PATRICIA ANNE GAUGHAN, District Judge
INTRODUCTION
This matter is before the Court upon Plaintiffs' Motion for Class Certification. (Doc. 56). This case arises out of loan documents issued by defendant Keybank in connection with plaintiffs' student loans. For the reasons that follow, the Motion is GRANTED with respect to plaintiffs' Truth in Lending Act claim and DENIED as MOOT with respect to the Ohio Retail Installment Sales Act claim.
FACTS
Only those facts necessary for a disposition of the pending motion are set forth herein. In addition, because the Court has dismissed plaintiffs' Retail Installment Sales Act claim, only the facts necessary for a determination as to whether class certification is appropriate with respect to the Truth in Lending Act claim are set forth.
Plaintiffs, Shannon M. Abel, Bradley S. Phillips and Laura L. Murphy, bring this class action lawsuit against defendants, KeyBank USA, N.A. (hereafter "Key"), JP Morgan Chase Bank (hereafter "JP Morgan") and Bank One National Banking Association (hereafter "Bank One") asserting wrongdoing in connection with the issuance of plaintiffs' student loans.
Plaintiffs are former students of Solid Computer Decisions (hereafter "SCD"). Plaintiffs each entered into a student enrollment contract with SCD that contained certain financial terms and disclosures related to student loans. The enrollment contract is a standardized, preprinted form contract. Thereafter, the students were presented with a promissory note issued by Key.
According to plaintiffs, the disclosures made by Key with respect to the annual percentage rate applicable to the loans do not comply with the Truth in Lending Act because they fail to fully identify the index to which the variable interest rate is tied. Specifically, it appears that Key disclosed that the interest rate was tied to the "LIBOR" index, yet did not identify which particular LIBOR index applies. Plaintiffs do not seek actual damages as a result of this alleged violation and, instead, seek only statutory damages.
Plaintiffs asserted two claims in their Second Amended and Consolidated Complaint. In a separate Memorandum of Opinion and Order, this Court dismissed count two, which asserted a violation of Ohio's Retail Installment Sales Act (hereafter "RISA"). As such, the sole remaining claim before this Court is a claim for violation of the Truth in Lending Act (hereafter "TILA"), 15 U.S.C. § 1601, and Regulation Z, 12 C.F.R. § 226. Plaintiffs move to certify this case as a class action and defendants oppose plaintiffs' motion. STANDARD
Plaintiffs' motion, which was filed prior to this Court's dismissal order, also seeks class certification with regard to count two. Given that this Court dismissed count two, the Court need not address whether class certification is appropriate as to this claim.
The decision to certify a class action is within the discretion of the district court, but that discretion must be exercised within the framework set forth in Federal Rule of Civil Procedure 23. Gulf Oil Co. v. Bernard, 452 U.S. 89, 100 (1981); Cross v. National Trust Life Ins. Co., 553 F.2d 1026, 1029 (6th Cir. 1977). Before certifying a class, the district court must conduct a rigorous analysis of the Rule 23 prerequisites. General Tel. Co. v. Falcon, 457 U.S. 147, 161 (1982). The party moving for certification bears the burden of showing that the requirements for certification are met. In re American Medical Sys., Inc., 75 F.3d 1069, 1079 (6th Cir. 1996).
Rule 23 sets forth a two-part test for certifying a class action. First, the four prerequisites in 23(a) must be met. Rule 23(a) states,
One or more members of a class may sue or be sued as representative parties on behalf of all only if (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.
Assuming the threshold requirements of numerosity, commonality, typicality and adequacy of representation set forth in Rule 23(a) are met, "parties seeking certification must also show that the action is maintainable under Rule 23(b)(1),(2), or (3)." Amchem Products, Inc. v. Windsor, 521 U.S. 591, 138 (1997). Plaintiffs argue that this action can be maintained under Rule 23(b)(3), which requires the court to find
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. The matters pertinent to the findings include: (A) the interest of members of the class in individually controlling the prosecution or defense of separate actions; (B) the extent and nature of any litigation concerning the controversy already commenced by or against members of the class; (C) the desirability or undesirability of concentrating the litigation of the claims in the particular forum; (D) the difficulties likely to be encountered in the management of a class action.
