RED BARN MOTORS, INC. et al v. NEXTGEAR CAPITAL, INC. et al

Filing 261

ORDER ON PENDING MOTIONS - For the foregoing reasons, the Court GRANTS the Defendants' Motion to Reconsider (Filing No. 228 ) and decertifies the Plaintiffs' breach of contract and RICO claims. This litigation will no longer proceed as a class action. The Court DENIES as moot the Defendants' Motion to Narrow Class (Filing No. 237 ), the Defendants' Objections to Magistrate Judge's Orders (Filing No. 240 ; Filing No. 255 ), and the Plaintiffs'Motion to Proceed with Class Notice (Filing No. 249 ). Signed by Judge Tanya Walton Pratt on 1/12/2018. (MEJ)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF INDIANA
INDIANAPOLIS DIVISION
RED BARN MOTORS, INC.,
PLATINUM MOTORS, INC., and
MATTINGLY AUTO SALES, INC.,
Plaintiffs,
v.
NEXTGEAR CAPITAL, INC. f/k/a DEALER
SERVICES CORPORATION,
COX ENTERPRISES, INC.,
COX AUTOMOTIVE, INC., and
JOHN WICK,
Defendants.

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ORDER ON PENDING MOTIONS
This matter is before the Court on a Motion to Reconsider and/or Modify Class
Certification Order (“Motion to Reconsider”) filed by Defendants NextGear Capital, Inc., formerly
known as Dealer Services Corporation (“NextGear”), Cox Automotive, Inc., and John Wick
(collectively, “Defendants”) (Filing No. 228); Defendants’ Motion to Modify Class Certification
Order to Narrow Class (“Motion to Narrow Class”) (Filing No. 237); Defendants’ Objections to
Magistrate Judge’s Orders (Filing No. 240; Filing No. 255); and a Motion to Proceed with Class
Notice filed by Plaintiffs Red Barn Motors, Inc., Platinum Motors, Inc., and Mattingly Auto Sales,
Inc. (collectively, “Plaintiffs”) (Filing No. 249).
The Plaintiffs each executed a separate contract with NextGear, whereby the Plaintiffs were
provided lines of credit for financing their used car dealership operations. After the Plaintiffs
discovered that they had been charged interest and fees on money that had not yet actually been
paid on their behalf, they initiated this lawsuit against the Defendants, asserting claims for breach

of contract, constructive fraud, unjust enrichment, tortious interference, violation of the Racketeer
Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. § 1961 et seq., and a RICO
conspiracy.

Following the Defendants’ motion to dismiss the Plaintiffs’ claims, the Court

dismissed the unjust enrichment, tortious interference, and RICO conspiracy claims. The Court
also dismissed the breach of contract and constructive fraud claims against Cox Automotive and
Mr. Wick and all claims against Defendant Cox Enterprises, Inc. (Filing No. 186 at 42).
The Plaintiffs sought class certification on their claims for a class involving “[a]ll used car
dealers in the United States of America that were parties to a Floorplan Agreement with DSC,
n/k/a NextGear, effective during the time period of January 2005 through July 2013.” (Filing No.
165 at 2.) The Court granted class certification on the Plaintiffs’ breach of contract claim against
NextGear and the substantive RICO claim against NextGear, Cox Automotive, and Mr. Wick, but
class certification was denied on the constructive fraud claim. The certified class was defined as
“all used car dealers in the United States of America that were parties to a Floorplan Agreement
with DSC, n/k/a NextGear, effective during the time period of January 2005 through July 2013,”
with a subclass for “all California used car dealers that were parties to a Floorplan Agreement with
DSC, n/k/a NextGear, effective during the time period of January 2005 through July 2013, which
Floorplan Agreement requires the application of California law.” (Filing No. 220 at 40.)
In their Motion to Reconsider, the Defendants ask the Court to decertify the class, arguing
that the Court failed to consider evidence and arguments presented after the initial class
certification briefing. In their Motion to Narrow Class, the Defendants ask the Court to modify
the class to exclude any car dealers that entered into floorplan agreements in 2013, which supersede
prior agreements and require arbitration and waive participation in class actions.

