Sunday, October 20, 2019

FYI: Cal App Ct (2nd Dist) Upholds Over 60% Reduction on Consumer Plaintiff's Attorney Fee Award

The Court of Appeals of California, Second District, recently upheld a trial court's ruling reducing the amount of a plaintiff's attorney's fee award in a consumer litigation action to less than 40% of the amount sought by the plaintiff's counsel.

 

A copy of the opinion is available at:  Link to Opinion.  The opinion was later revised slightly and certified for publication:  Link to Opinion

 

A car buyer sued the manufacturer of a used car she purchased under California's Song-Beverly Consumer Warranty Act, Civ. Code, § 1790 et seq., for alleged defects that the manufacturer refused to repurchase. The parties settled the litigation, with the manufacturer agreeing to pay the purchaser plaintiff $85,000 plus reasonable attorney fees and expenses.

 

The plaintiff purchaser moved for a fee award using the lodestar method that consisted of a $127,792.50 base amount with a 1.5 multiplier, for a total of $191,688.75. However, the trial court awarded only $73,864 in fees.

 

This appeal followed.

 

Just as with many consumer statutes that allow the successful consumer to recover attorney's fees, in an action under California's Song-Beverly Consumer Warranty Act, the prevailing buyer has the burden of "showing that the fees incurred were `allowable,' were `reasonably necessary to the conduct of the litigation,' and were `reasonable in amount'."

 

The Appellate Court noted the extensive case law establishing that:

 

- The "trial judge is the best judge of the value of professional services rendered in his [or her] court, and while his [or her] judgment is of course subject to review, it will not be disturbed unless the appellate court is convinced that it is clearly wrong."

 

- In addition, "the lodestar method vests the trial court with the discretion to decide which of the hours expended by the attorneys were `reasonably spent' on the litigation, and to determine the hourly rates that should be used in the lodestar calculus."

 

- While the trial court has broad discretion to increase or reduce the proposed lodestar amount based on the various factors identified in case law, including the complexity of the case and the results achieved, the court's analysis must begin with the `actual time expended, determined by the court to have been reasonably incurred.'"  

 

- "A trial court may not rubber stamp a request for attorney fees, but must determine the number of hours reasonably expended."

 

- In evaluating whether the attorney fee request is reasonable, the trial court should consider "`whether the case was overstaffed, how much time the attorneys spent on particular claims, and whether the hours were reasonably expended.'"

 

- "Reasonable compensation does not include compensation for `padding' in the form of inefficient or duplicative efforts." 

 

- "A reduced award might be fully justified by a general observation that an attorney overlitigated a case or submitted a padded bill or that the opposing party has stated valid objections.'"

 

- "In making its calculation [of a reasonable hourly rate], the court may rely on its own knowledge and familiarity with the legal market, as well as the experience, skill, and reputation of the attorney requesting fees, the difficulty or complexity of the litigation to which that skill was applied, and affidavits from other attorneys regarding prevailing fees in the community and rate determinations in other cases."

 

The Appellate Court also noted that "it is inappropriate and an abuse of a trial court's discretion to tie an attorney fee award to the amount of the prevailing buyer/plaintiff's damages or recovery in a Song-Beverly Act action.'"  A "'rule of proportionality' would make it difficult for individuals with meritorious consumer rights claims to obtain redress from the courts when they cannot expect a large damages award."

 

Pointing to various statements by the trial judge at the hearing on attorney's fees, the plaintiff argued that the trial court engaged in a prohibited proportionality analysis in setting the attorney fee award.

 

However, the Appellate Court noted that "the trial court's final written order in the instant case did not suggest in any respect that the court reduced the attorney fee award based on the size of the settlement award."

 

Instead, the Appellate Court noted that the trial court's order indicated a fee reduction was warranted because it was unreasonable to have 6 different lawyers from 2 different law firms for the plaintiff, "staffing a case that did not present complex or unique issues, did not involve discovery motions, and did not go to trial." In addition, the trial court found the attorneys' hourly rates of $500 per hour to over $600 per hour to be unreasonably high.

 

The plaintiff also argued that "the trial court arbitrarily cut 83.5 hours of reasonably incurred fees billed by six attorneys who worked on the case, citing concerns about inefficiencies and duplication," but without referencing "any specific examples of inefficiencies or redundancies as a result of the number of attorneys staffing the case."

