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Rudy J. Cerone , Moderator McGlinchey Stafford, PLLC New Orleans Michael H. Goldstein

Class Actions in Business and consumer Cases Presented by ABI’s Consumer Bankruptcy Committee Webinar Wednesday, May 29, 2013. Rudy J. Cerone , Moderator McGlinchey Stafford, PLLC New Orleans Michael H. Goldstein Stutman , Treister & Glatt PC New York Hon. Robert E. Grossman

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Rudy J. Cerone , Moderator McGlinchey Stafford, PLLC New Orleans Michael H. Goldstein

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  1. Class Actions in Business and consumer CasesPresented by ABI’s Consumer Bankruptcy CommitteeWebinarWednesday, May 29, 2013 Rudy J. Cerone, Moderator McGlinchey Stafford, PLLC New Orleans Michael H. Goldstein Stutman, Treister& Glatt PC New York Hon. Robert E. Grossman U.S. Bankruptcy Court (E.D.N.Y) Central Islip Johnie J. Patterson Walker & Patterson, PC Houston

  2. Class Actions In Bankruptcy Cases Why are we talking about class actions in bankruptcy cases? 1. Rule 7023 makes the Class Action provisions of FRCP 23 applicable in adversary proceedings. 2. Rule 9014provides that Rule 7023 may apply in a contested matter. 3. Consumer Cases - Class actions have been initiated on behalf of consumer debtors to vindicate – • Violations of the discharge • Improper lending practices • Violations of the automatic stay 4. Business Cases - Mainly in the chapter 11 context, we have seen creditors seeking to either continue a pre-filing class action against a debtor post-filing, or initiate a post-filing class action via a class proof of claim, or adversary proceeding.

  3. Requirements for Certification of a Class FRCP 23 Governs Class Certification • Must meet requirements in both • 23 (a); and • 23 (b)

  4. Requirements For Certification Of A Class • Rule 23(a) – requires • Numerosity(23(a)(1))- requires that the class be so numerous that joinder of all members is impracticable. • Must provide some evidence or a reasonable estimate of the number of class members (70 – 100 is generally sufficient). • Is joinder of all members practicable? • Interest of judicial economy. • Does the class involve small individual claims? • Ease of identification of members.

  5. Requirements For Certification Of A Class • Commonality - 23(a)(2) - requires that there be questions of law or fact common to the class. The threshold of ‘commonality’ is not high. • Requirement is easily met in most cases. • Need only show that there is at least one issue whose resolution will affect all or a significant number of putative class members. • Has Wal Mart made this test more difficult?

  6. Requirements For Certification Of A Class Adequate Representation - 23(a)(4) - requires a finding that the representative parties will fairly and adequately protect the interests of the class. • For the class representative: • Problem of settling out; • Must understand the class mechanism and the claims presented; • No conflict of interest with the class members. • For class counsel: • Obligation to notify the court of any proposed settlement; • Must protect against overbroad releases; • Fees v. recovery – must settle class claims first; • Include incentive awards for class plaintiffs; • Adequacy of representation flows to the class v. the class representatives.

  7. Requirements For Certification Of A Class Rule 23(b) – Once all the elements of 23(a) have been met, Plaintiffs can show one or more of the three prong’s of 23(b) for certification. Rule 23(b)(1) – Separate actions would create: • Inconsistent or varying adjudications which would thereby create incompatible standards of conduct for the party opposing certification. • Adjudication being dispositive of interests of others’ interests or substantially impairing the ability of others to protect their interests (limited fund certification).

  8. Requirements For Certification Of A Class Rule 23(b)(2) – Primarily injunctive or declaratory relief: A class may be maintained if the party opposing the class has acted or refused to act on grounds generally applicable to the class, thereby making appropriate final injunctive relief or corresponding declaratory relief with respect to the class as a whole. • Subsection (b)(2) class actions are limited to those class actions seeking primarily injunctive or corresponding declaratory relief. • Because a (b)(2) class must be homogeneous and cohesive, a class can be certified under subsection (b)(2) only where the defendant has acted in the same way toward all members of the class, or has acted on grounds applicable to all members of the class. • Monetary damages must only be incidental – capable of calculation by objective standards. But, has Wal Mart changed this?

  9. Requirements For Certification Of A Class Rule 23(b)(3) – Common questions predominate overindividual ones: A class may be maintained if the questions of law or fact common to the class members predominate over any questions affecting only individual members and the class action is superior to other available methods for fairly and efficiently adjudicating the controversy. • “Predominance” is similar, but more demanding than the “commonality” requirement of 23(a). • The most common factor destroying certification is the necessity for individualized damage determinations, thereby failing the predominance test.

  10. Requirements For Certification Of A Class Rule 23(c) (1)(C) – Possible decertification: Possibility for decertification • Certification order can be amended prior to final judgment

  11. Typical Defenses Rule 23 Requirements • Arguments will focus on lack of commonality (or predominance) due to the need for individual determinations; commonality of Rule 23(a) and predominance of Rule 23(b)(3) will over lap; focus on individual determinations will undermine Rule 23(b)(1) inconsistent results and Rule 23(b)(2) common policy • If money damages are sought, the focus will be on the need to calculate individual damage claims. Violations of Court Orders may only be calculated/assessed on an individual basis. • Defenses/Conflicts of Interest. Attacks on the named plaintiffs and counsel to demonstrate that the claims of the named plaintiffs are at odds with the class.

