Second Circuit Rules That Judges Can Decertify a Class After Jury Verdict

A three-judge appellate panel recently upheld the Southern District of New York’s order that granted the defendants’ post-verdict motion to decertify a class, and affirmed the judgment entered only in favor of the putative class representative.

Joseph Mazzei, the lead plaintiff, sued The Money Store, a loan servicer and mortgage lender, as well as related entities (all controlled by Wells Fargo), challenging the imposition of post-acceleration late fees.  Plaintiff contended the late fees were not permitted under the loan documents.

After the district court certified a class and held a subsequent trial, the jury awarded a $32 million verdict, plus prejudgment interest to the class, and $133.80 to Mazzei.  The Money Store then moved for decertification of the class pursuant to Federal Rule of Civil Procedure 23(c)(1)(C) or for judgment as a matter of law.  The Money Store argued the class had not proven privity of contract between the nominal class members and The Money Store for those borrowers whose loans were not owned, and were only serviced by The Money Store.  The district court agreed and decertified the class.

Mazzei appealed, arguing: (1) decertification is not available after a jury verdict in the certified class’s favor; (2) decertification after a jury verdict is not compatible with the Seventh Amendment; and (3) class certification requirements had been satisfied.

The Second Circuit affirmed the district court’s decision, explaining a district court must defer to the jury’s factual findings in modifying or decertifying a class after a jury verdict, unless the jury’s findings are “seriously erroneous,” a “miscarriage of justice,” or “egregious” – the same standard that applies to Rule 59(a) motions for new trial.  In this case, the district court did not abuse its discretion in concluding that the jury’s verdict fell under that category.  The Second Circuit found no Seventh Amendment violation of the right to trial by jury, because the court did not reexamine the jury’s determination of the facts.  The lead plaintiff received the award for his individual claim and the rest of the class members’ claims were preserved and tolled during the pendency of the lawsuit.  Decertification had essentially the same effect as the grant of a motion for new trial pursuant to Federal Rule 59(a).

The Second Circuit also stated the district court’s decertification ruling was correct.  First, the representative of the class did not meet the typicality requirement for certification.  The issue of privity was central to borrowers whose loans The Money Store serviced but did own, but was not central to Mazzei’s claim, because Mazzei’s loan was both owned and serviced by The Money Store.  Therefore, Mazzei’s claim was not sufficiently typical of the class.  Moreover, the class did not meet the predominance requirement for certification.  There was no class-wide evidence to show that class members were in privity with The Money Store.  Each prospective class member’s loan documents would need to be examined to determine if the borrower had a valid claim.  The judgment of the district court was therefore affirmed.

Weiner Brodsky Kider regularly represents clients against class action claims throughout the United States.