Summary
In Plascencia, the court held that Defendants' depositions of absent class members could not be properly generalized to the class, as "the depositions ordered would not be statistically representative of the class as a whole" and were accordingly not relevant.
Summary of this case from Low v. Trump Univ., LLCOpinion
No. C 07-4485 CW., (Docket No. 267)
November 28, 2011.
ORDER GRANTING PLAINTIFFS' MOTION FOR RELIEF FROM NONDISPOSITIVE PRETRIAL ORDER OF MAGISTRATE JUDGE AND CLARIFYING CLASS CERTIFICATION ORDER
Plaintiffs Armando and Melania Plascencia move for relief from a magistrate judge's August 5, 2011 Order Granting Discovery Motion Contained in Joint Letter, allowing Defendants Lending 1st Mortgage, LLC and EMC Mortgage Corporation to take up to fifteen depositions from absent class members. Defendants oppose the motion. Having considered the papers filed by the parties, the Court GRANTS Plaintiffs' motion and overrules the magistrate judge's order for depositions of absent class members. The Court also clarifies its August 21, 2009 Order Granting in Part and Denying in Part Plaintiffs' Motion to Certify Class (Class Certification Order).
Plaintiffs charge Defendants with violating the federal Truth in Lending Act (TILA) and California statutory and common law in connection with the sale of certain residential mortgage products. They claim that Defendants' loan documents did not disclose that making only the minimum monthly payments would result in negative amortization and that the one-percent "teaser" interest rate Defendants gave at the start of the loan would remain in effect for only a short period of time.
On June 24, 2011, Defendants and Plaintiffs submitted a joint letter to a magistrate judge. See Joint Letter Brief Regarding Discovery Dispute, June 24, 2011, Docket No. 254. In their letter, the parties explained their dispute over Defendants' request to serve interrogatories on all class members and to depose a limited number of class members.
Discovery from absent class members is not ordinarily allowed. McPhail v. First Command Fin. Planning, Inc., 251 F.R.D. 514, 517 (S.D. Cal. 2008). Nonetheless, the magistrate judge permitted Defendants to take up to fifteen depositions of absent class members of Defendants' choosing. Order Granting Discovery Motion Contained in Joint Letter 1. The magistrate judge made clear that his ruling was based on certain language in the Court's Class Certification Order. See Hr'g Tr. 1:14-22, July 29, 2011, Docket No. 258; Hr'g Tr. 12:22-13:6, 14:10-12, Aug. 5, 2011, Docket No. 263.
In the Class Certification Order, this Court held that individual questions would not predominate regarding the reliance element of Plaintiffs' common law fraud claim, because absent class members' reliance may be presumed in the case of material fraudulent omissions. The Court cited the United States Supreme Court's decision in Affiliated Ute Citizens of Utah v. United States, 406 U.S. 128 (1972).
The citation to Ute was incorrect. The California Supreme Court has held that the presumption of reliance established in Ute does not apply to fraud claims under California common law. Mirkin v. Wasserman, 5 Cal. 4th 1082, 1093 (1993). Nonetheless, California courts have held that absent class members are entitled to a similar presumption of reliance for state common law fraud claims in certain circumstances. First, a fraudulent omission must be material, such that "a reasonable man would have relied upon" the alleged omissions. Vasquez v. Superior Court, 4 Cal. 3d 800, 814 n. 9 (1971). Here, a jury could find on a class-wide basis that a reasonable person would have wanted to know that the initial one percent rate was ephemeral and that negative amortization was certain to occur if only the minimum payments were made. The jury thus could find that class members would not have taken out their loans if Defendants had clearly disclosed this information.
Second, all class members must have received the same representations with allegedly fraudulent omissions; that is, the representations with misleading omissions must have been uniformly given to class members. See Mirkin, 5 Cal. 4th at 1093-94 (refusing to apply the class-wide presumption of reliance established in Occidental Land, Inc. v. Superior Court, 18 Cal. 3d 355 (1976), and Vasquez in a fraudulent omissions case where plaintiffs had not "pled that the defendants had made identical representations to each class member"). Defendants here are alleged to have acted in a uniform way toward all class members, by supplying class members with identical loan documents that failed to state in clear language material terms of the loan.
Finally, the class representatives must establish "actual reliance." Iorio v. Allianz Life Ins. Co. of N. Am., 2008 U.S. Dist. LEXIS 118344, at *79-80 (S.D. Cal.). See Mirkin, 5 Cal. 4th at 1095 (citing Vasquez, 4 Cal. 3d at 814-15; Occidental, 18 Cal. 3d at 362-63). The named Plaintiffs have alleged that they in fact did rely upon Defendants' omissions.
In discussing the presumption of reliance, this Court stated, "Defendants, of course, may attempt to rebut [the presumption of reliance] at trial by introducing evidence that particular class members were either aware of the loan terms or would have purchased the loans even if the terms were clearly disclosed in the documents." Class Certification Order 20 . Defendants may defeat the presumption by showing that the incomplete disclosures were not uniform or would not be material to a reasonable person. They may also rebut the presumption by introducing evidence specific to the named Plaintiffs.See Quezada, 2009 U.S. Dist. LEXIS 122537, at *15 (noting that defendants have a unique defense against the claims of the named plaintiff that they do not have against other members of the class in that "defendants can argue that plaintiff would not have behaved any differently had the omitted information been disclosed in the loan documents because she never read the loan documents or relied on them when she decided to enter the loan").
However, the class-wide presumption cannot be rebutted by showing that individual absent class members did not rely upon the fraudulent omissions. The presumption could be rebutted on a class-wide basis only if there is evidence that can be properly generalized to the class as a whole. See, e.g., Iorio, 2008 U.S. Dist. LEXIS 118344, at *93-94. (rejecting defendant's survey evidence offered to rebut the presumption of reliance because defendant could not demonstrate that the survey was performed "in accordance with generally accepted survey principles and that the results were used in a statistically correct manner").
The magistrate judge allowed Defendants to depose absent class members based on the language of the Class Certification Order quoted above. This sentence was not well-phrased and could be read to say that Defendants could attempt to rebut the class-wide presumption of reliance by introducing evidence that certain unnamed class members did not rely on the alleged omissions when entering into the loans. Defendants can proffer such evidence only with respect to the particular class members who are named as the class representatives.
A magistrate judge's order on a non-dispositive pre-trial matter shall be modified or set aside only if the reviewing district court finds that the order is clearly erroneous or contrary to law. Fed.R.Civ.P. 72(a). An order is clearly erroneous when, "although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed." United States v. U.S. Gypsum Co., 333 U.S. 364, 395 (1948).
The magistrate judge made a thoughtful and understandable decision based on the language of this Court's prior order. However, a mistake was committed because of the lack of clarity in the prior order. The depositions ordered would not be statistically representative of the class as a whole and thus this discovery is not calculated to uncover relevant evidence.
CONCLUSION
Based on the foregoing, the Court GRANTS Plaintiffs' motion for relief from the magistrate judge's order (Docket No. 267) and overrules the magistrate judge's order that Defendants be allowed to take fifteen depositions from absent class members.
IT IS SO ORDERED.