 

The Appellate Court noted that "[a]n across-the-board reduction in hours claimed based on the percentage of total time entries that were flawed, without respect to the number of hours that were actually included in the flawed entries, is not a legitimate basis for determining a reasonable attorney fee award."

 

Nevertheless, the Appellate Court noted that the trial court "made clear that its approach was designed to reduce the total award to the reasonable amount that would have been billed had there been an appropriate number of attorneys on the case. The court could properly have made an across-the-board reduction of 30 percent to accomplish the same purpose."

 

Therefore, the Appellate Court rejected the plaintiff's argument here as well, holding that "[p]lainly, it is appropriate for a trial court to reduce a fee award based on its reasonable determination that a routine, non-complex case was overstaffed to a degree that significant inefficiencies and inflated fees resulted." 

 

The plaintiff also argued the trial court improperly reduced the hourly rates of $500 to $650 per hour for her attorneys to $300 per hour, even though she "submitted ample evidence, which Defendant failed to rebut, that her counsel's rates were reasonable and commensurate with other consumer attorneys' rates."

 

However, the Appellate Court again disagreed, noting that "even if Plaintiff established that her attorneys' rates were generally commensurate with other consumer law attorneys with the same level of experience and skill, Plaintiff ignores that there are a number of factors that the trial court may have taken into consideration in determining that reductions in the attorneys' hourly rates were warranted. The court reasonably could have reduced the rates based on its finding that the matter was not complex; that it did not go to trial; that the name partners were doing work that could have been done by lower-billing attorneys; and that all the attorneys were doing work that could have been done by paralegals."

 

In sum, the Appellate Court held that the plaintiff failed to meet "her burden to show an abuse of discretion in the trial court's reduction of the attorneys' hourly rates."

 

Therefore, the Appellate Court affirmed that trial court's order awarding fees and costs, and also allowed the defendant manufacturer to recover its costs on appeal.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

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Wednesday, October 16, 2019

FYI: Ill App Ct (1st Dist) Holds Equitable Owner Not Necessary Party in Mortgage Foreclosure

The Illinois Appellate Court, First District, recently held that an entity with only a purported equitable interest in a property was only a permissive party to a foreclosure and not a necessary party, and therefore the plaintiff mortgagee was not required to serve the entity with process.  Thus, the allegedly defective service did not provide a basis to vacate the judgments entered against it.  

 

Additionally, the Court held that because lack of proper service was not apparent from the face of the record, the foreclosure sale buyer's interest in the property was protected.

 

Accordingly, the First District affirmed the ruling of the trial court dismissing the petition to vacate all orders under 735 ILCS 5/2-1401. 

 

A copy of the opinion is available at:  Link to Opinion

 

In October 2005, a bank ("Bank") extended a mortgage loan ("Loan") to an individual ("Borrower"), which loan was secured by residential property ("Property").  The Borrower stopped making payments on the Loan in October 2008.

 

On November 22, 2008, the Borrower executed a "Memorandum and Affidavit of Equitable Interest" that purported to grant a limited liability company ("LLC") an equitable interest in the Property.  The Memorandum was filed with the recorder of deeds in December 2010.  However, the Memorandum did not identify the LLC's mailing address, registered agent, or where it was formed.  Records later filed in the trial court revealed that the LLC was formed in New Mexico, and the Borrower was its sole member.

 

In 2009, the Bank filed a complaint to foreclose mortgage naming the Borrower and the LLC as defendants.  The Bank filed an affidavit of service by publication on the Borrower and the LLC saying that, after diligent inquiry, it was unable to locate them.  Notice was subsequently published, filed in the circuit court, and mailed to the Borrower at four different addresses.

 

The Bank subsequently filed an affidavit of special process server, stating that an Illinois limited liability company with the same name as the defendant LLC was served by leaving a copy of the summons and complaint with its registered agent.

 

In October 2009, the Bank filed a motion for default order against the Borrower and the LLC.  In May 2010, after the Borrower and LLC failed to answer or otherwise plead, the trial court entered an order of default and judgment of foreclosure.  The Property was subsequently sold at a sheriff's sale, and the trial court entered an order approving sale.  The Property was then conveyed to the Bank by judicial sales deed. 

After several conveyances, in August 2011, the Property was conveyed to the current homeowner ("Homeowner").

 

More than five years later, in November 2016, the LLC filed an appearance and petition to quash service and vacate all orders under section 2-1401 of the Illinois Code of Civil Procedure ("Code") (735 ILCS 5/2-1401).  In its petition, the LLC argued that the Bank served the wrong entity, and therefore it was never properly served and the orders entered against it were void.

