KORROW v. AARON'S INC. et al
Filing
135
OPINION filed. Signed by Judge Michael A. Shipp on 11/30/2015. (eaj)
NOT FOR PUBLICATION
UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY
___________________________________
:
MARGARET KORROW, on behalf of
:
herself and others similarly situated,
:
:
Plaintiff,
:
:
v.
:
Civil Action No. 10-6317 (MAS) (LHG)
:
AARON’S INC. and JOHN DOES 1-25,
:
OPINION
:
Defendants.
:
:
SHIPP, District Judge
This matter comes before the Court on several motions.
Defendant Aaron’s Inc.
(“Defendant” or “Aaron’s”) moves to appeal the June 30, 2014 Order (“Order”) of the Honorable
Lois H. Goodman, U.S.M.J. (“Magistrate Judge” of “Judge Goodman”) (ECF No. 99), Plaintiff
Margaret Korrow (“Plaintiff” or “Ms. Korrow”) filed an opposition (ECF No. 102), and Defendant
replied (ECF No. 105). In addition, Defendant moves to stay the issuance of class notice pending
resolution of its appeal (ECF No. 100), Plaintiff filed an opposition (ECF No. 103), and Defendant
replied (ECF No. 106). Defendant also moves to decertify the class (ECF No. 110), Plaintiff filed
an opposition (ECF No. 111), and Defendant replied (ECF No. 112). By separate motion, the New
Jersey Civil Justice Institute (“NJCJI”) sought leave to file a brief in support of Defendant’s
Motion to Decertify the Class (ECF No. 113), Plaintiff filed an opposition (ECF No. 114), and
NJCJI replied (ECF No. 115). Plaintiff also moves separately for approval of the class notice and
plan notice (ECF No. 101), Defendant filed an opposition (ECF No. 104), and Plaintiff replied
(ECF No. 107). The Court has carefully considered the submissions from the parties and from
NJCJI and decides the matters without oral argument pursuant to Local Civil Rule 78.1. For the
reasons set forth below, and other good cause shown, the Court denies Defendant’s Appeal of the
Magistrate Judge’s Denial of the Motion for Leave to Amend (ECF No. 99), Defendant’s Motion
to Stay Issuance of the Class Notice Pending Resolution of Defendant’s Appeal of the June 30,
2014 Order (ECF No. 100), Defendant’s Motion to Decertify the Class (ECF No. 110), and
NJCJI’s Motion for Leave to File a Brief as Amicus Curiae (ECF No. 113). Furthermore, the
Court grants in part and denies in part Plaintiff’s Motion for Approval of the Class Notice and Plan
of Notice. (ECF No. 101.)
I.
Background & Procedural History1
Ms. Korrow, on behalf of herself and a putative class, brought suit against Defendant
alleging that certain fees and charges that Defendant imposed on the class through its rent-to-own
contracts violated the New Jersey Truth in Consumer, Contract, Warranty and Notice Act and the
New Jersey Consumer Fraud Act. Defendant removed this action pursuant to 28 U.S.C. § 1332
(d)(2). After the case was removed, Defendant filed a motion to dismiss all claims pursuant to
Rule 12(b)(6) of the Federal Rules of Civil Procedure. This motion was denied, and on October
10, 2011, Defendant filed an answer to the Complaint. (ECF No. 25.) This answer did not include
a counterclaim. (Id.) Thereafter, on February 3, 2012, with consent from both Plaintiff and the
Magistrate Judge, Defendant filed an Amended Answer that contained a single breach of contract
counterclaim against Plaintiff for her alleged failure to make payments under her rent-to-own
contract with Defendant. (ECF No. 33.)
1
The Court assumes familiarity with the facts, which are provided in this Court’s previous opinion.
(“Mem. Op.”, ECF No. 78.) Thus, the Court includes only the facts relevant to the pending
motions.
2
On February 15, 2012, the Magistrate Judge issued a scheduling order, which provided,
among other things, that “[a]ny motion to amend the pleadings or join new parties must be filed
with leave of Court and filed no later than April 13, 2012 and made returnable on May 7, 2012.”
(ECF No. 35.) Neither party moved to amend its pleadings during this time, and, pursuant to the
scheduling order, the parties undertook class certification discovery. Following the deadline for
class certification discovery, Defendant filed a preemptive motion to deny class certification.
(ECF No. 45.) Plaintiff opposed the motion and cross-moved to certify the class based on her New
Jersey Truth in Consumer, Contract, Warranty and Notice Act claim and two subclasses based on
her New Jersey Consumer Fraud Act claim. (ECF No. 52.)
On July 31, 2013, the Court granted Plaintiff’s cross-motion and certified the Class and
two Subclasses. (ECF No. 77.) Thereafter, Defendant petitioned for permission to appeal the
Court’s class certification order pursuant to Rule 23(f) of the Federal Rules of Civil Procedure.
(Decl. of Michael McDonald (“McDonald Decl.”) Ex. A, ECF No. 85-3.) The Third Circuit denied
Defendant’s petition on September 12, 2013.
On October 4, 2013, Defendant filed a motion for leave to amend its counterclaim. (ECF
No. 90.) Defendant’s proposed amendment expanded upon its previously asserted counterclaim
in two significant respects. First, it added a breach of contract counterclaim against all class
members who failed to make payments pursuant to their lease agreements. (Def.’s Moving Br. for
Leave to Amend Ex. A (“Proposed Am. Countercls.”) ¶¶ 23-24, ECF No. 90-1.) Second, it added
counterclaims for quantum meruit and unjust enrichment against Plaintiff as well as “Certain Class
Members.” (Id. ¶¶ 25-41.) While Defendant’s motion for leave to amend was pending, the
Magistrate Judge asked Defendant how many Class members and Subclass members would be
3
subject to the proposed counterclaims. (June 30, 2014 Order (“MJ Order”) at 3 n.2, ECF No. 98.)
