Twelve years after it started, the saga of RBC Bank’s alleged improper assessment and collection of overdraft fees appears to have come to an end. In affirming the district court’s certification of the class and approval of a settlement, the Eleventh Circuit Court of Appeals reaffirmed that “typicality” under Federal Rule of Civil Procedure 23 does not require identical claims or defenses and that only a substantial conflict of interest can destroy adequacy of a class representative.
The interesting issue before the Eleventh Circuit can be distilled as follows:
- Assume that a plaintiff files a class action.
- Assume that at least many of the members of the putative class are subject to arbitration.
- But also assume that the named plaintiff — and perhaps a meaningful number of other class members — has a defense to arbitration. This could be for a number of different reasons: perhaps they opted out of arbitration; perhaps they entered into a contract with the company before arbitration was added; or perhaps there is some other reason why they are not subject to arbitration — unlike most other class members.
- We will pause for a moment and note that the question of how to deal with classes that have some members subject to arbitration and some not is a fascinating issue in a contested motion for class certification. Some courts have cited this issue as a basis to deny class certification;[1] others have not.[2]
- This case, however, did not involve a contested motion for class certification. Rather, one named plaintiff and the bank settled on behalf of the whole class. However, another named plaintiff contended that the settlement was unfair because it valued the claims of class members who were subject to arbitration at the same value as those who did not.
So, with that in mind, we turn to the case.
In 2010, Michael Dasher sued RBC Bank in the Southern District of Florida based on RBC’s alleged “high-to-low” posting of transactions. It was alleged that this practice made it more likely that a customer’s account would drop below $0, allowing financial institutions to charge overdraft fees for subsequent transactions posted. Stephanie Avery filed suit based on the same alleged practice in state court in North Carolina. The Dasher and Avery cases, as well as other similar cases against other financial institutions, were eventually consolidated into multidistrict litigation in the Southern District of Florida.
When Dasher filed suit, his account agreement with RBC included an arbitration clause covering disputes regarding overdraft fees. In 2012, RBC merged with PNC Bank, and PNC Bank issued a new account agreement to Dasher that did not include an arbitration clause. PNC filed a motion to compel Dasher to participate in arbitration regarding his overdraft fee claims, which the district court denied. PNC then issued amended account agreements with an arbitration provision and class action waiver to customers to go into effect in 2013. The 2013 amended PNC account agreement provided that failure to opt out and continued use of the account constituted acceptance of the new terms.
In 2014, the Eleventh Circuit found that PNC’s 2012 account agreement, which lacked an arbitration clause, superseded RBC’s account agreement that required Dasher and similar plaintiffs to arbitrate the overdraft fee claims. The class then recognized that some plaintiffs would be governed by the 2012 PNC account agreement without an arbitration clause, while others would be subject to the 2013 amended PNC account agreement with the arbitration clause and class action waiver. The plaintiffs proposed subclasses based on the likelihood that members of each subclass could be compelled to arbitrate under the different PNC account agreements. The “Avery national class” would cover customers governed by the 2012 PNC account agreement, while the “Dasher national class” would cover customers governed by the 2013 amended PNC account agreement.
In 2018, the district court preliminarily approved a settlement agreement certifying a single settlement class with Dasher as the proposed class representative. Analyzing Rule 23(b), the court found that “based on the record before [it], the predominance requirement [was] satisfied here for settlement purposes because common questions present[ed] a significant aspect of the case and [could] be resolved for all Settlement Class members in a single common judgment.” The settlement proposal provided that class members would receive a pro rata distribution based on the number of overdraft fees charged under the “high-to-low” posting practice.
Avery objected to the settlement and class certification and argued that “(1) the putative Avery subclass hadn’t been ‘adequately and fairly represented as required by Rule 23(a)(4)’ because their interests, as plaintiffs not subject to arbitration or a class-action waiver, were opposed to the Dasher subclass’s interests; and (2) Dasher did not meet Rule 23(a)(3)’s typicality requirement.”
The district court overruled Avery’s objection and “reasoned that no typicality or adequacy problem existed after RBC ‘waive[d] its arbitration defense for settlement purposes.’” Specifically, on typicality, the court found that “everyone was subjected to the same practice and suffered the same type of injury,” and typicality “does not require identical claims or defenses.” On adequacy, the court found that “Dasher’s interests were ‘coextensive with’ the settlement class’s interests, and that only a ‘fundamental conflict’ between the ‘economic interests and objectives’ of the class representatives and the unnamed class members would defeat adequacy.” The court proceeded to certify the class and give final approval to the settlement, which Avery appealed.
The Eleventh Circuit affirmed the district court’s certification and approval of the class settlement. Initially, though, the appellate court was unpersuaded by the district court’s finding that Rule 23’s adequacy and typicality requirements were met because RBC waived its right to arbitrate. To the court, RBC’s waiver of its arbitration defense for settlement purposes did not cure the purported fundamental conflict regarding the valuation of the Avery national class claims, which Avery contended “were worth more as they weren’t subject to an arbitration defense and class-action waiver,” versus the Dasher national class claims.
However, to the court, Amchem Products Inc. v. Windsor and Ortiz v. Fibreboard Corp., which Avery relied upon, did not “create[] a bright-line rule requiring separate representation in all cases where claims have different likely settlement values.” The appellate court agreed with the district court that “the Dasher and Avery classes suffered identical injuries: they allege harm based on RBC’s alleged high-to-low restructuring practices. And both seek compensation based on those injuries.” Under the applicable abuse of discretion standard, “[t]here’s enough uncertainty about the difference in the value of the plaintiffs’ claims that the district court could find dispositive the fact that the plaintiffs were all injured in the same way by the same conduct and had an overriding shared interest in obtaining the largest cash settlement possible.”
