Opinion
Civ. No. 96-1910 (DRD).
January 27, 1999.
Madeline Levine Houston, Esq., Melissa J. Totaro, Esq., Law Offices of Madeline L. Houston, Patterson, N.J., Attorneys for Plaintiffs.
Frank Vanduyne Lloyd, Esq., Scott G. Sproviero, Esq., David M Repetto, Esq., Harwood Lloyd, LLC, Hackensack, N.J., Attorneys for Defendants Markerdowne Corporation, Computer Learning Center, Valerie Dorras, and Graeme Dorras.
Marguerite Schaffer, Esq., Shain, Schaffer Rafanello, Bernardsville, N.J., Attorney for Defendant Chase Manhattan Bank (formerly Chemical Bank).
David Lawrence Menzel, Esq., Cuyler Burk, Parsippanny, N.J., Attorney for Defendant Citibank (New York State).
David Earle Powers, Esq., Deputy Attorney General, New Jersey Department of Law Public Safety, Department of Law, Trenton, N.J., Attorneys for Defendant New Jersey Higher Education Assistance Authority.
Frederick A. Nicoll, Esq., Law Offices of Frederick A. Nicoll, Paramus, N.J., Mark E. Shure, Esq., Keating Shure, Ltd., Chicago, IL., Attorneys for Defendant American Student Assistance.
Ronald J. Shaffer, Esq., Fox, Rothschild, O'Brien Frankel, Lawrenceville, New Jersey, Attorney for Defendants United Student Aid Fund, Inc. and Illinois Student Assistance Commission.
Frank W. Hunger, Esq., Assistant Attorney General, Faith S. Hochberg, Esq., United States Attorney, J. Christopher Kohn, Esq., Robert M. Hollis, Esq., By: Mary Nell McGarity Clark, Esq., Trial Attorney, Commercial Litigation Branch, United States Department of Justice, Washington, D.C., Attorneys for Third-Party Defendant Richard W. Riley, Secretary of the United States Department of Education.
Susan C. Cassell, Esq., Assistant United States Attorney, Newark, N.J., Government Designee pursuant to General Rule 4-F.
O P I N I O N
Plaintiff, Barbara Morgan ("Morgan"), instituted this action against defendant Computer Learning Center ("CLC"), among others, alleging that she was fraudulently induced to enroll at CLC and to finance her attendance by applying for federal student loans. Defendants Citibank (New York State)("Citibank"), Graeme Dorras, Valerie Dorras, CLC, American Student Assistance ("ASA"), Illinois Student Assistance Commission ("ISAC"), United Student Aid Funds ("USAF"), Chase Manhattan Bank (formerly Chemical Bank) ("Chase"), and Richard W. Riley, Secretary of the United States Department of Education (the "Secretary") have moved to decertify the conditionally certified class. Additionally, Citibank has moved to dismiss Morgan's second amended complaint in which Defendants ISAC, USAF, and ASA join. For the reasons set forth below, the motions will be denied without prejudice to renewal upon completion of merits discovery.
To finance her attendance at CLC, plaintiff applied for and received student loans under the Federal Family Education Loan Program ("FFELP"), authorized under Title IV, Part B, of the Higher Education Act of 1965 ("HEA"), as amended, 20 U.S.C. § 1071-1087-2.
I. BACKGROUND
A. Factual History
Morgan instituted this class action against defendants CLC, two of its principals, Markerdowne Corporation, Chemical, Citibank, certain state and private guaranty agencies, and the Secretary. Morgan's claims are set forth in a Second Amended Complaint to which there is attached and incorporated by reference an Amended Complaint. The two documents will be referred to herein as the "Complaint."
A guaranty agency is any state or non-private institution or organization with which the Secretary has a reinsurance agreement. See 20 U.S.C. § 1085(j), 1078(b). Those guaranty agencies named as defendants in the Second Amended Complaint are the New jersey Higher Education Assistance Authority, American Student Assistance, United States Aid Funds, and Illinois Student Assistance Commission.