In correspondence, dated June 13, 2014, Defendant stated:
With respect to potential counterclaim defendants (not including
Plaintiff Korrow against whom there is already a counterclaim), we
believe that there are 8,945 additional class members who would be
subject to the proposed counterclaim[s]. Though we have
confidence that this figure is reasonably accurate, this number is in
fact an estimate based upon high level analysis of the data performed
by Aaron’s . . . .
(June 13, 2014 Letter, ECF No. 96.)
On June 30, 2014, the Magistrate Judge denied Defendant’s Motion to Amend. (MJ Order
20, ECF No. 98.) In her Order, Judge Goodman stated that the proposed counterclaims would put
the court: (1) “in the untenable position of assessing damages against absent parties that were
never given the opportunity to individually oppose the counterclaims[;]” and (2) at risk of opening
a “Pandora’s box . . . given that Aaron’s estimates there would be counterclaims against
approximately 9,000 absent class members.” (Id. at 14.) Accordingly, the Magistrate Judge
declined to exercise supplemental jurisdiction pursuant to 28 U.S.C. § 1367(c)(2), which provides
that a “district court[] may decline to exercise supplemental jurisdiction over a claim under
subsection (a) if – the claim substantially predominates over the claim or claims over which the
district court has original jurisdiction.” 28 U.S.C. § 1367(c)(2). Defendant appeals this Order
(ECF No. 99) and, by separate motions, moves to stay the issuance of class notice pending
resolution of its appeal (ECF No. 100) and moves to decertify the class (ECF No. 110).
4
II.
Defendant’s Appeal of the Magistrate Judge’s Decision
Defendant does not appeal the Magistrate Judge’s factual findings, rather it appeals only
her legal determination.2 Specifically, Defendant argues that the Magistrate Judge’s determination
was contrary to law for four reasons: “(1) leave to amend was denied pursuant to § 1367(c)(2) but
§ 1367(c)(2) is not applicable to cases such as this one where subject matter jurisdiction is based
on diversity; (2) even if § 1367(c)(2) was applicable the court erred by failing to conduct a
comparative, qualitative analysis of the types of proof required by each claim; and (3) the court
erred in concluding that counterclaims were not compulsory within the meaning of Rule 13,” and
(4) the proposed amendments to the counterclaim asserted against Ms. Korrow were timely.
(Def.’s Moving Appeal Br. 1-3, 38, ECF No. 99-1.) For the reasons that follow, the Court
disagrees with Defendant.
When reviewing a magistrate judge’s denial of a motion to amend a pleading, pursuant to
Local Civil Rule 72.1(c)(1)(A), the Court “shall . . . set aside any portion of the Magistrate Judge’s
order found to be clearly erroneous or contrary to law.” L. Civ. R. 72.1(c)(1)(A). “A ruling is
contrary to law if the magistrate judge has misinterpreted or misapplied applicable law. Legal
conclusions on a non-dispositive motion are therefore reviewed de novo.” Dr. Reddy’s Labs. Ltd.
v. MDS, Inc., No. 09-2398, 2012 WL 1033379, at *1 (D.N.J. Mar. 27, 2012) (internal citations
omitted).
A.
Section 1367(c)(2) is Applicable to Diversity Actions
Citing the Third Circuit’s decision in Borough of West Mifflin v. Lancaster, 45 F.3d 780,
789 (3d Cir. 1995), Defendant argues that “the entire rationale for declining jurisdiction under
2
(Def.’s Moving Appeal Br. 9 (“Here, the Magistrate Judge’s ruling that § 1367(c)(2) allows the
Court to decline the exercise supplemental jurisdiction, where there are no federal claims over
which pendent state law claims might predominate, is a legal conclusion . . . .”), ECF No. 99-1.)
5
§1367(c)(2) is absent” here. (Def.’s Moving Appeal Br. 16.) In Borough of West Mifflin, the
Third Circuit discussed the application of §1367(c)(2) to the plaintiff’s state law claims in a case
that was removed on the basis of federal question jurisdiction. 45 F.3d at 789. Characterizing this
section as a “limited exception” to the operation of the doctrine of pendent jurisdiction, the court
stated that this section should be invoked only where “an important countervailing interest [is] to
be served by relegating the state claims to the state court.” Id. Contrary to Defendant’s
characterization of this decision, however, the Third Circuit did not hold that § 1367(c)(2) is
inapplicable to diversity cases. See id. at 790 (“[W]e do not foreclose the parties from hereafter
arguing, and the district court from hereafter considering, the issue posed by § 1367(c)(2) . . . .”).
In addition, district courts in this Circuit, as well as the First Circuit and district courts in other
Circuits, have found that § 1367(c)(2) is applicable to diversity cases.3
Here, the Magistrate Judge found that permitting amendment would put the Court in the
“untenable position of assessing damages against absent parties that were never given the
opportunity to individually oppose counterclaims” and that it had the risk of converting the case
into a “Pandora’s Box” of separate state collection actions. (MJ Order 14.) The Court finds that
concerns about absent parties and expending judicial resources to act essentially as state collection
actions are important countervailing interests that are served by relegating the state law
3
See Allstate Interiors & Exteriors, Inc. v. Stonestreet Constr., LLC, 730 F.3d 67 (1st Cir. 2013)
(discussing applicability of § 1367(c)(2) to non-diverse claims in a diversity suit); William A.
Gross Constr. Assocs. v. Am. Mfrs. Mut. Ins. Co., No. 07-10639, 2009 WL 427280, at *15-16
(S.D.N.Y. Feb. 23, 2009) (same); Gandolfo v. U-Haul Int’l., Inc., 978 F. Supp. 558, 562 (D.N.J.
