Class Actions - Thomas M. Byrne and Stacey A. Mcgavin

• Jurisdiction: United States,Federal
• Publication year: 2010
• Citation: Vol. 61 No. 4

Class Actionsby Thomas M. Byrne^* and Stacey A. McGavin^**

In its noteworthy 2004 decision in Klay v. Humana, Inc.,¹ the United States Court of Appeals for the Eleventh Circuit appeared to veer from its own precedents in affirming certification of a nationwide class asserting a claim under the federal Racketeer Influenced and Corrupt Organizations Act (RICO).² During 2009³ the court returned to RICO class actions in Williams v. Mohawk Industries, Inc. ,⁴ and this time the Eleventh Circuit vacated a district court's refusal to certify a RICO class.⁵ The proposed class consisted of Mohawk Industries employees who complained that Mohawk engaged in racketeering activity violating the federal and Georgia RICO⁶ statutes by hiring illegal aliens and depressing the employees' wages.⁷ The employees sought class certification under subsections (b)(2) and (b)(3) of Federal Rule of Civil Procedure 23.⁸ The district court concluded that the commonality and typicality requirements of subsections (a)(2) and (a)(3) of Rule 23⁹ were not satisfied by the employees.¹⁰ As to commonality, the district court found that Mohawk's operations were extremely decentralized, including its use of temporary employment agencies and its wage-setting practices.¹¹ The district court deemed the class representatives' claims atypical because they only "worked at ... a handful of [Mohawk's] facilities."¹² The district court also held that the proposed class did not meet the requirements of subsections (b)(2) or (b)(3) of Rule 23.¹³

On appeal, the Eleventh Circuit identified the district court's first abuse of discretion to be its finding of inadequate commonality.¹⁴ The court reasoned that "[t]he employees presented two overarching questions that are common to all members of the class: (1) whether Mohawk conducted or participated, directly or indirectly, in the conduct of an enterprise's affairs under the federal RICO statute; and (2) whether Mohawk engaged in a pattern of racketeering activity" or a conspiracy to violate the Georgia RICO statute.¹⁵ The court rejected the district court's reliance on employment discrimination precedents under Title VII of the Civil Rights Act of 1964.¹⁶ Citing Klay, the court observed that RICO claims, unlike Title VII claims, "are often susceptible to common proof."¹⁷ The court concluded that the "common questions are sufficient to satisfy the low hurdle of Rule 23(a)(2).

Whether Mohawk conducted the affairs of an enterprise through a pattern of racketeering activity that depressed the wages of all employees is a question common to each employee's complaint."¹⁸

The Eleventh Circuit also determined that the district court abused its discretion in not finding that the class representatives' claims were typical of the class.¹⁹ The court deemed the class representatives' claims typical of the claims of other members of the class because they were "based on the same legal theory."²⁰

Finally, the Eleventh Circuit concluded that the district court also abused its discretion in not certifying a Rule 23(b)(3) class, but did not order class certification.²¹ The court instead remanded the case "for the district court to conduct a pragmatic assessment of whether common issues predominate over individual issues and whether a class action is superior to other forms of relief."²² Again citing Klay, the court observed that "[i]f a district court determines that issues common to all class members predominate over individual issues, then a class action will likely be more manageable than and superior to individual actions."²³ The court determined that the district court's denial of class certification under Rule 23(b)(3) was based on the "erroneous determination about a lack of common issues."²⁴ On remand, the court instructed the district court to "test and evaluate the employees' argument that their injury is subject to common proof."²⁵ The court noted that the employees conceded that a Rule 23(b)(2) class was inappropriate because the damages sought were not incidental to the claims for equitable relief.²⁶ The court nonetheless instructed the district court to determine whether a "hybrid class action" should be certified.²⁷ The court explained that if a damages class is certified under subsection (b)(3), then the district court must consider whether to certify a class under subsection (b)(2) with respect to equitable relief.²⁸

Williams indicates, at the least, that the court remains receptive to RICO class actions. The case may illustrate as well an unwritten rule of class litigation: a court's reaction to the merits of the underlying claim often influences its technical application of Rule 23. Also notable was the court's relatively lax consideration of Rule 23(a)(3)'s typicality requirement.²⁹ The court found sufficient typicality because the named plaintiffs and the proposed class relied on the "same legal theory."³⁰ If this were the extent of the typicality requirement, then it would be fully congruent with Rule 23(a)(2)'s commonality requirement, and thus superfluous. The court undertook a more rigorous typicality analysis in Vega v. T-Mobile USA, Inc.,³¹ described below.³²

