Opinion
CV 01-1446-BR.
October 18, 2004
N. ROBERT STOLL, STEVEN D. LARSON, DAVID F. REES, Stoll Stoll Berne Lokting Schlachter, P.C., Portland, OR.
CHARLES A. RINGO, Beaverton, OR, Attorneys for Plaintiffs.
BARNES H. ELLIS, STEPHEN A. REDSHAW, Stoel Rives, LLP, Portland, OR, Attorneys for Defendant.
OPINION AND ORDER
This matter comes before the Court on the Motion for Class Certification (#113) of Plaintiffs Carol Porto and Grant Wenzlick.
The Court previously granted FICO's Motion for Summary Judgment against Plaintiff Douglas Ashby. See Opin. and Order issued March 17, 2004.
Porto and Wenzlick allege FICO violated the Fair Credit Reporting Act (FCRA), 15 U.S.C. § 1681, et seq., when FICO used information in consumer credit reports to increase the insurance premiums FICO charged upon renewal of personal lines insurance policies issued to Porto and Wenzlick. Porto purchased and renewed automobile and homeowner insurance policies from FICO. Wenzlick purchased and renewed renter insurance policies from FICO. Porto and Wenzlick allege the increase in their respective insurance premiums constituted adverse actions for which FICO failed to give adequate notice under § 1681m(a)(1). Porto and Wenzlick seek statutory damages, punitive damages, and attorneys' fees.
For the following reasons, the Court GRANTS the Motion for Class Certification of Plaintiffs Porto and Wenzlick.
STANDARDS
Fed.R.Civ.P. 23 provides in pertinent part:
(a) Prerequisites to a Class Action. 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.
(b) Class Actions Maintainable. An action may be maintained as a class action if the prerequisites of subdivision (a) are satisfied, and in addition:
* * *
(3) the court finds 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 the 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.
The decision to grant or to deny class certification is within the trial court's discretion. Jordan v. County of Los Angeles, 669 F.2d 1311, 1318 (9th Cir.), vacated on other grounds, 459 U.S. 810 (1982). Plaintiffs have the burden to establish compliance with Rule 23. In re N. Dist. of Cal., Dalkon Shield IUD Prods. Liab. Litig., 693 F.2d 847, 854 (9th Cir. 1982), cert. denied, 459 U.S. 1171 (1983). A class may be certified only if the court is satisfied "after a rigorous analysis that the prerequisites of Rule 23(a) have been satisfied." Hanon v. Dataproducts Corp., 976 F.2d 497, 509 (9th Cir. 1992) (citing General Tel. Co. of Southwest v. Falcon, 457 U.S. 147, 161 (1982). A class may be certified as to one or more claims without certifying all of the claims alleged in the complaint. Fed.R.Civ.P. 23(c)(4).
For purposes of ruling on a motion to certify a class, the court must take the substantive allegations of the complaint as true. Blackie v. Barrack, 524 F.2d 891, 901 n. 17 (9th Cir. 1975), cert. denied, 429 U.S. 816 (1976). The determination of class certification does not require or permit a preliminary inquiry into the merits. Id. An extensive evidentiary showing by the plaintiff is not required as long as the court has sufficient material before it to determine the nature of the allegations and to rule on compliance with the requirements of Rule 23. Id.
