15-2398
Adkins v. Morgan Stanley
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
SUMMARY ORDER
RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A SUMMARY ORDER FILED
ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED BY FEDERAL RULE OF APPELLATE
PROCEDURE 32.1 AND THIS COURT’S LOCAL RULE 32.1.1. WHEN CITING A SUMMARY ORDER IN A
DOCUMENT FILED WITH THIS COURT, A PARTY MUST CITE EITHER THE FEDERAL APPENDIX OR AN
ELECTRONIC DATABASE (WITH THE NOTATION “SUMMARY ORDER”). A PARTY CITING A SUMMARY ORDER MUST
SERVE A COPY OF IT ON ANY PARTY NOT REPRESENTED BY COUNSEL.
1 At a stated term of the United States Court of Appeals
2 for the Second Circuit, held at the Thurgood Marshall United
3 States Courthouse, 40 Foley Square, in the City of New York,
4 on the 14th day of July, two thousand sixteen.
5
6 PRESENT: DENNIS JACOBS,
7 REENA RAGGI,
8 DENNY CHIN,
9 Circuit Judges.
10
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12 BEVERLY ADKINS, CHARMAINE WILLIAMS,
13 REBECCA PETTWAY, RUBBIE MCCOY, and
14 WILLIAM YOUNG, on behalf of
15 themselves and all others similarly
16 situated, and MICHIGAN LEGAL
17 SERVICES,
18 Plaintiffs-Appellants,
19
20 -v.- 15-2398
21
22 MORGAN STANLEY, MORGAN STANLEY & CO.
23 LLC, MORGAN STANLEY ABS CAPITAL I
24 INC., MORGAN STANLEY MORTGAGE CAPITAL
25 INC., and MORGAN STANLEY MORTGAGE
26 CAPITAL HOLDINGS LLC,
27 Defendants-Appellees.
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1
1 FOR APPELLANTS: RACHEL E. GOODMAN (with Dennis
2 D. Parker on the brief),
3 American Civil Liberties Union
4 Foundation, New York, NY,
5
6 Stuart T. Rossman, on the brief,
7 The National Consumer Law
8 Center, Boston, MA,
9
10 Elizabeth J. Cabraser, on the
11 brief, Lieff Cabraser Heimann &
12 Bernstein, LLP, San Francisco,
13 CA; Rachel J. Geman, on the
14 brief, Lieff Cabraser Heimann &
15 Bernstein, LLP, New York, NY.
16
17 FOR APPELLEES: NOAH A. LEVINE (with Colin T.
18 Reardon and John Paredes on the
19 brief), Wilmer Cutler Pickering
20 Hale and Dorr LLP, New York, NY;
21 David W. Ogden and Jonathan A.
22 Bressler, on the brief, Wilmer
23 Cutler Pickering Hale and Dorr
24 LLP, Washington, DC.
25
26 Appeal from an order of the United States District
27 Court for the Southern District of New York (Caproni, J.).
28
29 UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED
30 AND DECREED that the order of the district court be
31 AFFIRMED.
32
33 The plaintiffs, a putative class of African-American
34 homeowners in the Detroit area, appeal from an order of the
35 United States District Court for the Southern District of
36 New York (Caproni, J.), denying class certification. The
37 plaintiffs allege a disparate impact under the Fair Housing
38 Act (“FHA”), 42 U.S.C. § 3605, by certain alleged policies
39 and practices of defendants Morgan Stanley, Morgan Stanley &
40 Co. LLC, Morgan Stanley ABS Capital I Inc., Morgan Stanley
41 Mortgage Capital Inc., and Morgan Stanley Mortgage Capital
42 Holdings LLC (collectively “Morgan Stanley”). Specifically,
43 the plaintiffs allege that Morgan Stanley’s purchases of
44 home loans from New Century induced New Century to make
45 costly, high-risk loans to the class at a higher rate than
46 comparable white borrowers. We assume the parties’
2
1 familiarity with the underlying facts, the procedural
2 history, and the issues presented for review.
3
4 1. We review a district court’s class certification
5 determination for abuse of discretion. See Johnson v.
6 Nextel Commc’ns, 780 F.3d 128, 137 (2d Cir. 2015). Under
7 that standard, review of legal conclusions is de novo, while
8 factual findings are reviewed for whether they are clearly
9 erroneous. Myers v. Hertz Corp., 624 F.3d 537, 547 (2d Cir.