1996) (same); see also Shah v. Hyatt Corp., 425 F. App’x 121, 124-25 (3d Cir. 2011) (reversing
district court’s remand of diversity claim pursuant to § 1367 (c)(1), (c)(2), and (c)(4), but stating
that it found “no error” in district court’s decision to remand the claims over which it had
supplemental jurisdiction based on the factors in § 1367 (c)).
6
counterclaims to state court.4 Accordingly, the Court finds that the Magistrate Judge’s decision is
not contrary to Borough of West Mifflin.
Furthermore, the cases on which Defendant relies to argue that courts have rejected the
application of § 1367(c)(2) to diversity actions are inapposite, because in those cases the courts
found that there were many common issues of law and fact between the claims over which the
court had original jurisdiction and the state law claims. See, e.g., Siegfried v. Allegheny Ludlum
Corp., No. 09-125, 2009 WL 1035001, at *15 (W.D. Pa. Mar. 25, 2009) (“In this case . . . the exact
same state law will govern both the naval claim and the non-naval claims and parallel cases would
be created [if the court declines to exercise supplemental jurisdiction].”); Salim Shahriar v. Smith
& Wollensky Rest. Grp., Inc., 659 F.3d 234, 246 (2d Cir. 2011) (“Because the FLSA and the NYLL
use a similar standard for making such a determination, and because each set of claims arise from
the same set of operative facts, a determination as to the FLSA claims may decide the Plaintiffs’
NYLL claim as well.”). Here, the proposed counterclaims are not dependent on the same state law
or legal standard as the class claims. Plaintiff’s Complaint alleges, inter alia, that Aaron’s “Service
Plus” fees, returned check fees, “In-Home Collection” fees, and interest fees were prohibited by
certain New Jersey consumer protection statutes. (Compl. ¶¶ 100, 104-105, 107.) Defendant’s
4
See, e.g., Hyman v. WM Fin. Servs., No. 06-4038, 2007 WL 1657392, at *5 (D.N.J. June 7, 2007)
(declining to exercise supplemental jurisdiction pursuant to § 1367(c)(2) where resolving the state
law claims would “require the Court to engage in a journey of law and fact far afield from the issue
raised” in the claim over which it had original jurisdiction); Lackman v. Recovery Serv. of N.J.,
Inc., No. 06-216, 2006 WL 3485988, at *4 (D.N.J. Nov. 29, 2006) (declining to exercise
supplemental jurisdiction pursuant to § 1367(c)(2) because allowing separate state claims to
proceed “will not be fair to parties”); Miletta v. United States, No. 02-1349, 2005 WL 1318867, at
*15 (D.N.J. May 27, 2005) (dismissing cross-claim pursuant to § 1367(c)(2) because the court had
expended “little if any judicial resources relating to the cross-claim,” thus “there would be no
significant duplication of effort if this claim were pursued elsewhere” and “resolution of this crossclaim would delay entry of final judgment on the underlying personal injury action”).
7
proposed counterclaims do not implicate these state statutes. Rather, the proposed counterclaims
allege individual breach of contract claims against each class member.
Accordingly, the Magistrate Judge’s decision to apply § 1367(c)(2) to this diversity action
was not contrary to law.
B.
The Magistrate Judge’s Application of § 1367(c)(2) was Not Contrary to Law
Defendant also argues that even if §1367(c)(2) could apply to the proposed counterclaims,
the Magistrate Judge erred in applying it by doing the following: (a) shifting the burden of proof
to the Defendant; (b) failing to consider that the proofs implicated by the proposed counterclaims
are qualitatively the same type of proofs that will be raised by the existing counterclaim (against
Plaintiff) and existing set-off and recoupment affirmative defenses; and (c) conflating the
predominance inquiry under Rule 23 with the “substantially predominates exception in
§1367(c)(2).” (Def.’s Moving Appeal Br. 20-21.) For the reasons discussed below, the Court
disagrees with Defendant.
1.
Predominance Factor in § 1367(c)(2) was Properly Applied
Taking Defendant’s arguments in reverse order, Defendant argues that the Magistrate
Judge erred in applying the predominance factor in §1367(c)(2) because the court looked at the
number of counterclaims rather than the nature of those claims to find that the proposed
counterclaims substantially predominate over the claims over which the court has original
jurisdiction. (Def.’s Moving Appeal Br. 25-30.) Review of the Magistrate Judge’s decision
reveals, however, that the court properly considered the quantity of proof required by each claim
in finding that the proposed counterclaims substantially predominate over the class claims.
This Circuit has held that the quantity of proof required by each claim is relevant to the
application of § 1367(c)(2). See Borough of W. Mifflin, 45 F.3d at 789. In determining whether
8
to decline to exercise supplemental jurisdiction pursuant to § 1367(c)(2), the Third Circuit
analyzed three factors: (1) the “quantity of evidence supporting the[] state law claims” which
would not be relevant to the claims over which the court had original jurisdiction; (2) the
comprehensiveness of the remedy sought; and (3) the scope of the issues raised. Id. Here, the
Magistrate Judge also applied these factors. Specifically, the Magistrate Judge found that the
proposed counterclaims substantially predominate over the class claims because “the
counterclaims would require proof of additional elements including: whether the class members
breached their agreements; whether they made their monthly payments; whether they paid late
fees; whether their checks were returned due to insufficient funds; whether they destroyed or
misappropriated furniture; whether Defendant performed its obligations under the agreements; and
whether Defendant preserved its rights.” (MJ Order 14.) In addition, the court also considered
the “comprehensiveness of the remedy sought” and found that “[t]he remedies implications are
similarly formidable and fact intensive.” (Id.) Therefore, contrary to Defendant’s assertion, the
court did not simply focus on the “number of counterclaims rather than the nature of those claims.”
