Court Opinion

ID: 4367413
Source: CourtListenerOpinion
Date Created: 2019-02-13 17:00:21.388498+00
Date Added: 2024-06-11T11:49:46.527750
License: Public Domain

In the

    United States Court of Appeals
                For the Seventh Circuit
                    ____________________
No. 18-1409
RED BARN MOTORS, INC., et al.,
                                             Plaintiffs-Appellants,
                                 v.

NEXTGEAR CAPITAL, INC.,
                                              Defendant-Appellee.
                    ____________________

        Appeal from the United States District Court for the
         Southern District of Indiana, Indianapolis Division.
     No. 1:14-cv-01589-TWP-DML — Tanya Walton Pratt, Judge.
                    ____________________

  ARGUED SEPTEMBER 7, 2018 — DECIDED FEBRUARY 13, 2019
                ____________________

    Before WOOD, Chief Judge, and ROVNER and BRENNAN, Cir-
cuit Judges.
    ROVNER, Circuit Judge. This appeal presents us with only
the narrow issue of whether the district court erred in rescind-
ing class certification. The defendant-appellee, NextGear
Capital, Inc., formerly known as Dealer Services Corporation,
provided lines of credit for financing the operations of used
car dealerships. The plaintiffs Red Barn Motors, Inc., Plati-
num Motors, Inc. and Mattingly Auto Sales, Inc., operated
2                                                   No. 18-1409

used car dealerships, and were solicited by NextGear to enter
into a contract called a Demand Promissory Note and Secu-
rity Agreement (the “Agreement”), whereby NextGear would
issue a line of credit for them to access in purchasing used ve-
hicles at automobile auctions. Those agreements provided the
plaintiffs with a revolving line of credit, called a floorplan
agreement, to purchase vehicles at the auction which they
subsequently would sell at their dealerships.
     In the typical auction and financing transaction, a new car
dealer provides a trade-in vehicle to an auction company,
which presents the vehicle to used car dealers at an auction.
If a used car dealer’s bid is accepted, that dealer takes posses-
sion of the vehicle. The dealer then either pays the auction
company directly or utilizes an automotive financing com-
pany such as NextGear, which pays the auction company and
provides financing by means of the floorplan agreement to
the dealer for repayment. The auction company forwards the
title to the entity that paid for the vehicle—either the used car
dealer or the financing company. According to the plaintiffs,
NextGear deviated from that sequence. It did not pay the auc-
tion house at the time that possession was delivered, instead
paying only after it received the title to the vehicles pur-
chased. Although it could take as long as eight weeks for
NextGear to receive that title and pay the money to the auc-
tion company, NextGear nevertheless charged interest and
curtailment fees to the plaintiffs from the date of the initial
purchase. The plaintiffs brought this action challenging that
imposition of interest fees during the period prior to the re-
ceipt of title, when NextGear was not yet paying any funds to
the auction house. They sought class certification to pursue
that challenge on behalf of all other dealers who were subject
No. 18-1409                                                      3

to the same Agreement with NextGear and were charged
such interest.
   Federal Rule of Civil Procedure 23(a) sets forth explicit re-
quirements for a case to proceed as a class action:
         (1) the class is so numerous that joinder of all
       members is impracticable (numerosity);
           (2) there are questions of law or fact common
       to the class (commonality);
           (3) the claims or defenses of the representa-
       tive parties are typical of the claims or defenses
       of the class (typicality); and
          (4) the representative parties will fairly and
       adequately protect the interests of the class (ad-
       equacy of representation).
Chicago Teachers Union, Local No. 1 v. Bd. of Educ. of City of Chi-
cago, 797 F.3d 426, 433 (7th Cir. 2015). In addition, one of the
four categories set forth in Federal Rule of Civil Procedure
23(b) must be met in order for a case to proceed as a class ac-
tion. The plaintiffs in this case assert that the case falls within
Rule 23(b)(3) which considers whether “questions of law or
fact common to class members predominate over any ques-
tions affecting only individual members, and … a class action
is superior to other available methods for fairly and efficiently
adjudicating the controversy.”
    The plaintiffs’ amended complaint included numerous
claims including breach of contract, constructive fraud, tor-
tious interference with business relationships, unjust enrich-
ment, RICO violations, and RICO conspiracy. The district
court granted class certification as to the breach of contract
4                                                    No. 18-1409

