United States District Court, E.D. New York
September 4, 2004.
STEPHEN R. STEINBERG, individually and on behalf of a class of policy-holders of Nationwide Mutual Insurance Company, Plaintiff,
NATIONWIDE MUTUAL INSURANCE COMPANY, Defendant.
The opinion of the court was delivered by: ARTHUR SPATT, District Judge
MEMORANDUM OF DECISION AND ORDER
Presently before the Court are the following two motions: (1) a
motion by the defendant Nationwide Mutual Insurance Company
("Nationwide" or the "defendant") to strike the legal arguments
from the reply affidavit of D. Brian Hufford; and (2) a motion by
the plaintiff Stephen R. Steinberg ("Steinberg" or the
"plaintiff") for class certification pursuant to Federal Rule of
Civil Procedure 23 (Fed.R. Civ. P.").
A. Factual Background
The following factual background is set forth in the Court's
Memorandum of Decision and Order dated July 27, 2002. Familiarity
with that decision is assumed; however, for the purposes of this
motion, the Court repeats the pertinent facts.
On an unspecified date, Nationwide sold Steinberg a contract
for automobile insurance for his leased 1999 BMW 740I. The
insurance contract states: "COMPREHENSIVE COVERAGE. We will pay
for loss to your auto not caused by collision of upset. We will
pay for the loss less your declared deductible." The contract
defines the word deductible as "the amount of loss to be paid by
the insured when a loss occurs." The contract also defines the
word "loss" as "direct and accidental loss or damage to your auto
including its equipment."
The insurance contract also contains a provision entitled,
"LIMITS OF PAYMENT." This section states, "ACTUAL CASH VALUE. The
limit of our coverage is the cash value of your auto or its
damaged parts at the time of loss. We will consider fair market
value, age, and condition of the property at the time of loss to
determine cash value. We may pay you directly for a loss. We may,
at our option, replace your auto."
In September 1999, the plaintiff's BMW engine was damaged by
water that entered the engine and caused an "hydraulic lock." On
behalf of Nationwide, an adjuster consented to the replacement of
the engine and agreed to pay the repairing dealer an unspecified
amount for the replacement engine and related work that was made
necessary by the loss. The dealer repaired the automobile and
Nationwide tendered a check to the plaintiff. However, the check
did not reflect the sum upon which the dealer and the adjuster
had agreed or the sum upon which the dealer and the plaintiff had
agreed. Nationwide had subtracted from that agreed-upon sum the
deductible, which is provided for in the insurance contract, and
a "betterment charge" deduction of $563.17. The term "betterment"
is not contained in the automobile insurance contract between
Nationwide and Steinberg.
Steinberg alleges that the deduction by Nationwide of the
"betterment charge" constitutes a breach of the insurance
contract between him and Nationwide because, under the contract,
the only amount of the loss an insured must pay is the
deductible. Steinberg further alleges that the term "deductible"
as defined in the insurance contract does not reflect a
"betterment charge." Steinberg also contends that Nationwide has
breached the contract by applying the "betterment charge" to the
loss of parts, such as the engine in the plaintiff's case.
The complaint further alleges that, since on or about January
1, 1993, Nationwide has entered into automobile insurance
contracts that are substantially similar to the contract
described above with "millions" of people in every state except
Hawaii, Massachusetts, and New Jersey. Steinberg seeks to
maintain a class action on behalf of all individuals who entered
into automobile insurance contracts with Nationwide and have had,
since January 1, 1993, a collision or comprehensive loss (1) for
which Nationwide paid the amount necessary for repair minus the
deductible and a "betterment charge"; or (2) that was repaired at
a Blue Ribbon Repair Shop where the insured paid a deductible and
a "betterment charge."
B. Procedural Background
The plaintiff originally commenced this action against
Nationwide on October 13, 1999, in the Supreme Court of the State
of New York, Suffolk County. On November 24, 1999, Nationwide
removed the action to this Court pursuant to 28 U.S.C. §§ 1441
and 1446. In papers dated December 9, 1999, the plaintiff moved
to remand the action to state court on the ground that this Court
lacked subject matter jurisdiction. In particular, the plaintiff
argued that the amount in controversy did not exceed $75,000.
In a decision and order dated April 6, 2000, Steinberg v.
Nationwide, 91 F. Supp. 2d 540 (E.D.N.Y. 2000), this Court
denied the plaintiff's motion for remand The Court held that,
although it "[would] not aggregate the potential value of the
class in order to sustain the $75,000 jurisdictional amount," the
injunctive relief sought by the plaintiff furnishes the basis for
federal jurisdiction. Steinberg, 91 F. Supp.2d at 543-44. The
Court found that, with reasonable certainty, the imposition of an
injunction prohibiting the practice of recognizing "betterment
charges" would cause economic harm in excess of $75,000 to the
defendant. Id. at 544. Accordingly, the Court concluded that
the plaintiff's request for injunctive relief met the
jurisdictional minimum of $75,000. Id.
In papers dated September 12, 2001, Steinberg moved the Court
for permission to file a Second Amended Complaint, which, he
stated, would narrow the claims in the complaint. In particular,
Steinberg sought to withdraw a claim that the defendant's use of
used, reconditioned, or remanufactured parts when repairing a car
is also a breach of contract. In papers dated September 19, 2001,
Nationwide stated that it did not oppose the plaintiff's motion.
