Mazzei v. Money Store

• Decision Date: 15 July 2016
• Docket Number: Docket No. 15-2054
• Citation: 829 F.3d 260
• Parties: Joseph Mazzei, on behalf of himself and all others similarly situated, Plaintiff–Appellant, v. The Money Store, TMS Mortgage Inc., HomEq Servicing Corp., Defendants–Appellees.
• Court: U.S. Court of Appeals — Second Circuit

829 F.3d 260

Joseph Mazzei, on behalf of himself and all others similarly situated, Plaintiff–Appellant

v.The Money Store, TMS Mortgage Inc., HomEq Servicing Corp., Defendants–Appellees.^*

Docket No. 15-2054

United States Court of Appeals, Second Circuit.

Argued: May 19, 2016

Decided: July 15, 2016

Paul S. Grobman (Neal DeYoung, Sharma & DeYoung, on the brief), New York, New York, for Appellant.

Daniel A. Pollack (Edward T. McDermott, Anthony Zaccaria, Minji Kim, on the brief), McCarter & English, LLP, New York, New York, for Appellees.

Before: KEARSE, WINTER, and JACOBS, Circuit Judges.

DENNIS JACOBS

, Circuit Judge:

Plaintiff-appellant Joseph Mazzei initiated a class action against The Money Store et al. , alleging, inter alia , overcharge of late fees on mortgages, and prevailed in a jury trial. The United States District Court for the Southern District of New York (Koeltl, J. ) (i) granted defendants-appellees' post-verdict motion to decertify (under Federal Rule of Civil Procedure 23(c)(1)(C)

) a class that was previously certified pursuant to Rule 23(a) and (b)(3); and (ii) entered judgment in favor only of Mazzei, the putative class representative.

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. 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.

An accompanying summary order affirms the denial of Mazzei's motion for a new trial as to a second claim.

Affirmed.

BACKGROUND

In 1994, Joseph Mazzei obtained a mortgage loan from his employer, The Money Store. At that time, The Money Store was a loan servicer and mortgage lender. Mazzei missed payments on the loan for years beginning in late 1997, and received three notices of default in 1998. In 1999, The Money Store changed ownership, and Mazzei was laid off. Soon after, The Money Store ceased originating loans and became HomEq Servicing Corp.

Early in 2000, The Money Store's servicing operator, TMS Mortgage Inc., notified Mazzei that he was in default; Mazzei's loan was “accelerated” (i.e. , the entire sum of 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. These fees included, inter alia , attorney's fees, and ten late fees of $26.76 each—five of which were incurred after acceleration.

Mazzei then sued The Money Store, TMS Mortgage Inc., and HomEq Servicing Corp. (collectively, “The Money Store”) for breach of contract, on behalf of a putative class, challenging the imposition of post-acceleration late fees (and attorney's fees² ). Citing terms set forth in the Fannie Mae form loan documents that Mazzei signed when the mortgage loan was originated, Mazzei contended that the Note contemplated the imposition only of pre- acceleration late fees, and that the imposition of post -acceleration late fees violated the agreement.

Mazzei achieved certification of the class, defined as:

All similarly situated borrowers who signed form loan agreements on loans which were owned or serviced by the defendants and who from March 1, 2000 to the present ... were charged: (A) late fees after the borrower's loan was accelerated, and where the accelerated loan was paid off (“Post Acceleration Late Fee Class”) ....

Order for Certification of Class Action, Mazzei v. Money Store , No. 01–CV–5694 (JGK) (RLE) (S.D.N.Y. Jan. 29, 2013), ECF No. 187; see also Mazzei v. Money Store , 288 F.R.D. 45, 56, 66–69 (S.D.N.Y. 2012)

.³

The class definition was later amended on consent to exclude borrowers who signed loan mortgage agreements after November 1, 2006, and (for administrative purposes) to close on June 2, 2014. Order, Mazzei v. Money Store , No. 01–CV–5694 (JGK) (RLE) (S.D.N.Y. June 3, 2014), ECF No. 267.