The Complaint alleges that CLC and its two principals, Valerie Dorras and Graeme Dorras, induced plaintiff through false representations to enroll in CLC's computer training program and to take out a Guaranteed Student Loan and a Federal Supplemental Loan to finance her attendance. CLC dealt with Morgan concerning the loans and provided all the paper work which it transmitted to Chemical. Chemical extended the loans. The New Jersey Higher Education Assistance Authority ("NJHEAA") guaranteed both loans. It is alleged that both Chemical and NJHEAA were aware that of the 1,460 loans which Chemical extended to CLC students, thirty- eight percent were in default, and as a result Chemical and NJHEAA had constructive and/or actual notice that CLC and its agents were engaged in fraudulent and/or unconscionable practices.
The Complaint alleges that the other defendant banks and guarantor agencies, ISAC, ASA, and USAF, made loans and extended guarantees under similar circumstances and thus had similar notice of the alleged fraudulent and/or unconscionable activities.
The Complaint alleges that the lending banks and the guarantor agencies by continuing to lend to CLC students or by continuing to guaranty such loans furthered the fraudulent and unconscionable practices engaged in by CLC and its agents and are subject to all claims which student borrowers have against CLC, Markerdowne, and their agents. This liability is predicated upon the Federal Trade Commission ("FTC") "Holder Rule," 16 C.F.R. § 433, the fact that the loans were "originated" within the meaning of 34 C.F.R. § 682.200, the fact that the notes were non-negotiable instruments, and New Jersey's common law of agency and pertaining to "close connections."
The Complaint alleges that pursuant to the Higher Education Act, 20 U.S.C. § 1082, the Secretary had the duty and authority to oversee the loan program involved in the case. By virtue of this duty and authority the Secretary had actual and/or constructive notice that CLC and its agents engaged in fraudulent and/or unconscionable practices, and therefore, like the lending agencies and guarantors is subject to all claims Morgan has against CLC, Markerdowne, and their agents.
Count One charges that CLC, Valerie Dorras, and Graeme Dorras made false representations to prospective students to induce them to enroll in the CLC program. Morgan seeks relief on behalf of herself and others similarly situated against CLC, Valerie and Graeme Dorras, Chemical, and Citibank consisting of treble damages and attorneys' fees pursuant to N.J.S.A. 56:8-19 and against NJHEAA declaring that no further payments are due and owing on any loan in issue.
The New Jersey Consumer Frauds Act, of which N.J.S.A. 56:8- 19 is a part, states in relevant part that
[a]ny person who suffers any ascertainable loss of moneys or property, real or personal, as a result of the use or employment by another person of any method, act, or practice declared unlawful under this act or the act hereby amended and supplemented may bring an action or assert a counterclaim therefor in any court of competent jurisdiction. In any action under this section the court shall, in addition to any other appropriate legal or equitable relief, award threefold the damages sustained by any person in interest. In all actions under this section, including those brought by the Attorney General, the court shall also award reasonable attorneys' fees, filing fees and reasonable costs of suit.N.J.S.A. 56:8-19.
Count Two repeats the fraud charges contained in Count One and seeks actual and punitive damages against CLC and Valerie Dorras and Graeme Dorras, actual damages against Chemical and Citibank and against NJHEAA a declaration that no further payments are due and owing on any loan in issue.
Count Three in addition to repeating the prior allegations of the Complaint charges that the price charged by CLC under its contract with plaintiff and class members was unconscionably high within the meaning of N.J.S.A. 56:8-19. Plaintiff seeks against CLC, Valerie and Graeme Dorras, Chemical, and Citibank treble damages and attorneys' fees pursuant to N.J.S.A. 56:8-19 and against NJHEAA declaratory relief.
Count Four realleges the fraud allegations made against CLC and Valerie Dorras and Graeme Dorras in Count One and seeks against the guarantor defendants treble damages and attorneys' fees pursuant to N.J.S.A. 56:8-19, and to the extent that such entities enjoy sovereign immunity, a declaration that no further payments are due and owing on the student loans in issue. Similar declaratory relief is sought against the Secretary.