BACKGROUND
On October 7, 2004, this Court denied FICO's Motion for Summary Judgment in which FICO moved the Court to determine that the FCRA notice sent to Porto and Wenzlick complied with the notice requirements of § 1681m(a). The Court held "[FICO's] . . . FCRA Notice requires the insured to inspect two separate documents and then to deduce that something negative in a consumer credit report caused the insurer to increase the premium charged on renewal." See Opin. and Order at 12 (issued Oct. 7, 2004). In other words, the Court found FICO did not establish as a matter of law that the FCRA notices sent to Porto and Wenzlick met the requirements of § 1681m(a) because FICO's notice failed to state specifically the increase in the premiums charged to Porto and Wenzlick constituted an adverse action based on information in consumer credit reports.DISCUSSION
Porto and Wenzlick now move the Court for an order under Fed.R.Civ.P. 23(a) and (b)(3) certifying the following class, which is the class definition proposed by FICO:
All automobile and property personal lines insurance policyholders of Farmers Insurance Company of Oregon (FICO) during the period February 26, 2001 to August 1, 2002 who paid a renewal premium that was increased over the prior period's premium where such increase was based in whole or in part on any information contained in a consumer report, and excluding any current officer, director, or employee of FICO, Farmers Group, Inc. (FGI), or its affiliates, or any former officer, director, or employee of FGI, FICO, or their affiliates who served during the class period, or any judge of the United States District Court for the District of Oregon.
FICO initially asserted the class definition proposed by Porto and Wenzlick was "grossly overbroad." Porto and Wenzlick, however, conceded their proposed class definition was overbroad in light of this Court's previous ruling in which it granted summary judgment in favor of FICO against the FCRA claims of Plaintiff Douglas Ashby. See Opin. and Order issued March 17, 2004. Accordingly, Porto and Wenzlick have adopted the class definition proposed by FICO.
FGI is FICO's attorney-in-fact (AIF). Even though FGI was dismissed as a defendant in this action because FGI did not underwrite the insurance policies involved in this case, anyone affiliated with FGI is excluded from the class because, as FICO's AIF, FGI provided all of the management services related to FICO's insurance policies, including the creation and delivery of the FCRA notices at issue. See Opin. and Order at 11 (issued Feb. 20, 2003).
FICO opposes the Motion for class certification for the following reasons: (1) individual issues of proposed class members predominate over issues common to the class, (2) proposed class representatives Porto and Wenzlick and their counsel have a conflict of interest with proposed absentee class members, (3) the claims of Porto and Wenzlick are neither "typical" nor "adequate," and (4) enforcement of alleged "technical violations" of FCRA by means of a class action is inappropriate.
1. Individual Issues of Fact as to Proposed Class Members.
FICO asserts the individual fact issues pertaining to each proposed class member predominate over issues common to the class.
a. Agent and Customer Communications.
FICO asserts there are individual fact issues pertaining to each proposed class member regarding conversations between FICO's agents and customers as to FICO's use of consumer credit reports to set insurance premium rates.
In Mark v. Valley Insurance Company, CV 01-1575-BR (filed Oct. 24, 2001), one of a series of FCRA cases pending in this Court, the Court stated:
Discussions between an insured and an insurance agent and the insured's understanding of the reasons for any higher premium rate are not relevant to the issue of whether Defendants gave adequate notice to the appropriate insureds. The specific notice requirements are set forth in 15 U.S.C. § 1681m(a). There is no statutory provision that allows a defense to the notice requirement on the basis of the insured's actual knowledge.
Opin. and Order at 8 (issued Feb. 6, 2004).
FICO attempts to distinguish this case from Mark on the grounds that many independent agents who sell personal lines insurance policies on behalf of FICO tell their customers that FICO uses information in consumer credit reports to set the premiums even though agents are not instructed to provide FCRA notices to their customers. In addition, FICO asserts its agents are a "dedicated agency force" who have agreements with FICO in contrast to the general agents used by Defendant Valley Insurance Company in Mark.
In Mark, no written notice of a renewal premium increase was given to the insureds. Here, however, FICO sent written notices "of the fact of an increase" to insureds in renewal insurance premiums as a supplement to similar oral communications made by its agents. FICO also presented a "specific record of [oral] communications from numerous agents to numerous class members relating to the sole alleged deficiency in the FICO written notice."
The Court finds FICO's evidence of ad hoc oral communications between its independent agents and insureds establishes only that some proposed class members may have had actual knowledge of the impact of their credit score on the premium FICO charged on renewal of the class members' policies. As noted, however, such evidence is not relevant as to whether FICO sent a notice that adequately complied with § 1681m(a).