Similarly, regarding Dasher’s alleged lack of typicality to the class due to his individual defense to arbitration as determined in Dasher I, the Eleventh Circuit could not conclude that it was an abuse of discretion to allow Dasher to be the class representative where Rule 23’s typicality requirement is broadly construed and Dasher was “subjected to the same practice and suffered the same type of injury” as the rest of the class. To the court, “Dasher’s claims arise from the same ‘pattern or practice’ and are based on the same legal theory as the rest of the class … [such that] there is still a ‘sufficient nexus’ … between Dasher’s claims and the class’s claims to render Dasher typical under Rule 23(a)(3).”
Whether this saga is truly over remains to be seen. Notwithstanding, the decision serves as a good reminder of fundamental principles of class action litigation under Rule 23.
______________________________________________________________________________________________
[1] Examples of cases denying class certification (or granting similar relief) on this basis include: Fennell v. Navient Sols., LLC, No. 6:17-cv-02083, 2019 WL 3854815 (M.D. Fla. June 14, 2019) (denying class certification where a significant number of class members were subject to arbitration); Sliwa v. Bright House Networks, LLC, 333 F.R.D. 255 (M.D. Fla. 2019) (denying class certification where resolving which class members are subject to arbitration “will require significant individualized inquiries”); Berman v. Freedom Fin. Network, LLC, 400 F. Supp. 3d 964 (N.D. Cal. 2019) (denying certification of a class action where “litigation of the … arbitration defenses applicable to absent class members threaten[ed] to overwhelm other issues in the litigation”); Forby v. One Techs., LP, No. 3:16-cv-00856, 2020 WL 4201604 (N.D. Tex. July 22, 2020) (striking class allegations where the named plaintiff opted out of arbitration but putative class members were subject to arbitration); Jensen v. Cablevision Sys. Corp., 372 F. Supp. 3d 95 (E.D.N.Y. 2019) (denying class certification where “the existence of an arbitration provision that potentially involve[d] over 99 percent of the proposed class impacts the typicality of the Plaintiff’s claim”); Pablo v. ServiceMaster Global Holdings Inc., No. 3:08-cv-03894, 2011 WL 3476473 (N.D. Cal. Aug. 9, 2011) (denying class certification where it was unclear how many putative class members signed arbitration agreements); Conde v. Sensa, No. 3:14-cv-00051, 2018 WL 4297056 (C.D. Cal. Sept. 10, 2018) (denying certification on predominance grounds where data showed that approximately 84% of the class could be subject to arbitration, and there was an open question as to “the legality of the arbitration clause and whether it binds all, some, or none” of the putative class members); Johnson v. BLC Lexington, SNF, LLC, No. 5:19-cv-00064, 2020 WL 3578342 (E.D. Ky. July 1, 2020) (denying class certification on typicality and adequacy grounds because the named plaintiff was not subject to a binding arbitration defense like other class members might be); Hill v. T-Mobile USA, Inc., No. 2:09-cv-01827, 2011 WL 10958888 (N.D. Ala. May 16, 2011) (denying a motion for class certification where the plaintiffs “neglected to suggest how to manage the rather thorny issue of putative class members whose rights to litigate their conversion claims as part of a class proceeding in this forum have been cutoff by … an agreement to arbitrate…. The absence of a proposal from Plaintiffs on how to handle this complication in the context of a class proceeding is critical because without a plan, the court anticipates that such issue could likely devolve into multiple mini-rulings on contract to see if each putative member is even entitled to participate in a potential class-wide trial.”).
[2] Examples of cases finding that “only some class members are subject to arbitration” is not a basis to deny class certification include: Mora v. Harley-Davidson Credit Corp., No. 1:08-cv-01453, 2012 WL 1189769 (E.D. Cal. Apr. 9, 2012) (finding that the “possibility that [the defendant] may seek to enforce agreements to arbitrate with some of the putative Class members does not defeat class certification”); Herrera v. LCS Fin. Servs. Corp., 274 F.R.D. 666 (N.D. Cal. 2011) (finding that “[t]he fact that some members of a putative class may have signed arbitration agreements or released claims against a defendant does not bar class certification”); Krukever v. TD Ameritrade, Futures & Forex LLC, 328 F.R.D. 649 (S.D. Fla. 2018) (stating that “[s]ince the named Plaintiffs do not have arbitration agreements with [the defendant] and the proposed class members are not subject to the Court’s jurisdiction, the presence of arbitration clauses signed by certain class members cannot defeat Plaintiffs’ prima facie showing of numerosity”); Davis v. Four Seasons Hotel Ltd., No. 1:08-cv-00525, 2011 WL 4590393 (D. Haw. Sept. 30, 2011) (expressing the view that “Rule 23 does not require … that the class exclude any members against whom the defendant might be able to assert a unique defense.…The possibility that [the defendant] may attempt to enforce an arbitration agreement entered into by a portion of the members of the class does not stand in the way of class certification.”); Coleman v. Gen. Motors Acceptance Corp., 220 F.R.D. 64 (M.D. Tenn. 2004) (finding that the “possibility that some class members might have signed arbitration agreements does not defeat class certification,” but reserving “the right to create a subclass, modify the class definition, or otherwise specially treat the class members subject to arbitration at a later juncture”).