In an order dated September 22, 2001, the Court granted the
plaintiff's motion to file a Second Amended Complaint, and
Steinberg filed the Second Amended Class Action Complaint on
September 26, 2001.
In papers dated October 5, 2001, Nationwide moved to dismiss
the Second Amended Complaint on the ground that the Court lacked
subject matter jurisdiction. Nationwide stated that Steinberg's
Second Amended Complaint did not request the injunctive relief
that this Court previously held satisfied the amount in
controversy element of diversity jurisdiction. As such,
Nationwide argued that the amount in controversy did not exceed
$75,000 and that the Court must dismiss the complaint for lack of
subject matter jurisdiction. Steinberg conceded that the request
for injunctive relief was missing from his Second Amended
Complaint and explained that he had inadvertently deleted the
request. On October 24, 2001, Steinberg requested permission to
supplement the pleading pursuant to Fed.R. Civ. P. 15(a) so as
to include the request for injunctive relief.
In an order dated July 27, 2002, the Court granted Nationwide's
motion to dismiss the Second Amended Complaint. The Court also
granted Steinberg's motion to file an amended complaint that
differed from the Second Amended Complaint only in that it
contained a request for injunctive relief. On August 7, 2002,
Steinberg filed the Third Amended Class Action Complaint.
A. The Defendant's Motion to Strike Legal Argument from Reply
Affidavit of D. Brian Hufford
The defendant moves to strike the legal arguments from the
reply affidavit of D. Brian Hufford in support of the plaintiff's
motion for class certification. In response, the plaintiff moves
to strike the legal arguments from the declaration of Adam S.
Levy. A review of the reply affidavit shows that, unlike the Levy
declaration, it raises a multitude of legal arguments and
citations. Local Civil Rule 7.1 provides:
Except as otherwise permitted by the court, all
motions and all oppositions thereto shall be
supported by a memorandum of law, setting forth the
points and authorities relied upon in support of or
in opposition to the motion, and divided, under
appropriate headings, into as many parts as there are
points to be determined. Willful failure to comply
with this rule may be deemed sufficient cause for the
denial of a motion or for the granting of a motion by
Although the plaintiff did forth his legal arguments in his reply
memorandum of law, his attorney's affidavit also contains a
number of legal arguments. The legal arguments set forth in the
affidavit are improper and have the effect of circumventing the
Court's page limits on memoranda which is 10 pages for a reply
memorandum. Accordingly, the Court grants the defendant's motion
to strike the legal arguments set forth in the reply affidavit by
the plaintiff's counsel.
B. Standards for Class Certification
In determining whether a putative class qualifies for
certification, the only question is whether the requirements of
Fed.R. Civ. P. 23 have been met. See Eisen v. Carlisle &
Jacquelin, 417 U.S. 156, 177-78, 40 L. Ed. 2d 732,
94 S. Ct. 2140 (1974). The Court assumes the allegations in the complaint
to be true, and the burden is on the plaintiff to prove that the
putative class meets the four threshold requirements of Rule
23(a) and satisfies the requirements of at least one of the
categories enumerated in Rule 23(b). See In re: Visa
Check/Mastermoney Antitrust Litig., 280 F.3d 124, 133 (2d Cir.
2001); Caridad v. Metro-North Commuter RR, 191 F.3d 283, 291
(2d Cir. 1999); Vengurlekar v. Silverline Technologies, Ltd.,
220 F.R.D. 222, 226 (S.D.N.Y. Nov. 2003).
In deciding certification, courts must take a liberal rather
than a restrictive approach in determining whether the plaintiff
satisfies these requirements and may exercise broad discretion in
weighing the propriety of a putative class. See In re NASDAQ
Market Makers Antitrust Litig., 169 F.R.D. 493, 504 (S.D.N.Y.
1996) (citing Korn v. Franchard Corp., 456 F.2d 1206, 1208-09
(2d Cir. 1972)); See also Pecere v. Empire Blue Cross and Blue
Shield, 194 F.R.D. 66, 69 (E.D.N.Y May 2000). Whether the
plaintiffs have stated a cause of action or will prevail on the
merits is not a consideration for resolution of a motion for
class certification. See Vengurlekar, 220 F.R.D. at 226.
While the district court must engage in a "rigorous analysis" to
establish whether the plaintiff has met its burden of proof as to
certification, Caridad, 191 F.3d at 291, such a determination
must not evolve into a "preliminary inquiry into the merits."
Eisen., 417 U.S. at 177.
1. Rule 23(a) Requirements
To qualify for class certification, the plaintiff must first
prove that the putative class meets the four threshold
requirements of Rule 23(a):
(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.
Fed.R. Civ. P. 23(a); See also In re Visa Check/Mastermoney
Antitrust Litigation, 280 F.3d 124
, 132-33 (2nd Cir. 2001).
Rule 23(a)(1), generally referred to as the numerosity
requirement, requires that the class be "so numerous that joinder
of all members is impracticable." Fed.R. Civ. P. 23(a)(1).
`Impracticable,' in this context, is not to be confused with
impossible. Rule 23(a)(1) only requires that, in the absence of a
class action, joinder would be "difficult" or "inconvenient."
