Montano v. First Light Fed. Credit Union (In re Montano)

Decision Date21 March 2013
Docket NumberAdversary No. 07–1026.,Bankruptcy No. 7–04–17866–TL.
Citation488 B.R. 695
PartiesIn re Ralph MONTANO and Elsie M. Montano, Debtors. Ralph Montano and Elsie M. Montano, et al., Plaintiffs, v. First Light Federal Credit Union, Defendant.
CourtU.S. Bankruptcy Court — District of New Mexico

OPINION TEXT STARTS HERE

R. Trey Arvizu, III, Las Cruces, NM, for Plaintiffs.

Dennis E. Jontz, Lewis and Roca LLP, R. Thomas Dawe, Gallagher, Casados & Mann, PC, Albuquerque, NM, Kelly Albers, Law Office of Kelly P. Albers, P.C., Las Cruces, NM, for Defendant.

MEMORANDUM OPINION

DAVID T. THUMA, Bankruptcy Judge.

I. INTRODUCTION

Plaintiffs allege in this class action that Defendant violated the discharge injunction1 granted in about 1600 New Mexico bankruptcy cases by failing to update credit reports to reflect bankruptcy discharges, instead continuing to report the debts as past due. Plaintiffs seek declaratory and injunctive relief (Class 1) and compensatory and punitive damages (Class 2). The classes were certified in October, 2008.2 Defendant has now moved to decertify the classes.3 Pursuant to Rule 23(c)(1)(C),4 it is appropriate to revisit the class certification issue. Because of the changes in the law in the last four years and the evidence before the Court developed after certification, the Court concludes both classes should be decertified.

II. RELEVANT FACTS

Plaintiffs have established these facts for class certification purposes: 5

1. Plaintiffs filed this adversary proceeding February 19, 2007, and filed their First Amended Class Action Complaint on October 1, 2007, doc. 19 (the “Amended Complaint”).

2. On October 15, 2008, the Court 6 certified the following classes:

Class 1 shall consist of the Rule 23(b)(2) class that seeks injunctive and declaratory relief. It shall consist of all persons that, since January 1, 1997, have received a discharge under Title 11 of the United States Bankruptcy Code from the United States Bankruptcy Court for the District of New Mexico, that scheduled First Light Federal Credit Union or Fort Bliss Federal Credit Union (its predecessor) as a creditor on his or her bankruptcy schedules or who, in fact, owed a debt to either First Light Federal Credit Union or Fort Bliss Federal Credit Union on the date they filed their bankruptcy petition, whether they listed First Light Federal Credit Union or Fort Bliss Federal Credit Union on their bankruptcy schedules or not.

Class 2 shall consist of the Rule 23(b)(3) class that seeks actual and/or punitive damages in addition to the relief sought by Class 1. It shall consist of all persons that, since January 1, 1997, have received a discharge under Title 11 of the United States Bankruptcy Code from the United States Bankruptcy Court for the District of New Mexico, that scheduled First Light Federal Credit Union or Fort Bliss Federal Credit Union (its predecessor) as a creditor on his or her bankruptcy schedules or who, in fact, owed a debt to either First Light Federal Credit Union or Fort Bliss Federal Credit Union on the date they filed their bankruptcy petition, whether they listed First Light Federal Credit Union or Fort Bliss Federal Credit Union on their bankruptcy schedules or not, and, who claims he or she was damaged by an alleged incorrect reporting to the national credit reporting agencies of the status of their debt or was induced by either credit union to repay a dischargeable or discharged debt in exchange for correction of the credit reporting information.

Certification Order, pp. 2–3.

3. The class claims are based solely on Defendant's alleged improprieties in post-discharge credit reporting. Amended Complaint, ¶¶ 39(b), 40, 49–55.

4. The Class 1 members seek a declaratory judgment that Defendant's conduct violated their discharge injunction, and seek to enjoin further violations.

5. The Class 2 members seek compensatory and punitive damages.

6. Class 1 has about 1,600 members.7

7. The size and make-up of Class 2 is unknown.8 Plaintiffs were required to identify the members of Class 2 by July 31, 2009. See Stipulated Order Regarding Means and Timetable to Provide Adequate Notice to Classes, p. 3, entered March 26, 2009, doc. 57. No such identification has ever been made.

8. As much as 80% of the time, Defendant did not update its reporting to credit reporting agencies to indicate that a Member's debt to Defendant had been discharged in bankruptcy, and continued to report the discharged debt as past due.9

9. Plaintiffs' concerns about Defendant's credit reporting practices were brought to Defendant's attention in 2003 or 2004, but Defendant did not change its policies until after Plaintiffs brought this adversary proceeding. 10

The following facts presented by Defendant are relevant to the Motion and are not substantially disputed by Plaintiffs:

10. For bankruptcy cases filed after January 1, 2005, only four Members paid Defendant a portion of their discharged, unreaffirmed debts.11

11. There is no evidence about Member payments of discharged debts for bankruptcy cases filed between January 1, 1997 and January 1, 2005, because Defendant's records for that period are not stored on computer. Defendant estimates it would cost about $25,000 to $30,000 to review the pre–2005 “hard copy” files.12 To date, neither party has spent the money necessary to conduce the review.

