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[From: Consumer Class Actions (1999)]

Introduction to Appendices

Primary Source Materials


The appendices contain two important primary source materials relating to consumer class actions. Appendix A reprints Federal Rule of Civil Procedure 23, that governs class actions in federal court. The Appendix is also found on the Companion Disk, allowing easy copying of the rule for use in briefs and other documents. State court actions will follow state court rules, which are not reprinted. Nevertheless, most state rules are patterned on Federal Rule 23. Appendix B reprints the Consumer Class Action Guidelines adopted in 1998 by the National Association of Consumer Advocates. These guidelines provide not only recommended practices by the leading association of consumer attorneys, but also contain useful analysis of current issues. These guidelines are also found on the companion disk, again allowing easy copying of passages directly into briefs and other documents.

Pleadings Available on Companion WordPerfect Disk


Consumer Class Actions contains a companion WordPerfect disk that contains most of the materials in the appendices. To save disk space, the disk contains only information an attorney would wish to copy or search, and thus does not include certain heavily formatted notices and other forms, this introduction, or the introductions to the appendices. All other appendices are set out as WordPerfect files so that a practitioner can copy the file, edit it to fit the facts of a particular case, and print the document out for submission in an actual case. Of additional utility is the ease with which specific information can be located using keyword WordPerfect searches. For this reason, the disk also includes the index to this volume, and the quick reference to the complete series. See the last page of this volume for installation, use, warranty, and other information about the disk. The disk itself is located in an envelope adhered to the inside back cover of this manual.

About the Sample Pleadings


This volumes appendices also contain sixty-eight samples of documents which have been used in litigated consumer class actions. Some of the names have been changed to protect the privacy of the plaintiff consumers. These samples should not be viewed as models, but rather as examples of the form and content of documents required at various stages of class action litigation. The documents were drafted by several different attorneys, and therefore vary in language, style, and content from one sample to the next. Many appendices provide a number of different samples of the same type of pleading, allowing the practitioner to select the pleading closest to the facts and legal issues of the practitioners own case. The various samples also allow the practitioner to review a number of stylistic alternatives.

Other Class Action Pleadings Available in NCLC Manuals and on Disk


In addition to the sixty-eight class action pleadings and documents found in these appendices, a number of other class action pleadings, orders, notices, and briefs are found in other NCLC publications and their companion WordPerfect disks, specifically Consumer Law Pleadings With Disk, Numbers One (1994) through Five (1999). Individual appendices specify when related pleadings are found in any of these five volumes of Consumer Law Pleadings With Disk, which may sometimes be closer in law or factual allegations to the practitioners case than the samples found in this volume. In addition, several types of documents appear in the five Consumer Law Pleadings With Disk volumes that are not found in this manuals appendices, such as documents pertaining to binding arbitration, cy pres awards, and attorney fees. For a complete listing of documents in these

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Consumer Class Actions: A Practical Litigation Guide five pleading books, go to www.nclc.org, click on manuals, and scroll down to the Consumer Law Pleadings entry. This will provide the complete contents for each book. WordPerfect disk, see National Consumer Law Center, Truth in Lending (3d ed. 1995). D.2 Complaint K.2 Motion for Class Certification L.3 Opening Memorandum in Support of Class Certification M.3 Reply Memorandum in Support of Class Certification TIL Rescission CaseHome Improvement Contract (Ogden): a class action against a financing company for home improvements on behalf of all persons who signed an agreement which had a hidden finance charge, which denied a three day period for rescission guaranteed under TILA and which did not properly disclose the points charged by the company. For more TIL pleadings, both printed and on WordPerfect disk, see National Consumer Law Center, Truth in Lending (3d ed. 1995). P.1 Memorandum in Support of Approval of Class Settlement TIL Disclosure CaseHidden Finance Charge in Car Sale (Willis): a class action against an automobile dealership on behalf of all persons who signed sales contracts in which insurance premiums were not included in the disclosed finance charge and in which the annual percentage rate was understated. The named plaintiff was given title to her trade-in, recovered all her payments, had her indebtedness cancelled, and her credit report corrected. Other class members recovered $150 each. For more TIL pleadings, both printed and on WordPerfect disk, see National Consumer Law Center, Truth in Lending (3d ed. 1995). D.3 Complaint K.3 Motion for Class Certification L.4 Opening Memorandum in Support of Class Certification N.3.2 Combined Rule 23(c) and (e) Notice of Certification/Settlement O.2.1 Stipulations of Proposed Settlement with Dealer O.2.2 Stipulations of Proposed Settlement With Related Lender/Assignee TIL Untimely Disclosure Case (Diaz): a class action against an automobile dealership on behalf of persons who signed a binding contract for the sale of an automobile before Truth in Lending disclosures were made and who signed a confession of judgment. This case resulted in a decision certifying the class and granting summary judgment reported at 1994 U.S. Dist. LEXIS 16300 (N.D. Ill. Nov. 14, 1994). For more TIL pleadings, both printed and on WordPerfect disk, see National Consumer Law Center, Truth in Lending (3d ed. 1995). D.4 Complaint K.4 Motion for Class Certification L.5 Opening Memorandum in Support of Class Certification

