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Dungan v. Academy at Ivy Ridge

May 14, 2008

BRUCE DUNGAN, ET AL., PLAINTIFFS,
v.
THE ACADEMY AT IVY RIDGE, ET AL., DEFENDANTS.



The opinion of the court was delivered by: Thomas J. McAVOY Senior United States District Judge

DECISION and ORDER

I. FACTS

The parties have not objected to the Magistrate Judge's factual recitation. Accordingly, the Court adopts the facts as stated in the Magistrate Judge's Report and Recommendation, familiarity with which is presumed.

II. STANDARD OF REVIEW

Pursuant to 28 U.S.C. § 636, a district judge may designate a magistrate judge to hear and determine certain pre-trial matters pending before the court. Whether to dismiss or to permit maintenance of a class action is something that a district court may not designate a magistrate judge to hear and determine. 28 U.S.C. § 636(b)(1)(A). A district court may, however, designate a magistrate judge to conduct evidentiary hearings and to submit proposed findings of fact and recommendations for the disposition by the district court of a class action motion. 28 U.S.C. § 636(b)(1)(B). In such situations, where objections are filed to the proposed findings and recommendations, the court must make "a de novo determination of those portions of the report or specified proposed findings or recommendations to which objection is made." 28 U.S.C. § 636(c). Accordingly, the Court finds that the Report-Recommendation should be reviewed under a de novo standard. See U.S. Fidelity and Guar. Co. v. Thomas Solvent Co., 955 F.2d 1085, 1088 (6th Cir. 1992); see also 12 Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 3068.2 (2d ed.).

In reviewing the Report-Recommendation de novo, the Court is mindful of the standards applicable to motions for class certification. Specifically, "a district judge may not certify a class without making a ruling that each Rule 23 requirement is met . . . [and] all . . . evidence must be assessed as with any other threshold issue," whether or not any such assessment also bears on the merits of the case. McLaughlin v. Am. Tobacco Co., 522 F.3d 215, 221 (2d Cir. 2008) (quoting Miles v. Merrill Lynch & Co. (In re Initial Pub. Offerings Sec. Litig.), 471 F.3d 24, 27 (2d Cir. 2006)).

Rule 23(a) requires that a class action possess four familiar features: (1) numerosity; (2) commonality; (3) typicality; and (4) adequacy of representation. If those criteria are met, the district court must next determine whether the class can be maintained under any one of the three subdivisions of Rule 23(b). With respect to class actions for money damages sought under Rule 23(b)(3), the district court must also find that "questions of law or fact common to class members predominate over any questions affecting only individual members," and that the class action "is superior to other available methods for fairly and efficiently adjudicating the controversy."

McLaughlin, 522 F.3d at 222 (citing and quoting Fed. R. Civ. P. 23(b)(3)).

III. DISCUSSION

While this Court agrees with the Magistrate Judge's Report and Recommendation on most of the issues addressed therein, in light of the Second Circuit's recent opinion in McLaughlin and the significance of the issues of reliance and causation in this case, it disagrees with the Magistrate Judge's Rule 23(b)(3) analysis. The Court is aware that, as the Magistrate Judge noted, Plaintiffs are not seeking certification of the reliance and/or damages issue. The Court disagrees, however, that those issues are, therefore, rendered irrelevant to the overall Rule 23 analysis, including the issue certification under Rule 23(c)(4)(A). See McLaughlin, 522 F.3d at 234; In re Tetracycline Cases, 107 F.R.D. 719, 727 (D. Mo. 1985) ("[T]he appropriate meaning of Rule 23(b)'s predominance requirement, as applied in the context of a partial class certification request under Rule 23(c)(4)(A), is simply that the issues covered by the request be such that their resolution (as a class matter) will materially advance a disposition of the litigation as a whole. In applying this test, the court must obviously consider the nature of the other potential issues in the litigation. . . ."); 7AA Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 1790 (3d ed.) ("[W]hen the court finds that the non-common issues are inextricably entangled with the common issues, or that the non-common issues are too unwieldy or predominant to permit the efficient management of the litigation, it may have to dismiss the action or strike the class allegations.").

In McLaughlin, the plaintiffs sued under 18 U.S.C. § 1962(c) (RICO) claiming that they (a group of smokers) were deceived by defendants' marketing and branding into believing that "light" cigarettes were healthier than "full-flavored" cigarettes. McLaughlin, 522 F.3d at 220. "The gravamen of plaintiffs' complaint [was] that defendants' implicit representation that Lights were healthier led them to buy Lights in greater quantity than they otherwise would have and at an artificially high price, resulting in plaintiffs' overpayment for cigarettes." Id. The plaintiffs sought class certification.

In assessing whether the claims were appropriate for class certification, the Second Circuit noted the elements of a § 1962(c) claim. These elements include proving: (1) a RICO violation; (2) injury; and (3) transaction and loss causation. The McLaughlin Court noted that "the transaction or 'but for' causation element requires the plaintiff to demonstrate that he relied on the defendant's misrepresentation." McLaughlin, 522 F.3d at 222. Rejecting the plaintiffs' arguments that reliance could be proven by generalized proof, the Second Circuit stated that "proof of misrepresentation - even widespread and uniform misrepresentation -only satisfies half of the equation; the other half, reliance on the misrepresentation, cannot be the subject of general proof. Individualized proof is needed to overcome the possibility that a member of the purported class purchased Lights for some reason other than the belief that Lights were a healthier alternative. . . . [W]e cannot assume that, regardless of whether individual smokers were aware of defendants' misrepresentation, the market at large internalized the misrepresentation to such an extent that all plaintiffs can be said to have relied on it." Id. at 223-24. The Circuit, therefore, found that the issue of reliance presented individualized issues that predominated over common issues.

The Circuit then considered the issue of loss causation; that is, whether the plaintiffs could prove that defendants' misrepresentations caused them to suffer economic loss. Id. at 226. The Circuit again concluded that the issue of loss causation could not be resolved by way of generalized proof because "individuals may have relied on defendants' misrepresentation to varying degrees in deciding to purchase Lights." Id. Turning to the issue of damages, the Second Circuit similarly found that "out-of-pocket losses [which are necessary to a § 1964(c) claim] cannot be shown by common evidence because they constitute an inherently individual inquiry; individual smokers would have incurred different losses depending on what they would have opted to do, but for defendants' misrepresentations." Id. at 228. Ultimately, the Second Circuit concluded that the issues of injury and causation defeated the predominance requirement of Rule 23(b)(3). McLaughlin, 522 F.3d at 222.

Significantly, in McLaughlin, the Second Circuit explicitly addressed the possibility of using Rule 23(c)(4) to certify only certain issues of the plaintiff's claims (rather than the claims as a whole). The Second Circuit concluded that, although "a court may employ Rule 23(c)(4) to certify a class as to common issues that do exist, 'regardless of whether the claim as a whole satisfies Rule 23(b)(3)'s predominance requirement' . . . . in this case, given the number of questions that would remain for individual adjudication, issue certification would not 'reduce the range of issues in dispute and promote judicial economy." McLaughlin, 522 F.3d at 234 ...


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