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August 18, 2015 Practice Points

Ninth Circuit: PAGA Cause of Action Is Not a Class Claim under CAFA

Under this ruling, California-based plaintiffs seeking to avoid removal may now look to strategically plead wage and hour complaints that seek greater amounts of damages under a PAGA claim with lesser amounts claimed under class-based causes of action to avoid reaching the amount-in-controversy threshold under CAFA

by Manfred Muecke

On July 29, 2015, the Court of Appeals for the Third Circuit upheld on appeal the district court's order certifying a nationwide litigation class of individuals who received mortgage loans from a financial institution whose interests were acquired by PNC Bank National Association. In re Community Bank of Northern Virginia Mortgage Lending Practices Litigation, No. 13-4273, 2015 WL 4547042 (July 29, 2015). On appeal, PNC made several arguments against certification, including (1) that there was a conflict undermining the adequacy of representation by class counsel; (2) that the district court erred in conditionally certifying the class; and (3) that the putative class did not meet the requirements of rule 23. The district court had previously certified a general class and five sub-classes.

PNC argued, among other things, that the class was not ascertainable because some class members may have declared bankruptcy, rendering the bankruptcy estate rather than the borrower the real party in interest. The Third Circuit, however, found this contention too “mired in speculation” to raise an ascertainability problem, notwithstanding the Third Circuit’s decision in Carrera v. Bayer Corp., 727 F.3d 300 (3d Cir. 2013). The court distinguished Carrera, which involved claims regarding advertising practices in connection with weight-loss pills wherein the defendant did not have a list of purchasers. The court stated that PNC, on the contrary, possessed all the relevant bank records needed to identify the putative class members. PNC also raised issues regarding commonality and manageability, citing purportedly individualized issues among the class. The court rejected these arguments, stating that the trial court has “substantial discretion” to manage the case through “imaginative solutions.”

In addition, PNC claimed there was a fundamental intra-class conflict, rendering class counsel inadequate, because the district court failed to appoint separate counsel to represent the subclasses it created. However, the court of appeals stated that class counsel may not represent an entire class if subgroups within the class have interests that are significantly antagonistic to one another. In this case though, the court stated that all class members could theoretically assert all of their available claims and recover all of their damages without impacting the recovery of any other class members. Therefore, the court found that there was no fundamental intra-class conflict to prevent class certification.

PNC also argued that the district court improperly “conditionally certified” the class in stating that it expected discovery to vindicate its certification decision.The Third Circuit has previously stated that a class may not be certified where the plaintiff promises the class will be able to fulfill rule 23’s requirements, with the caveat the class can always be decertified later. However, the Third Circuit here found that the district court had not said anything indicating that it was impermissibly conditionally certifying the class.

The court’s decision highlights the substantial discretion that trial courts within the Third Circuit have in managing even very large class actions. The decision also highlights potential challenges involved in an ascertainability defense to certification, notwithstanding the court’s prior decision in Carrera v. Bayer Corp.

Manfred Muecke is an associate with Bonnett Fairbourn Friedman & Balint in San Diego, California.

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