(Def.’s Moving Appeal Br. 29.) Accordingly, the Magistrate Judge did not err in analyzing the
factors relevant to § 1367(c)(2).
2.
The Affirmative Defenses Do Not Preclude Finding that the Proposed
Counterclaims Predominate over the Class Claims
Defendant next argues that it is “not possible for the proposed counterclaims to
substantially predominate over the claims already in the case,” because “the Court is already
exercising jurisdiction over [Defendant’s] set-off and recoupment affirmative defenses.” (Def.’s
Moving Appeal Br. 24.) Specifically, Defendant argues that the factual and legal issues necessary
for determining its proposed counterclaims are already in the case, because those same issues are
implicated by its affirmative defenses. (Id.) The Court disagrees with Defendant.
9
As the Court stated in its decision on Defendant’s motion to deny class certification,
Defendant’s affirmative defenses pertain to damages not liability. (Mem. Op. 20.) As such, the
affirmative defenses are distinct from the proposed counterclaims, and do not pose the same threat
of becoming the “real body of the case” or implicate the same concerns with respect to judicial
economy and fairness to litigants. See Borough of W. Mifflin, 45 F.3d at 789; cf. Ambromovage
v. United Mine Workers of Am., 726 F.2d 972, 992 (3d Cir. 1984) (“Since the defensive set-off by
definition is only determined if the plaintiff wins on the underlying claim, adjudicating the set-off
claim places little additional strain on judicial resources.”). In fact, the individual damage issues
implicated by the set-off and recoupment defenses can be determined after class-wide liability is
determined. See Baby Neal v. Casey, 43 F.3d 48, 57 (3d Cir. 1994) (granting certification where
“individual damage determinations could be made. . . at a separate phase of the trial, but the class
phase could resolve the central issue of liability for the alleged misrepresentations and
omissions.”).
3.
The Magistrate Judge Did Not Err in Finding the Proposed
Counterclaims Predominate the Class Claims
Defendant also argues that the Court erred by shifting the burden of proof to Defendant to
prove that § 1367(c)(2) did not apply to its proposed counterclaims. In support of this assertion,
Defendant relies on the following single conclusory sentence in the Magistrate Judge’s opinion:
“For these reasons, the Court finds that Defendants [sic] have not met their burden of establishing
that the proposed counterclaims against class plaintiffs would not predominate over the plaintiffs’
class action claims.” (MJ Order 14.) The burden of proof, with respect to supplemental
jurisdiction, is limited to proving that supplemental jurisdiction exists under § 1367(a). See
Thomas v. Christy, No. 13-2560, 2013 WL 1792398, at * 3 (D.N.J. April 25, 2013) (noting that
the party asserting a state law claim in federal court must establish a basis for supplemental
10
jurisdiction). The Court agrees that Defendant did not have a burden to prove that § 1367(c)(2)
was not applicable to the proposed counterclaims.
Nonetheless, as discussed above, after
reviewing the Magistrate Judge’s application of §1367(c)(2), the Court finds that the application
of §1367(c)(2) to the proposed counterclaims was not contrary to law. Accordingly, even if the
Magistrate Judge improperly shifted the burden of proof to Defendant, this error was harmless,
because the Court reaches the same conclusion without such burden shifting.
C.
The Magistrate Judge Did Not Err in Concluding that the Proposed
Counterclaims Were Not Compulsory
In addition, Defendant argues in the alternative that its proposed counterclaims are
compulsory, and thus do not require an independent basis for jurisdiction. (Def.’s Moving Appeal
Br. 31-38.) For the reasons discussed below, the Court disagrees with the Defendant.
“Rule 13 establishes two kinds of counterclaims: compulsory and permissive.” Chen v.
Century Buffet & Rest., No. 09-1687, 2011 WL 2600715, at *1 (D.N.J. June 29, 2011) (citing Fed.
R. Civ. P. 13(a)). A counterclaim is compulsory if it “arises out of the transaction or occurrence
that is the subject matter of the opposing party’s claim.” Id. (citing Fed. R. Civ. P. 13(a)(1)(A)).
“A compulsory counterclaim does not require an independent jurisdictional basis to be brought in
federal court, even when it is purely a state-law claim.” Id. (citing Ambromovage, 726 F.2d at
988). “A permissive counterclaim, on the other hand, requires a basis of federal jurisdiction
independent of the opposing party’s claim.” Id. (citing Aldens, Inc. v. Packel, 524 F.2d 38, 52 (3d
Cir. 1975)). “A permissive counterclaim is broadly defined to include ‘any claim that is not
compulsory.’” Id. (citing Fed. R. Civ. P. 13(b)).
Here, the Magistrate Judge rejected Defendant’s contention that the proposed
counterclaims “arise from the same transaction or occurrence as the class members’ claims and,
consequently, are compulsory counterclaims.” (MJ Order 16-17.) In particular, the Magistrate
11
Judge found that even though the class claims and the proposed counterclaims were “rooted in the
same agreements,” that fact was not enough to render the proposed counterclaims compulsory.
(Id. at 16.) The Court agrees.
“It is well-established that the words ‘transaction or occurrence’ in Rule 13(a) are not
interpreted literally.” Matter of Penn Cent. Transp. Co., 419 F. Supp. 1376, 1383 (E.D. Pa. 1976).
In Great Lakes Rubber Corp. v. Herbert Cooper Co., the Third Circuit explained that a
counterclaim is compulsory “[w]here multiple claims involve many of the same factual issues, or
the same factual and legal issues, or where they are offshoots of the same basic controversy
between the parties . . . .” 286 F.2d 631, 634 (3d Cir. 1961) (citations omitted). Thus, courts have
found that a counterclaim may be permissive when the claim and counterclaim do not involve the
same factual or legal issues, even if the claims are based on the same transaction or agreement.
