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De Lage Landen Financial Services, Inc. v. Rasa Floors

August 20, 2010

DE LAGE LANDEN FINANCIAL SERVICES, INC.
v.
RASA FLOORS, LP
v.
3COM CORPORATION, AND CAPITAL 4, INC.
DE LAGE LANDEN FINANCIAL SERVICES, INC.
v.
VIEWPOINT COMPUTER ANIMATION, INC.
v.
3COM CORPORATION, AND CAPITAL 4, INC.
v.
NORTH CENTRAL COMMUNICATIONS CORP.



The opinion of the court was delivered by: Baylson, J.

MEMORANDUM RE: DEFENDANTS' MOTION FOR CLASS CERTIFICATION

I. Introduction

The issue presented is whether the Court should certify class actions in these two consolidated cases. Before reviewing the extensive factual record and discussing the analysis of legal issues, it is relevant to note the recently changing landscape of class action jurisprudence. Modern Federal Rule of Civil Procedure 23 ("Rule 23") became effective in 1966, and ushered in a momentous period of "complex litigation." In a class action, counsel for the plaintiff is formally only representing the named plaintiff. However, the plaintiff, as class representative, and by extension, the plaintiff's counsel, are acting for, realistically if not legally, hundreds, thousands, or in some cases, millions of people. By definition, the court has determined all of them are "similarly situated." In a suit for damages, which reflects virtually all class actions except those asserting civil rights violations, the court must also find that common questions "predominate," and a suit brought by a single plaintiff often results in damages being awarded for the entire "class."

The Supreme Court, in its landmark Eisen v. Carlisle and Jacquelin decision, 417 U.S. 156 (1974), essentially adopted a pleadings standard for their lower federal courts to apply in determining whether a case should be maintained as a class action. With this fairly liberal and easy to satisfy threshold, district judges began certifying numerous classes. Two frequent examples of the types of cases often certified as class actions include Sherman Act § 1 antitrust claims and Rule 10(b)(5) securities fraud claims. The damages exposure to a defendant or defendants was drastically increased from what could be expected to be awarded to a single plaintiff, as to whom damage was usually finite and reasonably calculated, to damages that would be reflective (and sometimes approximate) of the injury caused to countless individuals and/or entities who had claims similar to the class representative. In practice, the lawyers representing class action plaintiffs controlled the cases, and developed substantial expertise (and wealth) from learning how to gather evidence, present damage theories, and administer class actions-at the same time tremendously increasing the settlement pressure on defendants by virtue of the increased damages exposure. This commentary is not necessarily critical of class actions-they provide remedial justice for serious wrongdoing, and obviate multiple lawsuits by individual plaintiffs who have been injured and often will forego their own lawsuit because of the expense and bother, even though they have meritorious rights for damages or other relief.

In more recent years, and partly as a result of amendments to Rule 23 that took effect in 1998-principally, the allowance of an interlocutory appeal from a district court decision approving or denying a class action-circuit courts began to take a closer look at district court decisions, and, in particular, the economic consequences of class actions. In its recent decision in In re Hydrogen Peroxide Antitrust Litigation, 552 F.3d 305 (3d Cir. 2008), the Third Circuit developed rigorous standards that a district court judge must apply in order to certify a class, which require looking "rigorously" at many details concerning class actions, including the underlying merits of the litigation and the fairness to defendants, and basically ushered in a new day of determining whether to certify class actions.

Here, Plaintiff De Lage Landen Financial Services, Inc. ("DLL") brought suit in two separate cases against two separate Defendants: first, against Defendant Viewpoint Computer Animation, Inc. ("Viewpoint") (Civ. Docket No. 08-534), and second, against Defendant Rasa Floors, LP ("Rasa") (Civ. Docket No. 08-533). In both cases, DLL brought one count for breach of contract and one count for unjust enrichment, to recover damages resulting from an alleged breach of an equipment rental contract entered into between the parties. Also in both cases, each respective Defendant brought counterclaims against Plaintiff DLL; additionally, each Defendant subsequently brought claims against Third-Party Defendants 3Com Corporation ("3Com") and Capital 4, Inc. ("Capital 4").*fn1 The two cases were ultimately consolidated for purposes of discovery pursuant to this Court's Order of April 14, 2009.