Listing of Documents By Case Name


The sixty-eight documents in the appendices primarily come from twenty-two class actions, with each case providing from one to ten documents. The listing below summarizes the twenty-two cases, and enumerates in which appendices the pleadings from each case are to be found. Federal Fair Debt Collection Case (Boddie): a class action on behalf of persons who received debt collection letters which were rubber-stamped by an attorney to give the false impression of legal action by a sales finance agency. The case settled with the provision of $60,000 to a common fund. For more Fair Debt Collection pleadings, see National Consumer Law Center, Fair Debt Collection (3d ed. 1996 and Supp.) and also its companion disk. D.1 Complaint E.1.1 Interrogatories E.1.2 Production of Documents Request E.1.3 Request for Admission N.3.1 Combined Rule 23(c) and (e) Notice of Certification/Settlement O.1 Stipulations of Proposed Settlement Federal Fair Debt Collection Case (Bauer): a class action against a creditor for collecting debts not in its own name (and thus covered by the federal act) for misleading collection notices. K.1 Motion for Class Certification L.1 Memorandum in Support of Motion for Class Certification M.1 Reply Memorandum in Support of Class Certification Federal Fair Debt Collection Case (Smith): a class action against a hospital collection service on behalf of all persons who received letters falsely representing that legal action would be filed. For more Fair Debt Collection pleadings, see National Consumer Law Center, Fair Debt Collection (3d ed. 1996 and Supp.) and its companion disk. J Objection to Defendants Document Request to Named Plaintiff TIL Rescission and Deceptive Practices CaseHome Improvement Contract (Mount): a class action against a financing company for home improvements on behalf of all persons who were denied a three day period of rescission guaranteed by the Truth in Lending Act and who were required to sign a confession of judgment. This case resulted in a decision certifying the class reported at 1994 U.S. Dist. LEXIS 4027 (N.D. Ill. March 31, 1994). For more TIL pleadings, both printed and on 186