See, e.g., Zeltzer v. Carte Blanche Corp., 414 F. Supp. 1221, 1224 (W.D. Pa. 1976) (“I find that
the respective claims are ‘offshoots’ of the same basic transaction, but not the ‘same basic
controversy between the parties,’ and that separate trials on each distinct claim will not involve a
‘substantial duplication of effort and time by the parties and the courts.’”) (quoting Great Lakes
Rubber Corp., 286 F.2d at 634); Gammons v. Domestic Loans of Winston-Salem, Inc., 423 F. Supp.
819, 821 (M.D.N.C. 1976) (“Although the claim and counterclaim arise from the same underlying
business transaction, each raise [sic] issues of fact and law starkly different.”).
Here, the class claims concern only the legality of the contracts themselves without any
regard to the performance of those contracts. In contrast, the proposed counterclaims focus entirely
on performance and “require proof of additional elements [which are not relevant to the class
claims], including: whether class members breached their agreements; whether they made their
monthly payments; whether they paid late fees; whether their checks were returned due to
12
insufficient funds; whether they destroyed or misappropriated furniture; whether Defendant
performed its obligations under the agreements; and whether Defendant preserved its rights.” (MJ
Order 14.) Thus, the class claims and proposed counterclaims raise distinct issues of fact and law.
Accordingly, the Magistrate Judge’s finding that the proposed counterclaims were not compulsory
pursuant to Rule 13 was not contrary to the law.
D.
The Magistrate Judge Did Not Err in Denying Defendant’s Motion to Amend
Counterclaims Against Ms. Korrow
Finally, Defendant argues that the Magistrate Judge erred in denying Defendant’s request
for leave to add new factual allegations regarding other agreements that Ms. Korrow entered into
with Defendant and counterclaims against Ms. Korrow for quantum meruit and unjust enrichment.
(Def.’s Moving Appeal Br. 38-40.) Specifically, Defendant argues that, prior to obtaining class
certification, Plaintiff’s Complaint asserted claims with respect to only her July 23, 2009
agreement with Defendant. (Id. at 38-39.) Following class certification, however, Defendant
contends that it is “[p]resumably” Plaintiff’s position “that now that the class has been certified,
any other agreements that Plaintiff entered into with [Defendant] during the class period are the
subject of the certified claims.” (Id. at 39.) Accordingly, Defendant seeks to assert counterclaims
based on these other agreements.
As an initial matter, Defendant did not raise this argument before the Magistrate Judge. On
the contrary, Defendant argued that “Plaintiff . . . is not and cannot be prejudiced by the amended
counterclaim because . . . it does not affect her in any way,” and “[t]hat the amended counterclaim
adds quantum meruit and unjust enrichment claims is of no moment because ‘when an amendment
puts no different facts in issue than did the original citation, reference to an additional legal
standard is not prejudicial.’” (Def.’s Reply Br. for Leave to Amend 2-3, ECF No. 95 (quoting
Donovan v. Royal Logging Co., 645 F.2d 822, 827 (9th Cir. 1981).) Thus, noting that the
13
Defendant “points to no new facts to justify its late request” and “concedes that its new
counterclaims are premised on the same facts as its existing counterclaim,” the Magistrate Judge
found that Defendant had not shown good cause for amending its counterclaim against Ms.
Korrow. (MJ Order 19.)
Defendant does not offer any explanation, let alone good cause, for failing to raise the
argument before the Magistrate Judge. Accordingly, the Court finds that this argument was
waived. See Bowen v. Parking Auth. of City of Camden, No. 00-5765, 2002 WL 1754493, at *6
(D.N.J. July 30, 2002) (“[A]bsent good cause, the District Judge will not consider new arguments
raised on appeal that could have been presented to the Magistrate Judge . . .”); Health Corp. of
Am. v. N.J. Dental Ass’n, 77 F.R.D. 488, 492 (D.N.J.1978) (“Since this argument was not presented
to the Magistrate Judge for his consideration before decision, the court will not consider it now.”).
Accordingly, as the decision was not contrary to law, the Court affirms the Magistrate
Judge’s denial of Defendant’s motion for leave to amend the counterclaims.5
III.
Motion for Approval of the Class Notice and Plan of Notice
Following certification of the class, Plaintiff moved for approval of the class notice and
plan of notice. (ECF No. 101.) Plaintiff asserts that her proposed class notice and plan of notice
should be approved because it meets the Rule 23(c)(2)(B) requirements that apply to class actions
certified under Rule 23(b)(3) of the Federal Rules of Civil Procedure and comports with due
process in “providing the requisite information about the lawsuit and class members’ rights to
exclude themselves from this proceeding.”
(Pl.’s Moving Notice Br. 1, ECF No. 101-2.)
5
Defendant also makes a separate Motion to Stay Issuance of the Class Notice Pending Resolution
of Defendant’s Appeal of the June 30, 2014 Order Denying Leave to Amend. (ECF No. 100.)
Having decided Defendant’s Appeal of the June 30, 2014 Order Denying Leave to Amend,
Defendant’s Motion to Stay Issuance of the Class Notice (ECF No. 100) is denied as moot.
14
Defendant, however, argues that the notices should not be approved because the class notice
contains certain factual and legal inaccuracies and that the plan of notice is “prejudicial” and “too
expensive.” (Def.’s Opp’n Notice Br. 1, ECF No. 104.) For the reasons discussed below, the
Court finds that the notices should be approved subject to the revisions described below.
A.