In Count Five, the Complaint realleges the misrepresentation and fraud allegations made against CLC and Valerie and Graeme Dorras in Count Two and seeks against the guarantor defendants actual damages and as against the Secretary declaratory relief as set forth above.
In Count Six, the Complaint realleges the allegations of Count Three, that the price charged by CLC under its contracts with students was unreasonably high, and sought against the guarantor defendants treble damages and attorneys' fees pursuant to N.J.S.A. 56:8-19. As against the Secretary, Count Six seeks the declaratory relief referred to above.
B. Morgan's Specific Allegations
In the fall of 1990, Morgan, an unemployed mother of three children, executed an enrollment contract to attend CLC, a post-secondary vocational school located in Paramus, New Jersey. She claims that she, and every other student who attended CLC from approximately September 1988 to March 1996, were defrauded by agents and representatives of CLC into enrolling at the school. Morgan contends that CLC misrepresented the benefits of a CLC education and essentially guaranteed her employment as a computer operator if she completed the curriculum offered by CLC. Specifically, Morgan alleges that CLC made false written and oral claims of a ninety percent or higher placement rate and made false oral claims that placement was guaranteed. She alleges that CLC manufactured newspaper and brochure advertisements in which former students gave false testimonials about the benefits they received from their attendance at CLC. Morgan asserts that CLC falsely claimed to have a recruitment relationship with, and to have placed many students at, a list of "many well-known businesses." See Second Amended Complaint, ¶ 73(e). She contends that CLC falsely represented that it has an "Industry Advisory Board" that keeps it abreast of the latest employment trends. Morgan further alleges that CLC falsely represented the educational achievements of its executives and that CLC charged unconscionably high tuition rates for its courses. Finally, Morgan asserts that despite perfect attendance at CLC, graduation with a "B" average, contact with the CLC placement office as directed by said office, and efforts on her own, she has been unable to find a job as a computer operator since her graduation from CLC.
Morgan financed her education at CLC with the proceeds of a loan under the Stafford Student Loan Program ("SSLP"), and a Federal Supplemental Loan("FSL"), which are governed by the provisions of the Higher Education Act, 20 U.S.C. § 1071, et seq., and the regulations of the Secretary, 34 C.F.R. § 682.100, et seq. These two loans were made by Chemical Bank, which was subsequently acquired by defendant Chase, and guaranteed by defendant NJHEAA.
Morgan alleges that CLC arranged for the financing of her education at CLC. Moreover, she asserts that CLC obtained all necessary financial papers and either completed or assisted her with all relevant paper work. Morgan also asserts that CLC chose the bank that provided the student loans.
With regard to Chemical, Citibank, NJHEAA, ASA, USAF, and ISAC (collectively referred to as the "non-school defendants"), Morgan alleges that they are liable for CLC's misconduct under the legal theories previously referred to. Morgan asserts that despite having actual notice of the high default rates of CLC students, and thereby having actual and/or constructive notice that the school was engaged in fraudulent or unconscionable practices, Chemical and Citibank continued to finance students' attendance at CLC. As for the defendant guaranty agencies, Morgan claims that they too furthered CLC's fraudulent and unconscionable practices as they allegedly had notice of the high default rates, but continued, nonetheless, to guarantee the loans.
Morgan alleges that the financial defendants effectively delegated their normal student loan making functions to CLC. She asserts that CLC chose the bank from which each plaintiff would obtain financing, CLC obtained all of the necessary financial papers, CLC either completed the papers or assisted plaintiffs in completing the papers, and CLC verified all applicant information and identification and had applicants sign the proper documents.
C. Procedural History
NJHEAA filed an action on March 15, 1993, in the Superior Court of New Jersey against Morgan to collect on a student loan. Morgan filed an answer pro se on April 6, 1993. On June 30, 1993, a complaint was filed in the Superior Court on Morgan's behalf against the school, CLC, the principals of the school, and Chemical, the bank that provided her student loans.
After conducting limited discovery, Morgan moved to amend her Complaint to add as defendants Citibank and several "John Doe" banks, which also provided guaranteed student loans to students who attended CLC. Further, Morgan sought to certify as a class all persons who attended CLC during the six and one half years preceding the filing of the amended Complaint.