Decisions on class certification should not be conditioned on the merits of the case. However, the Court may go beyond the pleadings to the extent necessary "to understand the claims, defenses, relevant facts, and applicable substantive law in order to make a meaningful determination of the certification issues." Castano v. American Tobacco. Co., 84 F.3d 734, 744 (5th Cir. 1996) (citing Manual for Complex Litigation § 30.11 at 214 (3d ed. 1995)). Therefore, this Court has considered all materials submitted by the parties in determining whether class certification is appropriate.
LAW AND ANALYSIS
Plaintiffs seek certification of the following class with respect to the TILA claim:
All individuals within the states of Florida, Georgia, and Alabama who entered into promissory notes with Keybank USA, N.A., to finance the payment of tuition to Solid Computer Decisions, Inc. within the following time periods: Florida-on or after December 2, 2001; Georgia-on or after March 12, 2002; Alabama-on or after December 11, 2001.
This Court must determine whether this class should be certified pursuant to the requirements of Fed.R.Civ.Pro. 23. Each requirement will be addressed in turn.
Rule 23(a) Requirements
1. Numerosity
Plaintiffs argue that the numerosity requirement is satisfied because there are 87 potential class members and joinder of all members is impracticable. "While not a rule, it is generally accepted that a class of 40 or more members is sufficient to establish numerosity." Kilbourn v. Candy Ford-Mercury, Inc., 209 F.R.D. 121, 131 (W.D. Mich. 2002) (citing Consol. Rail Corp. v. Town of Hyde Park, 47 F.3d 473, 483 (2d Cir. 1995)). Given the number of potential class members and the fact that defendants do not dispute numerosity, the Court finds that this requirement is satisfied.
2. Commonality
Commonality exists if there are "questions of law or fact common to the class." The Sixth Circuit explained the commonality requirement in Sprague v. General Motors Corp., 133 F.3d 388, 397 (6th Cir 1998):
The commonality requirement deals with shared questions of law or fact. Although Rule 23(a)(2) speaks of "questions" in the plural, we have said that there need only be one question common to the class. It is not every common question that will suffice, however; at a sufficiently abstract level of generalization, almost any set of claims can be said to display commonality. What we are looking for is a common issue the resolution of which will advance the litigation.
(citation omitted).
If there is a common issue of law or fact that will advance the litigation, the "mere fact that questions peculiar to each individual member of the class remain after the common questions of defendants' liability have been resolved does not dictate the conclusion that a class action is impermissible." Sterling v. Velsicol Chemical Corp., 855 F.2d 1188, 1197 (6th Cir. 1988).
The Court finds that plaintiffs have satisfied their burden with respect to the commonality element. In the student loans at issue, defendants allegedly disclosed that the applicable interest rate would vary based on the "LIBOR" index. Plaintiffs claim that defendants' failure to specify which LIBOR index, i.e., the 3-month, 6-month, 9-month, or 12-month index, applied to the loans at issue violates TILA. Defendants do not dispute that commonality exists for purposes of Rule 23(a). Because the Court finds that the resolution of this question will materially advance the litigation, plaintiffs have satisfied their burden of demonstrating commonality.
3. Typicality
Rule 23(a)(3) requires that the "claims or defenses of the representative parties [be] typical of the claims or defenses of the class." Like commonality, the test for typicality is "not demanding." Gilkey v. Central Clearing Co., 202 F.R.D. 515, 524 (E.D. Mich. 2001) (quoting Forbush v. J.C. Penney Co., Inc., 994 F.2d 1101, 1106 (5th Cir. 1993)). The typicality requirement focuses on "the similarities between the named plaintiffs' claims and those of the class as a whole." Blaz v. Galen Hosp. Ill, Inc., 168 F.R.D. 621, 624 (N.D. Ill. 1996). As the Sixth Circuit stated in American Medical Systems,
Typicality determines whether a sufficient relationship exists between the injury to the named plaintiff and the conduct affecting the class, so that the court may properly attribute a collective nature to the challenged conduct. In other words, when such a relationship is shown, a plaintiff's injury arises from or is directly related to a wrong to a class, and that wrong includes the wrong to the plaintiff. Thus, a plaintiff's claim is typical if it arises from the
same event or practice or course of conduct that gives rise to the claims of other class members, and if his or her claims are based on the same legal theory. A necessary consequence of the typicality requirement is that the representative's interests will be aligned with those of the represented group, and in pursuing his own claims, the named plaintiff will also advance the interests of the class members.
