Garcia v. The Execu-Search Group, LLC
Filing
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OPINION & ORDER re: 29 FIRST MOTION to Strike Document; FIRST MOTION to Dismiss: For the foregoing reasons, ESG's motion to strike or dismiss the class allegations is denied without prejudice to challenging whether Rule 23(a)'s pre requisites have been met at the class certification stage. Garcia's application for sanctions is denied. The parties are directed to appear for a status conference on March 15, 2019 at 4:00 p.m. The Clerk of Court is directed to terminate the motion pending at ECF No. 29. (Status Conference set for 3/15/2019 at 04:00 PM before Judge William H. Pauley III.) (Signed by Judge William H. Pauley, III on 2/19/2019) (jwh) Modified on 2/19/2019 (jwh).
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
MANUEL GARCIA, on behalf of himself
and those similarly situated,
Plaintiff,
-againstTHE EXECU|SEARCH GROUP, LLC,
Defendant.
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17cv9401
OPINION & ORDER
WILLIAM H. PAULEY III, Senior United States District Judge:
Manuel Garcia brings this putative class action under the Fair Credit Reporting
Act (“FCRA”) against the Execu|Search Group, LLC (“ESG”). ESG moves to strike or dismiss
Garcia’s class allegations prior to any motion to certify a class. In his opposition, Garcia seeks
sanctions under 28 U.S.C. § 1927 against ESG for purportedly stalling this litigation. For the
reasons that follow, ESG’s motion to strike or dismiss the class allegations and Plaintiff’s request
for sanctions are denied.
BACKGROUND
The operative facts are straightforward and are drawn from the Second Amended
Complaint (“Complaint”). ESG is an executive recruitment and temporary staffing agency.
Around September 2017, an ESG recruiter contacted Garcia about a temporary position in which
ESG would employ him to provide information technology training services to nurses and
doctors at various New York-Presbyterian Hospital locations. Following a successful interview,
Garcia began work on October 2, 2017. The next day, Garcia received notice from ESG that his
background check revealed open criminal charges and that ESG terminated his employment
because Garcia could not work at New York-Presbyterian Hospital with those charges. Although
Garcia protested that the charges had already been dismissed, ESG stood by its decision to
terminate him based on those charges listed in his consumer credit report.
Garcia claims that ESG violated 15 U.S.C. § 1681b(b)(3)(A) of the FCRA by
failing to provide him with a copy of his consumer credit report or a written description of his
FCRA rights sufficiently in advance of taking adverse employment action against him based on
that report. He claims that ESG provided his consumer credit report and a written description of
his rights only after he had been terminated—not to mention that the criminal history information
in the report was inaccurate. He seeks to certify a class of employees and prospective employees
of ESG who were the subject of a consumer credit report and against whom ESG took some
adverse employment action based on information in the report.
DISCUSSION
I.
Motion to Strike or Dismiss
Rule 12(f) permits a court to “strike from a pleading . . . any redundant,
immaterial, impertinent, or scandalous matter.” Fed. R. Civ. P. 12(f). In addition, Rule
23(d)(1)(D) permits a court to “require that the pleadings be amended to eliminate allegations
about representation of absent persons . . . .” Fed. R. Civ. P. 23(d)(1)(D). Whether to grant or
deny a motion to strike lies within the court’s sound discretion. Ong v. Chipotle Mexican Grill,
Inc., 294 F. Supp. 3d 199, 222 (S.D.N.Y. 2018). In this circuit, motions to strike are looked on
with disfavor, and motions to strike class allegations are “even more disfavored” because they
“require[] a reviewing court to preemptively terminate the class aspects of . . . litigation, solely
on the basis of what is alleged in the complaint, and before plaintiffs are permitted to complete
the discovery to which they would otherwise be entitled on questions relevant to class
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certification.” Chenensky v. N.Y. Life Ins. Co., 2011 WL 1795035, at *1 (S.D.N.Y. Apr. 27,
2011) (citations and quotation marks omitted).
