Opinion
Civil Action No. 99-4908
May 14, 2002
REPORT AND RECOMMENDATION
INTRODUCTION
This matter comes before me on the motion of plaintiff Martin Schnall for class certification pursuant to Rule 23. This matter was referred to me by Judge Hayden. I have considered the papers submitted in support of and in opposition to the motion. There was no oral argument. Rule 78.
BACKGROUND
This action arises out of a number of advertisements placed in the Star-Ledger by the defendant Amboy National Bank ("Amboy"), between October 18, 1998 and October 10, 1999. These advertisements promoted Amboy's Money Market Accounts. In October of 1998, plaintiff opened an Amboy Money Market Account with an initial deposit of $20,000.
On October 18, 1999, plaintiff initiated this action against Amboy to recover actual and statutory damages pursuant to the Truth in Savings Act, 12 U.S.C. § 4301 et seq. ("TISA"), based upon the newspaper advertisements and individual account disclosures made by Amboy. The parties cross-moved for summary judgment. On January 25, 2001, Judge Hayden granted Amboy's motion for summary judgment, holding that Amboy's advertisements and account disclosures complied with the requirements of TISA. On appeal, the Third Circuit Court of Appeals reversed, concluding that Amboy's advertisements and account disclosures violated TISA and the implementing regulations. Schnall v. Amboy Nat'l Bank, 279 F.3d 205, 207 (3d Cir. 2002). The matter was remanded for further proceedings to determine the amount of damages. Schnall, 279 F.3d at 219. Plaintiff now seeks to certify a class consisting of all persons who had deposited at least $20,000 into an Amboy Money Market Account from October 18, 1998 through October 18, 1999.
DISCUSSION
Plaintiff seeks class certification pursuant to Rule 23(a), which provides, in pertinent part:
One or more members of a class may sue or be sued as representative parties on behalf of all if (1) the class is so numerous that joinder of all members is impracticable; (2) there are questions of law or fact common 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.
Rule 23(a) sets forth requirements of numerosity, commonality, typicality, and adequacy of representation. Johnston v. HBO Management, Inc., 265 F.3d 178, 183 (3d Cir. 2001). The first two, numerosity and commonality, test the validity of the class; the last two, typicality and adequacy of representation, test the adequacy of the representatives.Hassine v. Jeffes, 846 F.2d 169, 176 (3d Cir. 1988).
In addition to meeting the requirements of Rule 23(a), "the court must also find that the class action is maintainable under Rule 23(b)(1), (2) or (3)." Johnston, 265 F.3d at 184. Here, plaintiff invokes Rule 23(b)(3), which provides that an action may be maintained as a class action if the prerequisites of Rule 23(a) are satisfied and,
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 plaintiff bears the burden of proving that the class should be certified. Davis v. Romney, 490 F.23d 1360, 1366 (3d Cir. 1974). If a court is satisfied that each of the four elements of Rule 23(a) have been met, and that the class is maintainable pursuant to Rule 23(b)(3), the court may certify the class. General Tel. Co. of Southwest v. Falcon, 457 U.S. 147, 161 (1982); In re Life USA Holding Inc., 242 F.3d 136, 143-44 (3d Cir. 2001).
Adequacy of Representation
Class representatives must "fairly and adequately protect the interests of the class." Rule 23(a)(4). Adequate representation relies on two factors: (1)the plaintiffs attorney must be qualified, experienced, and generally able to conduct the proposed litigation; and (2) the plaintiff must not have interests antagonistic to those of the class. Cureton v. Nat'l Collegiate Athletic Ass'n, 1999 U.S. Dist. Lexis 9706, *22 (E.D. Pa. 1999). Whether a party will adequately protect the interests of the class is a factual determination that depends on the circumstances of each case. Susman v. Lincoln American Corp., 561 F.2d 86, 90 (7th Cir. 1977).
