Court Opinion

ID: 45398
Source: CourtListenerOpinion
Date Created: 2010-04-25 22:36:35+00
Date Added: 2024-06-11T17:17:24.512135
License: Public Domain

United States Court of Appeals
                                                                Fifth Circuit
                                                             F I L E D
                 UNITED STATES COURT OF APPEALS
                      for the Fifth Circuit                    July 24, 2006

                                                         Charles R. Fulbruge III
                                                                 Clerk
                          No. 05-60572

                LEVI BAKER, On Behalf of Himself
               and all others similarly situated,

                                              Plaintiff-Appellee,

                             VERSUS

           WASHINGTON MUTUAL FINANCE GROUP, LLC, ET AL

                                                         Defendants,

 WASHINGTON MUTUAL FINANCE GROUP, LLC; WASHINGTON MUTUAL FINANCE
                       OF MISSISSIPPI, LLC,

                                            Defendants-Appellees,

                             VERSUS

                  THOMAS SIMMONS; GEORGIA IVY,

                                          Intervenors-Appellants,

 RAYMON HAM; LINDA HAM; SAMMIE WILSON; MARGARET WILSON; CONSUELO
              MARTIN; ROXIE MCALLISTER; JANICE WARD,

                                                         Appellants.

          Appeal from the United States District Court
            for the Southern District of Mississippi
                          (1:04-CV-137)

Before DeMOSS, BENAVIDES, and PRADO, Circuit Judges.
PER CURIAM:*

      Intervenors-Appellants and numerous potential class members

(collectively      “Appellants”)         appeal      the    district      court’s

certification of a mandatory punitive damages settlement class in

a   lawsuit    against   Washington      Mutual     Finance     Group,    LLC   and

Washington     Mutual    Finance    of       Mississippi,   LLC    (collectively

“Washington Mutual”) by individuals alleging that Washington Mutual

engaged in various illegal business practices. The district court

certified the class under subdivisions (b)(1)(B) and (b)(2) of

Federal Rule of Civil Procedure 23. Appellants argue that neither

subdivision was a proper vehicle for class certification. We AFFIRM

the district court’s certification pursuant to Rule 23(b)(1)(B).1

                            FACTUAL BACKGROUND

      The litigation underlying this appeal is a class action

lawsuit brought on behalf of individuals who took out loans and

bought insurance from Washington Mutual in Mississippi. Generally,

the class alleged that Washington Mutual used fraudulent and

misleading disclosures to get thousands of borrowers to take out

loans and purchase worthless or overpriced insurance products.

Specifically,     the    class     alleged      that,   among     other   things,

      Pursuant to 5TH CIR. R. 47.5, the Court has determined that
      *

this opinion should not be published and is not precedent except
under the limited circumstances set forth in 5TH CIR. R. 47.5.4.
      1
      Because we hold that certification was not an abuse of
discretion under subsection (b)(1)(B), we need not address
whether certification was also available under subsection (b)(2).

                                         2
Washington Mutual inflated the value of collateral to charge higher

premiums, failed to disclose various charges and commissions,

charged unauthorized fees, and engaged in “insurance packing” and

“loan flipping.”

     The class action described above is not the only ongoing

litigation against Washington Mutual. In 1998, counsel for the

class in this case also filed an action (“the Blackmon case”)

against Washington Mutual on behalf of 23 individuals alleging

similar misconduct. In 2001, a jury awarded those individuals

$2.265 million in compensatory damages and $69 million in punitive

damages. On appeal, the punitive damages award was reduced to $54

million.

                              PROCEDURAL HISTORY

     Plaintiff-Appellee Levi Baker (“Baker”) filed the instant

class action on March 23, 2004. Two days later, Baker moved for

preliminary approval of a class settlement.

     The settlement defines the class to include individuals who

purchased   credit      and   insurance      products    in    Mississippi   from

Washington Mutual or City Finance, LLC, a company purchased by

Washington Mutual. The district court estimated that approximately

45,000 potential class members exist. The settlement agreement

excludes from     the    class   persons      who   have   already   obtained    a

judgment    or   arbitration     award       against    City   Finance,   LLC   or

Washington Mutual, even if the judgement or arbitration award has

                                         3
not yet been finally adjudicated to be meritorious. Therefore, the

Blackmon case plaintiffs are excluded from participation.

     The settlement agreement does not provide for injunctive or

declaratory relief. Rather, it attempts to resolve the claims by

establishing a $7 million fund for class members who file claim

forms.   The   agreement   designates   $3.5   million    as     compensatory

damages and $3.5 million as punitive damages. And, the settlement

agreement   permits   class   members   to   opt   out   their    claims   for

compensatory damages, but precludes them from opting out their

claims for punitive damages.

     In May 2004, the district court preliminarily approved the

settlement agreement. Appellants Thomas Simmons and Georgia Ivy

(joined later by other potential class members) moved to intervene

and filed a statement of objections challenging the certification

of the mandatory punitive damages class. Appellants argued that

certification was improper under Rule 23(b)(1)(B) because Baker and

Washington Mutual (collectively “Appellees”) failed to satisfy the

certification requirements established by the United States Supreme

Court in Ortiz v. Fibreboard Corp., 527 U.S. 815 (1999).