Vengurlekar, 220 F.R.D. at 227 (internal quotations and
The commonality requirement set forth in Rule 23(a)(2) requires
a showing that common issues of fact or law exist and affect all
class members. However, the individual circumstances of the class
members can differ without precluding class certification. See
Vengurlekar, 220 F.R.D. at 227. "The critical inquiry is
whether the common questions are at the core of the cause of
action alleged." Id. (internal quotations and citations
Rule 23(a)(3), also known as the typicality requirement,
requires that "each class member's claims arise from the same
course of events and [that] each class member makes similar legal
arguments to prove [the] defendant's liability." Vengurlekar,
220 F.R.D. at 227. The typicality requirement is meant to ensure
that the class representative is not subject to a unique defense
which could potentially become the focus of the litigation. See
Id. However, "the mere existence of individualized factual
questions with respect to the class representative's claim will
not bar class certification." Id. (internal quotations and
d. Adequacy of Representation
The adequacy of representation requirement set forth in Rule
23(a)(4) requires the plaintiff to prove that the "representative
parties will fairly and adequately protect the interests of the
class." Fed.R. Civ. P. 23(a)(4). To satisfy this requirement,
the plaintiff must demonstrate (1) "that class counsel is
qualified, experienced, and generally able to conduct the
litigation," In re Drexel Burnham Lambert Group, Inc.,
960 F.2d 285, 291 (2d Cir. 1992); and (2) "that the proposed class
representatives have no interests that are antagonistic to the
proposed class members," Vengurlekar, 220 F.R.D. at 227. Rule
23(a)(4) also requires that the named representatives be prepared
to engage in "vigorous prosecution" of the alleged claim.
Robinson v. Metro-North Commuter R.R. Co., 267 F.3d 147, 155
(2d Cir. 2001).
2. Rule 23(b)(3) Requirements
In addition to satisfying the four prerequisites established in
Rule 23(a), the plaintiff must prove that the putative class is
maintainable under at least one of the categories enumerated in
Rule 23(b). See In re Visa Check, 280 F. 3d at 133. Here, the
plaintiff requests certification under Rule 23(b)(3). A putative
class is maintainable under that rule when "the court finds that
questions of law or fact common to the members of the class
predominate over any questions affecting only individual members
and that a class action is superior to other available methods
for the fair and efficient adjudication of the controversy."
Fed.R. Civ. P. 23(b)(3).
While the commonality requirement of Rule 23(a)(2) mandates
that common questions of law or fact exist among the putative
class members, the first prong of Rule 23(b)(3), also known as
the predominance requirement, is more stringent and requires that
such common questions be the focus of the litigation. See
Continental Orthopedic Appliances, Inc. v. Health Insurance Plan
of Greater New York, Inc., 198 F.R.D. 41, 44, (E.D.N.Y. 2000).
In other words, the predominance requirement is used to test
whether a class is "sufficiently cohesive to warrant adjudication
by representation." Amechem Prods. Inc. v. Windsor,
521 U.S. 591, 623, 138 L. Ed. 2d 689, 117 S. Ct. 2231 (1997) (citing 7A
Wright, Miller & Kane 518-19)). [COMMENT1] Common questions of
law and fact predominate when issues subject to generalized proof
and applicable to the class as a whole predominate over and are
more substantial than issues that are subject only to
individualized proof. See In Re Visa Check, 280 F. 3d at 136
The second prong of Rule 23(b)(3), commonly referred to as the
superiority element, requires the court to examine whether a
class action is superior to other methods of adjudication. See
Vengurlekar, 220 F.R.D. at 228. Rule 23(b)(3) sets forth four
non-exhaustive factors that the court may consider in determining
whether a class action is the superior method of adjudication of
the putative class' claim:
(A) the interest of the members of the class in
individually controlling the prosecution or defense
of separate actions; (B) the extent and nature of any
litigation concerning the controversy already
commenced by or against members of the class; (C) the
desirability or undesirability of concentrating the
litigation of the claims in the particular forum; and
(D) the difficulties likely to be encountered in the
management of a class action.
Fed.R. Civ. P. 23(b)(3).
C. Analysis of the Motion for Class Certification
1. Rule 23(a) Requirements
Nationwide appears to concede that the putative class is "so
numerous that joinder of all members is impracticable."
Fed.R.Civ. P. 23(a)(1). The putative class involves Nationwide
policyholders from 47 states. The plaintiff asserts that, from
January 1, 1992 through October 1, 1999, Nationwide policyholders
made a total of 3,849,503 first-party physical damage claims
under their automobile insurance policies throughout the nation.
According to the plaintiff, in 1998, there were 49,344 such
claims in New York alone, with Nationwide making betterment
deductions worth $280,000 with respect to those claims.
Accordingly, the Court finds that the plaintiff adequately
satisfies the numerosity requirement of Rule 23(a)(1).
The commonality element of Rule 23(a)(2), which requires the
plaintiff to demonstrate that common issues of law or fact exist
and affect all class members, is considered a "minimal burden for
a party to shoulder." Lewis Tree Service, Inc., 211 F.R.D. 228,
231, (S.D.N.Y. Nov. 2002). Individual circumstances of the class
members can differ without precluding class certification so long
as "common questions are at the core of the cause of action
alleged." Vengurledar, 220 F.R.D. at 227 (internal quotations
and citations omitted).
