In re Talbert, Bankruptcy No. 04-13867.

• Decision Date: 24 May 2005
• Docket Number: Adversary No. 04-1174.,Bankruptcy No. 04-13867.
• Citation: 347 B.R. 804
• Parties: In the Matter of Larry Allen TALBERT, Debtor. Sonya Turner, et al., Plaintiffs, v. Larry Allen Talbert, Defendant.
• Court: U.S. Bankruptcy Court — Eastern District of Louisiana

347 B.R. 804

In the Matter of Larry Allen TALBERT, Debtor.

Sonya Turner, et al., Plaintiffs, v. Larry Allen Talbert, Defendant.

Bankruptcy No. 04-13867.

Adversary No. 04-1174.

United States Bankruptcy Court, E.D. Louisiana.

May 24, 2005.

COPYRIGHT MATERIAL OMITTED

Emile L. Turner, Jr., New Orleans, LA, for Debtor.

REASONS FOR DECISION

GERALD H. SCHIFF, Bankruptcy Judge.

Larry Allen Talbert filed a voluntary petition for relief under Chapter 7 of the Bankruptcy Code¹ on May 21, 2004, and on that day an order for relief was duly entered. Plaintiffs filed the instant complaint pursuant to section 523(a)(4) seeking a determination of the dischargeability of the debt owed them by the Debtor. Plaintiffs seek to have this adversary proceeding certified as a class action. Defendants object.

The class certification hearing was held on April 26, 2005. After the hearing, the matter was taken under advisement.

I. Factual Background

In 1996, Epcon, Inc., n/k/a Progix, Inc., established an employee 401(k) Plan ("the Plan"). Employees of Progix and its two subsidiaries were allowed to participate in the Plan. The Debtor was one of the two named trustees of the Plan.

Plaintiffs claim that the Defendant was responsible for collecting employee contributions and employer matching funds and forwarding them to the Plan's administrative server. Plaintiffs also claim that between October 2000 and March 2001 ("the critical period") the Defendant was still collecting employee contributions but had stopped forwarding them to the Plan's administrative server.

II. Law and Analysis

A. Are class actions permitted in dischargeability cases?

As a threshold issue, Defendant relies on the case of In re Hanson (Sweet v Hanson), 104 B.R. 261 (Bkrtcy.N.D.Cal. 1989), for the proposition that class actions are not permitted in dischargeability cases. Hanson appears to be the lone decision rejecting the notion that class actions are available in section 523 actions. As the court observed in Hanson, however, a few courts have allowed class action dischargeability proceedings. Id. at p. 262.

This Court respectfully disagrees with the Hanson decision. By definition, a proceeding to determine the dischargeability of a debt is an adversary proceeding. Rule 7001(6), Federal Rules of Bankruptcy Procedure ("FRBP"). Rule 7023, FRBP, without exception, makes class actions applicable to adversary proceedings. It necessarily follows that dischargeability proceedings may be prosecuted as class actions. This Court is unwilling to overlook the plain language of these Rules.

B. Are there procedural defects that preclude the Court from certifying the class?

Rule 7023, FRBP, provides that Rule 23, Federal Rules of Civil Procedure ("Rule 23"), pertaining to class actions, applies in adversary proceedings. Rule 23(c)(1)(A) requires that the Court determine "at an early practicable time" whether to certify the proceeding as a class action.

Defendant contends there are fatal procedural defects to class certification because Plaintiffs did not comply with Local Civil Rule 23 of the United States District Court for the Eastern District of Louisiana². Specifically, Defendant alleges Plaintiffs by failed to: (a) move for certification within ninety days after filing the complaint, (b) caption the case in the manner prescribed by that rule, and (c) make certain prescribed allegations.

In the body of the complaint, under the heading CLASS CERTIFICATION, in Paragraphs VIII thru XIV, Plaintiffs set forth numerous facts in support of class certification; a request for such certification is contained not only in such paragraphs, but also in the prayer of the complaint. The Court does not believe that failing to pray for class certification in a separate motion is fatal to maintaining the suit as a class action. The Fifth Circuit has said that courts have an independent obligation to decide whether an action was properly brought as a class action even if neither party moves for a ruling. Gore v. Turner, 563 F.2d 159, 165 (5th Cir.1977).

In this case, Plaintiffs requested class certification in the complaint and the Court set the class certification hearing during the first pretrial conference. Further, the Eastern District of Louisiana itself has stated that failure to comply with the ninety day deadline does not preclude the Court from determining whether the class should be certified. Walker v. City of Bogalusa, 1997 WL 370139, *1 (E.D.La. 1997). Accordingly, the Court finds that failing to request class certification in a separate motion is not fatal to the class being certified.

