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Insurance Class Actions Insider

Rule 23(b)(2) and Fail-Safe Classes Addressed By Fifth Circuit

Posted in Class Certification Standards, Injunctions

The Fifth Circuit recently upheld certification of a Rule 23(b)(2) class where the plaintiffs sought only injunctive relief, and the court squarely rejected a rule against “fail-safe” class definitions that other circuits have adopted.  Although this case involved relatively unique issues, this decision is significant in that it is a relatively plaintiff-friendly decision from a circuit that is generally regarded by commentators as one of the more conservative and defense-leaning circuits. 

In re Rodriguez, No. 11-40056, 2012 U.S. App. LEXIS 19372 (5th Cir. Sept. 14, 2012) was a class action brought in bankruptcy court by former debtors with mortgages serviced by Countrywide.  The debtors claimed that, after they emerged from bankruptcy, Countrywide sought to charge them fees incurred during the pendency of their bankruptcy cases which were not approved in accordance with Fed. R. Bank. P. 2016(a).  The bankruptcy court certified a class under Rule 23(b)(2), seeking exclusively injunctive relief prohibiting Countrywide from collecting or attempting to collect fees that were subject to Rule 2016(a) and not authorized by the bankruptcy court pursuant to that rule.  Id. at *5.  The Fifth Circuit affirmed, making two significant rulings: 

  • Rule 23(b)(2):  The court found class certification appropriate under Rule 23(b)(2) because “Countrywide charged every class member purportedly unauthorized fees in contravention of Rule 2016(a),” which the court found was sufficient “common behavior towards all members of the class . . . .”  Id. at *10.  The court further explained that an individualized analysis was not required because “[t]he bankruptcy court made factual findings based on multiple days of testimony and the fifty volume record and concluded therefrom that many of the factors cited by Countrywide as requiring an individualized assessment of claims are readily identifiable in Countrywide’s AS-400 database.”  Id. at *16.  The court further concluded that certification of a Rule 23(b)(2) class was appropriate because “[s]ince no monetary relief is sought, monetary relief cannot be more than incidental to injunctive relief.”  Id. at *22.  The court did not address the fact that the type of injunctive relief being sought in this case would appear to be equivalent to monetary relief, to the extent that the injunction would prevent the collection of monetary fees.  Does seeking this kind of injunctive relief constitute an improper end-run around the general rule that monetary damages claims belong in Rule 23(b)(3)? 
  • Fail-Safe Classes:  A fail-safe class is one defined such that identifying class members would determine liability on the merits.  The Fifth Circuit explained that it had previously “rejected a rule against fail-safe classes” in two prior cases, and reaffirmed that conclusion.  Id. at *24-26.  As I’ve explained in prior posts, other circuits disagree and do not allow fail-safe classes, including the Sixth Circuit and Seventh Circuit.