Here, the plaintiff's central issue is whether the uniform
language used by Nationwide in its automobile insurance policies
permits it to take what it calls a "betterment" deduction from
repair reimbursements. The plaintiff seeks certification of a
proposed class of:
All persons or businesses who entered into automobile
insurance contracts with Nationwide, and who, since
January 1, 1993, have had a collision or
comprehensive loss and for which the insured was
responsible for a portion of the repair costs due to
a "betterment" charge or deduction imposed by or on
behalf of Nationwide (the "Class").
Because the plaintiff has demonstrated that (1) all putative
class members have signed substantively identical or similar form
agreements with Nationwide; and (2) Nationwide's practice of
taking "betterment" deductions is a common course of conduct that
has affected all putative class members, the Court finds that
common questions of fact exist among the putative class. See
Lewis Tree, 211 F.R.D. at 231.
Adjudication of the plaintiff's claim will require the Court to
interpret key terms, such as "deductible," "actual cash value,"
and "loss," as they appear in each of Nationwide's automobile
insurance policies. Because these key terms, their definitions,
and other pertinent contractual provisions are substantively
similar, if not identical, in all of Nationwide's automobile
insurance contracts, such contracts can be considered uniform or
`form contracts' for the purposes of this litigation. The Court
notes that "in light of Rule 23, claims arising from
interpretations of a form contract appear to present the classic
case for treatment as a class action, and breach of contract
cases are routinely certified as such." Klay v. Humana, Inc.,
No. 02-16333, 2004 U.S. App. LEXIS 18494, at *52 (11th Cir.
Sept. 1, 2004) (quoting Kleiner v. The First National Bank of
Atlanta, 97 F.R.D. 683, 692 (N.D. Ga. 1983)).
That the defendant engaged in a common course of conduct with
respect to the putative class further demonstrates that common
questions of fact exist among the class. See Morimore v.
Federal Deposit Insurance, 197 F.R.D. 432, 436, (W.D. Wash.
2000). Nationwide's practice of taking "betterment" deductions is
uniform throughout the 46 states in which it operates, with the
exception of Texas where Nationwide has recently abandoned the
practice. An affidavit submitted by the plaintiff includes a copy
of a publication entitled "The Betterment Guidelines" issued by
Nationwide. "The Betterment Guidelines" describe the practice of
deducting "betterment" charges and are distributed to all
Nationwide claims adjustors "in an effort to create uniformity
and consistency . . . for all material damage claims."
Because Nationwide's automobile insurance contracts are, for
the purposes of this litigation, substantially form contracts and
Nationwide's practice of taking "betterment" deductions is a
standard practice affecting the entire putative class, the Court
finds that the plaintiff has adequately shown that a "common
factual nexus" exists among the putative class. Lewis Tree,
211 F.R.D. at 232.
The Court also finds that common legal issues exist among the
putative class. The sole issue presented by the plaintiff, on
behalf of the class, is whether Nationwide has breached its
automobile contracts by taking "betterment" deductions. This
issue is not convoluted or complex. In addition, "some uniformity
[exists] in the legal rules that would be applied to the claims."
Id. As stated by the Supreme Court, "contract law is not at its
core diverse, nonuniform, and confusing." American Airlines v.
Wolens, 513 U.S. 219, 223, 130 L. Ed. 2d 715, 115 S. Ct. 817
(1995). Here, the plaintiff's breach of contract claim involves
the general principles of contract interpretation that do not
differ materially from one jurisdiction to the next.
Accordingly, the Court finds that the plaintiff has adequately
proven the existence of common issues of fact and law among the
putative class in satisfaction of the commonality requirement in
The defendant contends that the plaintiff does not meet the
typicality requirement of Rule 23(a)(3) because he is "subject to
unique defenses which threaten to become the focus of the
litigation," Gary Plastic Packaging Corp. v. Merrill Lynch,
Pierce, Fenner & Smith, 903 F.2d 176, 180 (2d Cir. 1990), such
as agreeing to the "betterment" deduction, having been involved
in a separate lawsuit against his BMW dealer, and having leased
his vehicle, as opposed to a purchase. The Court finds that the
plaintiff's act of agreeing to the "betterment" deduction is an
issue that will apply to most class members. Nationwide's
automobile insurance policies were non-negotiable and, thus,
their policyholders had no choice but to accept the "betterment"
deduction or else forego all payment for repairs. Moreover, this
issue is irrelevant to the question of whether the betterment
deductions are permissible under the contract.
That the plaintiff settled a prior lawsuit against BMW and
leased his vehicle are also facts irrelevant to the issue of
whether Nationwide's "betterment" deductions are in breach of its
automobile insurance policies. Accordingly, the Court finds that
such defenses do not "threaten to become the focus of the
litigation" and thus, do not serve to defeat class certification.