claim against NextGear and the substantive RICO claim
against NextGear, Cox Automotive and John Wick pursuant
to Federal Rule of Civil Procedure 23(a). In an extensive 30-
page analysis, the court determined that the plaintiffs met all
of the requirements of the Rule 23(a) factors—ascertainability,
numerosity, commonality, typicality, and adequacy of repre-
sentation—and that the plaintiffs had also demonstrated un-
der Rule 23(b)(3) that a class action was superior to other
methods of adjudication. Accordingly, on June 29, 2017, it
granted class status as to those claims.
    Approximately two weeks later, NextGear filed a Motion
to Reconsider and/or Modify Class Certification Order. It ar-
gued that the court failed to consider evidence and arguments
submitted after the initial class certification briefing. Specifi-
cally, NextGear maintained that the plaintiffs had asserted for
the first time in summary judgment briefing that the floorplan
agreements are ambiguous on their face, and that under such
a theory courts must resort to extrinsic evidence on a plaintiff-
by-plaintiff basis to determine the parties’ intent regarding
the contract. NextGear argued to the district court that “when
ambiguity in a contract has ‘open[ed] the door for extrinsic
evidence,’ then ‘liability to the entire class for breach of con-
tract cannot be established with common evidence.’” Dist. Ct.
Order on Pending Motions (1/12/2018) at 5, citing Avritt v. Re-
liastar Life Ins. Co., 615 F.3d 1023, 1030 (8th Cir. 2010).
   In response, the plaintiffs argued that NextGear presented
no new arguments that would warrant reconsideration, and
that the argument concerning ambiguous contracts and the
impact on class certification had already been presented in the
Defendants’ Notice of Additional Authority and at oral argu-
ment on class certification. In addition, they argued that
No. 18-1409                                                       5

NextGear had mischaracterized their ambiguity argument.
The plaintiffs asserted that they continued to argue that the
contracts were unambiguous, and that only in the alternative
did they raise an argument of ambiguity. Moreover, under
that alternative theory of ambiguity, they maintain that the
court would not be required to consider extrinsic evidence
and that only common evidence would be required to resolve
the claims.
    Noting that it had the discretion to modify its certification
order in light of subsequent developments in litigation, the
court held that class certification was not appropriate. In stark
contrast to the extensive analysis in its decision granting class
certification, the court’s explanation for its decision to rescind
certification was terse, consisting, in its entirety, of the follow-
ing:
       The most important and significant develop-
       ment when considering the pending Motion to
       Reconsider is the Plaintiffs’ theory that the
       floorplan agreements forming the basis of their
       claims are ambiguous. The Court understands
       the Plaintiffs’ argument that the contracts are
       ambiguous on their face (patent ambiguity) and
       that such an ambiguity does not require consid-
       eration of extrinsic evidence, and in turn, does
       not require individualized proof. The Court
       agrees with the Plaintiffs that the contracts at is-
       sue are ambiguous; however, the Court agrees
       with the Defendants that ambiguity in the con-
       tracts requires consideration of extrinsic evi-
       dence, necessitates individualized proof, and
       undermines the elements of commonality and
6                                                     No. 18-1409

       predominance for class certification. Thus, class
       certification is not appropriate on the Plaintiffs’
       breach of contract claim. The Court directs the
       parties to its Order on Motions for Summary
       Judgment where the Court more fully reviews,
       analyzes, and discusses the parties’ arguments
       regarding ambiguity.
Id. at 8. Based on that reasoning, the court then proceeded to
determine that class certification was unwarranted regarding
the substantive RICO claim as well.
     We review a district court’s decision to grant or deny cer-
tification for abuse of discretion. Chicago Teachers Union, Local
No. 1, 797 F.3d at 433. We have recognized, however, that such
review, while deferential, “can and must also be exacting.” Id.
A decision to deny or grant certification can have a consider-
able impact on the playing field of litigation and requires a
rigorous analysis. Id.; Bell v. PNC Bank, National Association,
800 F.3d 360, 373 (7th Cir. 2015)
    The court’s denial of class certification lacks sufficient rea-
soning for our court, on review, to ascertain the basis of its
decision. Although the decision to grant class certification
was a model of clarity and thoroughness, analyzing the fac-
tors in detail, the decision withdrawing class status provides
only the conclusion that an ambiguous contract “requires con-
sideration of extrinsic evidence, necessitates individualized
proof, and undermines the elements of commonality and pre-
dominance for class certification.” Nor does the reference to
its Order on Motions for Summary Judgment lend any in-
sight. In that Order, the district court held that the floorplan
contracts were ambiguous as to when interest could begin to
accrue, which required consideration of extrinsic evidence.
No. 18-1409                                                       7