On this record, the Court concludes conversations between independent agents and customers relating to FICO's use of consumer credit reports in setting premium rates are not relevant to the class members' FCRA claims based on FICO's alleged failure to give adequate notice of adverse actions FICO took against proposed class members.
b. Increase in Premium Based on Information in a Consumer Credit Report.
FICO asserts many factors may generate an increase in the premium charged to proposed class members on renewal of their insurance policies. For instance, changes in loss experience, coverage amounts, driving history, and general rate increases may increase the amount of the premium on renewal. Accordingly, FICO contends fact finding would be necessary as to each class member to determine whether the increase in the amount of premium charged on renewal was the result of information in a consumer credit report or one of the other factors set forth above. The Court disagrees.
FICO creates a letter grade for every insured based on information in a consumer credit report. The letter grade determines the amount FICO will charge for the premium, which is a percentage of the base premium rate. The base premium rate incorporates the noncredit report factors described by FICO before calculation of the final premium.
Accordingly, the increase in the premium charged to an insured with a higher letter grade based on information in a consumer credit report will always be greater than the increase charged to an insured with a lower letter grade because the former will always pay a higher percentage of the base premium rate.
The Court, therefore, finds the only individual fact issues to be decided as to each proposed class member are (1) whether the class member's premium increased on renewal of the insurance policy and (2) whether the increase in the premium charged was greater than the increase in the premium charged to other insureds who had the most favorable credit rating and whose premium was calculated from the same base premium rate as the class member's premium. Accordingly, the Court concludes the necessity of making the described limited factual determinations does not bar class certification.
c. Proposed Class Members' Subjective Understanding of FCRA Notice.
FICO contends there are individual fact issues as to whether each proposed class member actually understood from FICO's notice that the proposed class member had suffered an adverse action in the form of an increased premium based on a consumer credit report. FICO asserts proposed class members who actually understood FICO had taken such adverse action would be barred from any recovery. The Court disagrees.
The Court finds the cases FICO relies on to support its assertion are not on point because in each instance issues of proof regarding reliance on misrepresentations and/or proof of actual damages incurred by individual class members predominated over issues common to the class. See Buford v. H R Block, Inc., 168 F.R.D. 340 (S.D. Ga. 1996), aff'd sub nom Jones v. H R Block Tax Serv., 117 F.3d 1433 (11th Cir. 1997) (court denied motion for class certification of taxpayers who alleged the defendant fraudulently misrepresented that its Refund Anticipation Loan program involved a tax refund rather than a loan because reliance on the alleged fraudulent misrepresentations was an essential element of each class member's claim). See also Wilcox Dev. Co. v. First Interstate Bank of Or., 97 F.R.D. 440 (1983) (class action is inappropriate in a Sherman Act claim against a bank when proof of individual class members' injuries-in-fact and actual damages predominate over common issues).
Unlike Buford, Wilcox, and other cases relied on by FICO, the predominant issue in this case is the adequacy of a form notice of adverse action that FICO sent to thousands of insureds during a specific period. To the extent the proposed class members seek statutory damages, their subjective knowledge that FICO took adverse actions against them is irrelevant. See Schnall v. Amboy Nat'l Bank, 279 F.3d 205, 219 (3rd Cir. 2002) (in a class action to recover statutory as opposed to actual damages under the Truth-in-Savings Act, class members need not show they relied on defective account disclosures or were misled by the bank's failure to comply with the Act's disclosure requirements).
The Court, therefore, concludes the subjective knowledge of class members regarding adverse actions taken against them is not relevant to their claims for statutory damages under FCRA.
d. Proposed Class Members' Receipt of FCRA Notice.