     In October 2004, the district court conducted a fairness

hearing. Ultimately, in May 2005, the district court certified the

mandatory punitive damages class under subdivision (b)(1)(B). This

timely appeal followed.

                               DISCUSSION

                                    4
     We review a district court’s decision to certify a class for

an abuse of discretion. Stirman v. Exxon Corp., 280 F.3d 554, 561

(5th Cir. 2002).

     A class can be certified only if it meets each of the

requirements     outlined    in     Rule    23(a),    which   are   numerosity,

commonality, typicality, and adequate representation. See FED. R.

CIV. P. 23(a). Appellants concede that the class meets these

requirements.

     In   addition,   a     class    must   satisfy    at   least   one   of   the

subdivisions of Rule 23(b). At issue here is subdivision (b)(1)(B).

Rule 23(b)(1)(B), which does not provide potential class members

with a guaranteed opt-out right, Ortiz, 527 U.S. at 834 n.13,

permits certification of a mandatory class when:

     (1) the prosecution of separate actions by or against
     individual members of the class would create a risk of .
     . . (B) adjudications with respect to individual members
     of the class which would as a practical matter be
     dispositive of the interests of the other members not
     parties to the adjudications or substantially impair or
     impede their ability to protect their interests.

FED. R. CIV. P. 23(b)(1)(B).

This subdivision is usually applied when a “limited fund” exists,

such that non-class members seeking damages would likely deplete

the fund and deprive class members of any recovery. See Ortiz, 527

U.S. at 842.

     Cases in which mandatory class treatment is proper on a

limited   fund     theory     have     three    “presumptively       necessary”

                                        5
characteristics. Id. at 838-842. First, the totals of the fund and

the claims against that fund, “set definitely at their maximums,

demonstrate the inadequacy of the fund to pay all the claims.”   Id.

at 838.     “Second, the whole of the inadequate fund [will] be

devoted to the overwhelming claims.”   Id. at 839.   And third, “the

claimants identified by [the] common theory of recovery [will be]

treated equitably among themselves.” Id. The issue in this case is

the first element--i.e., the inadequacy of the fund to pay all

claims.

       Appellants contend that Appellees have not established the

inadequacy of the fund to pay all claims because they have not

demonstrated with precision “the upper limit” of the fund, which is

necessarily a prerequisite to an inadequacy showing. See id. at

850.

       Appellees counter that the $3.5 million of punitive damages

agreed upon in the settlement is an adequately defined “upper

limit,” creating a limited fund which is insufficient to pay all

claims. Appellees argue that the basis of this $3.5 million limit

is twofold. First, they argue that as a matter of law, substantive

due process prohibits excessive punitive damages. See BMW of N.

Am., Inc. v. Gore, 517 U.S. 559, 562 (1996). Second, Appellees

contend that Washington Mutual’s net worth is in fact valued

between $50 million and $70 million and that net worth value limits

the amount of punitive damages it can pay. Appellants respond that

                                 6
both arguments give rise to some theoretical limit, but that

neither one provides an acceptably precise limit.

       The district court accepted both of Appellees’ arguments and

held that a limited fund existed both legally and factually. We

need    not    address     the   district    court’s     legal   finding   that

substantive due process and its ban on excessive punitive damages

can create a limited fund because the district court’s factual

finding that a limited fund existed was not an abuse of discretion.

       The district court, contrary to Appellants’ assertion, relied

on more than the simple fact that Washington Mutual’s net worth has

fallen from approximately $200 million to between $50 and $70

million.      Appellants    state   in   their   brief   that    if   Washington

Mutual’s net worth is between $50 and $70 million, $3.5 million

must have been “plucked out of thin air” by the settling parties as

the limit of what Washington Mutual can pay as punitive damages.

But, after citing Washington Mutual’s dwindling net worth, the

district court went on to explain that the $3.5 million figure was

not simply “plucked out of thin air.”

       As the court noted, Washington Mutual has already ceased

operations in Mississippi; thus, the court found it unlikely that

Washington Mutual’s net worth would increase in the near future.

The court then recognized the outstanding $56.265 million award

against Washington Mutual from the Blackmon case, which has been

upheld on appeal by a Mississippi state appellate court and is now

                                         7
pending before the Mississippi State Supreme Court. If the Blackmon

award is finally adjudicated to be meritorious, Washington Mutual’s

net   worth   will      be   greatly    diminished   and   perhaps    completely

eradicated.

      In addition, the district court found that if the class is not

certified     it   is   likely   that    tens   of   thousands   of   individual

lawsuits will ensue. After considering the breathtaking cost of

defending against so many individual lawsuits, the district court

determined that $3.5 million was the most that Washington Mutual

would be able to pay as punitive damages.

      After a thorough review of the district court’s order, the

parties’ briefs, and the entire record, we cannot deem the district

court’s factual determination that $3.5 million was the upper limit

an abuse of discretion.

                                   CONCLUSION

      For the foregoing reasons, we AFFIRM the district court’s

certification of the mandatory punitive damages settlement class

under Rule 23(b)(1)(B).

AFFIRMED.

                                          8