15-2398 Adkins v. Morgan Stanley



### UNITED STATES COURT OF APPEALS **FOR THE SECOND CIRCUIT**



## SUMMARY ORDER

**R ULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT**  **. C**  **ITATION TO A SUMMARY ORDER FILED**
**ON OR AFTER J** **ANUARY 1,**  **2007, IS PERMITTED AND IS GOVERNED BY**  **F EDERAL**  **R ULE OF**  **A PPELLATE**  **P ROCEDURE**  **32.1 AND THIS COURT**  **’ S**  **L OCAL**  **R ULE**  **32.1.1. W**  **HEN CITING A SUMMARY ORDER IN A**
**DOCUMENT FILED WITH THIS COURT ,**  **A PARTY MUST CITE EITHER THE F**  **EDERAL A** **PPENDIX OR AN**
**ELECTRONIC DATABASE (**  **WITH THE NOTATION “**  **SUMMARY ORDER ”).**  **A PARTY CITING A SUMMARY ORDER MUST** 
**SERVE A COPY OF IT ON ANY PARTY NOT REPRESENTED BY COUNSEL .** 
**At a stated term of the United States Court of Appeals** 1 **for the Second Circuit, held at the Thurgood Marshall United** 2 **States Courthouse, 40 Foley Square, in the City of New York,** 3 **on the 14 th** **day of July, two thousand sixteen.** 4 5 **PRESENT: DENNIS JACOBS,** 6 **REENA RAGGI,** 7 **DENNY CHIN,** 8 **Circuit Judges**

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- - - - - - - - - - - - - - - - - - - -X 11 **BEVERLY ADKINS, CHARMAINE WILLIAMS,** 12 **REBECCA PETTWAY, RUBBIE MCCOY, and** 13 **WILLIAM YOUNG, on behalf of** 14 **themselves and all others similarly** 15 **situated, and MICHIGAN LEGAL** 16 **SERVICES,** 17 **Plaintiffs-Appellants ,**  18 19 **-v.- 15-2398** 20 21 **MORGAN STANLEY, MORGAN STANLEY & CO.** 22 **LLC, MORGAN STANLEY ABS CAPITAL I** 23 **INC., MORGAN STANLEY MORTGAGE CAPITAL** 24 **INC., and MORGAN STANLEY MORTGAGE** 25 **CAPITAL HOLDINGS LLC,** 26 **Defendants-Appellees**

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1**FOR APPELLANTS:** RACHEL E. GOODMAN (with Dennis 1 D. Parker on the brief), 2 American Civil Liberties Union 3 Foundation, New York, NY, 4 5 Stuart T. Rossman, on the brief, 6 The National Consumer Law 7 Center, Boston, MA, 8 9 Elizabeth J. Cabraser, on the 10 brief, Lieff Cabraser Heimann & 11 Bernstein, LLP, San Francisco, 12 CA; Rachel J. Geman, on the 13 brief, Lieff Cabraser Heimann & 14 Bernstein, LLP, New York, NY. 15 16 **FOR APPELLEES:** NOAH A. LEVINE (with Colin T. 17 Reardon and John Paredes on the 18 brief), Wilmer Cutler Pickering 19 Hale and Dorr LLP, New York, NY; 20 David W. Ogden and Jonathan A. 21 Bressler, on the brief, Wilmer 22 Cutler Pickering Hale and Dorr 23 LLP, Washington, DC. 24 25 Appeal from an order of the United States District 26 Court for the Southern District of New York (Caproni, J. ). 27 28 **UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED** 29 **AND DECREED**that the order of the district court be 30
**AFFIRMED**

. 31 32 The plaintiffs, a putative class of African-American 33 homeowners in the Detroit area, appeal from an order of the 34 United States District Court for the Southern District of 35 New York (Caproni, J. ), denying class certification . The 36 plaintiffs allege a disparate impact under the Fair Housing 37 Act (“FHA”), 42 U.S.C. § 3605, by certain alleged policies 38 and practices of defendants Morgan Stanley, Morgan Stanley & 39 Co. LLC, Morgan Stanley ABS Capital I Inc., Morgan Stanley 40 Mortgage Capital Inc., and Morgan Stanley Mortgage Capital 41 Holdings LLC (collectively “Morgan Stanley”). Specifically, 42 the plaintiffs allege that Morgan Stanley’s purchases of 43 home loans from New Century induced New Century to make 44 costly, high-risk loans to the class at a higher rate than 45 comparable white borrowers. We assume the parties’ 46