On February 1, 1996, the court conditionally certified a class consisting of "all persons who graduated from defendant Computer Learning Center on March 30, 1995, or within six and one half years prior to said date, or who otherwise stopped attending or withdrew from defendant Computer Learning Center on March 30, 1995, or within six years prior thereto." Defendants Chemical, Citibank, CLC, and NJHEAA sought leave from the Appellate Division to appeal the order. The Appellate Division denied all applications.
Citibank filed a Third Party Complaint in the state court against guarantor agencies ASA, USAF, ISAC, and the Secretary. On April 22, 1996, Morgan filed a Second Amended Complaint naming the third party defendants as direct defendants. The Secretary removed this action to this court. All third party claims and cross claims were stayed pending determination of motions to dismiss plaintiff's Second Amended Complaint.
The Secretary's motion was granted and the Complaint as to him was dismissed. The following claims against the lender banks and against the guarantor agencies were dismissed: 1) the federal law claim based on non-compliance with the FTC Holder Rule; 2) state law claims asserting that the lender banks and guarantor agencies are liable for the alleged misrepresentations of CLC and its principals, including claims based on N.J.S.A. 56:8-1, et seq., and on agency and "closely connected" principles; 3) except as to NJHEAA state law claims based on N.J.A.C. 9:9-2.1 and 9:9-3.1; and 4) claims that the lender banks and guarantor agencies defrauded plaintiff. See Morgan v. Markerdowne Corp., 976 F. Supp. 301, 321 (D.N.J. 1997). The motions of the lenders and guarantor agencies were denied to the extent that they sought to preclude Morgan from raising as a defense to collection of her notes fraud committed by CLC and its principals, provided that the scope of the defense shall not exceed the scope of the defense embodied in the FTC Holder Rule. Id.
The Secretary subsequently filed a motion to dismiss the third-party claims and cross-claims filed by the lenders and guaranty agencies. The Secretary's motion was denied on April 1, 1998, because these entities could look to the Secretary should Morgan establish a defense to her default by demonstrating CLC's fraud and the requisite origination relationship between the lenders and the school. On February 9, 1998, Magistrate Judge Joel A. Pisano granted the defendants' application to conduct limited discovery on the class certification issue. The defendants then filed the current motions to decertify the class and to dismiss the Second Amended Complaint.
II. DISCUSSION
Defendants Citibank, Graeme Dorras, Valerie Dorras, CLC, ASA, ISAC, USAF, Chase, and the Secretary have moved to decertify the conditionally certified class. The defendants base their motion on the argument that class certification is not proper because the basic requirements under Fed.R.Civ.P. 23 have not been met. Additionally, Citibank, ISAC, USAF, and ASA have moved to dismiss Morgan's Second Amended Complaint on the grounds that Morgan has no standing to pursue any claims against them. Morgan opposes the motions and argues that there is a basis for class certification and that the Complaint should not be dismissed as to any defendant.
Morgan maintains that the defendants have improperly moved for decertification. However, [a]n order under [Rule 23] may be conditional, and may be altered or amended before the decision on the merits." Fed.R.Civ.P. 23(c)(1). Accordingly, the defendants' motions are proper. See In re Western Union Sec. Litig . , 120 F.R.D. 629 (D.N.J. 1988).
A. Class Certification Standard
Rule 23 of the Federal Rules of Civil Procedure sets forth four general preconditions that putative class representatives must satisfy before any case is certified as a class action:
(1) the class is so numerous that joinder of all members is impracticable, (2) there are questions of law or fact common to the class, (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class, and (4) the representative parties will fairly and adequately protect the interests of the class.
Fed.R.Civ.P. 23(a). Additionally, Rule 23(b) defines four different types of class actions, and the party seeking certification must demonstrate that the case falls within one of the Rule 23(b) categories. Chin v. Chrysler Corp., 182 F.R.D. 448, 452 (D.N.J. 1998). The plaintiffs bear the burden of proving that the proposed class action satisfies each of the requirements of Rule 23(a) and one of the prerequisites of Rule 23(b). See Baby Neal v. Casey, 43 F.3d 48, 55 (3d Cir. 1994).