Introduction to Appendices M.4 Reply Memorandum in Support of Class Certification Consumer Leasing Act and Deceptive Practices CaseCar Lease (Shepherd): a class action on behalf of all persons who signed an automobile lease with defendant in which default and early termination charges were reported inaccurately, as well as the method of calculating the charges, in which a penalty for default was unconscionable and in which the buyers rights under the warranty were not made clear. For similar state law pleadings, see National Consumer Law Center, Consumer Law Pleadings With Disk, Number One Ch. 9 (1994). D.5 Complaint E.2.1 Interrogatories E.2.2 Production of Documents Request E.2.3 Request for Admissions E.2.4 Production of Documents Request #2 L.6 Opening Memorandum in Support of Class Certification M.5 Reply Memorandum in Support of Class Certification O.3 Stipulations of Proposed Settlement P.2 Memorandum in Support of Approval of Class Settlement RICO and Deceptive Practices CaseAutomobile Sale (Brown): a class action against a financing company on behalf of persons who purchased an automobile from associated dealer and who signed a financing agreement which did not contain the FTC Holder Notice. This case resulted in three reported decisions: 148 F.R.D. 584 (N.D. Ill. 1993) (defendants motion to dismiss the original complaint is granted); 820 F. Supp. 1078 (N.D. Ill. 1993) (defects in the original complaint are cured by the amended one); and 1993 U.S. Dist. LEXIS 11419 (N.D. Ill. Aug. 13, 1993) (class is certified). The case was settled for approximately $350,000 to the class and no more than $150,000 to the class attorneys. Other pleadings in the Brown case are reprinted in and included on the companion WordPerfect Disk for National Consumer Law Center, Consumer Law Pleadings With Disk, Number One Ch. 4 (1994). That volume includes the demand letter, the motion to file an amended complaint, the amended complaint, a memorandum in opposition to the motion to dismiss, discovery, plaintiffs response to the defendants discovery, motion, memorandum, and reply memorandum for class certification, plaintiffs response to defendants motion for reconsideration of class certification, notice of pendency of class action, memorandum in support of a proposed settlement, and request for attorney fees. F Response to Defendants Motion to Stay Discovery Automobile Dealer Deceptive Sale of Service Contract (Norris): a class action against a dealer for failing to disclose that it kept a large portion of service contract payments. Allegations included violations of TIL and the state UDAP statute. The case was settled. N.2.2 Rule 23(e) Settlement Notice RICO and Deceptive Practices CaseLenders Failure to Include FTC Holder Notice (Howard): a class action against a financing company of satellite dishes on behalf of all persons who signed a contract with the company which had omitted the FTCs Holder Notice. D.6 Complaint Deceptive Practices CaseVendors Single Interest Insurance (Ortiz): a class action on behalf of all persons who had automobile single interest physical damage insurance force placed for them by a finance company. The case also included a subclass of all persons whose cars were damaged and who did not recover in accordance with the policy. For more pleadings on force-placed automobile insurance, see National Consumer Law Center, Consumer Law Pleadings With Disk, Number One Ch. 2 (1994). D.7 Complaint E.3.1 Interrogatories E.3.2 Production of Documents Request K.5 Motion for Class Certification L.7 Opening Memorandum in Support of Class Certification M.6 Reply Memorandum in Support of Class Certification Revolving Repossession Case (Corral): a class action against an automobile financing company on behalf of all persons who had their automobile repossessed and resold to an affiliate of the defendant company. For more repossession pleadings, in print and on a WordPerfect disk, see National Consumer Law Center, Repossessions and Foreclosures (3d ed. 1995). H Motion and Order for Protection of Class Members Files Revolving Repossession Case (Carr): a class action against a car dealership and lender for a revolving repossession scheme. While this case was settled with the dealer, the case against the lender has gone up several times to the Fourth Circuit. It now appears that the case will be certified and go forward. D.9 Complaint Revolving Repossession Case (Johnson): a class action against financing company for automobile sales on behalf of all persons who had their automobile repossessed and resold to the dealership from which they had originally purchased the automobile. The case resulted in a $1.1 million cash settlement, waiver of $1.3 million in claimed deficiencies, and $175,000 in attorney fees. For more repossession pleadings, in print and on a WordPerfect