Thus, “[a] court will deny a motion to strike as premature unless the defendants
‘demonstrate from the face of the [c]omplaint that it would be impossible to certify the alleged
class regardless of the facts [the] [p]laintiffs may be able to obtain during discovery.’” In re:
Libor-Based Fin. Instruments Antitrust Litig., 2016 WL 2851333, at *1 (S.D.N.Y. May 13,
2016) (second, third, and fourth alterations in original) (citation omitted); see also McLaughlin
on Class Actions § 3.4 (remarking that motions to strike class allegations “should not be the
norm, but are appropriate where the unsuitability of class treatment is evident on the face of the
complaint and incontrovertible facts”). ESG contends that the class allegations must be
dismissed or stricken because (1) the proposed class is an impermissible fail-safe class; (2) the
class allegations fail to allege the necessary factual matter to satisfy the heightened pleading
standard under Rule 12(b)(6); and (3) the class allegations do not satisfy Rule 23(a)’s
prerequisites. Each argument is addressed seriatim.
A. Whether the Proposed Class Is a Fail-Safe Class
The unsuitability of class treatment may be apparent on the face of the complaint
if the putative class is a fail-safe class. A fail-safe class is one whose definition “shields the
putative class members from receiving an adverse judgment.” Mazzei v. Money Store, 288
F.R.D. 45, 55 (S.D.N.Y. 2012) (citation omitted). In such a class, “either the class members win
or, by virtue of losing, they are not in the class, and therefore not bound by the judgment.”
Mazzei, 288 F.R.D. at 55; accord Spread Enters., Inc. v. First Data Merchant Servs. Corp., 298
F.R.D 54, 69 (E.D.N.Y. 2014). Thus, fail-safe classes tend to be defined in terms of a “legal
injury” or “by reference to a particular statute, regulation, or contract that has been allegedly
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violated or breached.” Gregory v. Stewart’s Shops Corp., 2016 WL 8290648, at *18 (N.D.N.Y.
July 8, 2016).
At the pre-motion conference, this Court raised its concerns that the classes
proposed in the original complaint were tainted by fail-safe characteristics. In particular, Garcia
sought to litigate this action on behalf of applicants for employment with ESG in New York who
were not provided with a copy of their consumer credit report or a written description of their
rights under the FCRA before ESG took adverse employment action against them based on their
consumer credit report. (See Class Action Complaint, ECF No. 1, ¶ 8.) In other words, the
classes consisted of those—and only those—to whom ESG would be liable under the FCRA.
See 15 U.S.C. § 1681b(b)(3)(A)(i), (ii) (providing in relevant part that “in using a consumer
report for employment purposes, before taking any adverse action based in whole or in part on
the report, the person intending to take such adverse action shall provide to the consumer to
whom the report relates” a copy of the report and a written description of the consumer’s rights
under the FCRA).
In response, Garcia amended the class definition to encompass “[a]ll employees
or prospective employees of [ESG] residing in the United States . . . who were the subject of a
consumer report [within the statutory limitations period] and against whom [ESG] took adverse
action based on information contained in each consumer report.” (Compl. ¶ 52.) ESG asserts
that the amended class remains “an impermissible fail-safe class” because any employee not
subject to an adverse action by ESG based on his consumer credit report would “not [be] in the
class, and therefore not [be] bound by the judgment.” (Defendant The Execu|Search Group,
LLC’s Memorandum of Law in Support of Its Motion to Dismiss and to Strike Plaintiff’s Class
Allegations, ECF No. 30 (“ESG Mem.”), at 3 (citing Mazzei, 288 F.R.D. at 55).) But such an
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argument—which in essence restates the obvious proposition that non–class members may not
be bound by a class judgment—reflects a misunderstanding of the nature of fail-safe classes.
Specifically, what makes a fail-safe class asymmetrically unfair to defendants is that a finding of
liability binds a defendant to an adverse judgment, while a finding of non-liability binds no class
member because no class would exist by definition. See 1 Newberg on Class Actions § 3.6 (5th
ed. 2011). And as a practical matter, fail-safe classes are “unmanageable because the members
of the class could only be known after a determination of liability.” Mazzei, 288 F.R.D. at 55.