Here, plaintiff Martin Schnall is being represented by the law firm of Heller, Horowitz Feit ("the Heller firm"). Martin Schnall's son, Harley Schnall, is an attorney who directed his father to the Heller firm for representation in this action. Although Harley Schnall is not associated with the Heller firm, he has referred several potential class-action lawsuits to the firm, including this one. Exhibit B at pp. 38-40, Aff. of Helen A. Nau. In relation to the action sub judice, Harley Schnall reviewed statutes and briefs, prepared Martin Schnall for his deposition, been involved with the production of documents, and observed arguments before the Third Circuit. Harley Schnall has testified that he has an "expectation that perhaps when these cases [his class actions with the Heller law firm, including this action] are resolved and if they're settled substantially in favor of the plaintiff, that within the bounds of what's legally and ethically acceptable, that I might be recognized for my contribution to the cases."
Amboy argues that Harley Schnall's active role in this litigation creates an improper affiliation between the class representative and his attorneys and an unacceptable conflict of interest. In response, plaintiff asserts that since the issue of liability has already been decided, the only issue to be determined is the amount of statutory damages that should be awarded to the purported class. According to plaintiff, there is no risk of a "sell out" under these circumstances.
In Susman, a consolidated class action, the Seventh Circuit analyzed the adequacy of representation in three situations: where the plaintiff is a member of the same law firm as class counsel, where the plaintiff is a brother of class counsel, and where the plaintiff shares office space with class counsel. 561 F.2d at 86. In holding that the purported class representatives were inadequate in each of these situations, the court stated:
[A] majority of courts . . . have refused to permit class attorneys, their relatives, or business associates from acting as the class representative. The most frequently cited policy justification for this line of cases arises from the possible conflict of interest resulting from the relationship of the putative class representative and the putative class attorney. Since possible recovery of the class representative is far exceeded by potential attorney's fees, courts fear that a class representative who is closely associated with the class attorney would allow settlement on terms less favorable to the interests of absent class members.Susman, 561 F.2d at 90-91. Susman endorsed the concept that a conflict of interest might arise based on the relationship between the class representative and class counsel even though the class representative would not share in the attorney's fees. Susman, 561 F.2d at 95.
In Hale v. Citibank, 198 F.R.D. 606 (S.D.N.Y. 2001), the court denied class certification to the proposed class representative, Harley Schnall's wife, Andrea Hale, because of the potential conflict of interest. In Hale, Harley Schnall had referred his wife to the Heller firm for representation. 198 F.R.D. at 607. In denying class certification, the court reasoned:
Class certification must be denied because, among other reasons, plaintiff cannot fairly and adequately represent the interests of the putative class. See Fed.R.Civ.P. 23(a)(4). Most prominently this is because there is a potential conflict of interest between her duties to the prospective class and her husband's contingent financial interest in the fees, if any obtained by the law firm proposed to represent the class, Heller, Horowitz Feit, P.C. ("the Heller firm"), not just in this suit but in other actions. . . Schnall's "contribution" to these cases allegedly consists of directing the attorneys at the Heller firm to the relevant statute and regulations and reviewing pleadings and briefs prepared by the Heller firm.
Whether these problematic arrangements violate New York State law or ethics is not before this Court. Whether lawful or not, however, they will inevitably cause Hale to confuse her fiduciary duty to the prospective class with her interest in protecting and advancing her husband's contingent financial relationship with the Heller firm, which in turn is related to a host of extraneous considerations, including the conduct of other cases. Given the numerous respects in which such interests could conflict, Hale cannot be relied on to fairly and adequately represent the proposed class.Hale, 198 F.R.D. at 607.
The facts presented here are identical to those in Hale, except that it is now Harley Schnall's father who is attempting to become the class representative. There are circumstances involved here that will inevitably cause Martin Schnall to confuse his fiduciary duty to the prospective class with his interest in protecting and advancing his son's contingent financial relationship with the Heller firm. Here, the statutory damages are de minimis and, therefore, Martin Schnall's possible recovery is far exceeded by potential attorney's fees. In addition, Harley Schnall has assisted the Heller firm with the litigation and is expecting a portion of the attorney's fees. These circumstances may allow settlement on terms less favorable to the interests of absent class members. Martin Schnall cannot be relied on to fairly and adequately represent the interests of the proposed class, as is required by Rule 23(a)(4). Plaintiff's motion for class certification should be DENIED.
CONCLUSION
For the reasons set forth above, I recommend that plaintiffs motion for class certification be DENIED.
Pursuant to Local Civil Rule 72.1(c)(2), the parties have ten (10) days from receipt of this Report and Recommendation to file and serve objections.