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Consumer Class Actions: A Practical Litigation Guide disk, see National Consumer Law Center, Repossessions and Foreclosures (3d ed. 1995). O.4 Stipulations of Proposed Settlement Loan Flipping and Packing (Walsh): a class action against a finance company for the unconscionable lending practices of flipping loans into additional higher rate loans and packing loans with unrequested, extravagantly priced insurance products. The case is based on violations of Truth in Lending, UDAP, common law fraud, and unconscionability. G Sample Pleadings to Compel Discovery State Usury Case (Adams): a class action on behalf of persons who signed home improvement financing contracts secured by a mortgage on real estate and who paid an interest rate calculated by the illegal Rule of 78 method. The defendant agreed to stop using the Rule of 78, and established a $200,000 common fund. For more usury pleadings, see National Consumer Law Center, The Cost of Credit: Regulation and Legal Challenges (1995). D.8 Complaint E.4.1 Interrogatories E.4.2 Production of Documents Request E.4.3 Request for Admissions L.8 Opening Memorandum in Support of Class Certification N.3.3 Combined 23(c) and 23(e) Notice of Certification/ Settlement O.5 Stipulations of Proposed Settlement Card Issuers Slow Payment on Credit Balances (Coe): a class action of those who overpaid their card balance, requested payment for the credit balance, and were not paid that balance in a timely manner. Allegations were based on TIL, UDAP, and breach of contract. L.2 Memorandum in Support of Motion for Class Certification M.2 Reply Memorandum in Support of Class Certification Campground Membership Fraud (Hughes): a class action against those providing financing for purchase of a campground membership, based on the FTC Holder Rule, alleging fraud, UDAP, and other claims. The case was settled. N.1 Rule 23(c) Notice N.2.1 Rule 23(e) Settlement Notice Insurance Sales Fraud (In Re: Metropolitan Life Insurance Company Policyholders Litigation): two consolidated class actions concerning MetLifes sale of replacement insurance policies which were funded by the cash value in an existing policy, alleging UDAP violations, breach of fiduciary duty and the duty of good faith and fair dealing, concealment by deceit and negligent supervision of its agents in the sale of insurance. I Brief in Support of Plaintiffs Motion to Restrict Defendants Communications with Class Members Hospital Collection Case (Albino): a class action on behalf of women who were eligible for free pregnancyrelated services under Maternal and Child Health Act against Project 502 which failed to pay the hospital for their pregnancy-related services. M.7 Reply Memorandum in Support of Class Certification Objections to Settlement of TIL and RICO Case (Buchet): a class action against a consumer loan company on behalf of all persons whose loans were deferred by the company without knowledge of the consumers. The original proposed coupon or scrip settlement resulted in objections by class members. The settlement was rejected by the court, and the decision rejecting the proposed settlement is reported at Buchet v. ITT Financial Corporation, 845 F. Supp 684 (D. Minn. 1994), amended 1994 U.S. Dist. LEXIS 10020 (D. Minn. 1994). Q.2 Objections to Proposed Settlement Q.3 Memorandum in Support of Counsel for Objectors Request for Attorney Fees Objections to Settlement in Mortgage Escrow Case (Robinson): a class action against a mortgage lender for its escrow practices resulted in a settlement agreement and fees that intervenor argued were unreasonable. Intervenor particularly objected to fees in excess of the real value of a coupon settlement, inadequate recovery for the class members, and a one-way gag order. Q.1 Objections to Settlement Agreement and Fee Petition

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Appendix A

Federal Rule of Civil Procedure 23

Federal Rule of Civil Procedure 23. Class Actions (a) Prerequisites to a Class Action. One or more members of a class may sue or be sued as representative parties on behalf of all only if (1) the class is so numerous that joinder of all members is impracticable, (2) there are questions of law or fact common to the class, (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class, and (4) the representative parties will fairly and adequately protect the interests of the class. (b) Class Actions Maintainable. An action may be maintained as a class action if the prerequisites of subdivision (a) are satisfied, and in addition: (1) the prosecution of separate actions by or against individual members of the class would create a risk of (A) inconsistent or varying adjudications with respect to individual members of the class which would establish incompatible standards of conduct for the party opposing the class, or (B) adjudications with respect to individual members of the class which would as a practical matter be dispositive of the interests of the other members not parties to the adjudications or substantially impair or impede their ability to protect their interests; or (2) the party opposing the class has acted or refused to act on grounds generally applicable to the class, thereby making appropriate final injunctive relief or corresponding declaratory relief with respect to the class as a whole; or (3) the court finds that the questions of law or fact common to the members of the class predominate over any questions affecting only individual members, and that a class action is superior to other available methods for the fair and efficient adjudication of the controversy. The matters pertinent to the findings include: (A) the interest of members of the class in individually controlling the prosecution or defense of separate actions; (B) the extent and nature of any litigation concerning the controversy already commenced by or against members of the class; (C) the desirability or undesirability of concentrating the litigation of the claims in the particular forum; (D) the difficulties likely to be encountered in the management of a class action. (c) Determination by Order Whether Class Action to be Maintained; Notice; Judgment; Actions Conducted Partially as Class Actions. (1) As soon as practicable after the commencement of an action brought as a class action, the court shall determine by order whether it is to be so maintained. An order under this