Class certification should not turn on the court's evaluation of the merits of the parties' legal or factual claims. See Eisen v. Carlisle Jacquelin, 417 U.S. 156, 178, 94 S.Ct. 2140, 40 L.Ed.2d 732 (1974). The court may, however, find it necessary to analyze the elements of the parties' substantive claims and review facts revealed in discovery in order to evaluate whether the requirements of Rule 23 have been satisfied. See Castano v. American Tobacco Co., 84 F.3d 734, 744 (5th Cir. 1996) (citing Manual for Complex Litigation 3d § 30.11 (3d ed. 1995)).
This class has been certified under New Jersey's version of Fed.R.Civ.P. 23(b)(3). In order for a class action to be certified under Rule 23(b)(3), the putative class representatives must show, in addition to the four general prerequisites of Rule 23(a), that:
the questions of law or fact common to the members of the class predominate over any questions affecting only individual members and that a class action is superior to other available methods for the fair and efficient adjudication of the controversy.
Fed.R.Civ.P. 23(b)(3). The Supreme Court recently interpreted Rule 23(b)(3)'s requirements when it affirmed the Third Circuit's determination that certification of a nationwide settlement class for alleged asbestos victims was improper. Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 117 S.Ct. 2231, 138 L.Ed.2d 689 (1997), aff'g Georgine v. Amchem Prods., Inc., 83 F.3d 610 (3d Cir. 1996).
Whether "questions of law or fact common to members of the class predominate over any questions affecting only individual members" may be referred to as the predominance requirement. Chin, 182 F.R.D. at 453. The predominance inquiry "trains on the legal or factual questions that qualify each class member's case as a genuine controversy." Amchem Prods., 117 S.Ct. at 2249. "The Rule 23(b)(3) predominance inquiry tests whether proposed classes are sufficiently cohesive to warrant adjudication by representation." Id.
That common issues must be shown to "predominate" does not mean that individual issues need be non-existent. Chin, 182 F.R.D. at 453. All class members need not be identically situated upon all issues so long as their claims are not in conflict with each other. Eisenberg v. Gagnon, 766 F.2d 770, 786 (3d Cir.), cert. denied, 474 U.S. 946, 106 S.Ct. 342, 88 L.Ed.2d 290 (1985); Hassine v. Jeffes, 846 F.2d 169, 176-77 (3d Cir. 1988). The individual differences, however, must be of lesser overall significance and they must be manageable in a single class action. Chin, 182 F.R.D. at 453.
B. Preponderance
Defendants challenge the continued certification of the class contending only that those plaintiffs fail to meet the typicality and commonality requirements set forth in Rule 23(a) and the preponderance requirement set forth in Rule 23(b). The requirement of Rule 23(b) that common issues of law and fact predominate over individual questions is more stringent than Rule 23(a)'s commonality and typicality requirements. See Georgine v. Achem Prod., Inc., 83 F.3d 610, 626 (3d Cir. 1996), aff'd sub nom. Achem Prod., Inc. v. Windsor, 117 S.Ct. 2231 (1997); Stephenson v. Bell Atl. Corp., 177 F.R.D. 279, 283 n. 2 (D.N.J. 1997). Accordingly, if Morgan fails to "demonstrate the propriety of maintaining this action as a class action under rule 23(b)(3), it is unnecessary to address the Rule 23(a) prerequisites of numerosity, commonality, typicality and adequacy of representation." Young v. Jo-Ann's Nut House, Inc., No. 80- CV-1665 (DRD), 1980 WL 1987, at *5 (D.N.J. Dec. 16, 1980).
The defendants do not concede to the existence of any of the Rule 23(a) or 23(b) requirements. They have, however, focused their challenge to the certification of the class to these specific areas.