75 F.3d at 1082 (citation omitted). "The premise of the typicality requirement is simply stated: as goes the claim of the named plaintiff, so go the claims of the class." Sprague, 133 F.3d at 399. Where the substantive claims depend on individual permutations, however, the claims of the named plaintiffs who have the same general complaint against the defendant as the class are not typical. Id.
Plaintiffs argue that the claims of the named plaintiffs are typical of those of the class because, to the extent defendants are liable to plaintiffs, they are also liable to class members. According to plaintiffs, the proof needed to succeed on plaintiffs' TILA claim is identical to the proof the class members will present. Defendants do not dispute that the typicality element is satisfied. The Court finds plaintiffs' position to be convincing and, given defendants' failure to oppose class certification on this basis, concludes that the element of typicality is satisfied.
4. Adequacy of Class Representatives
Rule 23(a)(4) requires that the named plaintiffs demonstrate that they will "fairly and adequately protect the interests of the class." Since final judgment in a class action is binding on all class members, adequate representation is "essential to due process." American Medical Sys., 75 F.3d at 1083. The Sixth Circuit has articulated two criteria for determining adequacy of representation:
1) the representative must have common interests with unnamed members of the class, and
2) it must appear that the representatives will vigorously prosecute the interests of the class through qualified counsel.
Id. (quoting
Senter v. General Motors Corp., 532 F.2d 511 (6th Cir. 1976)). The requirement that the named representative have common interests with unnamed members of the class overlaps to some extent with the typicality requirement because if typicality is not present, the class representatives do not have an incentive to vigorously prosecute the class claims.
Id. However, the adequacy of representation requirement is broader than the typicality requirement. A representative plaintiff may have typical claims but not be an adequate representative because of some kind of antagonism or conflict of interest with the class.
Id.
Defendants acknowledge that at this time they have no concerns regarding the ability of plaintiffs' counsel. Defendants do argue, however, that the named plaintiffs are not adequate class representatives of the proposed TILA class because they have interests that conflict with members of the RISA class who are not also members of the TILA class. Defendants point out that the purported TILA class includes only students within the states of Florida, Georgia and Alabama, while the RISA class is a nationwide class. According to defendants, members of the RISA class that do not reside in either Florida, Georgia or Alabama will be effectively precluded from ever asserting a TILA claim based on their failure to assert the claim in this case. As such, defendants argue that the named plaintiffs, who are members of both classes, have little or no interest in protecting the rights of the RISA class members that are not a part of the TILA class.
In a footnote, defendants allude to some concern over an affidavit submitted by plaintiff Abel in connection with a motion to transfer filed in the Northen District of Alabama in which she averred that she would be unable to continue this litigation in the event the case was transferred to this Court. Defendants imply that Abel's continuation in this lawsuit after the transfer may have something to do with the fee arrangement between Abel and her attorneys. Defendants do not contend, however, that this fact renders Abel an inadequate class representative.
Given the fact that this Court has dismissed plaintiffs' RISA claim, the Court finds that defendants' concern is no longer applicable. Defendants make no other argument in opposition to class certification on the grounds of adequacy. Plaintiffs, on the other hand, have presented the Court with affidavits indicating that they understand the duties involved and are willing to serve as class representatives. Moreover, plaintiffs' counsel is experienced in consumer class action litigation. The Court finds that plaintiffs have satisfied their burden with respect to this element and find that the named plaintiffs are adequate representatives of the proposed TILA class.
