State Court Affirms Striking Class Allegations Before Discovery

A New Jersey appeals court last week upheld the denial of class certification to plaintiffs with claims against automotive insurers relating to the diminished value of policyholders' vehicles. See Myska, et al. v. New Jersey Manufacturers Insurance Co., et al., No. A-4398-13T4 and A-0275-14T4 (Super. Ct. N.J.). 

Plaintiffs had been involved in separate accidents with uninsured or underinsured drivers, and were unhappy with the response of their insurance companies. What will be of interest to our readers is the class action legal issue.  We have extolled the importance and value of motions to strike class allegations and other procedural mechanisms for getting the class action issue resolved as early as possible, before expensive and wasteful discovery (even bifurcated class discovery). Here, prior to discovery, the Law Division judge concluded class certification was improper. And after review, the appeals court affirmed the denial of class certification, agreeing the controversy did not lend itself to a class action because the facts underpinning each plaintiff's claims were dependent upon the individual insurance policy provisions, the distinct vehicle damaged and the specific calculation of damages alleged, which require separate litigation of every action.

The court noted that no precise procedures are established for granting or denying class certification at the incipient stage of litigation. Rather, the NJ rules state "the court shall, at an
early practicable time, determine by order whether to certify the action." Rule 4:32-2(a).  The court rejected the view that would preclude dismissal, following the required analysis, when a court determines alleged claims do not properly lend themselves to class certification.  The certification test does not merely turn on the stage of the litigation. Rather, dismissal is dependent on the nature of the claims and the propriety of their presentation as a class action.  Thus, said the court, "we flatly reject plaintiffs' urging to impose a bright-line rule prohibiting examination of the propriety of class certification until discovery is undertaken."

Here, individualized facts and circumstances of the relationship between each insurer and its insured precluded a finding of predominance.  And the court also noted that the individual claims were not so small (approx. $15,000) as to make separate litigation impossible. 

 

Motion to Strike Class Allegations Granted

Mercedes-Benz USA LLC made a successful preemptive strike against class certification in a proposed class action suit over alleged suspension problems in GL model Mercedes vehicles. See Becnel v. Mercedes-Benz USA, LLC, No. 2:14-cv-00003 (E.D. La., 6/3/14).

 

This matter arose from Plaintiff's claims for negligence, strict product liability, breach of implied warranty, fraud, and violations of the Louisiana Unfair Trade Practice Act,and the Magnuson-Moss Warranty Act. Plaintiff's claims arise from his purchase of a 2008 Mercedes-Benz GL320 from Mercedes-Benz of New Orleans.  Plaintiff brought the vehicle to the Dealer for service several times. Each time that Becnel tendered the vehicle to the Dealer, the Airmatic Suspension System allegedly was cited as the problem and was repaired. Plaintiff alleged that MBUSA knew that the Suspension System was defective but concealed that fact from current, future, and past owners and/or lessors of GL model vehicles. Plaintiff filed a class action complaint on January 2, 2014 against MBUSA on behalf of "[a]ll current and past owners or people who leased Mercedes-Benz USA, LLC GL model of vehicles since 2007."

Defendant moved to strike the class allegations. The standard applied to the motion to strike is essentially identical to the standard applied in class certification motions. See Grant,2010 WL 3303853; see also Markey v. Louisiana Citizens Fair Plan, 2008 WL 5427708 (E.D. La. Dec. 30, 2008)(Vance, J.) ; Truxillo v.Johnson & Johnson, et al., 2007 WL 4365439 *1 (E.D. La. Dec. 12, 2007)(Barbier, J.) (noting that the issues raised in a motion for judgment on the pleadings regarding class allegations overlap with the issues raised in a motion to certify the class.)