FICO asserts there are individual fact issues as to whether each proposed class member actually received a FCRA notice. As noted, however, class members need not prove they relied on the FCRA notice in order to recover statutory damages. The only issue is whether FICO gave adequate notice of an adverse action taken against an insured based on information in a consumer credit report. Proposed individual class members must establish only that they are within the class of insureds who should have been given adequate notice of such an adverse action. If the notice FICO gave was inadequate under FCRA, proof of the insured's receipt of the notice is irrelevant.
e. Causation of Damage Suffered by Class Members.
FICO asserts there are individual fact issues as to whether each proposed class member suffered actual harm because of FICO's failure to provide adequate notice of the adverse action it took against the class members. FICO asserts "FCRA's statutory damages provision should be interpreted as Congress' method of compensating a plaintiff who has incurred actual damages where proof of the amount is difficult." Congress, however, has stated in plain terms that statutory damages are available as an alternative remedy to actual damages for class members who are not provided adequate notice of an adverse action taken against them when the alleged inadequate notice arises from a willful violation of FCRA's notice requirements. 15 U.S.C. § 1681n(a)(1)(B).
f. Amount of Actual Damages.
FICO asserts there are individual fact issues as to each of those proposed class members who seek actual damages in addition to statutory damages. As noted, statutory damages are an alternate remedy to actual damages under 15 U.S.C. § 1681n(a)(1)(B). Accordingly, a proposed class member may not seek both actual and statutory damages. FICO's concern that individual fact issues will arise when proposed class members seek both actual and statutory damages is, therefore, unfounded.
g. Amount of Statutory Damages.
FICO asserts there are individual fact issues as to the amount each proposed class member should receive as statutory damages because FCRA allows a range of statutory damages from $100 to $1000. 15 U.S.C. § 1681n(a)(1)(A). FICO asserts the range of damages awarded to each proposed class member may depend on whether the class member suffered "actual damages at all," whether proposed class members "exercised reasonable care," whether the premium amount charged was $1 or $500," or whether proposed class members seek "multiple recoveries."
At this stage of the proceedings, the Court cannot foresee every circumstance in which a plausible argument could be made that the amount of statutory damages awarded to individual proposed class members should be different. The Court, therefore, cannot rule out the possibility that certain proposed class members may be entitled to a greater or lesser award of statutory damages than other proposed class members. The Court, however, concludes FICO's concerns are premature for purposes of the Motion to Certify and do not provide a sufficient basis for this Court to exercise its discretion to disallow class certification. See Mark v. Valley Insurance Company, CV 01-1575-BR, Opin. and Order at 16 (issued Feb. 6, 2004) ("the potential for individualized determinations of statutory damages is insufficient to defeat class certification."). Opin. and Order at 16.
2. Conflict of Interest between Class Representatives and Proposed Class Members.
FICO asserts Porto and Wenzlick have a conflict with proposed absentee class members because Porto and Wenzlick seek only statutory damages and, therefore, "attempt to subvert a potentially larger individual claim [for actual damages] to accommodate their desire for class certification."
The Court's analysis in Mark, however, also applies here:
Plaintiff does not have a conflict of interest based on the mere fact that putative class members may seek actual damages rather than statutory and punitive damages. In addition, Plaintiff must prove willful misconduct to establish her entitlement to statutory and punitive damages. A finding of willful misconduct necessarily includes negligent misconduct sufficient to justify an award of actual damages under FCRA. Plaintiff and her counsel have sufficient incentive to pursue Defendants' liability under FCRA as aggressively as a class member who may choose to seek actual damages only. The plaintiff in a FCRA class action who does not seek actual damages has "a significant and sufficient enough stake in the outcome; she has, and can be expected to vigorously and zealously this alleged grievance" particularly when "dissatisfied class members have a right to opt out of the class." White v. Imperial Adjustment Corp., 2002 WL 1809084, at *13.
Opin. and Order at 14 (issued Feb. 6, 2004).
Although Porto and Wenzlick move only to represent a class of insureds who seek statutory and punitive damages based on FICO's allegedly willful violation of FCRA's notice requirements, they are capable of vigorously prosecuting the claims of those class members who seek actual damages but choose not to opt out of the class.