 

The Bank and Homeowner moved to dismiss, arguing (1) the LLC had been properly served by publication, (2) the LLC could not bring the petition having never registered to do business in Illinois, (3) the LLC lacked standing to challenge the judgment as it had no bona fide interest in the Property, (4) the LLC was on notice of the foreclosure because its sole member, the Borrower, appeared, and (5) section 2-1401(e) of the Code protects the interest of the Homeowner because he is a bona fide purchaser for value. 

 

In response, the LLC argued that (1) the Limited Liability Company Act ("LLC Act") does not permit service by publication, (2) it was not required to register under the LLC Act because merely owning property in Illinois does not constitute transacting business under the Act, (3) the special process server did not serve it, (4) its standing to challenge the foreclosure judgment arises from an equitable interest in the Property, (5) a void judgment may be attacked at any time, and (6) the Homeowner was not a bona fide purchaser and his interest was not protected under section 2-1401(e) because lack of jurisdiction was apparent from the record.

 

The trial court granted the motions, finding that the Code and the "catchall" provision of the LLC Act permitted service by publication.  The matter was appealed. 

 

On appeal, the Bank and Homeowner argued for the first time that the LLC was not a necessary party to the foreclosure, and therefore the trial court did not err in dismissing the LLC's petition.  The First District determined that because the factual basis for the appellee's argument - that the LLC had not valid interest in the Property - was before the trial court, it could consider the necessary party argument for the first time on appeal.

 

In analyzing the issue, the Court noted that the Illinois Mortgage Foreclosure Law provides that the necessary parties to a mortgage foreclosure action are "(i) the mortgagor and (ii) other persons (but not guarantors) who owe payment of indebtedness or the performance of other obligations secured by the mortgage and against whom personal liability is asserted."  735 ILCS 5/15-1501(a).  Moreover, "[o]ther person, such as other mortgagees or claimants, may be joined, although they are not necessary parties."  735 ILCS 5/15-1501(b).

 

In its complaint, the Bank sought a deficiency only against the Borrower, which meant that the LLC was not a party "against whom personal liability is asserted."  Moreover, the LLC's purported equitable interest in the Property did not transform it into a mortgagor.

 

Thus, the LLC "may have been a permissive party, not a necessary party," and therefore "the failure to make [the LLC] a party did not divest the trial court of authority to enter the foreclosure judgment and confirm the sale." 

 

Accordingly, "[the Bank] was not required to serve process on [the LLC] and the trial court did not err in dismissing the section 2-1401 petition to quash service and vacate the default judgment." 

 

Additionally, the First District determined that "a bona fide purchaser for value, like [the Homeowner], is protected by section 2-1401(e) of the Code." 

 

Section 2-1401(e) protects third-party purchasers of a property from the effects of an order setting aside a judgment affecting title to a property as long as the defect in service is not apparent from the face of the record. 

 

The Court determined that the Homeowner "could not tell from the record that the trial court did not have jurisdiction over [the LLC] due to improper service until [the LLC] filed its section 2-1401 petition, attaching as exhibits the Illinois Secretary of State documents and the New Mexico documents."

 

Accordingly, "[b]ecause [the Homeowner] was a bona fide purchaser, [the LLC] cannot collaterally attack the foreclosure judgment."

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

Alabama   |   California   |   Florida   |   Georgia   |   Illinois   |   Massachusetts   |   New Jersey   |   New York   |   Ohio   |   Pennsylvania   |   Texas   |   Washington, DC

 

 

NOTICE: We do not send unsolicited emails. If you received this email in error, or if you wish to be removed from our update distribution list, please simply reply to this email and state your intention. Thank you.


Our updates and webinar presentations are available on the internet, in searchable format, at:

 

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and

 

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California Finance Law Developments

 

 

 

Monday, October 14, 2019

FYI: 7th Circuit Holds Creditor Liable for Its Counsel's Bankruptcy Discharge Violation

The U.S. Court of Appeals for the Seventh Circuit recently affirmed in part and reversed in part a trial court's judgment against a debtor who filed an adversary proceeding alleging that a creditor and its counsel violated the bankruptcy discharge by trying to collect a discharged debt, holding that the attorney could not be held in contempt because he lacked of knowledge of the discharge, but the creditor could be held liable for the actions of its counsel under agency law.