Defendant advanced several arguments in support of its motion to strike.   For example, MBUSA contended that due process barred the Court from applying Louisiana law to all the claims of absent class members from other states, and that the application of every other applicable state's laws would be unmanageable. Plaintiff suggested that this argument was premature. He argued that despite the potential for uncommon issues of law, it cannot be denied that there were some common issues of fact. Even if the Court would have to engage in a conflicts analysis to determine if the various state laws were incompatible, that only means that class certification may be improper further along in litigation, but was not improper now.

The court focused on the predominance and manageability challenges that were presented by the proposed class. The Court said it could not accept Plaintiff's assertion that he "cannot foresee any manageability problems." Based on the pleadings alone, the Court pointed to several issues: it was reasonable to assume that this matter will require the application of laws from fifty-one different jurisdictions, as it was readily apparent that at least one person from every state and the District of Columbia will be found to have purchased or leased a 2007 GL Class Mercedes. The Court anticipated serious manageability issues in applying these differing laws to Plaintiff's numerous state law causes of action, including claims for: negligence; products liability based on manufacturing defects, design defects, warning defects, and breach of express warranty; redhibition; fraudulent concealment; and unfair trade practices.

Additionally, Plaintiff, and presumably other class members, faced serious prescription.statute of limitations issues that would ultimately hinge on their ability to show that the discovery doctrine tolled the prescriptive period. The use of the discovery doctrine would necessarily involve the task of determining at what time it became unreasonable for each class member to ignore the problems with the vehicles at issue. See Chevron USA, Inc. v. Aker Mar., Inc., 604 F.3d 888, 893-94(5th Cir. 2010) (noting that in such cases, "the prescriptive period [does] not begin to run until [a plaintiff has] a reasonable basis to pursue a claim against a specific defendant.") The same issue would present itself with regard to the fraud claims, in that the Court would have to determine the element of reliance for each and every class member. See Castano, 84 F.3d at 745 ("fraud class action cannot be certified when individual reliance will be an issue.")

These serious manageability problems far outweighed any benefit that a class action would create, said the court. Plaintiff conclusorily pointed to the usual presumed benefits highlighted in class certification motions, but did not propose any concrete strategy for achieving these goals. In light of the manageability issues. The Court said it could not imagine that that the many issues that would require individual treatment for each class member would not outweigh or at least balance out any benefit conferred by class treatment.

Motion to strike granted.

 

Fail Safe Class Rejected in TCPA Case

This year marks the 50th Anniversary of the taut Cold War thriller "Fail-Safe", starring Henry Fonda and Walter Matthau. (If I recall, there is no music in the entire B&W film.) In honor of the film, we post about a modern day fail-safe issue, less dramatic of course.

A crucial implicit requirement for class certification is that the plaintiff propose a workable, ascertainable class definition. One sub-set of this issue is the highly improper "fail-safe" class in which absent class members can use an imprecise class definition to affirm their membership when the class wins, but assert they were never members of the class when the defendant wins. A recent federal case sees the court striking class allegations that fall under this impermissible “fail safe” class rubric. See Sauter v. CVS Pharmacy, Inc., No. 2:13-cv-846 (S.D. Ohio, 5/7/14).

The Plaintiff brought a putative class action against the Defendant for alleged violations of the Telephone Consumer Protection Act (TCPA), 47 U.S.C. § 227. Plaintiff alleged that the class received phone calls from CVS, which utilized an automatic telephone dialing system (ATDS) to call, without the Plaintiffs' consent.  The call allegedly provided general information about a prescription refill and the location of his local CVS pharmacy.  (actually sounds kind of useful, but we digress)

Defendant made a Motion to Strike Plaintiff's Class Allegations. Most courts recognize that a motion to strike class action allegations may properly be filed before plaintiffs have filed a motion for class certification. See, e.g., Pilgrim v. Universal Health Card, LLC, 660 F.3d 943, 945 (6th Cir. 2011); Bearden v. Honeywell Intern., Inc., No. 3:09-01035, [2010 BL 63279], 2010 WL 1223936, at *9 (M.D. Tenn. Mar. 24, 2010).  A court may strike class action allegations before a motion for class certification where the complaint itself demonstrates that the requirements for maintaining a class action cannot be met. See Gen. Tel. Co. of Sw. v. Falcon, 457 U.S. 147, 160 (1982) ("Sometimes the issues are plain enough from the pleadings"). 