Adequacy of Class Notice
Rule 23(c)(2)(B) governs class notice for classes certified under Rule 23(b)(3), and is
applicable here. Rule 23(c)(2)(B) provides that:
[f]or any class certified under Rule 23(b)(3), the court must direct to
class members the best notice that is practicable under the
circumstances . . . . The notice must clearly and concisely state in
plain, easily understood language: (i) the nature of the action; (ii) the
definition of the class certified; (iii) the class claims, issues, or
defenses; (iv) that a class member may enter an appearance through
an attorney if the member so desires; (v) that the court will exclude
from the class any member who requests exclusion; (vi) the time and
manner for requesting exclusion; and (vii) the binding effect of a
class judgment on members under Rule 23(c)(3).
Fed. R. Civ. P. 23(c)(2)(B). In order to help courts comply with the requirements of Rule
23(c)(2)(B), the Rules Advisory Committee notes that the “Federal Judicial Center has created
illustrative clear-notice forms that provide a helpful starting point for actions similar to those
described in the forms.” Fed. R. Civ. P. 23(c) advisory committee’s note. Here, Plaintiff’s notice
was drafted based upon the Federal Judicial Center’s notice forms. Plaintiff’s proposed long-form
class notice provides the following description of the class action:
A consumer sued Aaron’s, Inc. claiming that certain fees in its rentto-own contracts violate several New Jersey laws. Her lawsuit
demands money for herself and certain other New Jersey consumers
related to certain fees charged by Aarons. [sic] These fees are (1) a
“Service Plus” fee, (2) a “Prorated amount” charge paid with the
first payment due, and (3) a “Return Check” fee charged if a check
is returned “for any reason.”
15
(Certification of Michael Quirk (“Quirk Cert.”) Ex. A (“Proposed Long-Form Notice”), ECF No.
101-4.) In addition, it describes the certified class as “all persons who entered into a rent-to-own
contract with Aaron’s Inc. in New Jersey from March 16, 2006 to March 31, 2011,” and it notes
that Class members who paid “Prorated” or “Service Plus” fees are part of certified subclasses.
(Id.) The proposed long-form notice contains similar clear and concise descriptions of the class
claims, defenses, right to obtain separate representation, time and manner for opting out, and “what
happens if [a class member] do[es] nothing at all?” (Id.) The Court finds that these descriptions
are clear and concise and easily understood. Likewise, the Court finds that the proposed shortform notice also clearly and concisely provides the information required by Rule 23(c)(2)(B).
(Quirk Cert. Ex. B (“Proposed Short-Form Notice”), ECF No. 101-4.) Accordingly, the Court
finds that the notices satisfy Rule 23(c)(2)(B) and comport with due process.
Having found that the notices generally comply with the requirements of Rule 23(c)(2)(B)
and due process, the Court now addresses Defendant’s five specific objections to the language in
the notices. First, Defendant contends that the following statement in the long-form notice is false:
“Everyone in the Class entered into a contract that included a ‘for any reason’ type of ‘Return
Check’ fee.” (Def.’s Opp’n Notice Br. 5.) The Court addressed this issue in its denial of
Defendant’s Motion to Strike the Declaration of Christopher J. McGinn. (ECF No. 77.) Defendant
moved to strike, inter alia, the statement in McGinn’s declaration, that, upon review, all 36,016
versions of the Aaron’s contract during the class period contained a check return fee. (Def.’s
Motion to Strike Br. 6-7, ECF No. 63.) The Court denied this motion. (ECF No. 77.) Defendant
may not relitigate this issue by objecting to the notice. Accordingly, the Court finds that this
statement may be included in the notice.
16
Second, Defendant contends that the description of the claims in the lawsuit in the proposed
long-form notice is “incomplete and inaccurate” because it does not describe Defendant’s
counterclaims or set-off and recoupment defenses. (Def.’s Opp’n Notice Br. 6.) As discussed
above, the Court denies Defendant’s appeal of the dismissal of its proposed counterclaims. Thus,
with the exception of Ms. Korrow, Defendant does not have an affirmative claim for breach of
contract against the class members. With respect to the set-off and recoupment defenses, these
defenses are included in the notice. The notice provides that: “Aaron’s answers that some Class
members owe it money and any money obtained from persons in this case should be reduced by
the amount of the debt Aaron’s claims” and “[a] class member’s recovery of such damages may
be subject to and reduced by any ‘set off’ defense . . . if Aaron’s can prove that the Class Member
owes it money.” (Proposed Long-Form Notice 5-6.) Thus, the Court finds that the notice provides
a complete an accurate description of the claims in the lawsuit.
Third, Defendant contends that linking the long-form notice to Plaintiff’s brief in support
of her motion for class certification is “inappropriate.” (Def.’s Opp’n Notice Br. 6.) The Court
agrees. Class notice must be neutral and must avoid endorsing the merits of the claim. See
Hoffman La–Roche v. Sperling, 493 U.S. 165, 173 (1989) (“In exercising the discretionary
authority to oversee the notice-giving process, courts must be scrupulous to respect judicial
neutrality.”). The one-sided presentation of arguments in Plaintiff’s legal brief unfairly endorses
the merits of the class claims. Accordingly, the link to Plaintiff’s brief should be removed from
the notice.
Fourth, Defendant contends that the following statement in the long-form notice is
inaccurate: “Any customer of Aaron’s Inc. that is a business entity, a church, or a non-profit
organization is NOT a member of the Class.” (Def.’s Opp’n Notice Br. 7.) Specifically, Defendant
17
contends that the language should be revised to indicate that a person must have purchased or
leased the property for personal use to be a class member. (Id.) In granting Plaintiff’s motion for
class certification, the Court rejected the argument for an individualized inquiry as to each
purchaser’s intended use. (Mem. Op. 10 (“The TCCWNA does not require individualized
investigation into the particular use of products purchased for each individual consumer.”).) Thus,
the description of the Class is accurate and does not need to be revised.
