Debtors + Class Action: Stir Carefully

You remember the class action quartet, right? Numerosity, Commonality, Typicality,  and Adequacy of Representation.

The Supreme Court in Wal-Mart Stores, Inc. v. Dukes (2011) took issue with plaintiff’s lack of commonality with other members’ claims.

But much recently, the Hon. James Otero of our local U.S. District Court of the Central District, took issue with the last requirement – adequacy of representation. In Alakozai v. Chase Investment Services Corp. (Oct. 2014), the court denied certification of the class on the following grounds: (a) plaintiffs’ claims were not “typical” of other members, and (b) the plaintiffs could not “adequately represent” the class.

Sitting at the edge of your seat, you ask — why!? Simple, the plaintiffs failed to disclose their personal bankruptcy filings, and failed to mention their class action claim in their bankruptcy schedules. Tsk-Tsk-Tsk.

To summarize, the court found that plaintiffs who had a personal bankruptcy pending would have other priorities that would obscure their full attention to the class action case, and that the plaintiff’s right to sue in the class action belonged to the trustee not the debtor (since the Ninth Circuit has said in Cloud v. Northrop Grumman,  all causes of action that accrued before the filing were property of the estate).  As such, argued the U.S. District Court, it was not the plaintiff’s claim to begin with – rather the Trustee’s. So you can’t “adequately represent” the class, if you are not the representative at all.

The case stands for the proposition that a District Court, at least in Judge Otero’s courtroom, will deny certification if the named plaintiff(s) do not disclose their bankruptcy filings or fail to list the class action in their schedules.

Rule of thumb: fully vet your plaintiff’s in the class action, and disclose if plaintiff’s have filed bankruptcy. Failure of which is, in legal parlance, a “big no-no”.

 

Full opinion at http://www.employmentclassactionreport.com/wp-content/uploads/sites/232/2014/10/Alakozai.pdf

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