In their

Objections to Magistrate Judge’s Orders, the Defendants ask the Court to vacate the Magistrate

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Judge’s Orders denying a stay of class discovery and denying a stay of class notice. In the
Plaintiffs’ Motion to Proceed with Class Notice, they ask the Court for permission to move forward
with providing notice to class members. The Court will address each Motion in turn.
I.

LEGAL STANDARD

Although the Defendants filed their Motion to Reconsider under Rule 59(e) of the Federal
Rules of Civil Procedure, the Motion is properly classified as a motion to reconsider under Rule
54(b) because no final judgment has been entered in this case. See Fed. R. Civ. P. 54(b) (“any
order or other decision, however designated, that adjudicates fewer than all the claims or the rights
and liabilities of fewer than all the parties does not end the action as to any of the claims or parties
and may be revised at any time before the entry of a judgment adjudicating all the claims and all
the parties’ rights and liabilities”). Regardless, the Court applies a similar standard as applied to
motions to alter or amend a judgment under Rule 59(e). See Katz-Crank v. Haskett, 2014 U.S.
Dist. LEXIS 95144, at *6 (S.D. Ind. July 14, 2014); Woods v. Resnick, 725 F. Supp. 2d 809, 827–
28 (W.D. Wis. 2010).
Motions to reconsider filed pursuant to Rule 54(b) or Rule 59(e) are for the purpose of
correcting manifest errors of law or fact or to present newly discovered evidence not available at
the time of briefing. Cincinnati Life Ins. Co. v. Beyrer, 722 F.3d 939, 954 (7th Cir. 2013); State
Farm Fire & Cas. Co. v. Nokes, 263 F.R.D. 518, 526 (N.D. Ind. 2009). The motion is to be used
“where the Court has patently misunderstood a party, or has made a decision outside the adversarial
issues presented to the Court by the parties, or has made an error not of reasoning but of
apprehension.” Bank of Waunakee v. Rochester Cheese Sales, Inc., 906 F.2d 1185, 1191 (7th Cir.
1990) (citation omitted). A manifest error “is not demonstrated by the disappointment of the losing
party. It is the wholesale disregard, misapplication, or failure to recognize controlling precedent.”

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Oto v. Metropolitan Life Ins. Co., 224 F.3d 601, 606 (7th Cir. 2000) (citation and quotation marks
omitted). Additionally, “[r]econsideration is not an appropriate forum for rehashing previously
rejected arguments or arguing matters that could have been heard during the pendency of the
previous motion.” Ahmed v. Ashcroft, 388 F.3d 247, 249 (7th Cir. 2004) (citation and quotation
marks omitted).
Because this is a class action, the Court balances the above standard with Rule 23(c)(1)(C),
which states, “[a]n order that grants or denies class certification may be altered or amended before
final judgment.” “[A] district court has broad discretion to determine whether certification of a
class is appropriate.” Retired Chicago Police Ass’n v. City of Chicago, 7 F.3d 584, 596 (7th Cir.
1993). Under Rule 23(c)(1)(C), the Court retains authority to modify or vacate a class certification
at any time prior to final judgment. “[T]he district court has the power at any time before final
judgment to revoke or alter class certification if it appears that the suit cannot proceed consistent
with Rule 23’s requirements.” Alliance to End Repression v. Rochford, 565 F.2d 975, 977 (7th
Cir. 1977).
“[A] favorable class determination by the court is not cast in stone. If the certification of
the class is later deemed to be improvident, the court may decertify, subclassify, alter the
certification, or permit intervention.” Eggleston v. Chicago Journeymen Plumbers’ Local Union
No. 130, 657 F.2d 890, 896 (7th Cir. 1981) (citations omitted); see also Ellis v. Elgin Riverboat
Resort, 217 F.R.D. 415, 419 (N.D. Ill. 2003) (“the court’s initial certification of a class ‘is
inherently tentative’”) (citation omitted).
Classes are certified early in a suit. Fed. R. Civ. P. 23(c)(1)(A). All certifications
are tentative. Fed. R. Civ. P. 23(c)(1)(C). If the evidence calls into question the
propriety of defining a class in a particular way, then the definition must be
modified or subclasses certified. A class defined early in a suit cannot justify
adjudicating hypothetical issues rather than determining the legality of what
actually happens.
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Fonder v. Sheriff of Kankakee Cty., 823 F.3d 1144, 1147 (7th Cir. 2016).
II.

