Articles from October 2011

Marler v. E. M. Johansing: Court of Appeal Reverses Class Certification Denial

In a published opinion, California’s Second Appellate District has circumscribed the boundaries of trial court discretion in denying class certification where there is an allegation of class-wide reliance on a material misrepresentation.  See Marler v. E. M. Johansing, LLC, No. B229445, 2011 Cal. App. LEXIS 1314 (Cal. Ct. App. Oct. 19, 2011) (available here).

The plaintiffs, elderly mobile home park residents, alleged that the defendant developer made material misrepresentations about a condominium conversion proposal, suggesting that the lots would be priced between $110,000 and $150,000 for purchase by the residents.  See id. at *1-2, 4-5.  Based on these representations, the residents voted to approve the conversion; however, the defendant subsequently notified the residents that the purchase prices would be substantially greater than previously stated: $198,000 to $240,000.  Id. at *6. 

The trial court denied the plaintiffs’ class certification motion, finding that the class was not ascertainable and lacked the requisite community of interest.  Id. at *9.  The Court of Appeal reversed, holding that the certification analysis was not a particularly close call, and that the trial court’s legal analysis was flawed.  See id. at *10-11.

In analyzing the class’ ascertainability, the Court of Appeal concurred with the trial court that the class definition was overbroad and potentially confusing.  However, the unanimous three-judge panel concluded that denying certification was not the proper response to overbreadth.  Rather, “[o]verbreadth may be cured by modifying the class definitions.”  Id. at *15.  Striking a pragmatic note, the Marler court added that “[b]ecause there is an identifiable class, plaintiffs’ rights should not be forfeited because of counsel’s choice of words in the complaint or class certification motion.”  Id. at *16-17.

 As to the community of interest issue, the Court of Appeal found fault with the trial court’s denial of certification based on variances in individual damages, contrary to long-established class action jurisprudence to the effect that different damages among class members does not preclude certification.  See id. at *18-19 (citing Sav-On Drug Stores, Inc. v. Super. Ct., 34 Cal. 4th 319, 334 (2004)).  The Court of Appeal also rejected the trial court’s position that individual proof was needed to show reliance on the defendants’ allegedly fraudulent statements.  Instead, the Marler panel underscored that where fraud is alleged, class-wide reliance may be inferred when a misrepresentation is shown to be material.  See id. at *20-21.

Maya v. Centex: Lawsuit Alleging High-Risk Loans Diminished Neighborhood Property Values May Proceed

The Ninth Circuit has revived a prospective nationwide class action in which the plaintiffs allege that developers knowingly marketed properties in the plaintiffs’ neighborhoods to high-risk borrowers, decreasing both the resale value and desirability of the plaintiffs’ properties.  See Maya v. Centex Corp., 2011 U.S. App. LEXIS 19344 (9th Cir. Sept. 21, 2011) (available here).  Last year, the district court granted the defendants’ Rule 12 motion to dismiss, holding that the plaintiffs had failed to allege an “injury” as required by Article III.  Id. at *3-4.  In reversing the district court, the unanimous three-judge panel found that “decreased economic value and desirability are cognizable injuries.”  Id. at 28 (referencing Maya v. Centex Corp., 2010 U.S. Dist. LEXIS 44829 (C.D. Cal. Mar. 31, 2010)).

 The appellate court specifically rejected the district court’s analysis that the plaintiffs’ proffered injuries were too speculative, even if the “plaintiffs will not realize any decrease in the value of their property until they attempt to sell.”  Id. at *23.  Instead, the Ninth Circuit held that “[a] current reduction in the economic value of one’s home is a cognizable injury for constitutional standing purposes.”  Id. at *21. 

 The court also held that the plaintiffs had alleged a separate “injury” because the defendants’ lending practices made the plaintiffs’ properties “less desirable.”  Id. at *24.  The resulting decrease in the plaintiffs’ quality of life is adequate to support standing.  Id.

While this ruling helps homeowners seeking redress for decreased home value and neighborhood desirability, Maya will likely also be extended to other contexts in which the plaintiffs allege a harm that has not yet been realized through a formal economic transaction.

Davis v. J.P. Morgan: $42 Million Settlement of Unpaid Overtime Claims Approved

A district court has granted final approval of a remarkable $42 million settlement against J.P. Morgan Chase bank.  In Davis v. J.P. Morgan Chase & Co., the plaintiffs alleged that the defendant had misclassified loan underwriters as “managers,” and thus impermissibly failed to pay them overtime wages as required by the federal Fair Labor Standards Act (FLSA).  Davis v. J.P. Morgan Chase & Co., No. 01-CV-6492L, 2011 U.S. Dist. LEXIS 117082 (W.D. N.Y. Oct. 11, 2011) (available here).  Class members now stand to recover as much as $94,625 each in compensation from the settlement.  The Court also approved attorneys’ fees in the amount of $14 million dollars, or one-third of the $42 million common fund.  Id. at *10-11.

Emphasizing that class counsel obtained a “very sizable” recovery for the class, the Court found that the $14 million award was justified.  Id. at *33.  The parties relied upon the “percentage method” for awarding fees, “i.e., basing the calculation of attorneys’ fees on a percentage of the fund secured by counsel, rather than using the traditional ‘lodestar’ approach of multiplying an hourly rate by the number of hours reasonably expended.”  Id. at *26-29.  Though the percentage method is commonly used in the Second Circuit, the Court cross-checked the requested attorneys’ fees “’by dividing the proposed fee award by the lodestar calculation, resulting in a lodestar multiplier.’”  Id. at *26-29 (citing In re AT & T Corp., 455 F.3d 160, 164 (3d Cir. 2006)).  Finding a multiplier of 5.3, the Court acknowledged that this is “toward the high end of acceptable multipliers,” but “not atypical.”  Id. 

The Court further observed that any reduction in attorneys’ fees would not benefit the class.  Id. at *24.  “[I]f the Court awards less than one third of the settlement fund as attorney’s fees, that will not increase the amount paid to class members; it will simply decrease the amount paid by defendants.”  Id.  The Court took a similarly pragmatic view in rejecting any analysis of class members’ maximum potential recovery.  The Court wrote that “any dollar figure assigned as the maximum potential aggregate recovery by plaintiffs would mean little, and would not provide a particularly useful benchmark for measuring the reasonableness of the settlement,” because plaintiffs may have had little realistic chance of actually recovering that theoretical sum.  Id. at *12-14.

In approving this settlement, the Davis court substantially deferred to the parties’ negotiated settlement terms, and took a pragmatic, real-world approach.  The Court also underscored the value of the percentage method in tying the recovery of class counsel to that of class members.

California Supreme Court Denies Review in Brown v. Ralphs

In a major victory for the wage-and-hour plaintiffs’ bar, the California Supreme Court denied the petition for review in Brown v. Ralphs, 197 Cal. App. 4th 489 (2011) on Wednesday, October 19, 2011. Brown is widely cited as one of the most significant decisions interpreting the United States Supreme Court’s AT&T Mobility v. Concepcion decision. In Brown, the Court of Appeal held that Concepcion is inapplicable to claims brought pursuant to PAGA, the California Labor Code’s Private Attorneys General Act. The Brown opinion has been relied upon in both state and federal courts to circumscribe the reach of Concepcion. See, e.g., Urbino v. Orkin Servs. of Cal., 2011 U.S. Dist. LEXIS 114746 (C.D. Cal. Oct. 5, 2011). By removing the possibility of Supreme Court reversal of Brown v. Ralphs, the denial of review is expected to solidify the Court of Appeal’s holding and inform the interpretation of Concepcion beyond PAGA.