subdivision may be conditional, and may be altered or amended before the decision on the merits. (2) In any class action maintained under subdivision (b)(3), the court shall direct to the members of the class the best notice practicable under the circumstances, including individual notice to all members who can be identified through reasonable effort. The notice shall advise each member that (A) the court will exclude the member from the class if the member so requests by a specified date; (B) the judgment, whether favorable or not, will include all members who do not request exclusion; and (C) any member who does not request exclusion may, if the member desires, enter an appearance through counsel. (3) The judgment in an action maintained as a class action under subdivision (b)(1) or (b)(2), whether or not favorable to the class, shall include and describe those whom the court finds to be members of the class. The judgment in an action maintained as a class action under subdivision (b)(3), whether or not favorable to the class, shall include and specify or describe those to whom the notice provided in subdivision (c)(2) was directed, and who have not requested exclusion, and whom the court finds to be members of the class. (4) When appropriate (A) an action may be brought or maintained as a class action with respect to particular issues, or (B) a class may be divided into subclasses and each subclass treated as a class, and the provisions of this rule shall then be construed and applied accordingly. (d) Orders in Conduct of Actions. In the conduct of actions to which this rule applies, the court may make appropriate orders: (1) determining the course of proceedings or prescribing measures to prevent undue repetition or complication in the presentation of evidence or argument; (2) requiring, for the protection of the members of the class or otherwise for the fair conduct of the action, that notice be given in such manner as the court may direct to some or all of the members of any step in the action, or of the proposed extent of the judgment, or of the opportunity of members to signify whether they consider the representation fair and adequate, to intervene and present claims or defenses, or otherwise to come into the action; (3) imposing conditions on the representative parties or on intervenors; (4) requiring that the pleadings be amended to eliminate therefrom allegations as to representation of absent persons, and that the action proceed accordingly; (5) dealing with similar procedural matters. The orders may be combined with an order under Rule 16, and may be altered or amended as may be desirable from time to time.

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(f) Appeals. A court of appeals may in its discretion permit an appeal from an order of a district court granting or denying class action certification under this rule if application is made to it within ten days after entry of the order. An appeal does not stay proceedings in the district court unless the district judge or the court of appeals so orders.

(e) Dismissal or Compromise. A class action shall not be dismissed or compromised without the approval of the court, and notice of the proposed dismissal or compromise shall be given to all members of the class in such manner as the court directs.

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Appendix B

NACA Consumer Class Action Guidelines


National Association of Consumer Advocates, Standards and Guidelines for Litigating and Settling Consumer Class Actions, 176 F.R.D. 3751

TABLE OF CONTENTS INTRODUCTION ISSUES ADDRESSED 1. The Propriety of Class Actions When Individual Recoveries Are Small A. The Issue B. Viewpoints C. NACA Guideline 2. Certificate Settlements A. The Issues B. Viewpoints C. NACA Guidelines 3. Settlements When Other Class Actions Are on File A. The Issue B. Viewpoints C. NACA Guidelines 4. Additional Compensation to Named Plaintiffs A. The Issue B. Viewpoints C. NACA Guideline 5. Class Member Releases A. The Issue B. Viewpoints C. NACA Guidelines 6. Cy Pres Awards A. The Issue B. Viewpoints C. NACA Guidelines 7. Attorneys Fee Considerations A. The Issue B. Viewpoints
1 The National Association of Consumer Advocates is a nonprofit association of over 500 consumer advocates, attorneys, law professors and law students. It is dedicated to enhancing communication and networking among and between advocates and attorneys whose practice is devoted to curbing abusive business practices and promoting consumer justice. It publishes a bi-monthly newsletter with special issues focusing on different areas of consumer law, as well as a semi-annual member directory for use as a consultation resource. NACA cohosts with NCLC an annual consumer rights litigation conference in the fall and also conducts regional training conferences at other times of the year. NACA can be contacted at 1717 Massachusetts Avenue, N.W., Suite 704, Washington, D.C. 20036, (202) 332-2500, fax number (202) 332-2566, and the e-mail address nacadc@clark.net.