As previously stated, in order to meet Rule 23(b)'s predominance requirement, questions of law or fact common to members of the class must predominate over any questions affecting only individual members. Amchem Prods., 117 S.Ct. at 2249. This standard is extremely hard to meet when dealing with a case involving fraud and misrepresentation. Common law fraud and misrepresentation claims raise issues that are personal to each individual plaintiff. In New Jersey, the elements of common law fraud are
(1) material misrepresentation of a presently existing or past fact; (2) knowledge or belief by the defendant of its falsity; (3) an intention that the other person rely on it; (4) reasonable reliance thereon by the other person; and (5) resulting damages.Stephenson, 177 F.R.D. at 290; Gennari v. Weichert Realtors, 148 N.J. 582, 610, 691 A.2d 350, 366 (1997). Accordingly, to bring a common law fraud claim on behalf of a class, the representative plaintiff must prove that each member relied on the defendant's alleged misrepresentation and suffered damages because of the reliance.
Morgan's claims on behalf of the class are based primarily on alleged misrepresentations concerning several different aspects of CLC's operation. Many courts, however, have held that common law fraud and misrepresentation actions are inappropriate for treatment as a class action suit. Graham v. Security Sav. Loan, 125 F.R.D. 687, 690 (N.D.Ind. 1989), aff'd sub nom. Veal v. Fist American Sav. Bank, 914 F.2d 909 (7th Cir. 1990); Glick v. E.F. Hutton Co., 106 F.R.D. 446 (E.D.Pa. 1985); Seiler v. E.F. Hutton Co., 102 F.R.D. 880, 891 (D.N.J. 1984); see also Simon v. Merill Lynch Pierce Fenner Smith, 482 F.2d 880, 882 (5th Cir.), reh'g denied, 485 F.2d 687 (5th Cir. 1973); Westlake v. Abrams, 575 F. Supp. 58, 61-63 (N.D.Ga. 1983); McHan v. Grandbouche, 99 F.R.D. 260, 266 (D.Kan. 1983). For example, in Carroll v. Cellco Partnership, 313 N.J. Super. 488, 713 A.2d 509 (App.Div. 1998), the Appellate Division of the New Jersey Superior Court reversed the Law Division's certification of a class in a common law fraud, misrepresentation, and Consumer Frauds Act case. The court stated that in order to justify class certification in these types of cases, the
[p]laintiffs must first identify the same or similar representations that were made to the entire class. This analysis includes a review of multiple different contracts, brochures and other publications, advertisements, and oral representations made by defendant's representatives . . . and plaintiffs' exposure to them. Plaintiffs must then prove how these representations or omissions impacted upon each plaintiff, that is, how plaintiffs were induced to purchase defendant's services.Id. at 502-03, 713 A.2d at 516. Because that case involved a variety of representations made in a variety of different ways, the court held that proving reliance would be "extraordinary." Id. at 503. In reversing the trial court's grant of class certification, the Appellate Division held that "[a]n individualized inquiry is necessary to determine how an alleged misrepresentation or omission by defendant would have impacted [the plaintiffs'] decision." Id.
A majority of federal courts have also refused to grant class status to plaintiffs in similar common law fraud and misrepresentation cases. For example, in Seiler v. E.F. Hutton Co., Inc., 102 F.R.D. 880 (D.N.J. 1984), the court denied class certification in a securities litigation involving claims of common law fraud and misrepresentation. The court stated that "class certification is generally denied where the defendant's alleged representations to the class are oral or otherwise personalized, and where the plaintiff has failed to demonstrate that the substance of the representations was standardized." Id. at 891. The court concluded that under these certain circumstances individual questions predominate which makes the action inappropriate for class treatment. Id.
Likewise, in Graham v. Security Sav. Loan, 125 F.R.D. 687 (N.D.Ind. 1989), the court, in a case strikingly similar to the present action, denied class certification to a group of students who were suing the institutions through which they obtained their student loans. The students, who were enrolled in a college that subsequently went bankrupt, sued their student loan lenders, marketing associations, finance associations, guarantee associations, and the United States Department of Education based on claims that the college's employees made fraudulent misrepresentations to them regarding the school's classes, teachers, programs, placement facilities, and job opportunities. Id. at 688-89. The court, in denying certification, stated that common law fraud claims raise issues that are personal to each individual plaintiff and, because there were numerous misrepresentations made over the span of several years, class certification was not appropriate because the preponderance and commonality requirement of Rule 23 could not be met.Id. at 691.