The Court, therefore, concludes Porto and Wenzlick do not have a conflict of interest in acting as class representatives for putative class members who seek actual damages based on FICO's alleged FCRA notice violation.
3. Typicality and Adequacy of Claims of Class Representatives.
FICO asserts Porto and Wenzlick are not typical or adequate class representatives because both of them are vulnerable to FICO's unique defense that neither Porto nor Wenzlick read the allegedly defective FCRA notices and, in fact, Wenzlick agreed to become a plaintiff in this action before he even received his FCRA notice. In addition, FICO asserts it has the unique defense that Porto did not suffer an adverse action arising from an increase in her homeowner insurance policy premium because the premium charged by FICO did not increase but, in fact, decreased after FICO discovered it had erroneously failed to credit discounts unrelated to information in Porto's consumer credit report.
As noted, the Court has found an insured's subjective knowledge as to the meaning of a FCRA adverse action notice is irrelevant in determining whether FCRA's notice requirements have been violated. Accordingly, the fact that Porto and Wenzlick may not have read the notices is not a viable defense. In addition, the Court found FICO failed to establish Porto did not suffer an adverse action regarding her homeowner policy. See Opin. and Order at 10 (issued Oct. 7, 2004).
As also noted, this Court previously concluded FICO failed to establish that its notices of adverse action to both Porto and Wenzlick complied with the requirements of FCRA as a matter of law. The issue at trial, therefore, will be whether FICO willfully failed to provide an adequate notice of adverse action to Porto, Wenzlick, and the other proposed class members.
Accordingly, the Court concludes the FCRA claims of Porto and Wenzlick are typical of the proposed class members' claims. Porto and Wenzlick, therefore, are adequate class representatives.
4. Enforcement of FCRA Notice Requirements by Class Action.
FICO asserts a class action in this case is not the "superior" method to enforce FCRA notice requirements because the potential aggregate statutory damages awarded to the class would be "grossly disproportional to the offense alleged." To support this proposition, FICO relies on a line of cases decided under the Truth in Lending Act (TILA), 15 U.S.C. § 1601, et seq., beginning with Ratner v. Chemical Bank New York Trust Company, 54 F.R.D. 412 (S.D.N.Y. 1972).
In Ratner, the plaintiff brought an action against a bank that issued him a "Mastercard" credit card. The plaintiff alleged the bank failed to show the statutorily required "nominal annual percentage rate" on a periodic statement that reported an outstanding principal balance on which no interest charge had accrued. The court agreed with the defendant's contention that certification of a class action was "unnecessary" because TILA provides for a "$100 minimum recovery and payment of costs and a reasonable fee for counsel; and (2) the proposed recovery of $100 each for some 130,000 class members would be a horrendous, possibly annihilating punishment, unrelated to any damage to the purported class or to any benefit to defendant, for what is at most a technical and debatable violation of the Truth in Lending Act." Id. 416 (emphasis added). See also La Mar v. H B Novelty Loan Co., 489 F.2d 461, 468 n. 7 (9th Cir. 1973) (the trend of authority is that class actions are inappropriate for claims based on a violation of TILA); Mathews v. Book-of-the-Month Club, Inc., 62 F.R.D. 479, 480 (N.D. Cal. 1974) ( Ratner has "come to be the leading case in class actions in Truth in Lending cases, particularly, and generally in statutory actions where Congress has provided for minimum damages and attorneys' fees.").
Congress removed the potential for defendants to suffer crushing damages from class action litigation brought under TILA by amending the statute to limit the maximum aggregate recovery in a class action to "the lesser of $500,000 or 1 per centum of the net worth of the creditor." See 15 U.S.C. § 1640(a)(1)(B).