2familiarity with the underlying facts, the procedural 1 history, and the issues presented for review. 2 3 1. We review a district court’s class certification 4 determination for abuse of discretion. See Johnson v. 5 Nextel Commc’ns , 780 F.3d 128, 137 (2d Cir. 2015). Under 6 that standard, review of legal conclusions is de novo, while 7 factual findings are reviewed for whether they are clearly 8 erroneous. Myers v. Hertz Corp. , 624 F.3d 537, 547 (2d Cir. 9 2010). “In reviewing findings for clear error,” we will not 10 “second-guess . . . the trial court’s . . . choice between 11 permissible competing inferences.” Arch Ins. v. Precision 12 Stone, Inc. , 584 F.3d 33, 39 (2d Cir. 2009) (internal 13 quotation marks omitted). “Inherent in this deferential 14 standard of review is a recognition of the district court’s 15 inherent power to manage and control pending litigation.” 16 Johnson , 780 F.3d at 137 (internal quotation marks omitted). 17 18 2. The district court here concluded that the 19 plaintiffs failed to satisfy the typicality requirement of 20 Fed. R. Civ. P. 23(a)(3), as well as the predominance and 21 superiority requirements of Fed. R. Civ. P. 23(b)(3). With 22 respect to predominance, the district court concluded that 23 common issues do not predominate over individual issues 24 because, among other things, (1) within the proposed class 25 there are 33 different combinations of risk factors, each of 26 which affected the plaintiffs’ loans differently and would 27 thus require individual proof to establish a particular 28 combination’s harmfulness; 1and (2) causation is not subject 29 to class-wide proof because the extent to which Morgan 30 Stanley caused the loans that the plaintiffs received would 31 depend on the risk factors present and Morgan Stanley’s 32 involvement in each particular loan. SeeMyers , 624 F.3d at 33 547 (explaining that predominance requirement is satisfied 34 “if resolution of some of the legal or factual questions 35 that qualify each class member’s case as a genuine 36 controversy can be achieved through generalized proof, and 37 if these particular issues are more substantial than the 38

1 The risk factors include (1) stated income wherethe income of the borrower was not verified; (2) debt-toincome ratio exceeding 55%; (3) the loan-to-value ratio exceeding 90%; (4) adjustable interest rates; (5) “interest only” payment features; (6) negative loan amortization features; (7) “balloon” payment features; and (8) prepayment penalties.

3issues subject only to individual proof” (internal quotation 1 marks omitted)). 2 3 On appeal, the plaintiffs do not meaningfully challenge 4 the conclusion that common questions do not predominate over 5 individual issues. In any event, we identify no abuse of 6 discretion in the district court’s predominance conclusion. 7 Thus, we need not consider the plaintiffs’ challenges to the 8 district court’s typicality and superiority determinations. 9 Seeid. at 548 (concluding, where district court denied 10 class certification on basis of typicality, commonality, and 11 predominance, that “[w]e need only address the 12 ‘predominance’ requirement”); see alsoFed. R. Civ. P. 13 23(b)(3) (requiring finding that “questions of law or fact 14 common to class members predominate over any questions 15 affecting only individual members, andthat a class action 16 is superior to other available methods for fairly and 17 efficiently adjudicating the controversy” (emphasis added)). 18 19 20 3. The plaintiffs argue that the district court did 21 not consider certification of issue classes or its proposed 22 alternative class. However, the plaintiffs did not move for 23 certification of issue classes and did not propose an 24 alternative class until oral argument before the district 25 court. 26 27 While the district court “is empowered under Rule 28 23(c)(4) to carve out an appropriate class,” it is “not 29 obligated to implement Rule 23(c)(4) on its own initiative.” 30 Lundquist v. Security Pac. Auto. Fin. Servs. Corp. , 993 F.2d 31 11, 14 (2d Cir. 1993); see alsoU.S. Parole Comm’n v. 32 Geraghty , 445 U.S. 388, 408 (1980). 33 34 The plaintiffs’ proposed alternative class is to limit 35 the class to only those borrowers whose loans Morgan Stanley 36 actually purchased. 2The district court ruled that 37 permitting the plaintiffs to change their theory at a late 38 stage would “unfairly prejudice” the defendants. Adkins v. 39

2 The current class definition includes all loans originated by New Century to African-American homeowners in the Detroit area, regardless of whether Morgan Stanley actually purchased that loan. Indeed, only one of the five named plaintiff has a loan that was purchased by Morgan Stanley.

4Morgan Stanley , 307 F.R.D. 119, 147-48 (S.D.N.Y. 2015). We 1 agree. The district court further ruled that, even if the 2 alternative class had been timely proposed, the class still 3 could not overcome the problems with the risk factors as 4 used in the original class definition: the class would still 5 include individuals whose loans had vastly different 6 features from one another. Accordingly, the district court 7 did not abuse its discretion in failing to certify the 8 proposed alternative class. 9 10 For the foregoing reasons, and finding no merit in the 11 plaintiff’s other arguments, we hereby **AFFIRM** the order of 12 the district court. 13 14 FOR THE COURT: 15 CATHERINE O’HAGAN WOLFE, CLERK 16 17

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