12. Defendant suggested that another way for Plaintiffs to determine how many Members paid discharged, un-reaffirmed debts for bankruptcy cases filed before January 1, 2005 would be for Plaintiffs to send a questionnaire to the Members. 13Plaintiffs did not do so.14

A disputed fact is how Defendant responded when Members asked Defendant to change its credit reporting to include their bankruptcy discharge. Plaintiffs contend Defendant would not amend its report when asked to do so. Response, p. 3. Defendant disagrees, and cites “an abundance of evidence in the record that shows that [Defendant] did not refuse to update credit reports.” Reply, p. 4. The Court treats this issue as disputed and unresolved.

III. CLASS CERTIFICATION/DECERTIFICATION IS WITHIN THE DISCRETION OF THE TRIAL COURT

Class certification issues, including those relating to adequacy of class representation, are within the province of the trial court. Rector v. City and County of Denver, 348 F.3d 935, 949 (10th Cir.2003), citing J.B. ex rel. Hart v. Valdez, 186 F.3d 1280, 1287 (10th Cir.1999).

Trial courts are permitted to re-examine class certification at any time. Rule 23(c)(1)(C). See also Rector v. Denver, 348 F.3d at 949 (remanding to district court after sua sponte decertifying the class based on lack of class representatives' standing); Barnes v. Am. Tobacco, 161 F.3d 127, 140 (3d Cir.1998) (district courts are required to reassess their class rulings as the case develops”); Richardson v. Byrd, 709 F.2d 1016, 1019 (5th Cir.1983) (“Under Rule 23 the district court is charged with the duty of monitoring its class decisions in light of the evidentiary development of the case. The district judge must define, redefine, subclass, and decertify as appropriate in response to the progression of the case from assertion to facts”).

“In considering the appropriateness of decertification, the standard of review is the same as a motion for class certification: whether the Rule 23 requirements are met.” Mendez v. The Radec Corp., 260 F.R.D. 38, 43 (W.D.N.Y.2009), citing Marlo v. United Parcel Service, Inc., 251 F.R.D. 476, 479 (C.D.Cal.2008).

A class must be decertified if the reasons for granting certification “no longer exist or never existed.” Monaco v. Stone, 187 F.R.D. 50, 59 (E.D.N.Y.1999).

In In re Motor Fuel Temperature Sales Practices Litigation, 279 F.R.D. 598, 601 (D.Kan.2012), the district court stated:

Prior to final judgment, the Court has discretion under Rule 23(c)(1)(C) to decertify the class altogether, or to alter or amend its certification order. Fed.R.Civ.P. 23(c)(1)(C); DG ex rel. Stricklin v. Devaughn, 594 F.3d 1188, 1201 (10th Cir.2010). Indeed, a class certification order is “inherently tentative,” particularly before notice is sent to potential class members. Gen. Tel. Co. of Sw. v. Falcon, 457 U.S. 147, 160, 102 S.Ct. 2364, 72 L.Ed.2d 740 (1982). To determine whether decertification or other alteration or amendment of its certification order is appropriate, the Court applies the rubric for class certification in Rule 23.

279 F.R.D. at 601. Thus, whether or not Class 1 and/or Class 2 were properly certified in October, 2008 (and such certification could may well have been appropriate), the Court has the obligation to revisit class certification if necessary.

Here, it is appropriate to revisit class certification for three reasons. First, the law on class actions has changed since October, 2008.15 Second, the Tenth Circuit law on the “objective standard” for determining whether certain actions violate the discharge injunction has developed since class certification.16 Third, the parties have conducted substantial post-certification discovery, and the Court now has the benefit of some of the discovery.17 Because of the major changes in the law and the available evidence, it is reasonable to review class certification.

IV. IN REVIEWING CLASS CERTIFICATION, THE COURT IS REQUIRED TO “PROBE BEHIND THE PLEADINGS”

When ruling on the propriety of class certification, the trial court is required do more than accept plaintiffs' allegations. The discussion of this issue in Wal–Mart, 131 S.Ct. at 2551–52, is instructive:

Rule 23 does not set forth a mere pleading standard. A party seeking class certification must affirmatively demonstrate his compliance with the Rule—that is, he must be prepared to prove that there are in fact sufficiently numerous parties, common questions of law or fact, etc. We recognized in Falcon that “sometimes it may be necessary for the court to probe behind the pleadings before coming to rest on the certification question,” 457 U.S. at 160, 102 S.Ct. 2364, and that certification is proper...

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2 books & journal articles
  • Walking the Balance Beam of the Bankruptcy Code's Discharge Injunction
    • United States
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