15-2398

Adkins v. Morgan Stanley

UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

SUMMARY ORDER

RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A SUMMARY ORDER FILED

ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED BY FEDERAL RULE OF APPELLATE

PROCEDURE 32.1 AND THIS COURT’S LOCAL RULE 32.1.1. WHEN CITING A SUMMARY ORDER IN A

DOCUMENT FILED WITH THIS COURT, A PARTY MUST CITE EITHER THE FEDERAL APPENDIX 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.

1 At a stated term of the United States Court of Appeals

2 for the Second Circuit, held at the Thurgood Marshall United

3 States Courthouse, 40 Foley Square, in the City of New York,

on the 14th 4 day of July, two thousand sixteen.

5

6 PRESENT: DENNIS JACOBS,

7 REENA RAGGI,

8 DENNY CHIN,

9 Circuit Judges.

10

11 - - - - - - - - - - - - - - - - - - - -X

12 BEVERLY ADKINS, CHARMAINE WILLIAMS,

13 REBECCA PETTWAY, RUBBIE MCCOY, and

14 WILLIAM YOUNG, on behalf of

15 themselves and all others similarly

16 situated, and MICHIGAN LEGAL

17 SERVICES, 

18 Plaintiffs-Appellants,

19

20 -v.- 15-2398

21

22 MORGAN STANLEY, MORGAN STANLEY & CO.

23 LLC, MORGAN STANLEY ABS CAPITAL I

24 INC., MORGAN STANLEY MORTGAGE CAPITAL

25 INC., and MORGAN STANLEY MORTGAGE

26 CAPITAL HOLDINGS LLC, 

27 Defendants-Appellees.

28 - - - - - - - - - - - - - - - - - - - -X

1
1 FOR APPELLANTS: RACHEL E. GOODMAN (with Dennis

2 D. Parker on the brief),

3 American Civil Liberties Union

4 Foundation, New York, NY,

5

6 Stuart T. Rossman, on the brief,

7 The National Consumer Law

8 Center, Boston, MA,

9

10 Elizabeth J. Cabraser, on the

11 brief, Lieff Cabraser Heimann &

12 Bernstein, LLP, San Francisco,

13 CA; Rachel J. Geman, on the

14 brief, Lieff Cabraser Heimann &

15 Bernstein, LLP, New York, NY.

16

17 FOR APPELLEES: NOAH A. LEVINE (with Colin T.

18 Reardon and John Paredes on the

19 brief), Wilmer Cutler Pickering

20 Hale and Dorr LLP, New York, NY;

21 David W. Ogden and Jonathan A.

22 Bressler, on the brief, Wilmer

23 Cutler Pickering Hale and Dorr

24 LLP, Washington, DC.

25

26 Appeal from an order of the United States District

27 Court for the Southern District of New York (Caproni, J.).

28

29 UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED

30 AND DECREED that the order of the district court be

31 AFFIRMED. 

32

33 The plaintiffs, a putative class of African-American

34 homeowners in the Detroit area, appeal from an order of the

35 United States District Court for the Southern District of

36 New York (Caproni, J.), denying class certification. The

37 plaintiffs allege a disparate impact under the Fair Housing

38 Act (“FHA”), 42 U.S.C. § 3605, by certain alleged policies

39 and practices of defendants Morgan Stanley, Morgan Stanley &

40 Co. LLC, Morgan Stanley ABS Capital I Inc., Morgan Stanley

41 Mortgage Capital Inc., and Morgan Stanley Mortgage Capital

42 Holdings LLC (collectively “Morgan Stanley”). Specifically,

43 the plaintiffs allege that Morgan Stanley’s purchases of

44 home loans from New Century induced New Century to make

45 costly, high-risk loans to the class at a higher rate than

46 comparable white borrowers. We assume the parties’

2
1 familiarity with the underlying facts, the procedural

2 history, and the issues presented for review. 

3

4 1. We review a district court’s class certification

5 determination for abuse of discretion. See Johnson v.

6 Nextel Commc’ns, 780 F.3d 128, 137 (2d Cir. 2015). Under

7 that standard, review of legal conclusions is de novo, while

8 factual findings are reviewed for whether they are clearly

9 erroneous. Myers v. Hertz Corp., 624 F.3d 537, 547 (2d Cir.