DISCUSSION

The resolution of four of the pending motions—Motion to Narrow Class, the two
Objections to Magistrate Judge’s Orders, and Motion to Proceed with Class Notice—can be
determined by the resolution of the Motion to Reconsider. Therefore, the Court addresses the
Defendants’ Motion to Reconsider first.
A.

Defendants’ Motion to Reconsider
In the Court’s Entry on Plaintiffs’ Motion for Class Certification, the Court certified the

Plaintiffs’ breach of contract claim against NextGear and the RICO claim against NextGear, Cox
Automotive, and Mr. Wick to proceed as a class action (Filing No. 220 at 40). In their Motion to
Reconsider, the Defendants ask the Court to decertify the class certification for the breach of
contract and RICO claims. They argue that the Court failed to consider evidence and arguments
presented after the initial class certification briefing.
The Defendants argue that the Plaintiffs’ theory for the breach of contract claim—asserted
for the first time in the summary judgment briefing—is that the floorplan agreements are
ambiguous on their face. Under such a theory, the Defendants assert, case law is clear that courts
must resort to extrinsic evidence on a plaintiff-by-plaintiff basis to determine the parties’ intent
regarding the contract. Thus, courts consider the parties’ intent, statements between the parties,
course of dealing, and course of conduct. The Defendants explain that when ambiguity in a
contract has “open[ed] the door for extrinsic evidence,” then “liability to the entire class for breach
of contract cannot be established with common evidence.” Avritt v. Reliastar Life Ins. Co., 615
F.3d 1023, 1030 (8th Cir. 2010). “By allowing extrinsic evidence of the parties’ dealings, the
breach of contract claims become individualized and not reasonably susceptible to class action
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treatment.” Adams v. Kansas City Life Ins. Co., 192 F.R.D. 274, 282 (W.D. Mo. 2000). The
Defendants assert, in this case, a trial of the breach of contract claim will require an individualized
analysis not susceptible to common proof, thereby defeating the elements of predominance and
commonality for class certification.
Next, the Defendants argue that the Plaintiffs’ RICO claim is based entirely on the written
contract between the parties (which the Plaintiffs now contend is ambiguous) and a scheme to
conceal from the Plaintiffs how and when interests charges would be made on their accounts. The
Defendants assert that any concealment of facts from, and the knowledge held by the individual
Plaintiffs and the class members, are matters that are inherently individualized and cannot be
determined on a class-wide basis. Thus, they argue, the RICO claim should be decertified.
The Defendants also argue that their various defenses, including statute of limitations
arguments, cannot be resolved on a class-wide basis, and therefore, class certification should be
reversed.

The Plaintiffs respond that courts are generally reluctant to reconsider and modify previous
orders, even in the class certification context. They argue that class certification decisions are
subject to the law of the case doctrine and are rarely decertified unless there is a supporting
subsequent development in the litigation. The Plaintiffs point to William B. Rubenstein, NEWBERG
ON CLASS ACTIONS

§ 7:35 (5th ed.) in support of their argument.

The Plaintiffs argue that there have been no subsequent developments in the litigation in
the time between the Court’s class certification Order and the Defendants’ Motion to Reconsider.
There was a two-week period between the Order and the Motion to Reconsider, and the Plaintiffs
point out that no developments occurred in that time period.