The court noted that the parties had designated evidence sug-
gesting that various party representatives had conversations
about NextGear’s interest practices after the contracts were
executed, but that evidence did not establish an undisputed
factual basis supporting either sides’ position as to the inter-
pretation of the contract or the parties’ intent. Accordingly,
the court deemed the matter inappropriate for summary
judgment.
    Those holdings are insufficient to sustain the court’s as-
sumption that commonality and predominance were lacking.
Neither the categorization of the contract as ambiguous, nor
the prospect of extrinsic evidence, necessarily imperils class
status. All parties concede that the floorplan contract in this
case is a standard form contract. And neither the plaintiffs nor
the defendants argue that the language in the contract has dif-
ferent meaning for different signatories; instead, all argue for
an interpretation that would apply to all signatories of the
contract. In fact, with a form contract such as this one, uniform
application and interpretation of the clauses would be ex-
pected absent evidence that the form contracts in fact had a
meaning that varied from one signatory to another. Even if
the determination that the language is ambiguous as to when
interest could accrue opens the door to extrinsic evidence to
ascertain the intended meaning of that provision, the deter-
mination of its meaning would apply to all signatories and
therefore would be capable of class-wide resolution.
    In fact, the court discussed that possibility in its initial de-
termination to certify the class. In analyzing the commonality
factor, the district court addressed the defendants’ argument
that certain questions, such as “whether NextGear made any
8                                                    No. 18-1409

representations to any putative class members about when in-
terest would begin to accrue … must be proven separately as
to each dealer, and thus, the answers can only be determined
on an individual, not a classwide, basis.” Dist. Ct. Entry on
Plaintiffs’ Motion for Class Certification (06/29/2017) at 16.
The court rejected that argument. First, the court noted that
commonality requires a demonstration that class members
have suffered the same injury and held that the standard was
met because the plaintiffs had demonstrated that the class
members “suffered the same alleged wrongful, premature
collection of interest and fees based on the same form contract
and similar conduct by NextGear.” Id. at 18; see also Wal-Mart
Stores, Inc. v. Dukes, 564 U.S. 338, 349–50 (2011). The court fur-
ther explained that “commonality exists where the ‘determi-
nation of [the question] will resolve an issue that is central to
the validity of each one of the claims in one stroke,’ and where
it will ‘generate common answers apt to drive the resolution
of the litigation.’” (emphasis in original) Id., citing Wal-Mart,
564 U.S. at 349–50.
    Therefore, when presented with the same issue in its ini-
tial class certification decision—the ambiguity as to when in-
terest would accrue—the court concluded that the ambiguity
did not prevent class certification because it was capable of a
common answer. The court has not explained why a different
conclusion to that question was reached in the Motion for Re-
consideration, instead mentioning only the need for extrinsic
evidence.
   But the mere need for extrinsic evidence does not in itself
render a case an improper vehicle for class litigation. We have
considered numerous cases in which the testimony of indi-
No. 18-1409                                                     9

viduals would be necessary to establish the meaning or exist-
ence of a policy, and the prospect of such individual testi-
mony did not render class status improper. See, e.g., Bell, 800
F.3d at 375 (discussing testimony of individuals which suffi-
ciently presented the issue of whether PNC had an unofficial
policy or practice that required employees classwide to work
off-the-clock overtime hours); Phillips v. Sheriff of Cook County,
828 F.3d 541 (7th Cir. 2016) (upholding decertification where
evidence from individual detainees did not indicate a sys-
temic practice that could tie all of the claims together, but rec-
ognizing that the district court allowed certification of a nar-
rower class where one common policy of staffing the jail with
only one dentist might constitute systemic deliberate indiffer-
ence). The proper focus for commonality is whether determi-
nation of the question will yield common answers that could
resolve the litigation. Wal-Mart, 564 U.S. at 349–50. Here, the
class was already narrowed to those who signed the specific
form contract at issue here. With such a form contract, almost
universally signed without negotiation or modification, there
is no reason to think that the interpretation of the provision
will vary from one signatory to another, and therefore the is-
sue is one that is capable of a common answer and for which
that common question predominates over questions affecting
individual class members. The district court, to conclude oth-
erwise, would have to identify why that extrinsic evidence
would lead to another conclusion. But here, although the case
was nearing the trial date, we have no indication as to what
evidence the court believed would render class certification
improper. See Bell, 800 F.3d at 377, quoting Szabo v. Bridgeport
Machs, Inc., 249 F.3d 672, 676 (7th Cir. 2001) (“[i]f there are
material factual disputes that bear on the requirements for
class certification, the court must ‘receive evidence if only by
10                                               No. 18-1409

affidavit and resolve the disputes before deciding whether to
certify the class.’”)(emphasis omitted). Absent a more thor-
ough explanation of its reasoning, we cannot uphold the de-
cision decertifying the class.
   The decision of the district court is VACATED and the
case REMANDED for further proceedings.