The amended class definition does not present the same fail-safe concerns as the
originally defined classes. As Garcia notes, the amended class definition may now encompass
some individuals to whom ESG is not liable under the FCRA but who would nevertheless be
bound by a finding of non-liability, such as an employee who did receive his consumer credit
report and a written description of rights prior to adverse employment action by ESG. However,
it would be just as facile to assume that the putative class passes muster simply because it now
includes at least one individual to whom ESG might not be liable. The broader concern
implicated by fail-safe classes is the ascertainability of class membership, the “touchstone of
[which] is whether the class is ‘sufficiently definite so that it is administratively feasible for the
court to determine whether a particular individual is a member.’” Brecher v. Republic of Arg.,
806 F.3d 22, 24 (2d Cir. 2015) (citation omitted). In other words, “[a] class is ascertainable
when defined by objective criteria that are administratively feasible and when identifying its
members would not require a mini-hearing on the merits of each case.” Brecher, 806 F.3d at 2425 (quoting Charron v. Pinnacle Grp. N.Y. LLC, 269 F.R.D. 221, 229 (S.D.N.Y. 2010)).
The language defining the putative class to include individuals subject to an
adverse action by ESG “based on information contained in each consumer report” raises some
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concern as to administrative feasibility. To be sure, ESG’s reasons for taking adverse action may
well be objective. But “it cannot be the case that any objective criterion will do,” though
“objective criteria may be necessary to define an ascertainable class.” Brecher, 806 F.3d at 25.
Indeed, the extent to which ESG’s adverse action was “based on information contained in each
consumer report” is not subject to ready judicial determination and may require individualized
mini-hearings into why ESG took that adverse action. See Charron, 269 F.R.D. at 229 (“To be
ascertainable, the class must be ‘readily identifiable, such that the court can determine who is in
the class and, thus, bound by the ruling.’” (citation omitted). Accordingly, this Court exercises
its discretion to omit from the class definition the language “based on information contained in
each consumer report.” See Cokely v. N.Y. Convention Ctr. Operating Corp., 2004 WL
1152531, at *2 n.3 (S.D.N.Y. May 21, 2004) (“The court may exercise its discretion ‘to construe
the complaint or redefine the class to bring it within the scope of Rule 23 . . . .’” (citations
omitted)). This modification is made without prejudice to the parties’ ability to raise concerns of
ascertainability at the class certification stage, and “[s]hould it become necessary to modify the
class definition going forward, the Court has discretion to do so.” Charron, 269 F.R.D. at 229.
B. Applicability of Rule 12(b)(6)
ESG also contends that the “class-based claims” must be dismissed under Rule
12(b)(6) for failure to state a claim. Although difficult to follow, ESG’s argument appears to
proceed as follows: (1) class claims must satisfy the heightened pleading standards under the
Supreme Court’s Rule 12(b)(6) jurisprudence; (2) Rule 23(b)(3) class actions require allegations
of a common class-wide policy or practice that points to a common issue of law or fact at the
center of the dispute; and (3) Garcia fails to allege facts plausibly suggesting that ESG engaged
in class-wide violations of the FCRA, and thus fails to state a “claim for class certification.”
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As an initial matter, ESG offers scant authority for the proposition that class
allegations must satisfy the pleading standards that the Supreme Court pronounced in Bell
Atlantic Corp. v. Twombly, 500 U.S. 544 (2007) and Ashcroft v. Iqbal, 556 U.S. 662 (2009),
citing only to Rule 12(b)(6) and inexplicably, Rule 12(b)(1). Certainly, some out-of-circuit preTwombly decisions have concluded that the Rule 12(b)(6) standard applies to pre-discovery
motions to strike class allegations. See, e.g., Bessette v. Avco Fin. Servs., Inc., 279 B.R. 442,
450 (D.R.I. 2002); In re Walls, 262 B.R. 519, 524 (Bankr. E.D. Cal. 2001). In this Court’s view,
however, there is no basis to apply Rule 12(b)(6) because ESG’s motion does not test the legal
sufficiency of the underlying claims, but the propriety of the procedural vehicle of a class action.