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There have been no new

developments in the case law or the facts. They assert that the Defendants are simply rearguing a
second time their old, rejected arguments, which is not the basis for a motion for reconsideration.
The Plaintiffs argue that the Defendants already presented to the Court their arguments
concerning ambiguous contracts and their effect on class certification in the Defendants’ Notice
of Additional Authority and at the oral argument on class certification. Thus, they argue, the
Defendants’ repeated argument should be rejected. The Plaintiffs assert that the Defendants have
taken out of context the ambiguity argument advanced by the Plaintiffs, and the Defendants do not
apply the ambiguity issue correctly. The Plaintiffs argue that their ambiguity theory does not
require the Court to consider extrinsic evidence, and thus, only common evidence is required to
resolve the claims. They further assert that their ambiguity argument is simply an alternative
theory, and they continue to argue that the contracts are unambiguous and favor their position that
NextGear breached the contracts.
Regarding their RICO claim, the Plaintiffs argue that the Defendants are simply wrong
about the elements of concealment, oral misrepresentations, and reliance. They assert that these
are not elements of a RICO violation, and therefore, they do not have to present individualized
evidence regarding each class member’s knowledge and reliance, so class treatment is still
appropriate. In any event, they argue, the concealment at issue is common to all class members
because NextGear hid information about interest charges from all class members in the form
contracts used with all class members. Concerning the Defendants’ statute of limitations defense,
the Plaintiffs assert that this can and should be addressed at the damages phase rather than to
decertify the class.
As the Supreme Court has noted, “Even after a certification order is entered, the judge
remains free to modify it in the light of subsequent developments in the litigation.” Gen. Tel. Co.

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of the Sw. v. Falcon, 457 U.S. 147, 160 (1982). When ruling on the Plaintiffs’ Motion for Class
Certification, the Court relied on the parties’ arguments and representations made in their class
certification briefing and advanced during the oral argument. The Court recognizes that there have
been important developments in this litigation since the Plaintiffs first filed their Motion for Class
Certification.
The most important and significant development when considering the pending Motion to
Reconsider is the Plaintiffs’ theory that the floorplan agreements forming the basis of their claims
are ambiguous. The Court understands the Plaintiffs’ argument that the contracts are ambiguous
on their face (patent ambiguity) and that such an ambiguity does not require consideration of
extrinsic evidence, and in turn, does not require individualized proof. The Court agrees with the
Plaintiffs that the contracts at issue are ambiguous; however, the Court agrees with the Defendants
that ambiguity in the contracts requires consideration of extrinsic evidence, necessitates
individualized proof, and undermines the elements of commonality and predominance for class
certification. Thus, class certification is not appropriate on the Plaintiffs’ breach of contract claim.
The Court directs the parties to its Order on Motions for Summary Judgment where the Court more
fully reviews, analyzes, and discusses the parties’ arguments regarding ambiguity.
Regarding the Plaintiffs’ RICO claim, the Court notes that the Plaintiffs represented during
the class certification oral argument that “all of the claims that remain in the case flow from that
form contract. . . . On our constructive fraud and RICO claims, those also flow from the same
contracts and the associated statements provided by NextGear. So all of the claims derive from
the same form contracts”. (Filing No. 202 at 6:1–9.) “[T]he deceptive material is the contracts
themselves and the account statements”. Id. at 6:19–20. The Plaintiffs further represented, “the
material terms where the deception occurred, where the constructive fraud derives from, where the

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RICO claim comes from, are three provisions that are defined in the same way across the
contracts.” Id. at 8:6–10. Because the Plaintiffs represented and acknowledged that their RICO
claim “flows from,” “derives from,” and “comes from” the contract, and because the Court
concludes above that class certification is not appropriate on the breach of contract claim, the Court
similarly concludes that class certification is not appropriate on the RICO claim. Where the RICO
claim is based on the contract, and the Court has determined that individualized evidence on a
plaintiff-by-plaintiff basis is necessary on the contract claim, the Court determines that
commonality and predominance no longer exist to support class treatment of the RICO claim.
For the foregoing reasons, the Court grants the Defendants’ Motion to Reconsider and
decertifies the Plaintiffs’ breach of contract and RICO claims. Therefore, this action will no longer
proceed as a class action.
B.