10 2010). “In reviewing findings for clear error,” we will not
11 “second-guess . . . the trial court’s . . . choice between
12 permissible competing inferences.” Arch Ins. v. Precision
13 Stone, Inc., 584 F.3d 33, 39 (2d Cir. 2009) (internal
14 quotation marks omitted). “Inherent in this deferential
15 standard of review is a recognition of the district court’s
16 inherent power to manage and control pending litigation.”
17 Johnson, 780 F.3d at 137 (internal quotation marks omitted).
18
19 2. The district court here concluded that the
20 plaintiffs failed to satisfy the typicality requirement of
21 Fed. R. Civ. P. 23(a)(3), as well as the predominance and
22 superiority requirements of Fed. R. Civ. P. 23(b)(3). With
23 respect to predominance, the district court concluded that
24 common issues do not predominate over individual issues
25 because, among other things, (1) within the proposed class
26 there are 33 different combinations of risk factors, each of
27 which affected the plaintiffs’ loans differently and would
28 thus require individual proof to establish a particular
29 combination’s harmfulness;1 and (2) causation is not subject
30 to class-wide proof because the extent to which Morgan
31 Stanley caused the loans that the plaintiffs received would
32 depend on the risk factors present and Morgan Stanley’s
33 involvement in each particular loan. See Myers, 624 F.3d at
34 547 (explaining that predominance requirement is satisfied
35 “if resolution of some of the legal or factual questions
36 that qualify each class member’s case as a genuine
37 controversy can be achieved through generalized proof, and
38 if these particular issues are more substantial than the
1
The risk factors include (1) stated income where
the income of the borrower was not verified; (2) debt-to-
income ratio exceeding 55%; (3) the loan-to-value ratio
exceeding 90%; (4) adjustable interest rates; (5) “interest
only” payment features; (6) negative loan amortization
features; (7) “balloon” payment features; and (8) prepayment
penalties.
3
1 issues subject only to individual proof” (internal quotation
2 marks omitted)).
3
4 On appeal, the plaintiffs do not meaningfully challenge
5 the conclusion that common questions do not predominate over
6 individual issues. In any event, we identify no abuse of
7 discretion in the district court’s predominance conclusion.
8 Thus, we need not consider the plaintiffs’ challenges to the
9 district court’s typicality and superiority determinations.
10 See id. at 548 (concluding, where district court denied
11 class certification on basis of typicality, commonality, and
12 predominance, that “[w]e need only address the
13 ‘predominance’ requirement”); see also Fed. R. Civ. P.
14 23(b)(3) (requiring finding that “questions of law or fact
15 common to class members predominate over any questions
16 affecting only individual members, and that a class action
17 is superior to other available methods for fairly and
18 efficiently adjudicating the controversy” (emphasis added)).
19
20
21 3. The plaintiffs argue that the district court did
22 not consider certification of issue classes or its proposed
23 alternative class. However, the plaintiffs did not move for
24 certification of issue classes and did not propose an
25 alternative class until oral argument before the district
26 court.
27
28 While the district court “is empowered under Rule
29 23(c)(4) to carve out an appropriate class,” it is “not
30 obligated to implement Rule 23(c)(4) on its own initiative.”
31 Lundquist v. Security Pac. Auto. Fin. Servs. Corp., 993 F.2d
32 11, 14 (2d Cir. 1993); see also U.S. Parole Comm’n v.
33 Geraghty, 445 U.S. 388, 408 (1980).
34
35 The plaintiffs’ proposed alternative class is to limit
36 the class to only those borrowers whose loans Morgan Stanley
37 actually purchased.2 The district court ruled that
38 permitting the plaintiffs to change their theory at a late
39 stage would “unfairly prejudice” the defendants. Adkins v.
2
The current class definition includes all loans
originated by New Century to African-American homeowners in
the Detroit area, regardless of whether Morgan Stanley
actually purchased that loan. Indeed, only one of the five
named plaintiff has a loan that was purchased by Morgan
Stanley.
4
1 Morgan Stanley, 307 F.R.D. 119, 147-48 (S.D.N.Y. 2015). We
2 agree. The district court further ruled that, even if the
3 alternative class had been timely proposed, the class still
4 could not overcome the problems with the risk factors as
5 used in the original class definition: the class would still
6 include individuals whose loans had vastly different
7 features from one another. Accordingly, the district court
8 did not abuse its discretion in failing to certify the
9 proposed alternative class.
10
11 For the foregoing reasons, and finding no merit in the
12 plaintiff’s other arguments, we hereby AFFIRM the order of
13 the district court.
14
15 FOR THE COURT:
16 CATHERINE O’HAGAN WOLFE, CLERK
17
5