Accord, e.g., Royal Mile Co. v. UPMC, 40 F. Supp. 3d 552, 579 (W.D. Pa. 2014) (“It would be
error for a court to apply the Rule 12(b)(6) plausibility standard set forth in Twombly and Iqbal
to ‘dismiss’ class action allegations in a complaint.”); Clerkin v. MyLife.Com, 2011 WL
3809912, at *4 (N.D. Cal. Aug. 29, 2011) (explaining that “Rule 12(b)(6) is not the appropriate
procedural vehicle to challenge class allegations”).
ESG’s contention that Rule 23(b)(3) classes require allegations of a class-wide
common policy or practice pointing to a common issue of law or fact at the center of the dispute
rests on similarly slender reeds. (See ESG Mem. at 5.) As best this Court can discern, that
premise derives from the Supreme Court’s holding that Rule 23’s commonality prerequisite
requires that class claims depend on a common contention that is “of such a nature that it is
capable of classwide resolution—which means that determination of its truth or falsity will
resolve an issue that is central to the validity of each one of the claims in one stroke.” Wal-Mart
Stores, Inc. v. Dukes, 564 U.S. 338, 351 (2011). But ESG conflates the plausibility pleading
standards announced in Twombly and Iqbal with Rule 23’s class certification inquiry. Cf. Wal-
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Mart Stores, 564 U.S. at 351 (clarifying that “Rule 23 does not set forth a mere pleading
standard”). In other words, whether Garcia has stated a plausible FCRA claim is analytically
distinct from whether a class treatment is procedurally proper to test the merits of that claim.1
See Parisi v. Goldman, Sachs & Co., 710 F.3d 483, 488 (2d Cir. 2013) (“[T]he right of a litigant
to employ Rule 23 is a procedural right only, ancillary to the litigation of substantive claims.”
(citation omitted)). Although “a party seeking class certification must affirmatively demonstrate
. . . compliance with [Rule 23]” by “prov[ing] that there are in fact . . . common questions of law
or fact,” Wal-Mart Stores, 564 U.S. at 352 (emphasis in original), Garcia is not required to do so
at the pleading stage without the benefit of class discovery or full class certification briefing.
C. Rule 23(a)’s Prerequisites
Finally, ESG seeks to strike the class allegations from the Complaint based on
Garcia’s inability to satisfy the prerequisites set forth in Rule 23(a). To certify a proposed class,
a plaintiff must demonstrate “that the class and its proposed representatives meet all of the
requirements of both Rule 23(a) and one of the subsections of Rule 23(b).” Chenensky, 2011
WL 1795305, at *1 (citation and quotation mark omitted). Specifically, Rule 23(a) requires that
(1) the class be so numerous that joinder is impracticable; (2) there be common questions of law
or fact; (3) the claims or defenses of the class representatives be typical of the claims or defenses
of the class; and (4) the class representatives fairly and adequately protect the interests of the
class. Fed. R. Civ. P. 23(a).
ESG disputes the numerosity of the putative class, the typicality of Garcia’s
claims, and his ability to adequately represent the class. But ESG does not demonstrate that the
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To the extent that ESG now contends that Garcia fails to state a plausible claim under the FCRA in its reply
brief, this Court declines to consider such a belated argument. See McGraw-Hill Glob. Educ. Holdings, LLC v.
Mathrani, 295 F. Supp. 3d 404, 414 n.5 (S.D.N.Y. 2017) (declining to consider arguments raised for the first time in
a reply brief).
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unsuitability of class treatment is clear from the face of the Complaint, such as instances where
plaintiffs lack standing or fail to exhaust pre-suit requirements. See In re: Libor-Based Fin.
Instruments Antitrust Litig., 2016 WL 2851333, at *1. Instead, ESG’s factual assertions
regarding the lack of numerosity, typicality, and adequacy of representation are unmoored from
any factual record but based only on its own perspective of the disputed merits of class
certification. Of course, this is unsurprising given the procedural posture of this action and
bolsters the conclusion that the propriety of class treatment in this case ought to be determined at
the class certification stage. Fundamentally, ESG’s arguments regarding numerosity, typicality,
and adequacy of representation are precisely “the same ones that would be decided in connection
with determining the appropriateness of class certification under Rules 23(a) and 23(b).” See
Kassman v. KPMG LLP, 925 F. Supp. 2d 453, 464 (S.D.N.Y. 2013) (collecting cases). Thus,
ESG’s motion to strike based on the failure to satisfy Rule 23(a)’s prerequisites is procedurally
premature and denied without prejudice to opposing class certification on these grounds with the
benefit of a complete factual record.
