The Second Circuit’s recent post-trial decertification of the class in Mazzei v. The Money Store, et al. has garnered attention about decertification as a defense strategy. The decision confirms that plaintiffs’ burden to prove compliance with Rule 23 requirements does not end when a district court certifies a class, but in fact continues all the way through trial. Mazzei’s affirmation of the district court’s power to decertify a class even after a jury verdict on the merits serves as a useful reminder of this potentially beneficial option for defendants facing an adverse verdict.
In Mazzei, the plaintiff filed a putative class action for breach of contract, alleging the defendants charged post-acceleration late fees not permitted by mortgage agreements. The district court certified a class of borrowers who signed mortgage agreements that were owned or serviced by the defendants. A jury eventually returned a verdict against the defendants and awarded damages of $133 to the plaintiff and $32 million to the class. After the verdict, defendant The Money Store moved to decertify the class, arguing that the plaintiff failed to prove contractual privity on a class-wide basis between The Money Store and borrowers whose loans it only serviced. The district court agreed and decertified the class on grounds of typicality and predominance, and did so despite the fact that the jury had found that such privity existed.
In affirming the district court’s decertification order, the Second Circuit first rejected the plaintiff’s argument that the district court lacked authority to decertify a class after a jury verdict. Rule 23(c)(1)(C) authorizes district courts to change their class certification rulings at any time before final judgment – and, of course, the return of a jury verdict is not itself a final judgment. (Slip op. at 9). The court went further, finding that “the district court has the affirmative ‘duty of monitoring its class decisions in light of the evidentiary development of the case.’” (Id. at 10, quoting Richardson v. Byrd, 709 F.2d 1016, 1019 (5th Cir. 1983).) Both the Fourth and Ninth Circuits, for example, have decertified classes after high-profile jury verdicts in favor of plaintiffs. See Broussard v. Meineke Discount Muffler Shops, Inc., 155 F.3d 331 (4th Cir. 1998); Wang v. Chinese Daily News, Inc., 737 F.3d 538 (9th Cir. 2013).
The Second Circuit also rejected the claim raised by the plaintiff that the district court’s decision violated both the Seventh Amendment’s Trial by Jury (preserving a right to trial by jury) and Reexamination Clauses (providing that “no fact tried by a jury shall be otherwise re-examined in any Court of the United States, than according to the rules of the common law”). The panel held that the decertification decision did not violate absent class members’ right to a jury trial because, following decertification, the absent members’ claims survive by virtue of American Pipe tolling and can be refiled on an individual basis. (Mazzei slip op. at 12.)
The appellate court similarly concluded that post-trial decertification did not violate the Reexamination Clause. The panel framed the question this way: “How does a jury’s factual finding impact the district court’s decision about whether decertification is appropriate or not?” (Id. at 16.) Here, the district court found that contractual privity between the plaintiff and The Money Store was not proven on a class-wide basis for the servicing only class members, even though the jury concluded to the contrary. This finding was held to be appropriate because the district court applied a standard akin to a Rule 50(b) and 59(a) motion for a new trial on the grounds that the verdict was against the weight of the evidence – a power the district court already has. Here, the district court concluded that the evidence to support a finding of privity was “legally insufficient,” rendering the jury’s verdict as to the class “seriously erroneous.”
In the end, Mazzei illustrates that a post-trial motion to decertify a class can be a powerful defense tool to minimize the impact of an adverse verdict. In many cases, decertification may be the death knell for the litigation. In Mazzei, where the jury awarded only $133 to the named plaintiff, the risk that defendants will face claims from former class members might well be low. But that is not always so. For example, in Brown v. Dollar General Stores, Ltd., Case No. 7:06-cv-01538 (N.D. Ala. 2006), after the court granted the defendant’s request during trial to decertify, it is reported that over 2,000 individual claims were then litigated against the defendant in courts across the country. Further, decertified individual claimants may be able to benefit from factual findings by the court or jury that are not disturbed by post-verdict rulings. Defendants facing an adverse verdict should, as with any litigation decision, consider whether pursuing decertification is strategically beneficial in the context of their particular cases.