The big issue here was whether the complaint proposed a fail-safe class.   A class definition is impermissible where it is a class that cannot be defined until the case is resolved on its merits. See Randleman v. Fidelity Nat'l Title Ins. Co., 646 F.3d 347, 352 (6th Cir. 2011). A fail-safe class is defined to in essence include only those who are entitled to relief.  Such a class is prohibited because it would allow putative class members to seek a remedy but not be bound by an adverse judgment — either those class members win or, by virtue of losing, they are not in the class and are not bound.

The various subclasses here included those who received calls and did not provide prior express written consent, and those who received calls who had expressly revoked their consent for such calls.  Thus, each of the Plaintiff's proposed classes was defined to include only those individuals who did not expressly consent to the receipt of the defendant's phone calls made with the use of an ATDS. Because the TCPA prohibits calls to cellular telephones using ATDSs unless prior express consent has been given, defining the class to include anyone who received such a call without prior express consent meant that only those potential members who would prevail on this liability issue would be members of the class.  In other words, the proposed classes consisted solely of persons who could establish that defendant violated the TCPA. Thus, if the Plaintiff successfully demonstrated that the Defendant made calls using an ATDS without the class members' prior express consent, then the class members would win, said the court. However, if the Plaintiffs were unsuccessful in meeting their burden of proof, the class did not even not exist and the apparent class members (folks who got a call) would not be bound by the judgment in favor of the Defendant. This was the very definition of a prohibited fail-safe class.

So, motion granted; class allegations struck.

 

Ninth Circuit "Strikes" a Blow for Proper Motion Procedure

Phillies' slugger Ryan Howard was ejected from a game this week in extra innings, leaving his team (which had no more position players) to insert ace pitcher Roy Oswalt into the outfield and to use him at the plate. First time the Phils used a pitcher in the field in decades. Howard argued a mistakenly called third strike on a check swing.

Today's post relates to a different kind of mistaken strike. The Ninth Circuit has explained that trial courts cannot strike a claim for damages on the ground that the damages are precluded as a matter of law.  Whittlestone Inc. v. Handi-Craft Co., No. 09-16353 (9th Cir. Aug. 17, 2010).  Specifically, Rule 12(f) of the Federal Rules of Civil Procedure does not authorize the court to strike the claim for damages on the basis that such damages are legally not recoverable.

Here, the defendant field a Rule 12 motion to strike the paragraphs of the complaint that sought the recovery of lost profits and consequential damages, in alleged violation of the plain language of the parties' contract.  The trial court granted the motion, and plaintiff appealed.

Rule 12(f) states that a district court “may strike from a pleading an insufficient defense or any redundant, immaterial, impertinent, or scandalous matter.” The function of a 12(f) motion
to strike is to avoid the expenditure of time and money that would arise from litigating spurious issues by dispensing with those issues prior to trial.  While the motion here seemed to fit the purpose of the rule, it didn't fit the language. The court found that the damages allegations met none of those listed categories. 

Handi-Craft argued that Whittlestone’s claim for lost profits and consequential damages should be stricken from the complaint, because such damages were precluded as a matter of law.  But that meant that Handi-Craft’s 12(f) motion was really an attempt to have certain portions of  Whittlestone’s complaint dismissed or to obtain summary judgment against Whittlestone as to those portions of the suit, which attempt was better suited for a Rule 12(b)(6) motion or a Rule 56
motion, not a Rule 12(f) motion. 

And this was not harmless error, said the 9th, because the standard for review of the different motions is not the same, and there was some question whether a 12(b)(6) motion would be granted, had it been filed.

The court concluded that Rule 12(f) of the Federal Rules of Civil Procedure does not authorize a district court to dismiss a claim for damages on the basis it is precluded as a matter of
law.