 

A copy of the opinion is available at:  Link to Opinion

 

The plaintiff failed to pay her membership fees to a health club, and in July of 2001, the law firm representing the club filed a collection action in state court. In February of 2002, a default judgment was entered against the plaintiff.

 

The law firm engaged in post-judgment collection efforts and the judgment debtor failed to show up at several hearings to show cause, resulting in the entry of a writ of bodily attachment or bench warrant against her in April of 2010. Almost a year later, she was arrested by a police officer who stopped to help her with a flat tire and discovered the outstanding warrant.

 

Unbeknownst to the law firm, the judgment debtor had filed for bankruptcy in 2009 and listed the health club as a creditor, receiving a discharge in January of 2010. The notice of discharge was mailed to the club, but its manager failed to notify the law firm. The debtor also failed to notify both the state court and the law firm that the debt had been discharged, despite a local bankruptcy court rule requiring her to do so.

 

The debtor sued the creditor and its law firm in state court, but that suit was dismissed for lack of subject matter jurisdiction.

 

The debtor then filed an adversary complaint in bankruptcy court seeking to hold the defendants in civil contempt for violating 11 U.S.C. § 524 by trying to collect a discharged debt.

 

After a bench trial, the bankruptcy court ruled in favor of the defendants, reasoning that the individual lawyer for the creditor involved in the case lacked knowledge of the discharge, had no duty to inquire, and the debtor failed to notify him of the discharge. As to the creditor, the bankruptcy court found that although the creditor received notice of the discharge, it did not willfully violate the discharge order because after referring the case for collection in 2001, "there was no evidence that [the creditor] was aware of the status of its case against [the debtor] or that it directed [the lawyer] to take any particular action in the case."

 

The trial court affirmed the bankruptcy court's judgment and the debtor appealed.

 

On appeal, the Seventh Circuit explained that "[w]hen a party violates a bankruptcy court's order by pursuing a discharged debt, the debtor can ask that the court hold that party in contempt. … But the debtor can do so only for willful violations. … A willful violation … require[s] that the offending party both violated the court's order and had 'actual knowledge that a bankruptcy is under way or has ended in a discharge." The debtor has "the burden of proving the defendants' contempt by clear and convincing evidence."

 

The Court first addressed whether the creditor had actual knowledge of the discharge, agreeing with the bankruptcy court's finding that the creditor knew the debt had been discharged because the notice as mailed by the bankruptcy court, and the creditor offered no evidence that the notice had not been received, entitling the plaintiff to the presumption that it was received.

 

Turning to the second prong of the test -- "violative action" -- the Court disagreed with the bankruptcy and trial courts because while the creditor "had itself taken no action that violated the discharge order", the lower courts' finding reflected "an error in legal reasoning", namely that the creditor was "responsible for only its own actions and not those of [its counsel]."

 

The Court explained that it has "repeatedly stated that clients are bound by their counsel's conduct[,][which] … makes perfect sense when viewed through the lens of agency law:  the clients are principals, the attorney is an agent, and under the law of agency the principal is bound by his chose agent's deeds.'"

 

Applying agency law, the Seventh Circuit concluded that the creditor's counsel was acting within the scope of his authority when he continued the state court collection case against the debtor in violation of the discharge order and that the attorney's "actions, imputed to [the creditor], were taken despite [the creditor's] knowledge of the discharge order, meeting the requirements for civil contempt. The bankruptcy court erred as a legal matter by concluding otherwise. … Our conclusion here is not only consistent with our circuit precedent, it is sensible. Holding otherwise would create a loophole in the law through which creditors could avoid liability simply by remaining ignorant of their agents' actions or by failing to notify their agents of debtors' bankruptcy proceedings. We decline to incentivize such careless behavior."

 

Turning to the attorney's knowledge, the Appellate Court found that "[t]he bankruptcy court's finding that [the attorney] did not have the requisite knowledge was reasonable and was supported by the evidence. We see no clear error in it."

 

Thus, the attorney/agent was "in the inverse position" of its client/principal. However, "[u]nlike with the [creditor/principal], we do not impute the principal's knowledge to the agent."

 

Because the attorney did not have knowledge of the discharge order and the principal's knowledge is not imputed to the agent, the attorney "cannot have willfully violated the discharge order and cannot be held in contempt. Both the district court and the bankruptcy court correctly concluded as much, and we affirm their rulings."