10 2010). “In reviewing findings for clear error,” we will not

11 “second-guess . . . the trial court’s . . . choice between

12 permissible competing inferences.” Arch Ins. v. Precision

13 Stone, Inc., 584 F.3d 33, 39 (2d Cir. 2009) (internal

14 quotation marks omitted). “Inherent in this deferential

15 standard of review is a recognition of the district court’s

16 inherent power to manage and control pending litigation.” 

17 Johnson, 780 F.3d at 137 (internal quotation marks omitted).

18

19 2. The district court here concluded that the

20 plaintiffs failed to satisfy the typicality requirement of

21 Fed. R. Civ. P. 23(a)(3), as well as the predominance and

22 superiority requirements of Fed. R. Civ. P. 23(b)(3). With

23 respect to predominance, the district court concluded that

24 common issues do not predominate over individual issues

25 because, among other things, (1) within the proposed class

26 there are 33 different combinations of risk factors, each of

27 which affected the plaintiffs’ loans differently and would

28 thus require individual proof to establish a particular

combination’s harmfulness;1 29 and (2) causation is not subject

30 to class-wide proof because the extent to which Morgan

31 Stanley caused the loans that the plaintiffs received would

32 depend on the risk factors present and Morgan Stanley’s

33 involvement in each particular loan. See Myers, 624 F.3d at

34 547 (explaining that predominance requirement is satisfied

35 “if resolution of some of the legal or factual questions

36 that qualify each class member’s case as a genuine

37 controversy can be achieved through generalized proof, and

38 if these particular issues are more substantial than the

1 The risk factors include (1) stated income where

the 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.

3
1 issues subject only to individual proof” (internal quotation

2 marks omitted)). 

3

4 On appeal, the plaintiffs do not meaningfully challenge

5 the conclusion that common questions do not predominate over

6 individual issues. In any event, we identify no abuse of

7 discretion in the district court’s predominance conclusion. 

8 Thus, we need not consider the plaintiffs’ challenges to the

9 district court’s typicality and superiority determinations. 

10 See id. at 548 (concluding, where district court denied

11 class certification on basis of typicality, commonality, and

12 predominance, that “[w]e need only address the

13 ‘predominance’ requirement”); see also Fed. R. Civ. P.

14 23(b)(3) (requiring finding that “questions of law or fact

15 common to class members predominate over any questions

16 affecting only individual members, and that a class action

17 is superior to other available methods for fairly and

18 efficiently adjudicating the controversy” (emphasis added)). 

19

20

21 3. The plaintiffs argue that the district court did

22 not consider certification of issue classes or its proposed

23 alternative class. However, the plaintiffs did not move for

24 certification of issue classes and did not propose an

25 alternative class until oral argument before the district

26 court.

27

28 While the district court “is empowered under Rule

29 23(c)(4) to carve out an appropriate class,” it is “not

30 obligated to implement Rule 23(c)(4) on its own initiative.” 

31 Lundquist v. Security Pac. Auto. Fin. Servs. Corp., 993 F.2d

32 11, 14 (2d Cir. 1993); see also U.S. Parole Comm’n v.

33 Geraghty, 445 U.S. 388, 408 (1980).

34

35 The plaintiffs’ proposed alternative class is to limit

36 the class to only those borrowers whose loans Morgan Stanley

actually purchased.2 37 The district court ruled that

38 permitting the plaintiffs to change their theory at a late

39 stage would “unfairly prejudice” the defendants. Adkins v.

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.

4
1 Morgan Stanley, 307 F.R.D. 119, 147-48 (S.D.N.Y. 2015). We

2 agree. The district court further ruled that, even if the

3 alternative class had been timely proposed, the class still

4 could not overcome the problems with the risk factors as

5 used in the original class definition: the class would still

6 include individuals whose loans had vastly different

7 features from one another. Accordingly, the district court

8 did not abuse its discretion in failing to certify the

9 proposed alternative class. 

10

11 For the foregoing reasons, and finding no merit in the

12 plaintiff’s other arguments, we hereby AFFIRM the order of

13 the district court.

14

15 FOR THE COURT:

16 CATHERINE O’HAGAN WOLFE, CLERK

17

5