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

After trial, and before the entry of judgment, The Money Store moved for decertification of the class pursuant to Federal Rule of Civil Procedure 23(c)(1)(C)

, or, in the alternative, the entry of judgment as a matter of law on the class late fee claims pursuant to Federal Rule 50. The class was composed of borrowers whose loans were either owned by The Money Store (via origination or assignment) or serviced by it. Both 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 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. The district court therefore granted The Money Store's motion for decertification of the class. Mazzei v. Money Store , 308 F.R.D. 92, 106–07, 109–13 (S.D.N.Y. 2015). The district court also opined that it would have granted The Money Store's motion for judgment as a matter of law if decertification had not been appropriate. Id. at 113. Judgment was entered for Mazzei on his individual late fee claim.

Mazzei challenges the decertification⁴ on the grounds, inter alia , 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 affirm.

DISCUSSION

I

Federal Rule of Civil Procedure 23(c)(1)(C)

provides that “[a]n order that grants or denies class certification may be altered or amended before final judgment.” Fed. R. Civ. P. 23(c)(1)(C). Mazzei argues nevertheless that a class may not be decertified after a jury verdict in its favor because such decertification is tantamount to overturning a jury verdict, for which the only procedural avenue available is judgment as a matter of law under Rule 50(b); and decertification would violate the class members' Seventh Amendment right to a jury trial.⁵

A Federal Rule 23

and our case law confirm that a district court may decertify a class after a jury verdict and before the entry of final judgment.⁶ In deciding an appeal of a denial of a motion to decertify after a jury verdict in a class's favor, we observed that “a district court may decertify a class if it appears that the requirements of Rule 23 are not in fact met.” Sirota v. Solitron Devices, Inc. , 673 F.2d 566, 572 (2d Cir. 1982) (discussing post-trial motion to decertify after jury verdict in favor of subclass); see also Rossini v. Ogilvy & Mather, Inc. , 798 F.2d 590, 596 (2d Cir. 1986) (affirming decertification of one class after bench trial based on evidence; reversing decertification of two other classes).

A district court's exercise of discretion is set forth clearly in both the wording and commentary of Rule 23

. See Fed. R. Civ. P. 23(c)(1)(C) (“An order that grants or denies class certification may be altered or amended before final judgment.”); Fed. R. Civ. P. 23(c)(1) advisory committee's notes to 2003 amendment (“A determination of liability after certification, however, may show a need to amend the class definition. Decertification may be warranted after further proceedings.”); see also 7AA Wright et al., Federal Practice & Procedure § 1785.4 (3d ed. 2016 update) (“Reference to the final judgment [in Rule 23(c)(1)(C) ] avoids a possible ambiguity under the prior rule, making clear that after a determination of liability it may be permissible to amend the class definition or subdivide the class if it becomes necessary in order to define the remedy or if decertification is warranted.”).

Indeed, because the results of class proceedings are binding on absent class members, see Fed. R. Civ. P. 23(c)(3)

, the district court has the affirmative “duty of monitoring its class decisions in light of the evidentiary development of the case.” Richardson v. Byrd , 709 F.2d 1016, 1019 (5th Cir. 1983) (“The district judge must define, redefine, subclass, and decertify as appropriate in response to the progression of the case from assertion to facts.”); see Phillips Petroleum Co. v. Shutts , 472 U.S. 797, 812, 105 S.Ct. 2965, 86 L.Ed.2d 628 (1985) (“[T]he Due Process Clause of course requires that the named plaintiff at all times adequately represent the interests of the absent class members.” (emphasis added)). The power to decertify a class after trial when appropriate is therefore not only authorized by Federal Rule 23

but is a corollary.⁷

B

The Seventh Amendment, which applies in federal court proceedings, is not to the contrary. The Amendment has two parts: The Trial by Jury Clause preserves a litigant's right to a jury trial in a subset of civil cases; the Reexamination Clause provides 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.” U.S. Const. amend. VII

.

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

.

As to the class, there is no violation. The right of absent class members to adjudication by jury is unimpaired. Their claims survive by virtue of American Pipe

tol...