Class Actions - Thomas M. Byrne

• Publication year: 2009

Class Actionsby Thomas M. Byrne^*

Multimillion-dollar awards hung in the balance in class action decisions reviewed by the United States Court of Appeals for the Eleventh Circuit during 2008. Probably the court's most noteworthy class action decision during the year, Busby v. JRHBW Realty, Inc.,¹ however, did not involve review of a final judgment.² Busby was an interlocutory appeal under Rule 23(f) of the Federal Rules of Civil Procedure,³ in which the court reversed, as an abuse of discretion, the district court's denial of class certification.⁴ The case involved an alleged violation of subsection 8(b) of the Real Estate Settlement Procedures Act of 1974 (RESPA).⁵ The plaintiff claimed that she was charged an "Administrative Brokerage Commission fee" at her real estate closing for which no service was performed, in violation of the statute.⁶ Citing Rule 23(b)(3) of the Federal Rules of Civil Procedure,⁷ the district court denied her class certification motion on the ground that individual factual issues presented by each class member's claim would predominate over common legal issues.⁸

On appeal, the Eleventh Circuit began by distinguishing its prior class action decisions in several RESPA cases as having involved a different subsection of the statute, subsection 8(a),⁹ and challenges to "yield spread premiums" under that subsection.¹⁰ Under the substantive law, claims under subsection 8(a), the court explained, entailed case-by-case analysis of each transaction.¹¹ Thus, the court had previously held that class adjudication of those claims was inappropriate.¹² The claim Busby made under subsection 8(b), however, was different, according to the court.¹³ Subsection 8(b) is violated if a fee is charged but no services are performed.¹⁴ The question presented by each subsection 8(b) claim requires "a simple binary determination of'any services' or 'no services.'"¹⁵ The Eleventh Circuit concluded that the district court erred in holding that the substantive law required a determination of the reasonableness of the charge for services.¹⁶ When the proper legal standard was applied, the case was appropriate for class certification.¹⁷ The court also held that the defendant could not invoke an equitable estoppel affirmative defense based on the circumstances.¹⁸ The defendant presented no evidence, the court noted, that this defense could be factually established as to a single class member.¹⁹ The court also rejected the availability of a potentially class-defeating waiver defense as a matter of law.²⁰

Turning to the adequacy of representation of the class, the court brushed aside a challenge that was grounded in the allegedly improper solicitation of the class representative by proposed class counsel, who had served as her real estate closing attorney.²¹ The court agreed with a decision by the United States Court of Appeals for the Seventh Circuit, concluding that when improper client solicitation is alleged, "'[o]nly the most egregious misconduct'" by proposed class counsel would warrant denial of class certification.²² Discerning no such misconduct, the court declined to decide whether or not the Alabama Rules of Professional Conduct had been violated in some lesser respect and determined there was no abuse of discretion in the adequacy-of-representation finding by the district court.²³

Busby's significance lies in its methodology for deciding class certification. First, taken together with the court's other class action decisions in RESPA cases, Busby marks the final resting place for any argument in the Eleventh Circuit that a district court may not decide the merits in connection with ruling on a class certification motion. This is in accord with recent precedent from other circuits.²⁴ The origin of the argument that a district court must not decide the merits in addressing class certification was a holding by the United States Supreme Court in Eisen v. Carlisle & Jacquelin,²⁵ in which the Court held that the costs of class notice could not be shifted from the plaintiff to the defendant until the merits had been decided.²⁶ This led many cases to recite that any consideration ofthe merits before deciding class certification was forbidden territory, and the holding consequently produced many superficial analyses of certification requirements.

But this interpretation of Eisen fell into conflict with the Supreme Court's later decision in General Telephone Co. of the Southwest v. Falcon²⁷ —requiring a "rigorous analysis" of whether or not the requirements for class certification are met²⁸ —and a decades-long rhetorical struggle ensued between advocates for these two irreconcilable positions. Gradually, the circuit courts²⁹ recognized that the merits often must be determined in deciding whether a class can be certified. As the United States Court of Appeals for the Third Circuit observed in a recent significant decision, "a district court errs as a matter of law when it fails to resolve a genuine legal or factual dispute relevant to determining the [class certification] requirements."³⁰ If factual questions must be resolved in the course of deciding class certification, the court must resolve them, though its findings of fact are not ultimately binding on the merits.³¹

Without delving into an analysis of its own methodology in Busby, the Eleventh Circuit tackled several RESPA substantive law questions that shaped the issues in the case; deciding those questions ultimately dictated whether or not the case was eligible for class treatment.³² The court also decided that no factual support had been presented for the possible existence of individualized defenses that might have precluded class certification.³³ This approach, involving an evaluation of class certification in the context of the merits, seems consistent with other circuits. Any remaining Eisen shackles on addressing the merits when class certification and merits issues overlap now appear to be finally broken.

In Owner-Operator Independent Drivers Ass'n v. Landstar System, Inc.,³⁴ the court had to navigate around its own precedent in considering whether the predominance of individualized damage questions is sufficient to justify denial of class certification.³⁵ The underlying action was brought by owner-operators of trucks who entered into leases with Landstar, a motor carrier. The owner-operators' basic claim was that Landstar failed to disclose certain banking and third-party vendor charges in the weekly settlement statements provided to them showing the amounts that were due. The putative class action alleged that Landstar violated the Department of Transportation's "Truth-in-Leasing" regulations.³⁶ The owner-operators alleged that the regulations were violated because Landstar did not disclose the deductions from payments to them for fees and failed to disclose or document mark-ups and profits made on other items charged back to the owner-operators.³⁷

The district court certified a class of owner-operators who had entered into leases with Landstar but later decertified that class as to money damage claims. After a bench trial, both parties appealed. The owner-operators appealed from the district court's decertification of the class for money damages.³⁸ The district court had concluded that determination...