Rule 23(b)(3) Requirements
In addition to the Rule 23(a) requirements, plaintiffs must comply with one of the requirements of Rule 23(b). Plaintiffs argue that the class should be certified because the requirements of Rule 23(b)(3) are satisfied. Under 23(b)(3), a movant must show that common questions of law or fact predominate over individual questions and, in addition, must demonstrate that a class action is superior to other methods of adjudication. Fed.R.Civ.Pro. 23(b)(3).
1. Predominance
The predominance requirement "tests whether proposed classes are sufficiently cohesive to warrant adjudication by representation." Amchem, 51 U.S. at 623. Rule 23(b)(3) assumes that common issues of fact or law have already been established under Rule 23(a)(2). Therefore, "the presence of commonality alone is not sufficient to fulfill Rule 23(b)(3)." Hanlon v. Chrysler Corp., 150 F.3d 1011, 1022 (9th Cir. 1998). Instead, the predominance requirement focuses on the relationship between the common and individual issues. Id.
"All class members need not be identically situated upon all issues, so long as their claims are not in conflict with each other." In re Ford Motor Co. Ignition Switch Products Liability Litigation, 194 F.R.D. 484, 488 (D. N.J. 2000). However, the individual differences must be of lesser overall significance and manageable in a single class action. Id.
Defendants argue that because some of the class members are in default on their loans, individual issues predominate over common issues with respect to the proposed TILA classes. According to defendants, they are required to assert compulsory counterclaims for the collection of the underlying obligations against these class members. The defendants argue that this individual issue predominates over the common issues in this case.
In support of their position, defendants cite Heavan v. Trust Co. Bank, 118 F.3d 735 (11th Cir. 1997). In Heaven, the Eleventh Circuit agreed with the district court that circuit precedent mandated that the bank's collection claims would constitute compulsory counterclaims to a TILA action. After recognizing that the class certification question was "very close," the court affirmed the district court's conclusion that the presence of these compulsory counterclaims weighed against class certification under Rule 23(b)(3). The district court based its decision on the fact that the presence of the counterclaims would result in difficulty managing the class because each counterclaim defendant would be required to assert individual defenses, which would result in multiple factual determinations. Moreover, the court of appeals concluded that the trial court did not abuse its discretion in determining that the presence of counterclaims would likely hinder a number of plaintiffs from joining the class, given that the recovery on their affirmative claims would be outweighed by the liability they would likely incur on the counterclaims.
Although affirming the trial court's decision, the Eleventh Circuit relied heavily on the deferential standard of review applicable to class certification orders. The court noted that "if this panel had faced the class certification issue in the first instance, we may well have found it appropriate to certify the class or to establish subclasses." Id. at 739. The court also made clear that the opinion should not be read to "suggest that compulsory counterclaims . . . preclude the maintenance of class actions . . . as a general rule." Id. The court held only that the trial court properly considered this factor in its analysis.
Unlike the Eleventh Circuit, however, the Sixth Circuit has held that debt collection actions are permissive as opposed to compulsory counterclaims when asserted in TILA actions. In Maddox v. Kentucky Finance Co., Inc., 736 F.2d 380 (6th Cir. 1984), the plaintiffs asserted a claim for violation of TILA due to allegedly inadequate disclosures. The defendant counterclaimed against the plaintiffs seeking to collect on the underlying obligation. Plaintiffs moved to dismiss the counterclaim, arguing that it was permissive and, as such, fell outside the ancillary jurisdiction of the district court. The district court denied the motion to dismiss finding that jurisdiction existed over the claim. In reversing the trial court, the Sixth Circuit noted,
The [plaintiffs'] claim presents a federal question under TILA; [Defendant's] counterclaim, however, is [a] common law debt [claim], and presents no independent basis for federal jurisdiction. Such a counterclaim is within the ancillary jurisdiction of the federal district court only if it is a compulsory counterclaim under Fed.R.Civ.P. 13(a).
The court then analyzed competing law from different circuits that had already addressed the issue and expressly rejected the analysis set forth in Plant v. Blazer Financial Services, Inc. of Georgia, 598 F.2d 1357 (5th Cir. 1979), a case issued by the former Fifth Circuit, on which Heavan relies. In concluding that debt collection actions are not compulsory counterclaims in TILA actions, the Sixth Circuit held,
Defendants also rely on Plant in their brief.
