Jessica Karmasek Aug. 4, 2016, 3:39pm


NEW YORK (Legal Newsline) - A class can be decertified even after a jury returns a verdict, a federal appeals court recently ruled in a lawsuit alleging an overcharge of late fees on mortgages.

The U.S. Court of Appeals for the Second Circuit, in its July 15 opinion, affirmed the decision of the U.S. District Court for the Southern District of New York mostly in favor of defendant The Money Store.

“A district court’s exercise of discretion is set forth clearly in both the wording and commentary of Rule 23,” Judge Dennis G. Jacobs wrote for a three-judge panel of the Second Circuit, pointing to the rule that governs the procedure and conduct of class action lawsuits brought in federal court.

Under the rule, an order that grants or denies class certification “may be altered or amended before final judgment.”

“Indeed, because the results of class proceedings are binding on absent class members, the district court has the affirmative ‘duty of monitoring its class decisions in light of the evidentiary development of the case,’” Jacobs wrote for the panel, which included Circuit Judges Amalya Lyle Kearse and Ralph K. Winter Jr.

Plaintiff Joseph Mazzei filed a class action against The Money Store, TMS Mortgage Inc. and HomEq Servicing Corp. for breach of contract, challenging the imposition of post-acceleration late fees.

Early in 2000, The Money Store’s servicing operator, TMS, notified Mazzei that his loan was “accelerated” -- i.e. the entire sum of the principal and interest became due -- and foreclosure proceedings were begun.

Mazzei avoided a foreclosure sale by filing for bankruptcy, and ultimately paid the full balance of the loan, with interest and various default fees. Soon after, he filed suit.

The certified class action eventually went to trial, and the jury returned a verdict in favor of Mazzei and the class on their late fee claims. It awarded Mazzei $133.80, and it awarded the class about $32 million plus prejudgment interest. The jury found in favor of The Money Store on the remaining claims.

While he prevailed in the jury trial, the Southern District of New York granted the defendants’ post-verdict motion to decertify and entered judgment in favor only of Mazzei, the putative class representative.

The motions were based in relevant part on Mazzei’s failure to prove class-wide privity of contract between The Money Store and those borrowers whose loans it only serviced, and did not own.

The premise of privity is that only parties to contracts should be able to sue to enforce their rights or claim damages as such.

The district court agreed that Mazzei’s failure to prove privity with respect to such absent class members defeated class certification on grounds of typicality and predominance.

On appeal to the Second Circuit, Mazzei argues that decertification is unavailable after a jury verdict in favor of a certified class; that the findings made to support decertification were incompatible with the Seventh Amendment; and that the Rule 23 requirements for class certification were satisfied.

“We hold that a district court has power, consistent with the Seventh Amendment and Rule 23, to decertify a class after a jury verdict and before the entry of final judgment,” Jacobs wrote. “We also hold that, in considering such decertification (or modification), the district court must defer to any factual findings the jury necessarily made unless those findings were ‘seriously erroneous,’ a ‘miscarriage of justice,’ or ‘egregious.’

“Applying these principles, we conclude that the district court did not abuse discretion in determining that Rule 23’s requirements were not met and in decertifying the class.”

The Second Circuit pointed out that, as to Mazzei, “there is no Seventh Amendment issue at all.”

“Mazzei will receive damages on his individual claim in the amount awarded him by the jury. And he has no constitutional right to represent a class; whether he may do so is purely a matter of Rule 23,” Jacobs wrote for the panel.

“As to the class, there is no violation. The right of absent class members to adjudication by jury is unimpaired.”

From Legal Newsline: Reach Jessica Karmasek by email at jessica@legalnewsline.com.

Organizations in this Story

U.S. Court of Appeals for the Second Circuit
40 Foley Square
New York, NY 10007-1503

U.S. District Court for the Southern District of New York
300 Quarropas St
White Plains, NY 10601

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