II.
Request for Sanctions
Garcia seeks sanctions under 28 U.S.C. § 1927, which allows a court to direct
counsel to satisfy the “excess costs, expenses, and attorneys’ fees reasonably incurred” because
of conduct that “multiplies the proceedings in any case unreasonably and vexatiously.” An
award under 28 U.S.C. § 1927 is proper, however, “only ‘when there is a finding of conduct
constituting or akin to bad faith.’” Zurich Am. Ins. Co. v. Team Tankers A.S., 811 F.3d 584, 591
(2d Cir. 2016) (citation omitted). For instance, such an award is “proper when the attorney’s
actions are so completely without merit as to require the conclusion that they must have been
undertaken for some improper purpose such as delay.” State St. Bank & Tr. Co. v. Inversiones
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Errazuriz Limitada, 374 F.3d 158, 180 (2d Cir. 2004) (citation omitted). While a court “may
infer bad faith when a party undertakes frivolous actions that are ‘completely without merit,’”
Huebner v. Midland Credit Mgmt., Inc., 897 F.3d 42, 55 (2d Cir. 2018) (citation omitted), it
bears underscoring that the “bad faith” requirement imposes “a high bar to satisfy.” United
States v. Prevezon Holdings, Ltd., 305 F. Supp. 3d 468, 483 (S.D.N.Y. 2018). Ultimately, the
“decision to issue sanctions under [28 U.S.C. § 1927] lies within this Court’s broad discretion.”
Prevezon Holdings, Ltd., 305 F. Supp. 3d at 478.
Garcia’s bid for sanctions principally rests on ESG’s purported misrepresentation
of the holdings of several cases, assertion of knowingly futile arguments, and refusal to consent
to Garcia’s request to file an amended complaint. To be sure, ESG’s arguments are meritless.
But the mere proffer of unmeritorious arguments is insufficient on its own to warrant an award
under 28 U.S.C. § 1927. See Sorenson v. Wolfson, 170 F. Supp. 3d 622, 633 (S.D.N.Y. 2016)
(reiterating that “the trial court must find clear evidence that (1) the offending party’s claims
were entirely meritless and (2) the party acted for improper purposes” (emphasis added) (citation
omitted)). Despite the indefensibility of ESG’s positions, ESG “ties its reasoning, however
flawed to recognizable legal concepts.” Zurich Am. Ins. Co., 811 F.3d at 591. This Court
cannot say that they are so “unconvincing as to require the conclusion that they are made for an
improper purpose.” Zurich Am. Ins. Co., 811 F.3d at 591; see also Keller v. Mobil Corp., 55
F.3d 94, 99 (2d Cir. 1995) (noting that sanctionable conduct includes resubmitting a previously
denied motion, bringing a motion based on facts contrary to those previously found by the court,
making “several insupportable bias recusal motions and repeated motions to reargue,” or
“continually engaging in obfuscation of the issues, hyperbolism [,] and groundless presumptions
in addition to insinuating that the court was biased” (citation omitted)). Accordingly, this Court
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declines to impose sanctions under 28 U.S.C. § 1927.
CONCLUSION
For the foregoing reasons, ESG’s motion to strike or dismiss the class allegations
is denied without prejudice to challenging whether Rule 23(a)’s prerequisites have been met at
the class certification stage. Garcia’s application for sanctions is denied. The parties are
directed to appear for a status conference on March 15, 2019 at 4:00 p.m. The Clerk of Court is
directed to terminate the motion pending at ECF No. 29.
Dated: February 19, 2019
New York, New York
SO ORDERED:
_______________________________
WILLIAM H. PAULEY III
U.S.D.J.
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