In Thomas v. Bank of America Corp.,³³ the Eleventh Circuit invoked the doctrine established in its 2007 decision in Lowery v. Alabama Power Co.³⁴ to reject a removal predicated on the Class Action Fairness Act of 2005 (CAFA).³⁵ In Lowery the court took a hard stance with respect to CAFA removals, holding that a case is not removable until a document is received by the defendant from the plaintiff that unambiguously establishes federal jurisdiction, a position endorsed so far by no other circuit.³⁶ Lowery permits no discovery.³⁷ The court applied this rule in Thomas, a class action against Bank of America and one of its subsidiaries filed in the Superior Court of Clarke County, Georgia.³⁸ The complaint alleged violations of the Georgia RICO statute and other state laws based on the sale of a bundled insurance product to individuals who were allegedly not eligible to buy it. The product, a credit protection plan, provided different benefits upon the occurrence of various adverse contingencies, such as sickness or unemployment.³⁹

The plaintiff alleged that the product was contingent on the buyer's being employed for at least thirty hours per week but was sold to individuals, including herself, who worked less than thirty hours per week.⁴⁰ Two alternative classes were proposed.⁴¹ The first class, which included all Georgia residents with a credit account with the defendants and who had enrolled and paid premiums for the product, sought certification of an injunctive relief class under Georgia's version of Rule 23(b)(2).⁴² The complaint also alleged an alternative class seeking money damages under Georgia's version of Rule 23(b)(3) for persons who bought the product but were ineligible or became ineligible for any of the bundled benefits.⁴³

The complaint neither alleged a number of individuals in either of the proposed classes nor demanded a specific amount of recovery. Bank of America removed the action to the United States District Court for the Middle District of Georgia based on CAFA. Bank of America supplemented its notice of removal with a declaration stating that for part of the class period, Bank of America had enrolled 77,787 customers in the program and collected more than $4.8 million in fees from them.⁴⁴ Because the complaint also sought treble damages under the Georgia RICO statute and attorney's fees, Bank of America argued that the amount in controversy clearly exceeded $5 million.⁴⁵ The plaintiff moved to remand the case, arguing that the amount in controversy was absent.⁴⁶ The district court agreed with the plaintiff and found that the $4.8 million figure did not accurately reflect the amount in controversy because the complaint did not allege that all of the customers were entitled to relief for the entire amount of their fees.⁴⁷ The district court "concluded that there was 'great uncertainty regarding the amount in controversy and the class size.'"⁴⁸ In affirming the district court, the Eleventh Circuit held that because "the complaint provided no information indicating the amount in controversy," CAFA jurisdiction was not established and the case was properly remanded.⁴⁹

Thomas shows that the Eleventh Circuit intends to apply the Lowery doctrine zealously. Bank of America's demonstration of the amount in controversy, however, was not airtight, leaving open for a future case the question of how demanding the Eleventh Circuit will be in the face of an unequivocal showing of the jurisdictional amount that does not originate with the plaintiff. In a footnote in Lowery, the court stated that a contractual provision that itself allows the measure of damages to be determined might suffice, even if the contract is not, strictly speaking, generated by the plaintiff.⁵⁰ The conspicuous asymmetry in the court's hostility toward evidence supplied by the removing defendant is not convincingly rooted in any statutory language. Lowery's formalistic approach invites multiple removal attempts and disruptive late-stage removals in lieu of a single, reasonably focused inquiry at the outset into whether the jurisdictional amount is satisfied in cases in which there is a genuine question.

While RICO plaintiffs enjoyed some success in the Eleventh Circuit during 2009, plaintiffs in employment cases encountered trouble. Babineau v. Federal Express Corp.⁵¹ involved claims for breach of contract and quantum meruit made by Federal Express employees on the theory that the company failed to pay them for "all hours worked."⁵² The district court had previously denied certification of a nationwide class of FedEx employees asserting similar claims. The case before the Eleventh Circuit was a second action that confined the class to Florida employees.⁵³ The specific claims were that FedEx breached their contracts by failing to pay employees for "(1) the...