The Defendants, Rasa and Viewpoint, have refused to pay Plaintiffs, and have brought counterclaims alleging breach of contract, fraud and other claims against DLL, and also against third party Defendant 3Com. Rasa and Viewpoint have moved to be designated as class representatives for similarly situated individuals who were likewise customers of DLL and 3Com. Thus, presently before the Court is Defendant Viewpoint's and Defendant Rasa's joint second amended motion for class certification under Fed. R. Civ. P. 23 (Doc. No. 109), in which Defendants seek to certify a main class and three subclasses relating to the various counts they asserted against Plaintiff DLL and Third-Party Defendants 3Com and Capital 4. For the reasons set forth in this Memorandum, the motion for class certification will be denied.

II. Procedural History and Factual Background

A. Procedural History

1. DLL. v. Viewpoint Case (Civ. Docket No. 08-534)

Plaintiff DLL filed its complaint against Defendant Viewpoint on February 1, 2008 (Doc. No. 1). On May 16, 2008, Viewpoint filed its answer and counterclaims (Doc. No. 6), bringing counterclaims against Plaintiff DLL, as well as claims against additional Third-Party Defendant Capital 4*fn2 . On June 5, 2008, Plaintiff DLL filed a motion to dismiss the counterclaim (Doc. No. 9). On July 14, 2008, Defendant Viewpoint filed an Amended Answer, Affirmative Defenses, Amended Counterclaim and Third-Party Complaint, this time bringing counterclaims against Plaintiff DLL as well as claims against Third-Party Defendants Capital 4 and 3Com (Doc. No. 14). On July 28, 2008, this Court filed an order denying Plaintiff DLL's initial motion to dismiss the counterclaim as moot (Doc. No. 17).

On August 15, 2008, Plaintiff DLL filed a motion to dismiss Defendant Viewpoint's amended counterclaim (Doc. No. 19), to which Viewpoint responded on September 24, 2008 (Doc. No. 21) and supplemented on October 9, 2008 (Doc. No. 24). DLL replied on October 27, 2008 (Doc. No. 26), and on March 11, 2009, this Court ruled on the motion to dismiss the amended counterclaim, both granting in part and denying in part (Doc. No. 40; De Lage Landen Fin. Services, Inc. v. Viewpoint Computer Animation, Inc., 2009 WL 678635 (E.D. Pa. Mar. 11, 2009) (Baylson, J.)). On September 30, 2008, Defendant Viewpoint filed its "Motion Under Rule 14 for Leave to Join Third Party Defendants, Motion Under Rules 19 and 20 for Leave to Join Additional Counterclaim Defendants, and Brief in Support Thereof" (Doc. No. 23), which this Court granted on October 22, 2008 (Doc. No. 27).

On January 23, 2009, Third-Party Defendant 3Com filed a motion to dismiss the claims asserted against it by Defendant Viewpoint (Doc. No. 31). Viewpoint responded on February 2, 2009 (Doc. No. 35), and 3Com replied on February 11, 2009 (Doc. No. 36). On April 1, 2009, this Court ruled on 3Com's motion to dismiss, both granting in part and denying in part (Doc. Nos. 43, 44; De Lage Landen Fin. Services, Inc. v. Viewpoint Computer Animation, Inc., 2009 WL 902365 (E.D. Pa. Apr. 1, 2009) (Baylson, J.)).

On April 16, 2009, Defendant Viewpoint filed its Second Amended Answer, Affirmative Defenses, Amended Counterclaim and Third-Party Complaint (Doc. No. 49). Plaintiff DLL filed its answer on June 1, 2009 (Doc. No. 62), as did Third-Party Defendant 3Com (Doc. No. 63). On July 29, 2009, 3Com filed an amended answer and affirmative defenses (Doc. No. 79).