We agree with the [Fourth Circuit] and the [Seventh Circuit] which have held the debt counterclaim to be permissive rather than compulsory. While the claim and counterclaim do arise out of the same transaction within the literal terms of Rule 13(a), we do not believe that they are logically related in such a way as to make the counterclaim compulsory. The claim and counterclaim will present entirely different legal, factual, and evidentiary questions. It is not clear that the interests of judicial economy and efficiency would be served in the least by requiring the two claims be heard together.
Maddox, 736 F.2d at 383 (citations omitted).
The Sixth Circuit also noted that to conclude otherwise could "frustrate the purposes of TILA by giving plaintiffs a disincentive to sue." Id. Upon concluding that the counterclaim was permissive rather than compulsory, the counterclaim against plaintiffs was vacated on appeal due to lack of jurisdiction.
Although defendants have not yet filed their counterclaims, they have indicated that they plan to assert claims against certain class members based on their underlying debt obligations. (Dfts Brief at 15). It appears, however, that based on Maddox, these claims are not compulsory in nature and, in fact, this Court may not be empowered to exercise jurisdiction over the anticipated counterclaims. Although it is not necessary for this Court to expressly decide this issue at this stage, the Court finds that the presence of these anticipated counterclaims is not likely to create either individualized inquiries or difficulties in managing the class. To the extent counterclaims are actually asserted in this action and briefing is presented to the Court on the issue of jurisdiction, the Court is permitted to revisit the class certification issue to the extent any ruling would affect the decision set forth in this opinion. In all, given Maddox, the Court finds that any reliance defendants place on the Heaven or Plant is misplaced. The Court is not convinced that the presence of these potential counterclaims, over which the Court may not even possess jurisdiction, weighs against class certification at this time.
Plaintiffs argue that the predominance requirement is met with respect to the proposed subclass because the facts arising from Key's alleged failure to properly disclose the applicable variable interest rate index are identical among class members. According to plaintiffs, they seek only statutory damages. Plaintiffs argue that they need not demonstrate reliance or "actual deception" in order to recover statutory damages. Thus, no individual issues arise with respect to either liability or damages. This Court agrees with plaintiffs. The TILA allegations asserted by the plaintiffs relate to form documents prepared by defendants and it appears that the question of whether the disclosures violates TILA will apply with equal force to all members of the class. Having rejected defendants' argument that the counterclaims will necessarily result in individualized inquiries in this case, the Court finds that common issues predominate over any individualized issues.
2. Superiority
Plaintiffs argue that the class action vehicle is the superior method for resolving this litigation. According to plaintiffs, there is little interest in pursuing separate actions in this case because the amount recoverable by each plaintiff is relatively slight. In addition, plaintiffs point out that the forum selection clause in the promissory notes mandates that each plaintiff travel to this forum to assert claims. Plaintiffs argue that the forum selection clause will be a significant deterrent to the assertion of individual claims. Plaintiffs further claim that resolving the claims of similarly situated borrowers on a class-wide basis would promote fairness and efficiency. With regard to difficulties encountered in management of the class action, plaintiffs argue that no such difficulties are present because identification of the class members is easily accomplished through Key's business records. In addition, damages are easily calculated because they are statutory in nature and do not depend on the individual amounts of the students' loans.
Plaintiffs further argue that there is no pending litigation that would militate against certification and that the Northern District of Ohio is the appropriate forum for adjudication of the dispute. Defendants do not dispute either of these factors, nor do they make any argument on these points.
Defendants argue that the individual plaintiffs in this case are in a position to bring separate actions because TILA allows for the recovery of costs and attorneys' fees. Defendants also argue that the fact that plaintiffs allege a technical violation is not in and of itself sufficient to render a class action the superior vehicle for resolving the dispute. Defendants further argue that, pursuant to Resolution Trust Corp. v. Martinez, 1994 U.S. Dist. LEXIS 21506 at *21, to the extent Key is able to demonstrate that it fully disclosed all relevant information in two or more documents received simultaneously by the plaintiffs, liability may be avoided. Thus, according to Key, an individualized inquiry will need to be conducted in order to determine which documents each plaintiff received, as well as the timing of the receipt of such documents.