  12. Typical Defenses Jurisdiction • Depending on the theory of the case; violation of a Court order or specific actions of Defendant not tied to Court order Defendant Defenses • To the extent money damages are sought, focus on individual determinations will be exacting Burden of Proof • Theories are not likely to carry the day.

  13. Class Actions In Bankruptcy Cases Why are we talking about class actions in bankruptcy cases? • Rule 7023 makes the Class Action provisions of FRCP 23 applicable in adversary proceedings. • Rule 9014provides that Rule 7023 may apply in a contested matter. • Consumer Cases - Class actions have been initiated on behalf of consumer debtors to vindicate – • Violations of the discharge • Improper lending practices • Violations of the automatic stay • Business Cases - Mainly in the chapter 11 context, we have seen creditors seeking to either continue a pre-filing class action against a debtor post-filing, or initiate a post-filing class action via a class proof of claim, or adversary proceeding.

  14. Class Actions In Bankruptcy Cases Jurisdiction • FRCP 23 permits class actions in matters falling within the District Court's Jurisdiction. • Bankruptcy jurisdiction is vested in the District Court under 28 U.S.C. § 1334. • Bankruptcy Court's are referred bankruptcy cases by the District Court. 28 U.S.C. §157 • Any doubts of the applicability of Rule 23 in Bankruptcy Cases?

  15. Class Actions In Bankruptcy Cases Nationwide Class vs. District Class • Can a class be certified on a nationwide basis, or does the class have to be limited to members with the jurisdiction of the presiding District Court? • May depend upon the relief sought. • Where relief is to enforce a violation of a discharge or automatic stay; the class may be limited to the Court which issued the order. • Policy issue?

  16. Class Actions In Bankruptcy Cases Class Definition • Specificity required • Fail safe class – class definition is based self-executing • How important is the definition of the class and should the Judge modify the class to fit the facts and allow the class action to proceed?

  17. Class Actions In Bankruptcy Cases Injunctive Relief vs. Damages • Because damages may require individualized proof, injunctive relief may be easier basis to obtain class certification. • Agree?

  18. Class Actions In Bankruptcy Cases Defenses • Defendant's specific defenses can drive individualized analysis thus precluding class action mechanism • Is this the tail wagging the dog?

  19. Class Actions In Bankruptcy Cases Class Claim v. Class Action • Cases go both ways • Decided bias towards the claims adjudication process • Why?

  20. Class Actions In Bankruptcy Cases Burden of Proof – Evidence • Supreme Court in recent cases seems to have re-written the law on class actions, elevating the hurdle for plaintiffs to meet the Rule 23 requirements. • Is this a case of the Supreme Court demanding trial lawyers and trial courts to satisfy what the Rule requires and not being lax based upon "policy arguments", or is it the Supreme Court sounding the death knell for class actions?

  21. Class Actions In Bankruptcy Cases Class Claims • Split of authority if class claims even allowed • Procedure for allowance – some courts require claimant to request application of Rule 7023 • What about Rule 2019?

  22. Class Actions In Bankruptcy Cases Debtors and non-bankruptcy class actions • Automatic Stay and opt-out classes • Automatic Stay and releases

  23. Recent Decisions • Comcast Corp. v. Behrend (Supreme Court March 27, 2013) (failure to satisfy evidentiary burden re 23(b)(3) common damages theory) • Wal-Mart Stores, Inc. v. Dukes (Supreme Court June 20, 2011) (failure to satisfy evidentiary burden re 23(a)(2) common theory of liability) • Teta v. Chow (In re TWL Corp) (5th Cir. March 29, 2013) (remanding denial of class certification – WARN claim; does not address class claim) • Wilborn v. Wells Fargo Bank (In re Wilborn), 609 F.3d 748 (5th Cir. 2010) (multi-district class action; individual damage claims predominated)

  24. Recent Decisions • In re Death Row Records, Inc. (BAP 9th Cir. 2012) (cannot certify a nationwide class based upon civil contempt) • Schuman v. The Connaught Group, Ltd (In re The Connaught Group, Inc.) (Judge Bernstein, Bankr. SDNY April 16, 2013) (granting class certification on WARN claim; analyzes class action and class claim issues) • Montano v First Light Federal Credit Union (In Re Montano) (Judge Thuma, Bankr. D. NM, March 21, 2013) (decertification of class for failure to meet Wal-Mart evidentiary standard) • Brannan v. Wells Fargo Home Mortg., Inc. (In re Brannan) (Bankr. S.D. Ala. Jan 8, 2013) (class could be certified for injunctive relief) • Mazzei v. Money Store (SDNY Dec 20, 2012) (certification of class of borrowers based upon charge of late fees are loans were accelerated and paid off) • Rodriquez v. Countrywide Home Loans, Inc. (In re Rodriguez), 432 Bankr. 671 (Bankr. S.D. Tex. 2010) (affirming certification of injunctive class)

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