2. DLL v. Rasa Case (Civ. Docket No. 08-533)

Plaintiff DLL filed its complaint against Defendant Rasa on February 1, 2008 (Doc. No. 1). On May 22, 2008, Defendant Rasa filed a motion to dismiss for lack of jurisdiction and improper venue (Doc. No. 7), to which DLL responded on June 20, 2008 (Doc. No. 14). Rasa replied on June 27, 2008 (Doc. No. 15), and also on the same date filed a motion requesting oral argument on the motion (Doc. No. 16). The Court held oral argument on September 17, 2008, after which the parties filed post-hearing briefing as follows: Plaintiff DLL on October 1, 2008 (Doc. No. 24), and Defendant Rasa on October 6, 2008 (Doc. No. 27). Defendant Rasa supplemented its post-hearing briefing on October 9, 2008 (Doc. No. 28), to which Plaintiff DLL responded on October 14, 2008 (Doc. No. 29). On November 4, 2008, the Court issued its opinion and order denying Defendant Rasa's motion to dismiss (Doc. No. 32; De Lage Landen Fin. Services, Inc. v. Rasa Floors, LP, 2008 WL 4822033 (E.D. Pa. Nov. 4, 2008) (Baylson, J.)).

On November 18, 2008, Defendant Rasa filed its Answer, Affirmative Defenses, Counterclaim and Third-Party Complaint, bringing counterclaims against Plaintiff DLL, as well as claims against Third-Party Defendants 3Com and Capital 4 (Doc. No. 34). On December 8, 2008, Plaintiff DLL filed a motion to dismiss Defendant Rasa's counterclaim (Doc. No. 38), to which Rasa responded on January 16, 2009 (Doc. No. 44). DLL replied on January 23, 2009 (Doc. No. 49). The Court ruled on DLL's motion on March 5, 2009, both granting in part and denying in part (Doc. No. 58; De Lage Landen Fin. Services, Inc. v. Rasa Floors, LP, 2009 WL 564627 (E.D. Pa. Mar. 5, 2009) (Baylson, J.)).

On January 23, 2009, Third-Party Defendant 3Com filed its motion to dismiss the claims asserted against it by Defendant Rasa (Doc. No. 47), to which Defendant Rasa responded on February 24, 2009 (Doc. No. 54). 3Com filed its reply on February 26, 2009 (Doc. No. 56). The Court ruled on 3Com's motion on March 31, 2009, both granting in part and denying in part (Doc. No. 64; De Lage Landen Fin. Services, Inc. v. Rasa Floors, LP, 2009 WL 884114 (E.D. Pa. Mar. 31, 2009) (Baylson, J.)).

On February 17, 2009, the Court issued an Order (Doc. No. 52) requesting that Defendant Rasa file a brief memorandum explaining whether it properly added 3Com and Capital 4 as Third-Party Defendants. Rasa filed its memorandum on this issue on February 19, 2009 (Doc. No. 53), and 3Com responded on February 26, 2009 (Doc. No. 57).

On April 16, 2009, Defendant Rasa filed its Amended Answer, Affirmative Defenses, Counterclaim and Third-Party Complaint (Doc. No. 70). Plaintiff DLL responded on June 1, 2009 (Doc. No. 85), as did Third-Party Defendant 3Com (Doc. No. 88). 3Com subsequently filed an amended answer on July 28, 2008 (Doc. No. 99).

On August 26, 2009, Plaintiff DLL filed a motion for leave to file a third-party complaint in order to assert claims against North Central Communications Corporation ("NCC") (Doc. No. 101). Rasa responded on September 3, 2009 (Doc. No. 102), and DLL replied on September 14, 2009 (Doc. No. 103). The Court granted DLL's motion for leave to file its third-party complaint on October 2, 2009 (Doc. No. 104), and on October 5, 2009, DLL filed its third-party complaint against NCC (Doc. No. 105). NCC filed a motion to dismiss the third-party complaint on November 24, 2009 (Doc. No. 106), to which DLL responded on December 18, 2009 (Doc. No. 111). NCC replied on December 28, 2009 (Doc. No. 116), and on March 2, 2010, the Court issued its ruling denying NCC's motion to dismiss (Doc. Nos. 124, 125; De Lage Landen Fin. Services, Inc. v. Rasa Floors, LP, 2010 WL 742625 (E.D. Pa. Mar. 2, 2010) (Baylson, J.)).