The Court notes that defendants clearly raise this argument in the context of superiority, not predominance. Regardless, the Court's analysis on this issue applies equally to both prongs of the analysis. In addition, defendants argue that the threat of counterclaims might hinder a number of people from pursuing their claims in this action. The Court has already addressed the counterclaim issue in the predominance portion of this opinion.
The Court rejects defendants' argument that class action treatment for technical violations such as that alleged in this case is not appropriate. Although defendants rely on Shroder v. Suburban Coastal Corp., 729 F.2d 139 (11th Cir. 1984), that opinion relies heavily on a Sixth Circuit opinion, Watkins v. Simmons and Clark, Inc., 618 F.2d 398 (6th Cir. 1980). In Watkins, the Sixth Circuit upheld the district court's refusal to certify a TILA action as a class action, in part, because plaintiff alleged only technical violations that had already been cured by defendant. Although affirming the district court's conclusion, the Sixth Circuit held,
We are also aware that the technical nature of the violations may well argue in favor of the appropriateness of the class action here. Precisely because the violations are technical . . . most of the members of the consumer class will not be aware of them . . . The superiority of the class action lies in the fact that the class members may share in a financial recovery which, otherwise, they would never pursue on their own behalf . . .
* * *
There are persuasive arguments which favor class certification even in cases involving technical violations. Were the certification issue before us de novo we may very well have certified the class. However, we cannot find an abuse of discretion on the record.
* * *
We wish to state that certification is desirable and should be encouraged. Where the requirements of F. R. Civ. Pro. 23(a) have
been met, class certification should be denied only in a case involving technical violations and only where the district court, in the exercise of discretion, believes that certification is unwarranted.
Id. at 403-04.
The Court finds that, far from suggesting that class action treatment is inappropriate for technical TILA violations, Watkins implies that a class action may very well be a superior method for adjudicating these types of claims. See also Lozada v. Dale Baker Oldsmobile, 197 F.R.D. 321 (W.D. Mich. 2000) (certifying class action after analyzing Watkins). Accordingly, the Court rejects defendants' contention that the fact that plaintiffs' allegations appear to be based on a technical violation of TILA weighs against certification of the class.
Upon review of the parties' arguments, the Court finds that a class action is the superior method for adjudicating plaintiffs' TILA claim. The Court agrees that because only relatively minimal statutory damages are available, together with the fact that the forum selection clause mandates that an individual plaintiff travel a great distance to prosecute this claim, it is likely that a significant number of plaintiffs would not pursue their claims unless the class action vehicle is utilized. In addition, the Court finds that judicial efficiency and economy will be promoted by class action treatment. Rather than prosecute eighty-seven separate actions (all of which must be brought in this district), a class action will allow for expeditious and consistent rulings. Moreover, concentration of all TILA claims in one action will save attorney time and expense for all parties.
The Court further rejects defendants' argument that issues concerning the timing and receipt of the loan documents render class action treatment inappropriate. Although class certification discovery has been conducted, defendants provide the Court with no evidence or, for that matter, even an indication, of whether the "Resolution Trust defense" actually applies to any particular plaintiff or potential class member. Nor is there any indication of the number of potential class members that may be affected by this defense. As such, the Court cannot say that this issue is sufficient to render class action treatment inferior. To the contrary, as set forth above, the clear majority of factors demonstrate the superiority of adjudicating this claim on a classwide basis.
At this stage in the litigation, the Court is not opining on whether it agrees with the conclusions reached in Resolution Trust.
CONCLUSION
For the foregoing reasons, Plaintiffs' Motion for Class Certification is GRANTED as to the TILA claim. Because the RISA claim has been dismissed by the Court, plaintiffs' motion as it relates to certification of a RISA class is DENIED as MOOT.
IT IS SO ORDERED.