Although the same issues present themselves in the case at bar, there is currently not enough evidence in the record to conclude that common issues between the class members do not predominate this action. Morgan has submitted evidence from which it might be inferred that the individual instances of misrepresentation and the school defendants' conduct viewed in their entirety were but a part of an overarching fraudulent scheme employing many devices to achieve its ends. Some students might have been lured into an eventually worthless educational enterprise by one means; others might have been enticed by different means; but in this scenario all were victims of a unitary scheme. If this in fact could be established, CLC's conduct might be analogized to a "fraud on the marketplace."
Given the overarching scheme scenario, Morgan might not be required to prove reliance by each class member upon a particular representation and certification would be appropriate because the scheme would be the common issue and it would predominate. On the other hand, absent such an overarching scheme, each class member would be required to prove reliance on particular misrepresentations. Certification would be inappropriate because individual issues would predominate.
Continued class certification in this matter is troublesome. There is much evidence that tends to show that individual issues may predominate in this case. However, with the small amount of evidence that each side has actually presented, no definitive answer can be made with regards to the decertification issue at this time. Further discovery is needed to flesh out issues concerning the level of fraud allegedly committed by CLC and the other defendants. It is not until a clear picture of the defendants actions has been painted that a motion for decertification can be addressed with any degree of confidence. Accordingly, the defendants' motions to decertify the class will be denied without prejudice to their renewal upon substantial completion of merits discovery.
C. Dismissal
Within its motion to decertify the class, Citibank has also moved for dismissal of the complaint. Defendants ASA, USAF, and ISAC have joined in Citibank's motion. Citibank argues that it is not liable to Morgan for any damages because her loan was made by Chemical. Because there was no relationship between it and Morgan, Citibank argues that Morgan's Complaint should be dismissed because she has no standing to sue. ASA, USAF, and ISAC have submitted identical arguments in support of the motion to dismiss.
Because discovery has yet to begin and Morgan's time in which she can amend her complaint has yet to expire, Citibank's motion to dismiss is premature. As the representative of a class who potentially has claims against Citibank, Morgan can use the discovery process to flesh out any and all claims against the named defendants. Upon the close of discovery and the expiration of Morgan's time to amend the Complaint, Citibank and the other defendants may renew their motion to dismiss if the class representative's standing seems suspect. Accordingly, Citibank's motion to dismiss will be denied without prejudice.
III. CONCLUSION
For the reasons set forth above the motions to decertify the conditionally certified class will be denied without prejudice. The class will remain conditionally certified pending the completion of discovery on the merits. At that time, the defendants can renew their motion to decertify the class if appropriate. Additionally, Citibank's motion to dismiss will be denied without prejudice pending the completion of discovery on the merits and the expiration of Morgan's time to amend the Complaint. An appropriate order will issue.
O R D E R
Defendants, Citibank (New York State), Graeme Dorras, Valerie Dorras, Computer Learning Center, American Student Assistance, Illinois Student Assistance Commission, United Student Aid Funds, Chase Manhattan Bank, and Richard W. Riley, Secretary of the United States Department of Education (the "Defendants"), having moved to decertify the conditionally certified class; and defendants, Citibank (New York State), American Student Assistance, Illinois Student Assistance Commission, and United Student Aid Funds, having moved to dismiss the second amended complaint; and the Court having heard oral argument on January 11, 1999; and in accordance with this Court's opinion of even date;
IT IS this day of January, 1999, hereby
ORDERED that Defendants' motions to decertify the conditionally certified class be and hereby are DENIED without prejudice; and it is further
ORDERED that defendants Citibank (New York State), American Student Assistance, Illinois Student Assistance Commission, and United Student Aid Funds motions to dismiss the second amended complaint be and hereby are DENIED without prejudice.