A district court may decertify a class action even if a jury has returned a verdict

Mazzei v. Money Store, No. 15-2054 (2d Cir. July 15, 2016):

Lawyers often tell clients and younger attorneys:  "It's not what you know, it's what you can prove."  In fact, a lawyer's first question during an interview is often:  How do you know that? 

There is a corollary to this rule:  "Don't forget to prove your case."

This is actually harder for lawyers to remember than one might think.  Lawyers live with a case day-after-day.  They file or oppose motions; they talk strategy with people at the firm; they have conversations and disagreements with opposing counsel.  Everything about the case becomes familiar over the course of years.  After a while, the lawyers begin to assume the things that they know are facts.  And often the case  settles, at which point the facts or evidence of the case do not matter -- at least for the purposes of resolving the case.

So, lawyers sometimes forget that what they know to be true doesn't become a fact until a judge or jury says it is a fact and even that conclusion must be supported by evidence presented in court.

In federal court, Rule 50 permits a court to override a jury's verdict and enter judgment against a party where "there is no legally sufficient evidentiary basis for a reasonable jury to find for that party on that issue. . . ." Fed. R. Civ. P. 50(a).  In making this determination, a court is required to consider the evidence in the light most favorable to the party against whom the motion was made and to give that party the benefit of all reasonable inferences that the jury might have drawn in his favor from the evidence.  But there are certainly reported cases where a judge has overturned a jury's verdict as lacking evidence. 

The federal rules also allow for a new trial under Rule 59.  A party making such a motion sets out specific issues that occurred at trial and that have previously been grounds for a new trial “in an action at law in federal court.” Fed. R. Civ. P. 59(a).  That is, the federal rules limit the grounds for a new trial to the common law. The following grounds are commonly raised:

• excessive or insufficient verdict
• newly discovered evidence
• conduct of counsel that tainted the case
• jury misconduct
• verdict based on false testimony
• unfair surprise
• substantial errors in the admission/rejection of evidence
• giving or failure to give jury instructions

We wrote about a District Judge granting a Rule 59 motion earlier this month (where the judge found the jury's award was too low):  http://www.lehmanlawgroup.com/blog/2016/7/4/judge-woods-orders-new-trial-on-plaintiffs-damages

The consequences and standards for Rule 50 and Rule 59 are different.  If a party wins its Rule 50 motion, the case comes to an end.  If a party wins its Rule 59 motion, the court has a new trial.

The difference in standards is that, under Rule 50, the question is whether a reasonable jury could have reached that conclusion based on the admitted evidence.  Under Rule 59, the standard is far more mushy as the courts ask whether allowing the verdict would be “seriously erroneous,” a “miscarriage of justice,” or “egregious” under the "weight of the evidence."  Rule 50 is consider more stringent and certainly has a harsher result.  In fact, a court may find that, although the grant of judgment as a matter of law (Rule 50) may be inappropriate because the jury's verdict is supported by sufficient evidence, the verdict should still be set aside because it is against the weight of the evidence. 

All of this provides the background for what will be one of the leading cases of the next year from the Second Circuit:  Mazzei v. Money Store, No. 15-2054 (2d Cir. July 15, 2016).  In Mazzei, the Second Circuit held that a district court may decertify a class action before it enters final judgment even if a jury has returned a verdict.  In considering decertification, or modification, of a class after a jury verdict, the district court should use the standard that a district court applies to a Rule 59 motion.  The Second Circuit rejected the argument that the more stringent Rule 50 standard should apply.  As to questions of fact that are not necessarily decided by the jury’s verdict, the court may make its factual findings based on the preponderance of the evidence.

The appeal arose after Joseph Mazzei had filed a class action against The Money Store and its servicing operator TMS Mortgage Inc. (The Money Store became HomEq Servicing Corp. in 1999 and all three companies were collectively referred to as “The Money Store” by the Second Circuit.)  Mazzei alleged that The Money Store had overcharged him and other similarly situated people. 

In particular, after Mazzei defaulted on his loan, the sum of the principal and interest became due under the terms of the contract – that is, the loan was “accelerated.”  Mazzei declared bankruptcy and later paid the balance of the loan including interest and various default fees.  The fees, however, included five late fees charged after the loan acceleration for a total of $133.80.

Mazzei alleged that, under the agreement, Money Store could only charge him late fees prior the loan acceleration – hence, the class was called the “Post Acceleration Late Fee Class.” The District Court (Judge John G. Koeltl) certified the class so as include all borrowers who signed the Fannie Mae form agreements on loans that were either (1) owned or (2) serviced by the Money Store.

A jury returned a verdict in favor of Mazzei and the class awarded $133.80 to Mazzei for the five post-acceleration fees.  The jury also awarded the class approximately $32 million along with prejudgment interest. 

After the jury’s verdict, the Money Store moved to have the class decertified on the ground that Mazzei failed to prove class-wide privity of contract between The Money Store and borrowers whose loans the company serviced but did not own.  The district court agreed and held that two elements needed to satisfy a class under Rule 23 were missing – typicality and predominance.  See Mazzei v. Money Store, 308 F.R.D. 92 (S.D.N.Y. May 29, 2015).

The Second Circuit agreed and set forth the standards outlined above.  In considering decertification, or modification, of a class after a jury verdict, the district court should use the Rule 59 standard.  As to questions of fact that are not necessarily decided by the jury’s verdict, the court may make its factual findings based on the preponderance of the evidence.





Decision here:  http://cases.justia.com/federal/appellate-courts/ca2/15-2054/15-2054-2016-07-15.pdf?ts=1468593009