Other courts, however, have upheld class actions in TILA cases. See Haynes v. Logan Furn. Mart, Inc., 503 F.2d 1161 (7th Cir. 1974). In Haynes, the court held a class action is appropriate under TILA when the class size is manageable: for example, when the class has approximately 2500 members and actual damages are alleged. The court adopted a case-by-case determination in which the court weighs the benefits of a class action under TILA against the protection of defendants from crushing damages:
[T]he purpose of enacting a statutory minimum damage provision was as much to induce creditor compliance with the Act as to provoke incentives for private litigants. Therefore, creditors disregarding their responsibilities under the Act and causing damages to members of a class however limited or extensive should have no assurance that their accumulated responsibility cannot be enforced through [a class action]. . . . [W]hile procedural fairness with respect to protecting defendants from crushing damages predicated on the statutory minimum recovery is an important consideration in determining the superiority of the class action mode of adjudication, it is at least equally important to prevent violators of the Act from limiting recovery to a few individuals where actual, widespread noncompliance is found to exist.Id. at 1164.
Here FICO asserts at least 130,000 of its insureds would be members of the class proposed by Porto and Wenzlick, and the potential range of verdict against FICO could be $52 to $520 million based on the assumption that each class member had four renewals for which FCRA notices were required. FICO asserts "a result so grossly disproportionate to the alleged notice deficiency is neither required nor permitted by the provisions of Rule 23 as applied to the facts of this case." The Court disagrees.
First, as noted, the Court has found Porto and Wenzlick have met each of the specific requirements for certification of a class action under Fed.R.Civ.P. 23. The underpinning of the cases rejecting class certification in TILA cases as well as other cases involving a range of consumer protection statutes is a policy determination by those courts that it is unfair to subject defendants to a potentially fatal financial blow based on technical violations of those statutes. This Court, however, is not persuaded it should follow a policy to protect defendants from potentially serious financial consequences based on their substantive violation of consumer protection statutes enacted by Congress. "In the absence of a direct expression by Congress of its intent to depart from the usual course of trying `all suits of a civil nature' under the Rules established for that purpose, class relief is appropriate in civil actions brought in a federal court." Califano v. Yamasaki, 442 U.S. 682, 700 (1979). See also Reiter v. Sonotone Corp., 442 U.S. 330, 344-45 (1979) ("[T]hat the cost of defending consumer class actions will have a potential ruinous effect on small businesses in particular and will ultimately be paid by consumers . . . are not unimportant considerations, but they are policy considerations more properly addressed by Congress than this Court.").
This Court is mindful of the potentially significant financial impact a successful class action may have on FICO. FICO has not asserted, however, that the impact will deal a fatal financial blow to its business. In addition, the Court does not credit FICO's apparent characterization of its alleged FCRA violations as "technical." FICO may be found liable to proposed class members for statutory damages only if the trier of fact finds FICO willfully violated FCRA's notice provisions. Although this Court has not decided the specific standard that should be applied to determine whether a violation of FCRA's notice requirements is "willful," the Court is satisfied that a willful violation of the statute is more than a "technical" one.
See related case of Razilov v. AMCO, CV 01-1446-BR, Opin. and Order at 19-20 (issued Mar. 3, 2004).
The Court, therefore, concludes a class action seeking statutory damages for violations of FCRA's notice requirements is neither inappropriate nor unfair, and, in any event, these are policy considerations for Congress.
CONCLUSION
For these reasons, the Court GRANTS Plaintiffs' Motion for Class Certification (#113) of the following class:
All automobile and property personal lines insurance policyholders of Farmers Insurance Company of Oregon (FICO) during the period February 26, 2001 to August 1, 2002, who paid a renewal premium that was increased over the prior period's premium when such increase was based in whole or in part on information contained in a consumer report, and excluding any current officer, director, or employee of FICO, Farmers Group, Inc. (FGI), or its affiliates, or any former officer, director, or employee of FGI, FICO, or their affiliates who served during the class period, or any judge of the United States District Court for the District of Oregon.
IT IS SO ORDERED.