On June 10, 2010, Plaintiff DLL filed a request to enter default against NCC for failure to plead or otherwise defend (Doc. No. 144), and on June 15, 2010, NCC filed its Answer, Affirmative Defenses, Third-Party Complaint and Cross-Claim Against 3Com (Doc. No. 147). On July 7, 2010, Plaintiff DLL filed its answer and affirmative defenses to NCC's counterclaims (Doc. No. 151), and on July 16, 2010, 3Com filed its answer and affirmative defenses to NCC's claims against it, as well as its own counterclaims against NCC (Doc. No. 155). On July 29, 2010, Plaintiff DLL and Third-Party Defendant NCC stipulated and agreed that DLL would file an amended third-party complaint (Doc. No. 156), and on that same date, DLL filed its amended third-party complaint against NCC (Doc. No. 158).

3. Class Certification Issue

On April 14, 2009, this Court entered an Order on both dockets consolidating the two cases for purposes of discovery (DLL v. Viewpoint, Civ. Docket No. 08-534, Doc. No. 47; DLL v. Rasa, Civ. Docket No. 08-533, Doc. No. 67). For purposes of clarity, the Court will, going forward, refer only to the docket number for each respective docket entry as each entry appears on the DLL v. Viewpoint docket, Civ. Docket No. 08-534-even though the same class certification papers have been filed and thus appear on both cases' dockets.

On April 30, 2009, Defendant Viewpoint filed a motion for class certification under Fed. R. Civ. P. 23 (Doc. No. 50). Pursuant to this Court's Order of July 24, 2009 (Doc. No. 76), Viewpoint's motion for class certification was withdrawn without prejudice as of July 22, 2009, and re-filed on July 24, 2009 (as Doc. No. 77). On November 11, 2009, Viewpoint filed its memorandum in support of its motion for class certification (Doc. No. 81). On November 24, 2009, Plaintiff DLL filed its response to the class certification motion (Doc. No. 85), as did Third-Party Defendant 3Com (Doc. No. 87). Defendant Viewpoint filed its reply on December 18, 2009 (Doc. No. 93). The Court held oral argument on Viewpoint's class certification motion on December 23, 2009.

As required by the Court's post-oral argument Order of December 24, 2009 (Doc. No. 99), the parties filed contention statements as to material facts relevant to maintaining the case as a class action: Plaintiff DLL's was filed on January 15, 2010 (Doc. No. 102); Defendants Viewpoint's and Rasa's was jointly*fn3 filed on January 28, 2010 (Doc. No. 103); and Third-Party Defendant 3Com's was filed on February 12, 2010 (Doc. No. 104). Plaintiff DLL responded to Defendants Viewpoint's and Rasa's contention statement on February 24, 2010 (Doc. No. 106), as did Third-Party Defendant 3Com (Doc. No. 107). Defendants Viewpoint and Rasa replied to Plaintiff DLL's contention statement on February 28, 2010 (Doc. No. 110), and to Third-Party Defendant 3Com's contention statement on March 1, 2010 (Doc. No. 112). Also as required by the Court's Order of December 24, 2009, the parties sent letters to the Court explaining their positions regarding further procedures to address the class certification issue: 3Com's letter was sent on February 26, 2010; DLL's letter was sent on February 26, 2010; and Viewpoint's and Rasa's joint letter was sent on February 26, 2010, and supplemented on February 28, 2010.

On February 28, 2010, Defendants Viewpoint and Rasa jointly filed a second amended motion for class certification under Fed. R. Civ. P. 23 (Doc. No. 109). The Court subsequently held a recorded telephone conference on the record on March 3, 2010 (transcript at Doc. No. 115) to discuss the class action issue. As a result, the Court's Order of March 8, 2010 (Doc. No. 113) required the parties to timely file pre-hearing statements and objections to such statements, which they subsequently did (see Doc. Nos. 116, 118, 119, 121, 122, 123, 124).