 

Finally, the Court gave a "final word of caution[,]" explaining that although it concluded that the creditor "acted in contempt, we not that this regrettable event could have been avoided had" the debtor complied with the local bankruptcy rule requiring her to give notice of the discharge and left "to the bankruptcy court's discretion whether to factor this into the damages calculation."

  

Accordingly, the Seventh Circuit affirmed in part and reversed in part the trial court's judgment and remanded the case to the bankruptcy court for further proceedings.

 

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

Alabama   |   California   |   Florida   |   Georgia  |   Illinois   |   Massachusetts   |   New Jersey   |   New York   |   Ohio   |   Pennsylvania   |   Texas   |   Washington, DC

 

 

NOTICE: We do not send unsolicited emails. If you received this email in error, or if you wish to be removed from our update distribution list, please simply reply to this email and state your intention. Thank you.


Our updates and webinar presentations are available on the internet, in searchable format, at:

 

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Saturday, October 12, 2019

FYI: Cal App Ct (2nd Dist) Rejects Claim That Loan Assignment During Default Was Void

The Court of Appeal for the Second District of California recently affirmed the dismissal of a borrower's claims for wrongful foreclosure alleging that the assignment of his mortgage to the foreclosing entity was invalid.

 

In so ruling, the Second District rejected the borrower's argument that a mortgage cannot be assigned to another entity while the loan is in default as illogical and incorrect, in part because this reasoning would allow borrowers to prevent lenders from assigning debt by refusing to make payments.

 

A copy of the opinion is available at:  Link to Opinion

 

A borrower took out a mortgage loan secured by a deed of trust to his home (the "Loan").  After the initial lender was closed and placed into receivership by the federal government, the FDIC as receiver transferred the Loan to a new entity ("Assignor"), who in turn assigned the Loan to yet another entity ("Assignee") and recorded the assignment. 

 

Thereafter, a substitution of trustee was recorded declaring that Assignee was substituted for a new trustee ("Trustee") on the Loan.  The Assignee and Trustee foreclosed the Borrower's home in April 2017.

 

The borrower filed a wrongful foreclosure action against the Assignee and Trustee alleging that they had no rightful claim to foreclose on his home on the basis that: (i) the initial lender sold his mortgage to entities that were not named defendants to the foreclosure, and; (ii) that the Loan was not legally transferred, conveyed or assigned to Assignee because the borrower defaulted on the Loan nearly eight years prior to the time of assignment. 

 

The trial court sustained the Assignee and Trustee's demurrer to the borrower's complaint and the instant appeal followed.

 

On appeal, the appellate court reviewed the Borrower's chief argument that a financial institution may not validly assign a mortgage loan to another entity while the loan is in default, and that such an assignment is "void." 

 

Under California law, it is not enough for a homeowner merely to allege a mortgage assignment was voidable. See, e.g., Yhudai v. IMPAC Funding Corp. (2016) 1 Cal.App.5th 1252, 1256.  Rather, the homeowner must allege facts supporting a legally viable theory as to why the challenged assignment is void as a matter of law. See, e.g., Kalnoki v. First American Trustee Servicing Solutions, LLC (2017) 8 Cal.App.5th 23, 44; cf. Yvanova v. New Century Mortgage Corp. (2016) 62 Cal.4th 919, 929–930 [distinguishing between void and 4 voidable contracts].

 

Here, the Appellate Court noted that complaint asserted without any logical basis or supporting legal authority that a borrower, by refusing to pay, can prevent a lender from assigning the debt. 

 

Examining the Borrower's argument that the assignment was void, the Second District was unpersuaded by this "strange suggestion," concluding that the Borrower's argument was legally incorrect because he did not explain how the assignments were void as a matter of law.  See, e.g., Mendoza, supra, 6 Cal.App.5th at pp. 811– 820.). 

 

The other five claims raised in the borrower's complaint failed for not being within the jurisdiction of the appellate court (federal claims dismissed upon removal as invalid and remanded to state court), forfeited as not raised in the opening brief (claims for violation of Civil Code section 2934 or for cancellation of written instruments), or for want of an underlying claim (claim for unfair competition).

 

Because the Borrower failed to provide a logical basis for his argument suggesting that the assignment of his mortgage loan while in default was void, nor any supporting legal authority, the Second District concluded that the trial court's judgment sustaining the demurrer without leave to amend was proper, and affirmed the judgment.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

Alabama   |   California   |   Florida   |   Georgia   |   Illinois   |   Massachusetts   |   New Jersey   |   New York   |   Ohio   |   Pennsylvania   |   Texas   |   Washington, DC

 

 

NOTICE: We do not send unsolicited emails. If you received this email in error, or if you wish to be removed from our update distribution list, please simply reply to this email and state your intention. Thank you.


