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Lender Challenges Class Representative

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By RICHARD WEATHERINGTON

The last thing most check cashers want to face is a class action lawsuit. The costs are high and the potential damages could be staggering.

Given the high stakes, it is understandable why nearly every aspect of the class action may need to be carefully examined, including the adequacy of the class representative.

A woman, whose first name was Brenda, filed a purported class action complaint against a payday loan company, alleging that the lender had charged her and other potential class members usurious interest, engaged in deceptive conduct in violation of the Deceptive Trade Practices Act, and violated a prior court approved settlement.

Brenda then filed a motion for class certification in an Arkansas circuit court.

The lender opposed the certification, arguing, among other things, that Brenda was an inadequate class representative because her untreated schizophrenia and other mental illnesses rendered her incapable of making decisions in the best interests of the class.

The lender also claimed that Brenda’s lack of damages, lack of participation in a prior court approved settlement and a lack of a contractual relationship with the lender undermined the class’s ability to enforce many of its claims and, therefore, created conflicts of interest between Brenda and the class.

Counters Claims

The attorney for the proposed class countered that Brenda was an adequate representative because she was an involved plaintiff, had appeared at a two day deposition, and was present at the class certification hearing.

Further, the attorney claimed that Brenda understood her duties as class representative and testified in her deposition that she was willing to spend her own money, and even mortgage her own house if necessary, to cover the costs of filing suit.

Brenda’s deposition testimony was submitted to the circuit court, but she did not testify.

The circuit court certified a class of all persons who had engaged in check cashing or deferred presentment transactions with the lender in Arkansas since February 2002. The order included several findings with respect to Brenda’s adequacy as a class representative.

The circuit court said there was no evidence that she was not competent or unable to fulfill the necessary duties as class representative.

It noted that she had displayed a significant level of interest in the action, had the ability to assist in decision making as to the conduct of the litigation, and that she had given her deposition in the case and appeared at the hearing on class certification.

Finally, the circuit court said there was no evidence of collusion or conflicting interests between the Brenda and members of the class.

Lender Appeals

The lender appealed the circuit court’s ruling to the Arkansas Supreme Court.

The lender claimed that the circuit court abused its discretion in granting the motion seeking class certification because Brenda was not an adequate class representative, was incapable of making decisions in the best interests of the class due to her untreated mental illness, and was not familiar with the basic facts of the lawsuit.

The lender also claimed that there was no evidence that Brenda comprehended her duties and responsibilities as a class representative and had conflicts of interest with the class.

The Arkansas Supreme Court first noted that circuit courts are given broad discretion in matters regarding class certification, and it would not reverse a circuit court’s decision to grant or deny class certification absent an abuse of discretion.

Arkansas rules, noted the Supreme Court, require that the representative parties and their counsel be able to adequately protect the interests of the class and impose three elements:

(1) the representative counsel must be qualified, experienced, and generally able to conduct the litigation;

(2) that there be no evidence of collusion or conflicting interest between the representative and the class; and

(3) the representative must display some minimal level of interest in the action, familiarity with the practices challenged, and ability to assist in decision making as to the conduct of the litigation.

Mental Illness

The lender argued that Brenda’s untreated mental illness rendered her incapable of making decisions in the best interests of the class.

Specifically, the lender claimed that Brenda’s admitted schizophrenia, anxiety and depression, coupled with her refusal to take the prescribed medication to treat those conditions, disqualified her as an adequate class representative.

It also claimed that she did not have the mental capacity to make sound decisions on behalf of the class or otherwise carry out the duties of a class representative.

The Supreme Court noted that Brenda stated that she began seeing a psychiatrist in 1995 and was diagnosed with schizophrenia. She said she was currently receiving mental health services from her family physician, including medication for depression and anxiety.

Brenda said that she had hallucinations for 20 years in which she sees people and hears voices that are not really there.

Other Evidence

The lender, in turn, pointed to additional evidence of Brenda’s inability to make decisions on behalf of the class.

The lender noted that she testified that she had transacted business with other check cashers and did not inform her husband, with whom she shared checking and savings accounts.

In addition, the lender pointed to Brenda’s deposition testimony where she admitted that she entered into an agreement with another check casher, despite her belief that the interest rate was usurious.

The lender further argued that, absent proper treatment, especially in light of her admitted hallucinations and continuing problems with mental illness, Brenda did not have the capacity to assist in making decisions that were in the best interests of the class as to the conduct of the litigation.

Further, her actions in entering into deferred presentment transactions with higher fees than the lenders after filing the lawsuit demonstrated that her mental illness impaired her judgment.

The Supreme Court pointed out that persons with limited intellect or mental handicaps can serve as representative plaintiffs in class actions and that Brenda’s mental illness did not automatically disqualify her from representing the class.

Here, said the Supreme Court, no medical reports were introduced indicating that Brenda might not be able to vigorously participate in the prosecution of a class action.

In fact, said the court, the lender made no attempt to introduce Brenda’s medical records nor did it call her to testify at the certification hearing.

The circuit court found that there was no evidence in the deposition testimony that she was not competent or unable to fulfill the necessary duties as class representative.

The Supreme Court said that the finding of the circuit court was not clearly erroneous.

Familiarity with Basic Facts of the Lawsuit

Next, the lender claimed that Brenda was an inadequate representative because she was not familiar with the basic facts of the lawsuit.

It pointed to Brenda’s deposition testimony where she was unaware of what kind of damages she was seeking and, specifically, whether she was seeking punitive damages or damages for emotional distress.

The lender also pointed to her deposition testimony, where she could not remember when she first started doing business with the lender or how many agreements she entered into with the company.

In addition, the lender said that Brenda did not know that she had sued two companies with which she never transacted business and that she believed that she sued individuals, even though she sued only companies.

It claimed that Brenda did not know whether she was seeking statewide or nationwide class certification or the time period at issue in the lawsuit.

Further, the lender argued that she did not know whether the lender’s conduct violated a prior court approved settlement or the DTPA, as alleged in the complaint.

In sum, the lender argued that Brenda was detached from her role as class representative and that compelled the reversal of the circuit court’s order certifying the class.


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