The Court notes that "typicality, a matter closely related to
commonality, is satisfied when each class member's claim arises
from the same course of events and each class member makes
similar legal arguments to prove the defendant's liability." In
re Frontier Ins. Group, Inc. Securities Litigation,
172 F.R.D. 31, 40 (E.D.N.Y. 1997). Here, the putative class, including the
plaintiff, put forth one claim, namely whether Nationwide has
breached its automobile insurance policies by taking "betterment"
deductions. In addition, all of Nationwide's contracts are
uniform regarding the provisions pertinent to this litigation and
Nationwide's practice of taking "betterment" deductions is
standard conduct that has equally affected all class members.
Thus, the plaintiff has proven that "the claims of the
representative parties are typical of the claims or defenses of
the class" and thus, has adequately satisfied the typicality
requirement of Rule 23(a)(3).
d. Adequacy of Representation
The defendant maintains that the plaintiff is inadequate as a
class representative. There is "no simple test for determining if
a class will be adequately represented by a named plaintiff" and
"each case must be approached on an individualized basis." In Re
Lilco, 111 F.R.D. at 672. Among the factors to be reviewed are
"the representative's understanding and involvement in the
lawsuit," "the willingness to pursue the litigation," and "any
conflict between the representative and the class." Id. (citing
Eisen v. Carlisle & Jacquelin, 391 F.2d 555, 562-63 (2d Cir.
The plaintiff, an attorney and a sole practitioner, initiated
this case as a pro se litigant and now, after retaining
counsel, acts as class representative. He has a sophisticated
understanding of the lawsuit and substantial involvement in the
litigation. Over the past five years, the plaintiff has narrowed
the issues in his lawsuit so as to strengthen his position.
Because the plaintiff is no longer seeking to serve as class
counsel, there is no longer any argument that his prior role as
pro se litigant conflicts with his future role as class
While the defendant challenges the plaintiff's adequate
representation on grounds that the plaintiff has changed his
position, failed to follow the rules of civil procedure, and
provided the defendant with inadequate discovery responses while
acting as class counsel, such contentions are irrelevant to the
litigation now that the plaintiff has retained the law firm of
Pomerantz Haudek Block Grossman & Gross LLP (the "Pomerantz
firm") as counsel. The problems of which the defendant complains,
including the plaintiff's desire to be paid attorney's fees for
the time that he acted as counsel, are not "central to the
plaintiff's case" and are not "so substantial that they threaten
to undermine the plaintiff's case as a whole." In Re Ski Train
Fire in Kaprun, 220 F.R.D. 195, 203 (S.D.N.Y 2003). Accordingly,
the Court finds that the plaintiff is an adequate representative
of the putative class.
In addition, the Court finds that the Pomerantz firm is
"qualified, experienced, and generally able to conduct the
litigation." Id. at 201. The Pomerantz firm has a strong
reputation as class counsel and has demonstrated its competence
to serve as class counsel in this motion for class certification.
Accordingly, the Court finds that the plaintiff has satisfied the
adequacy of representation requirement of Rule 23(a)(4).
2. Rule 23(b)(3) Requirements
The defendant's central argument against certifying the
putative class is that the plaintiff has failed to satisfy the
predominance requirement of Rule 23(b)(3). In support of its
contention, the defendant argues that, (1) class action
litigation would be unmanageable because it would require the
application of the substantive law of 46 states; and (2)
Nationwide's policies differ substantially from state to state
and, therefore, prevent common issues of fact from predominating.
However, the majority of the cases that the defendant relies upon
to support its claim, see, e.g., In re
Bridgestone/Firestone, Inc., 288 F.3d 1012 (7th Cir. 2002)
(denying certification of a nationwide class in a mass tort case
because the forum state's choice of law rules mandated that law
of state where injury occurred must apply); Stirman v. Exxon
Corp., 280 F.2d 554 (5th Cir. 2002) (denying certification
of a nationwide class because not all states involved recognize
an "implied covenant to market"); Spence v. Glock, Ges.
M.B.H., 227 F.3d 308 (5th Cir. 2000) (denying certification
of a nationwide class in a design defect action because the law
of the place of purchase must be applied), are factually and
legally distinguishable in that most involve mass tort litigation
involving conflicts of substantive state law or breach of
contract claims that require numerous inquiries into individual
plaintiff/defendant relationships. Significantly, here, the
plaintiff's claim is for the simple breach of a standard form
contract and involves only the standard rules of contract
The burden is on the plaintiff to prove that a state law class
should be certified and that common issues of law and fact
predominate. See Potchin v. The Prudential Home Mortgage
Company, No. 97 Civ. 525, 1999 U.S. Dist . LEXIS 22480 at *34
(E.D.N.Y. 1999). "To establish commonality of the applicable
state law, nationwide class action movants must creditably
demonstrate, through an extensive analysis of state law
variances, that class certification does not present insuperable
obstacles." Id. (internal quotations and citations omitted).