On May 4 and 5, 2010, the Court held a two-day evidentiary hearing on the class certification motion, after which the Court required further briefing from the parties on the issues. Defendants Viewpoint and Rasa filed their joint post-hearing brief in support of class certification on June 4, 2010 (Doc. No. 134). On June 25, 2010, Plaintiff DLL responded in opposition to class certification (Doc. No. 135), as did Third-Party Defendant 3Com (Doc. No. 137); additionally, on that same date, Plaintiff DLL and Third-Party Defendant 3Com jointly responded in opposition to class certification (Doc. No. 136). Defendants Viewpoint and Rasa filed their joint reply brief in support of class certification on July 14, 2010 (Doc. No. 140).

Finally, the Court asked the parties in its letter dated July 15, 2010 to comment on the Third Circuit's recent opinion in Sullivan v. DB Investments, Inc., --- F.3d ---, 2010 WL 2736947 (3d Cir. July 13, 2010). The parties timely submitted their responses on July 23, 2010: DLL docketed its response (Doc. No. 141), while 3Com, Viewpoint, Rasa, sent their letters to chambers.

4. Defendant Viewpoint's and Rasa's Counterclaims and Third-Party Claims

On April 16, 2009, in both the DLL v. Rasa and DLL v. Viewpoint cases, Defendants Viewpoint and Rasa-both represented by the same counsel-filed their amended answer, affirmative defenses, counterclaim, and third-party complaint*fn4; these claims were re-stated by Defendants in their jointly-filed Second Amended Motion Under Rule 23 for Class Certification (Doc. No. 109) filed on February 28, 2010. The counts raised, along with how Defendants plan to pursue them with respect to the class certification issue, and which proposed class or subclass they entail, were described by Defendants as follows:*fn5

Count Claim Proposed Class or Subclass 1 Indemnification (against Capital 4) Entire class (not expected to be defended) 2 Indemnification (against 3Com) Entire class 3 Breach of Contract (against Capital Entire class (not expected to be defended) 4) 4 Breach of Contract (against 3Com) Entire class 5 Breach of Third Party Beneficiary Entire class Contract (against 3Com) 6 Breach of Second Third Party Entire class Beneficiary Contract (against 3Com) 7 Fraudulent Misrepresentations Subclass A (amended) (against Capital 4 and 3Com) 8 Fraudulent Misrepresentations Subclass B (against DLL) 9 Conspiracy to Commit Fraud Subclass B (against DLL and Capital 4) 10 Conspiracy to Commit Fraud Subclass B (against 3Com and Capital 4) 11 Violation of Pennsylvania Dismissed Consumer Protection Law 12 Violation of Texas' (and other Subclass C (amended) states') Consumer Protection Law 13 Federal RICO Subclass B 14 Recision Non-class 15 Usury: Texas Non-class 16 Criminal Usury: Pennsylvania Non-class

5. Defendant Viewpoint's and Rasa's Proposed Class and Subclasses

Defendants Viewpoint's and Rasa's jointly-filed second amended motion for class certification seeks to certify the following main class and three subclasses:

First, Defendants seek to certify the following main class for their contract claims against 3Com and Capital 4, which encompass Counts 1-6 of their second amended answer, affirmative defenses, amended counterclaim and third-party complaint ("Second Amended Counterclaim"):

Main Class: "All entities who entered into a written contract under either the Power of $Zero or 3Com Power of $Zero programs, or who personally guaranteed any equipment rental agreement entered into as a part of the Power of $Zero or 3Com Power of $Zero programs, from the beginning of the Power of $Zero program until November 29, 2007. Those who entered into such contracts after November 29, 2007, are expressly excluded from the class." (Defs.' Second Amend. Mot. for Class Cert. 3-4.)

Second, Defendants seek to certify the following subclass "A" for their common law and statutory fraud claims against 3Com and Capital 4, which encompass Counts 7 and 12 of their Second Amended Counterclaim:

Subclass A: "All members of the main class who signed a [customer service agreement] after March 10, 2005, and before November 29, 2006." (Defs.' ...


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