In Campbell v. First American, a federal judge in Maine has issued a ruling decertifying a class action involving claims that First American Title Insurance Co. overcharged refinance customers for their title insurance.
As members of the financial services industry may be all too aware, class certification is a critical point in litigation. A decision to grant class certification places great pressure on the defendant to settle — often without regard for the actual merits of the case. On the other hand, a certification denial can be the “death knell” of the case because the claim of the named plaintiff alone may be too small to justify the expense of going forward. In general, a court will certify a class if it is persuaded that many related individual claims can be decided together, with a key element being the predominance of “common” issues. Class treatment is generally inappropriate where resolution of the claims would require individualized review.
In the Campbell case, Judge George Z. Singal originally had certified a class of homeowners that included all persons who had refinanced a prior mortgage on residential property in Maine that was issued within two years of the refinancing and who had purchased title insurance from First American and paid more than the statutorily approved refinance rate. Two years later, however, Judge Singal was willing to re-examine — and reverse — that ruling. He explained that courts remain free to revisit class certification order at any time prior to final judgment. Citing stricter class certification standards in the wake of the Supreme Court’s 2011 Wal-Mart Stores, Inc. v. Dukes decision, as well as developments in the factual record, Judge Singal found that there was no longer sufficient commonality to justify class certification.
The court observed that the Dukes decision has transformed the class certification commonality standard from a “low bar” to “a far more searching inquiry.” Under Dukes, class certification requires not just a common question, but also common answers. Moreover, a defendant retains a right to litigate defenses to individual claims.
In Campbell, it became clear to the court that there was no common cause for the alleged title insurance overcharge, but rather that “each class member presents unique facts as to what was presented in connection with their purchase of the title insurance and what steps were taken to ascertain whether they qualified for First American’s published refinance rate.” First American also had different defenses as to why individual class members had not received this lower rate. Thus, “neither liability nor damages can be established on a class wide basis,” the court found.
The record supported this analysis. At the time of the initial class certification, First American largely relied on declarations that it submitted to the court. However, the court was under the impression that if a borrower had previously received a title policy from First American, then it was entitled to a re-issue rate and that the failure to receive this rate could be attributed in some common way to First American’s failure to ascertain or assume the existence of the prior policy. Two years later, when First American moved to decertify, the parties had conducted significant additional discovery, which revealed that the plaintiffs’ claims could not be resolved without reviewing each of their individual transactions. First American had conducted a detailed review of 230 title policies (and their underlying files) identified by the plaintiffs as overcharges. The review showed that about one-third involved no overcharge at all. Some plaintiffs had, in fact, received the refinance rate. For various reasons, others were ineligible. In yet other instances, the file contained insufficient information to determine whether the homeowner was entitled to the refinance rate.
The case is Campbell v. First American Title Insurance Co., No. 2:08-cv-003119-GZS, in the U.S. District Court for the District of Maine. As a practical matter, a decertification order may have a particularly deterrent effect on class counsel who risk investing massive resources pursuing a case post-certification only to have the judge change his or her mind down the road. Judge Singal’s ruling joins a number of recent decisions reflecting a legal climate where it may be increasingly difficult to secure class certification. Of note is a decision earlier this year in Howland v. First American Title Insurance Co., 672 F.3d 525 (7th Cir. 2012), in which the Seventh Circuit affirmed the denial class certification in a RESPA case.