The Court finds that the plaintiff has adequately met this
The plaintiff concedes that the McCarran-Ferguson Act,
15 U.S.C. § 1011, mandates that the laws and regulations of the
state of each individual member of the putative class must be
applied to analyze and interpret the policy of each putative
class member. Nationwide has issued its contracts throughout the
country and such contracts are issued under the laws of different
states. However, the plaintiff alleges that the differences in
the applicable principles of contract law do not drastically
differ from state to state and that the variances in the state
laws can be categorized and easily managed for effective
adjudication of his claim. "A claim or defense can implicate
common issues and be litigated collectively, despite the
existence of state law variations, so long as the elements of the
claim or defense are substantially similar and any differences
fall into a limited number of predictable patterns which can be
readily handled by special interrogatories or special verdict
forms." Allapattah Serv. Inc. v. Exxon Corp., 333 F.3d 1248
(11th Cir. 2003) (internal quotations and citations
In determining whether Nationwide has breached its standard
automobile insurance contracts by using "betterment" deductions,
a practice that is never expressly described in its contracts,
the Court will first be asked to consider whether the contract is
unambiguous and, if so, to interpret the unambiguous language.
See Golden Pacific Bancorp v. FDIC, 273 F.3d 509, 515 (2d
Cir. 2001). The plaintiff provides a 50-state breach of contract
analysis, see Exhibit 8 to the Hufford Affidavit, to
demonstrate that there are no material differences among the
states' pertinent common law breach of contract principles and
that contract interpretation principles are also largely
According to the plaintiff, in 39 states, including New York,
the Court must simply look at the "four corners" of the form
contract to determine if a betterment deduction is permissible
under its clear and unambiguous terms. Of those 39 states, the
plaintiff alleges that 17 also permit the Court to consider the
"reasonable expectations" of a prudent insured in interpreting
the contract and determining whether it is ambiguous. The
plaintiff asserts that the remainder of those states either do
not recognize the "reasonable expectations" doctrine or apply it
only after the contract has been deemed to be ambiguous.
For the remaining 12 states which do not follow the "four
corners" approach to determine whether ambiguity exists, the
plaintiff alleges that the Court may consider extrinsic evidence
to determine whether the contract is ambiguous. Of the 12 states,
5 either do not recognize the "reasonable expectations" doctrine
or do not recognize it prior to finding that the contract is
ambiguous and 7 permit the Court to apply the "reasonable
expectations" doctrine in addition to examining extrinsic
In short, the plaintiff contends that the 50 states can be
categorized into 4 groups for this initial analysis of the
states' principles of contract law for determining whether a
contract is ambiguous: (1) states that follow the "four corners"
method without using the "reasonable expectations" doctrine; (2)
states that follow the "four corners" method using the
"reasonable expectations" doctrine; (3) states that examine
extrinsic evidence without using the "reasonable expectations"
doctrine; (4) states that examine extrinsic evidence using the
"reasonable expectations" doctrine.
The plaintiff further explains that if, at this stage, the
Court deems the contract unambiguous, it must simply interpret it
to see if a "betterment" deduction is consistent with the clear
and unambiguous terms. Thus, if the Court deems the contract
unambiguous, the only variations of state law that apply to the
adjudication of the plaintiff's claim are those listed above. The
Court finds that such variances are manageable. See In Re
Lilco, 111 F.R.D. at 670.
Furthermore, the plaintiff analyzes the variances in state law
principles of contract construction that arise if the Court deems
the contract ambiguous and is forced to construe the pertinent
language. According to the plaintiff, 43 states have adopted a
straight-forward interpretation of the contra proferentem
doctrine which requires a court to interpret any ambiguous
provision in a form contract drafted by an insurer in favor of
the insured. The plaintiff then asserts that 33 states of the 43
permit the "reasonable expectations" doctrine" to be used in
conjunction with contra proferentem. For the remaining 8 states,
the plaintiff contends, the Court should first consider any
extrinsic evidence which may assist it in construing the
ambiguous contract prior to applying the contra proferentem
doctrine. All but two of those states also permit the "reasonable
expectations" doctrine to be considered.
Thus, the plaintiff, again, categorizes the states into four
groups concerning the state law principles of ambiguous contract
construction: (1) states that use the contra proferentem doctrine
in conjunction with the "reasonable expectations" doctrine; (2)
states that use the contra proferentem doctrine without the
"reasonable expectations" doctrine; (3) states that use extrinsic
evidence in conjunction with the "reasonable expectations"
doctrine before applying the contra proferentem doctrine; and (4)
states that use extrinsic evidence without the "reasonable
expectations" doctrine before applying the contra proferentem
doctrine. The Court also finds these variances to be manageable.
See In Re Lilco, 111 F.R.D. at 670; see also Grandon v.
Merrill Lynch and Co., Inc., No. 95 Civ. 10742, 2003 U.S. Dist.
LEXIS 16003 at *30-32 (S.D.N.Y. Sept. 2003) (demonstrating
unmanageable variances in the application of various state
Variances in the states' contract laws, such as differences in
statutes of limitation, do not preclude class certification.
See In Re Energy Systems Equipment Leasing Securities Litig.,
642 F. Supp. 718, 753, (E.D.N.Y. 1986). "Courts have been nearly
unanimous . . . in holding that possible differences in the
application of a statute of limitations to individual class
members, including the named plaintif[f], does not preclude
certification of a class action so long as the necessary
commonality and, in a 23(b)(3) class action, predominance, are
otherwise present." Id. (internal citations omitted).
