2nd Circuit Decertifies Class After Jury Returns $32M Verdict

A lesson of particular interest to class action civil procedure came out from a unanimous Second Circuit recently. That court of appeals affirmed a lower federal district court's decision to decertify a class of debtors on grounds of lack of commonality and typicality, even though the jury returned a $32 million verdict in favor of plaintiffs.

This ruling does not mean a free-for-all in courts, however. After all, the decertification took place before a final judgment in the case.

Missing Payments

The case at hand involved a mortgage from The Money Story, which was Joseph Mazzei's lender. Years later, the Mazzei, the plaintiff, began missing payments. The lender changed ownership to HomeEq Servicing Corp., and the plaintiff was fired. The new company accelerated the loan and commenced foreclosure proceedings on the plaintiff's house.

The plaintiff managed to successfully save his property by getting a stay in bankruptcy and used equity to pay off his balance, but not without being hit with fees. At issue were a handful of fees that were assessed against him after the loan was accelerated.

Class Action

Mazzei sued The Money Store and brought a class action suit on behalf of other plaintiffs. He alleged breach of contract and claimed that the fees levied against him after the the acceleration were in violation of the contract terms. Same went for the attorneys' fees levied against him. The federal jury found in favor of Mazzei and the class to the tune of $32 million.

Not So Fast

Timing is everything. Before the judge issued a final ruling on the matter, defendants moved the court to decertify the class, attacking the usual factors courts use to recognize that a class exists: commonality, typicality, adequacy, numerosity. Before the hammer went down, the court granted the motion and justified the move for want of typicality and predominance (of common issues). A major issue of concern was whether or not contract privity was a predominant factor common to the plaintiffs.

The circuit eventually upheld the finding of the lower court and dismissed Mazzei's argument that decertification was unavailable to the court after a jury verdict. But applying the usual "abuse of discretion" standard, the circuit court deferred to the lower court's decision to decertify, citing the requirements for class certification in FRCP 23. As it stands, the affected plaintiffs may bring their own individual breach of contract cases against the defendant company but, as litigators are aware, chances of pursuing an individual suit substantially weigh in favor of defense.

Related Resources:

• Court May Decertify Class Even After Jury Verdict, Circuit Rules (The New York Law Journal)
• Microsoft Doesn't Have to Turn Over Emails on Foreign Servers (FindLaw's U.S. Second Circuit Blog)
• Tax Shelter Salesman Can't Stop IRS From Looking Into Wife's Assets (FindLaw's U.S. Second Circuit Blog)
• $7B Credit Card Settlement Killed Over Inadequate Representation (FindLaw's U.S Second Circuit Blog)