Fifth, Defendant contends that the proposed short-form notice does not provide the best
notice that is practicable because it does not specify the amount that Defendant seeks in its
counterclaim against Ms. Korrow and does not make reference to Defendant’s set-off and
recoupment defenses.” (Def.’s Opp’n Notice Br. 7-8.) The Court finds that this information is
unnecessary for the short-form notice.
Accordingly, subject to the removal of the link to the Plaintiff’s brief in support of her
motion for class certification, the Court approves the proposed notices.
B.
Adequacy of the Notice Plan
Pursuant to Rule 23(c)(2)(B), “the court must direct to class members the best notice that
is practicable under the circumstances, including individual notice to all members who can be
identified through reasonable effort.” Fed. R. Civ. P. 23(c)(2)(B). Here, Plaintiff proposes to
provide notice in the following eight ways: (1) direct mail; (2) e-mail message; (3) publication in
three newspapers; (4) a press release to approximately 11,700 media points, including 5,700 U.S.
news outlets and 6,000 websites; (5) mailings to 34 legal aid and pro bono program offices located
within New Jersey; (6) a litigation-specific website; (7) a case-specific toll-free telephone number;
and (8) a Google ad word campaign. (Quirk Cert. Ex. C (“Proposed Notice Plan”), ECF No. 1013.) Defendant does not dispute, and the Court finds that notice via direct mail, e-mail message,
18
and publication are consistent with the requirements for providing the best notice that is practicable
pursuant to Rule 23(c)(2)(B). Defendant contends that the other forms of notice, however, are
prejudicial and too expensive.
As an initial matter, excluding the case-specific toll-free telephone number, the four forms
of notice that Defendant disputes – namely a press release, mailings to 34 legal aid and pro bono
program offices, a litigation-specific website, and a Google ad word campaign – cost a total of
$6,325.6 Compared to the approximately $88,000 to be spent on direct mailing, e-mail, and
publications, which Defendant does not dispute, the Court finds that the additional approximately
$6,000 is minimal. Moreover, given that the Class is likely to include many transient individuals,
the Court finds that these low-cost forms of notice may be more effective in reaching the proposed
class members than direct mailing. Accordingly, the Court finds Defendant’s assertions that these
forms of notice are “too expensive” unpersuasive. With respect to the case-specific toll-free
telephone number, which is estimated to cost approximately $28,3327, given that the information
that is provided by the toll-free telephone number could also be provided at a lower cost on the
litigation-specific website, the Court finds that this expense is not reasonable.
Finally, the Court turns to Defendant’s argument that the additional notice is prejudicial
and harmful to its business reputation. (Def.’s Opp’n Notice Br. 13-14.) As noted above, given
that the Class is likely to include many transient individuals, traditional forms of notice, such as
direct mail or publications in regional newspapers, which are based on a class member’s previous
residence, may be ineffective. For this reason, the Court finds that notice should also be distributed
more broadly via electronic communications. In permitting notice to be distributed more broadly,
6
(Certification of Anya Verkhovskaya (“Verkhovskaya Cert.”) ¶ 10, ECF No. 107-1.)
7
Id.
19
the Court is, however, mindful of the risk of “unfairly publiciz[ing] yet unproven allegations about
Defendant[] to [its] customers.” Owen v. W. Travel, Inc., No. 03-0659, 2003 WL 25961848, at *
1 (W.D. Wash. Dec. 13, 2003). Thus, weighing the likelihood of prejudice to Defendant against
the need to provide the best notice practicable to the class members, the Court finds that the Google
ad word campaign would be overly prejudicial here. The Court, however, finds that it is not unduly
prejudicial to provide notice via a press release, case-specific website, and mailings to the 34 legal
aid and pro bono program offices located within New Jersey. Accordingly, the Court approves
the following six forms of class notice: (1) direct mail; (2) e-mail message; (3) publication in three
newspapers; (4) a press release to approximately 11,700 media points; (5) targeted mailing to 34
legal aid and pro bono program offices in New Jersey; and (6) a litigation-specific website.
IV.
Motion to Decertify the Class
By separate motion, Defendant moves to decertify the class. (ECF No. 110.) Pursuant to
Rule 23(c)(1)(C), “[a]n order that grants or denies class certification may be altered or amended
before final judgment.” Fed. R. Civ. P. 23 (c)(1)(C). Decertification is, however, an “‘extreme
step’ particularly at a late stage in litigation, ‘where a potentially proper class exists and can easily
be created.” Gulino v. Bd. of Educ., 907 F. Supp. 2d 492, 504 (S.D.N.Y. 2012) (quoting Woe v.
Cuomo, 729 F.2d 96, 107 (2d Cir. 1984)); see also Chiang v. Veneman, 385 F.3d 256, 268 (3d Cir.
2004) (characterizing decertification as a “drastic course”), abrogated on other grounds by In re
Hydrogen Peroxide Antitrust Litig., 552 F.3d 305, 318 n.18 (3d Cir. 2008). Thus, “[t]he party
seeking to decertify a class action has the burden of showing ‘changed circumstances’ that would
warrant the decertification of the class action.” Barkouras v. Hecker, No. 06-0366, 2007 WL
4545896, at *1 (D.N.J. Dec. 19. 2007) (quoting Muise v. GPU, Inc., 371 N.J. Super. 13, 32 (App.
Div. 2004)); see also Gulino, 907 F. Supp. 2d at 504 (“A defendant seeking to decertify a class
20
‘bears a heavy burden to prove the necessity of either the drastic step of decertification or the less
draconian but still serious step of limiting the scope of the class.’”) (quoting Gordon v. Hunt, 117
F.R.D. 58, 61 (S.D.N.Y. 1987)).