Defendant also points to the Plaintiffs' failure to properly caption the Complaint and omission of certain necessary allegations in the Complaint. Bankruptcy Rule 9029(a)(2) provides,

A local rule imposing a requirement of form shall not be enforced in a manner that causes a party to lose rights because of a nonwillful failure to comply with the requirement.

The court concludes, therefore, that failing to caption the complaint in a certain manner is not fatal to the class being certified. Further as pointed out above, the Court finds that the allegations contained in Paragraphs VIII through XIV of the complaint are sufficient to satisfy Local Civil Rule 23.1(A).

C. Rule 23(a)

Having overruled the Defendant's procedural objections to class certification, the court must now turn to the substantive issue of whether class certification is appropriate under the circumstances of the case. To be sure, Plaintiffs have the burden of proving that the elements of Rule 23(a) are satisfied. Unger v. Amedisys Inc., 401 F.3d 316, 321 (5th Cir.2005). Those elements are:

(1) the class is so numerous that joinder of all members is impracticable, (2) there are questions of law or fact common to the class, (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class, and (4) the representative parties will fairly and adequately protect the interests of the class.

Rule 23(a). If each element of Rule 23(a) is satisfied, Plaintiffs must then establish that at least one of the elements of Rule 23(b) is satisfied.

1. Numerosity

[A] plaintiff must ordinarily demonstrate some evidence or reasonable estimate of the number of purported class members. See J. Moore & Kennedy, supra, at P.23.05(3). However, this does not mean that the actual number of class members is the determinative question, for "(t)he proper focus (under Rule 23(a)(1) is not on numbers alone, but on whether joinder of all members is practicable in view of the numerosity of the class and all other relevant factors.)" Phillips v. Joint Legislative Committee, 637 F.2d 1014, 1022 (5th Cir.1981). See Garcia v. Gloor, 618 F.2d 264, 267 (5th Cir.1980), cert. denied, 449 U.S. 1113, 101 S.Ct. 923, 66 L.Ed.2d 842 (1981).

Zeidman v. J. Ray McDermott & Co. Inc., 651 F.2d 1030, 1038 (5th Cir.1981). The Fifth Circuit has identified factors other than the number of class members that may be relevant to "numerosity."

[T]hese include, for example, the geographical dispersion of the class, the ease with which class members may be identified, the nature of the action, and the size of each plaintiffs claim. See Garcia v. Gloor, supra, at 267; 7 C. Wright & Miller, Federal Practice & Procedure § 1762, at 600-03 (1972). It is not surprising, therefore, that no definitive pattern has emerged under Rule 23(a)(1) in terms of the number of purported class members. Indeed, classes with as few as twenty-five or thirty members have been certified by some courts. See C. Wright & A. Miller, supra, at 597-99.

Zeidman v. McDermott, 651 F.2d 1030, 1038 (5th Cir.1981).

Defendant contends that there were eighty-eight Plan participants during the critical period. Seven of those people, however, were not making contributions to the Plan during the critical period because they were no longer employees of Progix or its subsidiaries. Defendant contends that 26 of the 88 were made whole by Progix between April 2001 and June 2002, when Progix paid the administrative server. Further, Mr. Talbert transferred the money he had in the Plan to be redistributed pro rata among those who did not get 100%, which made another 13 people whole. After subtracting the above, including Mr. Talbert, the potential class is reduced to 41.³ Seven of that 41 are named Plaintiffs in this lawsuit, so Defendants claim that there are potentially only 34 more claimants.

Plaintiff disputes that 26 people were made whole by Progix. Also, just because some employees were repaid, does not mean they were made whole. They were not given the benefit of their money during the critical period until the money was repaid, including lost interest.

Because there are potentially 88 class members, the Court finds that the element of numerosity is satisfied.

2. Commonality

The commonality test is met when there is at least one issue, the resolution of which will affect all or a significant number of the putative class members. Forbush v. J.C. Penney Co., 994 F.2d 1101, 1106 (5th Cir.1993).

Lightbourn v. County of El Paso, Texas, 118 F.3d 421, 426 (5th Cir.1997). All potential class members, even those whose contributions have been repaid will be affected by a decision regarding lost interest. Accordingly, the Court finds that the Plaintiffs have met their burden of proving commonality.

3. Typicality

[T]he test for typicality is not demanding. It focuses on the similarity between the named plaintiffs' legal and remedial theories and the theories of those whom they purport to represent. Typicality does not require a complete identity of claims. Rather, the critical inquiry is whether the class representative's claims have the same essential characteristics of those of the putative class. If the claims arise from a similar course of conduct and share the same legal theory, factual differences will not defeat typicality.

Stirman v. Exxon Corp., 280 F.3d 554,...