.theuclpractitioner.com, quoting Bell.) My reaction to Bell at the time was that it seemed substantially more useful to plaintiffs than defendants.  As an aside, this is almost always true when a Court of Appeal reversed any part of a denial of certification.  Reversing a certification denial order, in any part, is a big deal.  Certification decisions are reviewed for abuse of discretion, and trial courts get the benefit of the doubt on appeal.

Today, I argued (successfully) against a defendant that sought to decertify a class.  Relying heavily on Bell, the defendant attacked a garden-variety class definition used in overtime/off the clock cases as lacking ascertainability.  Bell included some language that made defendant's argument more than trivial to overcome.

The defendant's use of Bell, an apparently plaintiff-friendly case, was sobering.  I was reminded of the danger inherrent in evaluating new precedent through the bias of one's primary practice area, in my case, predominantly plaintiff-side class actions.  While it is usually the case that a defendant, seeking decertification, would shy away from any certification opinion where any portion of a denial of certification was reversed, there are no guarantees that you won't have to deal with "surprise" citations.  In Bell, as in most cases, there are bits and pieces that are as useful to defendants as to plaintiffs, depending upon what issues are in play.

My unsolicited advice to erstwhile class action practitioners is to set aside some time to read each and every new class action decision, front to back, at least once while it is still hot off the presses.  Your early read of new authority may be enough to help you avoid surprises down the line.

UPDATE:  Aside from also reporting on the depublication of Bell earlier today, Wage Law notes that while Bell "had seemed to favor the plaintiff (who was the petitioner seeking Supreme Court review) the Court of Appeal's endorsement of the denial of certification in the off-the-clock and meal period causes of action had been embraced by the employers' bar, who will lament the depublication of the case."  ("Supreme Court Depublishes Bell v Superior Court (HF Cox, Inc.)," Wage Law, www.wagelaw.typepad.com.)

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Gentry v. Superior Court (Circuit City Stores, Inc.) (2007) 42 Cal.4th 443 is officially the law of this land (California).

On March 31, 2008, the United States Supreme Court denied a Petition for a Writ of Certiorari in the Petition encaptioned Circuit City Stores, Inc. v. Gentry, Supreme Court Case No. 07-998.  The actual question posed in Gentry was whether lower courts had incorrectly enforced an arbitration clause barring class actions.  While the California Supreme Court didn’t determine the enforceability of the provision, it did remand the matter for further unconscionability analysis.  In doing so, the Gentry decision offered one of the strongest statements (certainly in recent years) in favor of California’s class action device, especially in wage & hour cases:

“ ‘Frequently numerous consumers are exposed to the same dubious practice by the same seller so that proof of the prevalence of the practice as to one consumer would provide proof for all. Individual actions by each of the defrauded consumers is often impracticable because the amount of individual recovery would be insufficient to justify bringing a separate action; thus an unscrupulous seller retains the benefits of its wrongful conduct. A class action by consumers produces several salutary by-products, including a therapeutic effect upon those sellers who indulge in fraudulent practices, aid to legitimate business enterprises by curtailing illegitimate competition, and avoidance to the judicial process of the burden of multiple litigation involving identical claims. The benefit to the parties and the courts would, in many circumstances, be substantial.’ ” ( Discover Bank, supra, 36 Cal.4th at p. 156, 30 Cal.Rptr.3d 76, 113 P.3d 1100.)

(Gentry, at pp. 453.)

First, individual awards in wage and hour cases tend to be modest. In addition to the fact that litigation over minimum wage by definition involves the lowest-wage workers, overtime litigation also usually involves workers at the lower end of the pay scale, since professional, executive, and administrative employees are generally exempt from overtime statutes and regulations.

(Gentry, at pp. 457-458.)

A second factor in favor of class actions for these cases, as noted in Bell, is that a current employee who individually sues his or her employer is at greater risk of retaliation. We have recognized that retaining one’s employment while bringing formal legal action against one's employer is not “a viable option for many employees.”

(Gentry, at p. 459.)

Third, some individual employees may not sue because they are unaware that their legal rights have been violated. The New Jersey Supreme Court recently emphasized the notification function of class actions in striking down a class arbitration waiver in a consumer contract: “[W]ithout the availability of a class-action mechanism, many consumer-fraud victims may never realize that they may have been wronged. As commentators have noted, ‘often consumers do not know that a potential defendant’s conduct is illegal. When they are being charged an excessive interest rate or a penalty for check bouncing, for example, few know or even sense that their rights are being violated.’ ” ( Muhammad v. County Bank of Rehoboth Beach, Delaware (2006) 189 N.J. 1, 912 A.2d 88, 100.)

(Gentry, at p. 461.)

We also agree with the Bell court that “class actions may be needed to assure the effective enforcement of statutory policies even though some claims are large enough to provide an incentive for individual action. While employees may succeed under favorable circumstances in recovering unpaid overtime through a lawsuit or a wage claim filed with the Labor Commissioner, a class action may still be justified if these alternatives offer no more than the prospect of ‘random and fragmentary enforcement’ of the employer’s legal obligation to pay overtime.”

(Gentry, at p. 462.)

Circuit City makes a number of arguments that we have already concluded lack merit. As in Discover Bank, we again reject the “unsupported assertions [of some courts] that, in the case of small individual recovery, attorney fees are an adequate substitute for the class action or arbitration mechanism. Nor do we agree ... that small claims litigation, government prosecution, or informal resolution are adequate substitutes.”

(Gentry, at p. 464.)  Gentry’s strong policy statements concerning at least wage & hour class actions all but declared the use of the class action device superior to any other means of enforcing California’s wage & hour laws.  The Gentry decision is available for free through FindLaw, so long as you create a free account first.  Thanks to The UCL Practitioner for noting the denial of the Petition.

UPDATE:  The significance of Gentry is confirmed by the press coverage a simple certiorari denial is receiving.  (See, e.g., Wage Law discussing Gentry.)

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