Our updates and webinar presentations are available on the internet, in searchable format, at:

 

Financial Services Law Updates

 

and

 

The Consumer Financial Services Blog

 

and

 

Webinars

 

and

 

California Finance Law Developments

 

 

 

Thursday, October 10, 2019

FYI: 9th Cir Holds Attorneys' Fees May Be Included in CAFA "Amount in Controversy"

The U.S. Court of Appeals for the Ninth Circuit recently vacated an order sua sponte remanding to state court a putative class action removed under the federal Class Action Fairness Act.

 

In so ruling, the Ninth Circuit held:

 

1.         When a notice of removal plausibly alleges a basis for federal court jurisdiction, a federal trial court may not remand the case back to state court without giving the defendants an opportunity to demonstrate that the jurisdictional requirements were satisfied;

 

2.         The amount in controversy may be based on reasonable assumptions tied to the allegations in the complaint;

 

3.         When a statute or contract provides for the recovery for attorneys' fees, prospective attorneys' fees must be included in the assessment of the amount in controversy; and

 

4.         The defendants' summary judgment motion in state court, asserting that the plaintiffs' claims were barred by a release from a prior class action settlement, did not defeat federal court jurisdiction. 

 

A copy of the opinion is available at:  Link to Opinion

 

An employee filed a putative class action against her employer in state court, alleging that the employer failed to compensate its employees for wages and missed meal breaks and failed to issue accurate itemized wage statements, all in violation of state wage and hour laws.

 

The employer removed the case to federal court alleging minimum diversity jurisdiction under the federal Class Action Fairness Act (CAFA). 

 

As you may recall, a federal trial court has original jurisdiction under CAFA if:  (1) any member of the class is a citizen of a state different from any defendant, (2) the class contains at least 100 members, and (3) the amount in controversy exceeds $5,000,000.  28 U.S.C. § 1332(d)(2), (d)(5)(B).

 

To show minimum diversity, the employer alleged that it was a citizen of Maryland and Delaware and the employee was a citizen of California.  To satisfy the class size requirement, the employer provided a declaration stating that it employed at least 2193 nonexempt employees during the period defined in the complaint.

 

To satisfy the amount in controversy requirement, the employer relied on its employee data (e.g., number of nonexempt employees, hourly rate of pay, and number of workweeks worked by putative class members), and then made assumptions about the frequency of the violations alleged in the complaint.

 

Using assumed violation rates, the employer alleged a potential amount in controversy exceeding $15 million, with its most "conservative estimate" totaling over $5.5 million, including attorneys' fees (which the employer asserted should be included to in the calculation).

 

After the employer filed the notice of removal, the trial court issued an order sua sponte remanding the case to state court.  The trial court stated that the employer's calculations of the amount in controversy was " unpersuasive"  and rested on "speculation and conjecture."

 

The trial court faulted the employer for not offering evidentiary support for its assumptions, and concluded that "prospective attorneys' fees are too speculative" to be included in the amount in controversy.

 

The litigation proceeded in state court.  The employer filed a motion for summary judgment, arguing that a release from a related class action settlement barred all of the employee's claims.

 

The employer filed a timely petition for permission to appeal under 28 U.S.C. § 1453(c)(1), which the Ninth Circuit granted.

 

The employer argued that the trial court imposed an erroneous burden of proof by sua sponte remanding the case to state court without allowing it an opportunity to support its allegations with evidence.

 

The Ninth Circuit observed that "when a defendant seeks federal-court adjudication, the defendant's amount-in-controversy allegation should be accepted when not contested by the plaintiff or questioned by the court."  Dart Cherokee Basin Operating Co., LLC v. Owens, 574 U.S. 81, 87 (2014).

 

The appellate court noted that the trial court did not conclude that the employer's allegations were implausible.  Instead, the trial court stated that the employer failed to meet its burden of proving the amount in controversy with evidence. 

 

The Ninth Circuit also noted that a notice of removal "need not contain evidentiary submissions."  Dark Cherokee, 574 U.S. at 84.  "[W]hen a defendant's assertion of the amount in controversy is challenged and both sides submit proof, the court decides by a preponderance of the evidence whether the amount-in-controversy requirement has been satisfied."  Id., at 88.

