On July 15, 2016, the Second Circuit Court of Appeals affirmed the U.S. District Court of the Southern District of New York's grant of defendant's post-verdict motion to decertify a class that was previously certified pursuant to rule 23(a) and (b)(3) where (1) a district court has power, consistent with the Seventh Amendment and rule 23, to decertify a class after a jury verdict and before the entry of final judgment; (2) in considering such decertification (or modification), the District Court must defer to any factual findings the jury necessarily made unless those findings were “seriously erroneous,” a “miscarriage of justice,” or “egregious”; and 3) the district court did not abuse discretion in determining that Rule 23’s requirements were not met and in decertifying the class. Mazzei v. The Money Store et al, Docket No. 15-2054, decided July 15, 2016.
Plaintiff-appellant Joseph Mazzei initiated a class action against The Money Store, alleging overcharge of late fees on mortgages. Mazzei contended that the promissory note contemplated the imposition only of pre-acceleration late fees, and that the imposition of post-acceleration late fees violated the agreement. The court later certified the class in January 2013. The class definition was later amended on consent to exclude borrowers who signed loan mortgage agreements after November 1, 2006. After trial, and before the entry of judgment, The Money Store moved for decertification of the class pursuant to Federal Rule of Civil Procedure 23(c)(1)(C). The amended certified class consisted of “borrowers whose loans were either owned by The Money Store (via origination or assignment) or serviced by it.” The Money Store grounded its motion on the class representative’s “failure to prove class-wide privity of contract between The Money Store and those borrowers whose loans it only serviced and did not own.” The district court agreed that Mazzei’s failure to prove privity with respect to such absent class members defeated class certification on grounds of typicality and predominance. The district court granted the motion.
Federal Rule of Civil Procedure 23(c)(1)(C) provides that “[a]n order that grants or denies class certification may be altered or amended before final judgment.” Mazzei argued that a class may not be decertified after a jury verdict in its favor because such decertification is tantamount to overturning a jury verdict, and decertification would violate the class members’ Seventh Amendment right to a jury trial.
The circuit court rejected this argument based on the language of rule 23 and case law allowing such decertification. “Because the results of class proceedings bind absent class members . . . , the district court has the affirmative ‘duty of monitoring its class decisions in light of the evidentiary development of the case,’” wrote the court, citing the Fifth Circuit case, Richardson v. Byrd, 709 F.2d 1016, 1019 (5th Cir. 1983) (“The district judge must define, redefine, subclass, and decertify as appropriate in response to the progression of the case from assertion to facts.”). The Second Circuit also cited Phillips Petroleum Co. v. Shutts, 472 U.S. 797, 812 (1985) for the proposition that “the Due Process Clause of course requires that the named plaintiff at all times adequately represent the interests of the absent class members.”
In rejecting Seventh Amendment argument, the Court held:
[T]here is no Seventh Amendment issue at all. Mazzei will receive damages on his individual claim in the amount awarded him by the jury. And he has no constitutional right to represent a class; whether he may do so is purely a matter of Rule 23.
Litigators representing class action plaintiffs should, throughout the trial, be mindful of maintaining the class. On the other hand, defense counsel may want to challenge the class certification, prior to the entry of judgment, and thereby minimize the damage to their clients.