Here, the Court finds adjudication of the class action
according to the plaintiff's analysis to be manageable. However,
if confusion involving the applicable law were to arise later,
the Court may sub-classify the putative class. See In Re Visa
Check, 280 F.R.D. at 141; In Re Lilco, 111 F.R.D. at 670. A
district court has the ability to modify its class certification
order, sub-classify members of a certified class, or even
decertify the entire class if the need arose. See In Re Visa
Check, 280 F.R.D. at 141. The plaintiff adds that, if the Court
so wished, it could certify a class of all class members from
states that have adopted the same rules of construction as New
York, the forum state. In other words, the Court could define the
class to include residents in all states which apply the four
corners doctrine to determine whether the contract is ambiguous,
thereby avoiding any potential problem with considering extrinsic
evidence. Upon a finding of ambiguity, the Court could apply the
contra proferentem doctrine, again, without having to first
consider all extrinsic evidence.
While a motion for class certification is not the appropriate
vehicle by which to resolve choice of law issues, this Court does
not, at the present time, foresee any reason to deny
certification based on any potential insurmountable conflicts of
law issues. See In Re Lilco, 111 F.R.D. at 670 ("At this
juncture [motion for class certification], it is not necessary
for the Court to decide the choice of law issue."); Maywalt v.
Parker & Parsley Petroleum Co., 147 F.R.D. 51, 58, (S.D.N.Y.
1993) ("Along with other district courts in this circuit, this
court declines to decide choice of law issues on a class
certification motion and holds that the application of the laws
of different states, if necessary, does not preclude class action
litigation of this case.").
If a conflict of law is found to exist in this litigation, this
Court, sitting in diversity, is bound to apply the choice of law
rules of the forum state, New York. See Schenk v. Red Sage,
Inc., No. 91 Civ. 7868, 1994 U.S. Dist. LEXIS 399 at * 32
(S.D.N.Y Jan. 1994) (citing Klaxon Co., v. Stentor Elec. Mrf.
Co., 313 U.S. 487, 85 L. Ed. 1477, 61 S. Ct. 1020 (1941)). In
the event that a conflict of substantive law did exist in an
action sounding in contract, as in this case, New York courts
apply a "center of gravity" or "grouping of contracts" test,
Auten v. Auten, 308 N.Y. 155, 160, 124 N.E. 2d 99, 102 (1954),
and apply "the law of the jurisdiction having the greatest
interest in the litigation." Walpex Trading v. Yacimientos
Petroliferos, 756 F. Supp. 136, 140, (S.D.N.Y. 1991). However,
the plaintiff's analysis of the variances in the applicable state
law demonstrates that no "actual conflicts" of substantive law
exist and that the Court can categorize the variances in state
law in a manageable fashion. Thus, the "center of gravity test"
is not necessary. See Maywalt, 147 F.R.D. at 58 (citing In
Re Crazy Eddie Sec. Litig., 135 F.R.D. 39, 41 (E.D.N.Y. 1991)).
As a federal court sitting in diversity, this Court has the
ability to adjudicate class action litigation that involves the
application of numerous states laws. See In Re Lilco,
111 F.R.D. at 670. While the Supreme Court held, in Phillips
Petroleum v. Shutts, 472 U.S. 797, 86 L. Ed. 2d 628,
105 S. Ct. 2965 (1985), that it is unconstitutional for a forum state to
apply its own law to a nationwide class action suit when doing so
would be "arbitrary" or "fundamentally unfair," Shutts does not
require this Court "to apply the law of each state in which the
plaintiffs resides nor does it prohibit the application of one
state's law to all plaintiffs, regardless of residence." In Re
Lilco Securities Litig., 111 F.R.D. 663, 670 (EDNY Aug. 1986).
When a class action raises common issues of conduct that would
establish liability under a number of states' laws, it is
possible for those common issues to predominate and for class
certification to be an appropriate mechanism for handling the
dispute. In Re Buspirone, 185 F. Supp. 2d 363, 377 (S.D.N.Y.
2002). "The spectre of having to apply different substantive law
does not warrant refusing to certify a class on . . . common law
claims." In Re Lilco Securities Litig., 111 F.R.D. at 670.
Moreover, courts in this Circuit have previously acknowledged
that "even if New York choice of law rules required a court to
apply the law of all fifty states, this would not render the
trial per se unmanageable" and that it is "certainly" possible to
"apply the laws of many states in a single class action." In Re
Lilco Litig., 111 F.R.D. at 670; Leider v. Ralfe, No. 01 Civ.
3137, 2003 U.S. Dist. LEXIS 21159. at *32 (S.D.N.Y. Mar. 3,
Next, the defendant argues that its automobile policies are not
identical from state to state and that individual issues of fact
will inevitably predominate over common issues of fact among the
putative class because of such differences. For the purposes of
this litigation, the Court is only concerned with the pertinent
contractual provisions of the class members' contracts for
resolution of the plaintiff's breach of contract claim. The Court
will be required to ascertain only whether the practice of taking
"betterment" deductions is a breach of the insurance contract.
Here, of major importance, the Court finds that all of
Nationwide's automobile insurance contracts contain similar, if
not identical, key terms pertinent to this litigation. The
plaintiff's contract provides that, in the event of a collision
or comprehensive loss, Nationwide will "pay for covered loss
above the deductible amount." "Deductible" is defined as "the
amount of loss to be paid by the insured when a loss occurs" and
"loss" is defined as "direct and accidental loss or damage to
your auto including its equipment." Both Nationwide's
"comprehensive coverage" and "collision coverage" policies are
likewise similarly defined in all contracts from state to state.