 

Thus, the appellate court held that the trial court's sua sponte order deprived the employer of "a fair opportunity to submit proof."

 

Next, the employer argued that the trial court erred in disallowing its assumptions in its estimate of the amount in controversy.

 

The Ninth Circuit explained that a removing defendant is permitted to rely on "a chain of reasoning that includes assumptions."  Ibarra v. Manheim Invs., Inc., 775 F.3d 1193, 1199 (9th Cir. 2015).  However, "assumptions cannot be pulled from thin air but need some reasonable ground underlying them."  Id.

 

The employee alleged that the employer " routinely" failed to provide overtime wages and compensation for rest and meal breaks.  The employer assumed six minutes of unpaid overtime per day and one missed rest break per week.

 

The employer assumed that 100% of wage statements were inaccurate because the employee alleged that "[n]ot one of the paystubs that Plaintiffs received complied with Labor Code § 226b."

 

Based on the allegations in the complaint, and noting that the amount in controversy was merely an estimate of the total amount in dispute, the Ninth Circuit determined that the trial court mischaracterized the employer's assumptions as being "speculation and conjecture."

 

The employer also argued that the trial court erred by "refusing to consider prospective attorneys' fees in the amount in controversy."

 

The Ninth Circuit agreed, stating that "[w]e have long held (and reiterated [in early 2018]) that attorneys' fees awarded under fee-shifting statutes or contracts are included in the amount in controversy."  Fritsch v. Swift Transp. Co. of Ariz., LLC, 899 F.3d 785, 794 (9th Cir. 2018).

 

Because the complaint sought recovery of attorneys' fees, and because there was no dispute that at least some of the California wage and hour laws in the complaint entitle a prevailing plaintiff to an award of attorneys' fees, the Ninth Circuit held that the trial court should not have excluded prospective attorneys' fees from the amount in controversy.

 

The employee argued that the employer's summary judgment motion in state court defeated federal court jurisdiction, because it argued that her claims were barred by a release from a prior class action settlement.

 

The Ninth Circuit disagreed, explaining that post-filing developments do not defeat jurisdiction if jurisdiction was properly invoked as of the time of filing of the complaint.  Further, the strength of any defense indicated the likelihood of the plaintiff prevailing, but is irrelevant to determining the amount at stake in the litigation.

 

The employee also suggested that jurisdiction was defeated because she stipulated that the amount in controversy did not exceed $5,000,000.

 

However, the U.S. Supreme Court has held that when "a class-action plaintiff stipulates, prior to certification of the class, that he, and the class he seeks to represent, will not seek damages that exceed $5 million in total," the trial court should ignore the stipulation when assessing the amount in controversy.  Std. Fire Ins. Co. v. Knowles, 568 U.S. 588, 590, 596 (2013).

 

Accordingly, the Ninth Circuit vacated the trial court's order refusing federal court jurisdiction, and remanded for further proceedings.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

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Tuesday, October 8, 2019

FYI: 11th Cir Reverses Injunctive Class Certification Because Actual Relief Was Damages

The U.S. Court of Appeals for the Eleventh Circuit recently reversed a trial court's certification of an injunction class, holding that the injunctive relief sought by the class was improper because the true relief sought was really damages.

 

A copy of the opinion is available at:  Link to Opinion

 

In 2012, Florida's law requiring automobile insurance policies must provide personal injury protection ("PIP") benefits up to $10,000 was amended so that "not every injured motorist will be eligible to access all $10,000 in benefits." Coverage is capped at $2,500 unless the injured motorist has an "emergency medical condition" ("EMC") as defined by the statute.

 

Two chiropractic clinics and a medical provider who treated injured motorists insured by the defendant insurer "who thereafter assigned their insurance benefits to the providers" sued the insurer and two of its underwriters in Florida state court, alleging that they "denied PIP benefits in an illegal manner" because they "relied on negative EMC determinations from non-treating providers to limit coverage to $2,500, and that Florida law allows only treating providers to make negative EMC determinations."

 

The insurer defendant removed the case to federal court pursuant to the federal Class Action Fairness Act, "which grants federal jurisdiction over certain class actions where the amount in controversy exceeds $5 million and there is minimal diversity."

 

The Second Amended Complaint "asserted two counts: one for declaratory and injunctive relief and another for damages based on breach of contract."

