Court Opinion

ID: 4015690
Source: CourtListenerOpinion
Date Created: 2016-07-14 15:00:35.753144+00
Date Added: 2024-06-11T07:44:54.723097
License: Public Domain

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,
 4       on the 14th 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
29   combination’s harmfulness;1 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-to-
     income 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
37   actually purchased.2 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