Here, Defendant argues that in deciding the motion for leave to amend, the Magistrate
Judge made “new factual findings” that demonstrate that Plaintiff cannot satisfy the predominance
and superiority requirements under Rule 23(B)(3). (Def.’s Moving Decertification Br. 14-37.)
Defendant contends that this Court did not consider these facts in deciding Defendant’s previous
motion for denial of class certification:
[T]he District Court did not have the opportunity to fully consider
the impact of the ‘formidable and fact intensive’ individual issues,
relating to [Defendant’s] then ‘hypothetical counterclaims,’ nor did
the Court make findings relating to Defendant’s defenses that many
class members owed [Defendant] money for various reasons, which
would preclude or at least limit recovery of class members.
(Id. at 14.) This assertion is, however, refuted by the Court’s discussion of Defendant’s defenses
in its decision on Defendant’s previous motion for denial of class certification. In rejecting
Defendant’s challenge that individualized counterclaims and defenses preclude the class from
meeting the predominance requirement, the Court stated that “hypothetical counterclaims do not
impact class certification, particularly where the record provides no basis for finding that such
counterclaims would create difficulties that outbalance the advantages of class treatment.” (Mem.
Op. 15-16 (quoting Allen v. Holiday Universal, 249 F.R.D. 166, 183 (E.D. Pa. 2008) (emphasis
added).) In arguing that this Court did not “make findings relating to Defendant’s defenses,”
Defendant ignores the Court’s consideration of whether the difficulties of the “hypothetical
counterclaims” would outbalance the advantages of class treatment. Specifically, in its discussion
of the adequacy and typicality requirements for class treatment, the Court asserted that “[a]lthough
Defendant argues that there will be individualized defenses pertaining to Ms. Korrow and
21
potentially to other class members, Defendant fails to articulate a defense that would affect
liability.” (Mem. Op. 20 (citing Baby Neal v. Casey, 43 F.3d at 57 (granting certification where
“individual damage determinations could be made . . . at a separate phase of the trial, but the class
phase could resolve the central issue of liability.”).) Thus, contrary to Defendant’s assertion, the
Court had an “opportunity to fully consider the impact of the ‘formidable and fact intensive’
individual issues . . . relating to Defendant’s defenses,” and after considering these issues and the
relevant case law, the Court denied Defendant’s motion for denial of class certification. (Def.’s
Moving Decertification Br. 14.)
Accordingly, Defendant has not shown any “changed
circumstances” that would warrant the decertification. Thus, Defendant’s Motion to Decertify the
Class is denied.
V.
Motion for Leave to File an Amicus Brief
NJCJI has filed a motion for leave to appear amicus curiae in support of Defendant’s
Motion to Decertify the Class. (ECF No. 113.) NJCJI asserts that the Court should exercise its
discretion to accept its amicus curiae brief because “(1) the brief provides the Court with the
specialized and unique perspective of a public interest organization consisting of members of New
Jersey’s business community; (2) the brief sets forth broad policy concerns, more generalized and
universal than those immediately before the court in the pending motion, that no present party to
this case is equipped to represent; (3) the information proffered is useful and timely; and (4) NJCJI
is not partial to a particular outcome in this case.” (NJCJI Moving Amicus Br. 3, ECF No. 1131.) “The purpose of an amicus curiae is to the assist the court in a proceeding. A court may permit
a non-party to proceed amicus curiae if it presents information to the court that is both timely and
useful.” Fair Lab. Practices Assocs. & NPT Assocs. v. Chris Riedel & Hunter Labs., LLC, No.
14-251, 2015 WL 3949156, at *7 (D.N.J. June 29, 2015). “The extent, if any, to which an amicus
22
curiae should be permitted to participate in a pending action is solely within the broad discretion
of the district court.” United States v. Alkaabi, 223 F. Supp. 2d 583, 592 (D.N.J. 2002) (citations
omitted).
As discussed above, decertification is a drastic step that is warranted when “changed
circumstances” can be shown. See Barkouras, 2007 WL 4545896, at *1 (quoting Muise, 371 N.J.
Super. at 32); see also Chiang, 385 F.3d at 268 (characterizing decertification as a “drastic
course”).
NJCJI does not argue that there are any changed circumstances that warrant
decertification. Rather, NJCJI argues that “fairness and judicial efficiency weigh against the
certification of a class in a statutory damages case where the defendant has related claims against
class members arising from the same transaction.” (NJCJI Moving Decertification Br. 4-15, ECF
No. 113-2.) This argument is not relevant to Defendant’s Motion to Decertify the Class.8
Accordingly, because NJCJI has failed to show that its appearance would be useful to the Court
for the purposes of resolving Defendant’s Motion to Decertify the Class, its motion for leave to
appear amicus curiae is denied.
VI.
Conclusion
For the reasons set forth above, Defendant’s Appeal of the Magistrate Judge’s Denial of
Its Motion for Leave to Amend, Defendant’s Motion to Stay the Issuance of a Class Notice Pending
Resolution of Defendant’s Appeal of the June 30, 2014 Order Denying Leave to Amend,
Defendant’s Motion to Decertify the Class, and NJCJI’s Motion for Leave to File a Brief as
8
Defendant raised, and the Court considered, similar arguments as to the appropriateness of
certification in connection with Defendant’s preemptive Motion to Decertify the Class. (Mem. Op.
18 (“This Court, therefore, finds it appropriate to apply the TCCWNA to Defendant’s contracts in
a collective action.”).)
23
Amicus Curiae are denied. Plaintiff’s Motion for Approval of Class Notice and Plan of Notice is
granted in part and denied in part.
s/ Michael A. Shipp
MICHAEL A. SHIPP
UNITED STATES DISTRICT JUDGE
Dated: November 30, 2015
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