 

The plaintiffs "moved to certify two classes: an injunction class under Federal Rule of Civil Procedure 23(b)(2) for count one, and a damages subclass under Rule 23(b)(3) for count two."

 

The trial court "refused to certify the damages subclass — which, under rule 23(b)(3), would require the court to find predominance and superiority — because doing so would necessitate individualized assessments and case management. But it certified the injunction class, in part because" the plaintiffs "assured it that once the legal issue is determined, there will be no more supervision required to determine individual damages."

 

The insurer sought leave to file "an interlocutory appeal of the injunction class certification[,]" which was granted. The sole issue raised in the appeal was "whether the injunction class should have been certified" because plaintiffs did not appeal the "denial of certification of the damages subclass…."

 

The Eleventh Circuit began by analyzing Federal Rule of Civil Procedure 23, "which lays down the ground rules for certifying a class action. To win certification under Rule 23, every class must present a named plaintiff who has standing to bring the claim. … Every class must be 'adequately defined and clearly ascertainable[,]' … [a]nd every class must satisfy the four requirements of Rule 23(a): numerosity, commonality, typicality, and adequacy of representation."

 

However, after Rule 23(a) is satisfied, the remaining provisions of Rule 23 differ depending on what type of class the plaintiff purports to represent. "For an injunction class under Rule 23(b)(2), the plaintiff must show that 'the party opposing the class has acted or refused to act on grounds that apply generally to the class, so that final injunctive relief or corresponding declaratory relief is appropriate respecting the class as a whole.' … For a damages class under Rule 23(b)(3), the plaintiff must show that 'questions of law or fact common to class members predominate over any questions affecting only individual members, and that a class action is superior to other available methods for fairly and efficiently adjudicating the controversy.'"

 

The plaintiffs argued that it was "not seeking any damages award at all (at least not as a class)[,]" but instead wanted a declaration that the insurer's "practice of relying on non-treating physicians is unlawful, along with an injunction."

 

In response, the Eleventh Circuit explained that "[t]he problem with this argument is that the injunction … requested is not an injunction at all, and its declaratory request is both minimal and unconnected to members of [the] class." This is because the "requested relief is not designed to address the treatment of future claims; it would instead … 'restore claimants to the claims-handling process free of the improper cap on PIP benefits imposed by [the insurer].' … This strategy of converting its claim for damages into a claim for injunctive relief sidesteps the Rule 23(b)(3) problems by shaving away all the issues that would require individualized determinations. But what the damages-to-injunction strategy cannot manage to do is request relief that would prevent future injury rather than redress past harms."

 

The Court further explained that this "attempt to excise all the damages-based problems with certification thus runs into a fundamental issue: its creative conception of injunctive relief is not a viable theory of recovery under Rule 23(b)(2) … [because] [a]s we have said, an injunction must be geared toward preventing future harm … [and] [e]verything about [plaintiffs'] claim—from its theory of standing to its request for relief to its class definition—looks back at past harms."

 

After examining each part of plaintiffs' claim, the Eleventh Circuit concluded that "[s]imply put, this class is not suitably crafted for prospective relief. … In the end, the retrospective nature of [plaintiffs'] class and claim make clear that an injunction is not the right remedy in this case—indeed, it is not really the remedy that [the] class is seeking. And because an injunction is not the right remedy, Rule 23(b)(2) is not the right path to class certification: 'the policies underlying the requirements of (b)(3) should not be subverted by recasting and bifurcating every class suit for damage as one for final declaratory relief of liability under (b)(2), followed by a class suit for damages under (b)(3).'"

 

Finally, the Eleventh Circuit ruled, the "request for declaratory relief does not save this class … [because] [f]or one thing, like an injunction, declaratory relief requires a likelihood of future harm."

 

Because an injunction was not the right remedy "for the class as certified[,]" the trial court's certification of the class under Rule 23(b)(2) was reversed and the case remanded.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

Alabama   |   California   |   Florida   |   Georgia   |   Illinois   |   Massachusetts   |   New Jersey   |   New York   |   Ohio   |   Pennsylvania   |   Texas   |   Washington, DC

 

 

NOTICE: We do not send unsolicited emails. If you received this email in error, or if you wish to be removed from our update distribution list, please simply reply to this email and state your intention. Thank you.


Our updates and webinar presentations are available on the internet, in searchable format, at:

 

Financial Services Law Updates

 

and

 

The Consumer Financial Services Blog

 

and

 

Webinars

 

and

 

California Finance Law Developments