Each state that Nationwide is responsible for paying the insureds
"loss less [their] deductible." "Coverage Exclusions" are also
similarly defined in all policies as loss due to "wear and tear,"
"freezing," and "mechanical or electrical breakdown or failure."
Finally, all policies include a section regarding "limits of
payment," which describes how Nationwide limits its coverage to
the "actual cash value" of the "[insureds] auto or its damaged
parts at the time of the loss." All contracts explain that
Nationwide will consider "fair market value," "age," and
"condition of the property at the time of the loss" to determine
cash value. The Court finds that any differences in language or
format from policy to policy are only stylistic and do not change
the substantive meaning.
The defendant points to differences in Nationwide's policies
such as the "specific language regarding losses from non-physical
causes" that are contained in only some of the policies and minor
variations in language regarding appraisal processes through
which Nationwide resolves reimbursement disputes. However, such
differences are not relevant to the adjudication of the
plaintiff's claim. The plaintiff is neither disputing the amount
he was reimbursed nor the methods by which Nationwide appraises
automobiles. Rather, the plaintiff asserts simply that
Nationwide's practice of taking "betterment" deductions is not
written into the contract and is, therefore, in breach of
Nationwide's automobile insurance policies. The terms and
definitions significant to the resolution of this claim are
substantially similar in all Nationwide's contracts and, as
stated previously, the Court emphasizes that "claims arising out
of form contracts are particularly appropriate for class action
treatment." Haroco, Inc. v. American Nat'l Bank and Trust Co.,
121 F.R.D. 664, 669 (N.D. Ill. 1988).
The defendant also contends that the Court may be required to
apply the individual methods adopted by each state for
determining the "actual cash value" of the property and claims
that, in failing to address such differences in his analysis of
the applicable law, the plaintiff did not meet his burden of
providing sufficient analysis of state law in compliance with
Rule 23(b)(3). However, because "actual cash value" is defined in
each of Nationwide's policies, it is unlikely that the state
methods for determining "actual cash value" would be necessary
for adjudication of the plaintiff's claim. A review of the Third
Amended Complaint reveals that the plaintiff is not claiming that
Nationwide's "betterment" deductions are in breach of state
regulations, only that the "betterment" deduction is in breach of
Nationwide's specific policies.
For purposes of the litigation, the pertinent provisions of
Nationwide's policies are substantially uniform and adjudication
of the putative class' breach of contract claim would not invoke
predomination of individual issues of fact.
The defendant also argues that a class action is not a superior
method of adjudication for this claim and that, therefore, the
plaintiff does not satisfy the superiority prong of Rule
The plaintiff addresses each of the four non-exhaustive factors
listed in the Federal Rules for determining whether a class
action is a superior method of adjudication. Fed.R. Civ. P.
23(b). The plaintiff alleges that there are no members of the
class who seek to individually control the prosecution. See
Id. Similarly, no other litigation concerning the controversy
has been commenced and none of the putative class members has
expressed a desire to litigate in a particular forum. See Id.
In addition, according to the plaintiff's analysis of the
variances in the applicable state law and in Nationwide's
automobile insurance contracts, the Court finds that no material
difficulties are likely to be encountered in the management of
the class action. See Id.
The defendant alleges that calculating damages for the putative
class would be unwieldy because it would require an individual
review of each class member's file. However, this Court notes
that if common questions of law predominate over individual
questions as to liability, courts will generally find Rule
23(b)(3) to be satisfied "even if individual damages issues
remain." Bolanos v. Norwegian Cruise Lines Ltd.,
212 F.R.D. 144, 158 (S.D.N.Y 2002) (internal quotations and citations
The defendant also maintains that because some of Nationwide's
automobile contracts contain "alternative dispute mechanisms with
respect to betterment," class action adjudication is improper.
However, after review of the defendant's papers, the Court finds
that the arbitration provisions are with regard to Nationwide's
appraisal methods used to resolve disputes over reimbursements;
the contracts do not contain any arbitration clauses with regard
to breach of contract claims.
In sum, "the interests of justice will be well served by
resolving the common disputes of potential class members in one
forum." Id. Class action adjudication will avoid duplicative
lawsuits with potentially inconsistent results. In addition, "due
to the relatively small size of each individual class member's
claim, it is likely that their claims will never be brought to
court without use of the class action procedure." Moritmore v.
Federal Deposit Insurance Corp., 197 F.R.D. 432, 438 (W.D. Wa.
2000). Accordingly, the Court finds that a class action is a
superior method of adjudication for the plaintiff's claim and the
plaintiff has satisfied the superiority prong of Rule 23(b)(3).
Because the plaintiff has successfully fulfilled the
requirements of Rule 23(a) and Rule 23(b)(3), the Court holds
that certification of the putative class is proper.
Based on the foregoing, it is hereby
ORDERED, that the defendant's motion to strike the legal
argument from the reply affidavit of the plaintiff's attorney is
GRANTED; and it is further
ORDERED, that the plaintiff's motion for class certification
pursuant to Rule 23 is GRANTED in its entirety.
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