Defendants’ Motion to Narrow Class, Defendants’ Objections to Magistrate Judge’s
Orders, and Plaintiffs’ Motion to Proceed with Class Notice
In their Motion to Narrow Class, the Defendants ask the Court to modify the class to

exclude any car dealers that entered into floorplan agreements in 2013, which supersede prior
agreements and require arbitration and waive participation in class actions. This Motion was filed
after the Defendants’ Motion to Reconsider and as an alternative to that Motion. The Court has
rigorously examined various scenarios to determine if a more narrow class could be certified, but
concludes that even the more narrow class would require plaintiff-by-plaintiff extrinsic evidence
and an individual analysis of each contract. In light of the Court’s decision on the Motion to
Reconsider, the Court denies as moot the Motion to Narrow Class.
In their Objections to Magistrate Judge’s Orders, the Defendants ask the Court to vacate
the Magistrate Judge’s Orders, which denied a stay of class discovery and denied a stay of class
notice. Because of the Court’s decision on the Motion to Reconsider to decertify the class, the
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Court denies as moot the Defendants’ Objections to Magistrate Judge’s Orders. No class
discovery or class notice is necessary in this action.
Finally, the Plaintiffs’ Motion to Proceed with Class Notice asks the Court for permission
to move forward with providing notice to class members. Again, in light of the Court’s decision
on the Motion to Reconsider, the Court denies as moot the Motion to Proceed with Class Notice.
III. CONCLUSION
For the foregoing reasons, the Court GRANTS the Defendants’ Motion to Reconsider
(Filing No. 228) and decertifies the Plaintiffs’ breach of contract and RICO claims. This litigation
will no longer proceed as a class action. The Court DENIES as moot the Defendants’ Motion to
Narrow Class (Filing No. 237), the Defendants’ Objections to Magistrate Judge’s Orders (Filing
No. 240; Filing No. 255), and the Plaintiffs’ Motion to Proceed with Class Notice (Filing No. 249).
SO ORDERED.
Date: 1/12/2018

DISTRIBUTION:

Ryan D. Adams
SHER GARNER CAHILL RICHTER
KLEIN & HILBERT LLC
[e-mail]

Lisa Brener
Brener Law Firm, LLC
[e-mail]
Matthew M. Coman
SHER GARNER CAHILL RICHTER
KLEIN & HILBERT LLC
[e-mail]

Jacob A. Airey
SHER GARNER CAHILL RICHTER
KLEIN & HILBERT, LLC.
[e-mail]

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Kathleen Ann DeLaney
DELANEY & DELANEY LLC
[e-mail]

Catherine E. Lasky
JONES SWANSON HUDDELL &
GARRISON, LLC
[e-mail]

Cassie E. Felder
THE CASSIE FELDER LAW FIRM
[e-mail]

Tracey K. Ledbetter
EVERSHEDS SUTHERLAND (US) LLP
[e-mail]

James M. Garner
SHER GARNER CAHILL RICHTER
KLEIN & HILBERT, LLC
[e-mail]

Jason S. McCarter
EVERSHEDS SUTHERLAND (US) LLP
[e-mail]

Steven D. Groth
BOSE MCKINNEY & EVANS, LLP
[e-mail]

Kerry A. Murphy
JONES, SWANSON, HUDDELL &
GARRISON, LLC
[e-mail]

Gladstone N. Jones
JONES SWANSON HUDDELL &
GARRISON, LLC
[e-mail]

Lynn E. Swanson
JONES, SWANSON, HUDDELL&
GARRISON, LLC
[e-mail]

David J. Jurkiewicz
BOSE MCKINNEY & EVANS, LLP
(Indianapolis)
[e-mail]

Paul D. Vink
BOSE MCKINNEY & EVANS, LLP
[e-mail]

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