C. NACA Guidelines 8. Improved Notice of Settlement A. The Issues B. Viewpoints C. NACA Position 9. Approval of Settlement Classes A. The Issue B. Viewpoints C. NACA Guidelines 10. Interlocutory Appeal of Class Certification A. The Issues B. Viewpoints C. NACA Position SUMMARY AND CONCLUSION INTRODUCTION Consumer class actions serve an important function in our judicial system and can be a major force for economic justice. They often provide the only effective means for challenging wrongful business conduct, stopping that conduct, and obtaining recovery of damages caused to the individual consumers in the class. Frequently, many consumers are harmed by the same wrongful practice, yet individual actions are usually impracticable because the individual recovery would be insufficient to justify the expense of bringing a separate lawsuit. Without class actions, wrongdoing businesses would be able to profit from their misconduct and retain their ill-gotten gains. Class actions by consumers aggregate their power, enable them to take on economically-powerful institutions, and make wrongful conduct less profitable. In recent years, class actionsand particularly class actions which are resolved by settlementhave been subjected to considerable public criticism. At times, this criticism has been warranted. However, much of the criticism has been generated by self-appointed professional objectors and by selfinterested entities who are motivated by a desire to immunize themselves from liability for wrongs rather than by any concern for the public interest. Certain types of businesses, such as financial institutions and insurers, commonly deal with large numbers of consumers in similar ways. Often, such businesses are essentially immune from individual suits for damages since the amounts at issue as to any particular consumer are small. These entities harbor an expectable dislike for the class action procedural device, since it provides an effective tool for consumer redress in such situations. While such entities are entitled to have their voices heard in any public debate, it appears that a concerted effort has been initiated in recent years to

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not require compliance with the standards set forth here, in others it does, and in yet others there is a split of authority. Except where expressly stated, this paper does not argue for a change in the law. Instead, NACA seeks to educate practitioners about how to avoid conduct which is, or may appear to be, improper and about the most appropriate and effective way to fulfill the special obligations of class counsel to the class. Thus, the paper addresses how to curb abuses, while advocating keeping class actions as a vehicle for protecting consumers and holding economically powerful interests responsible for the harm they do. NACA is comprised of consumer lawyers and advocates. The views of many NACA members were solicited and received before this paper was written, as well as after it was circulated in draft form. Often, different members expressed opposing viewpoints. This paper is intended to reflect the majority view in those instances where there was any significant difference of opinion among members. This paper is directed toward use of class actions within the context of consumer cases. It is not intended to address class actions in other contexts, such as mass torts or employment discrimination cases, which often involve more substantial individual recoveries and a different mix of public policy and procedural considerations. ISSUES ADDRESSED 1. The Propriety of Class Actions When Individual Recoveries Are Small A. The Issue Questions recently have been raised about whether some illegal business practices are inappropriate for class treatment because individual recoveries are too small to warrant individual actions and the attorneys fees which are recovered dwarf the individual damages. The Preliminary Draft of the Proposed Amendments to the Federal Rules of Practice and Procedure issued by the Advisory Committee on Rules of Practice and Procedure of the Judicial Conference of the United States suggests a new subparagraph (F) to Rule 23(b)(3) which would allow courts, in deciding whether to certify a class, to weigh the probable relief to individual class members against the costs and burdens of class litigation. The Summary for Bench and Bar, distributed by the Administrative Office of the U.S. Courts, contains the following comment about proposed subparagraph (F): In small claims class actions, it may justify refusal to certify a class even though subparagraphs (A) and (B) would push toward certification because individual class members are not practically able to pursue separate actions. B. Viewpoints The new proposed subparagraph F requires consideration of the relief to individual class members instead of the size of the total sum that the defendant will pay to the entire class. The genesis of this proposal appears to be the viewpoint that some recoveries to class members may be so trivial that they do not warrant redress. Noting that the traditional justification for litigation is individual remedial benefit and that most private wrongs go without redress, proponents of this rule

undermine the legitimate uses for class actions by overemphasizing the relatively infrequent occasions when abuses of the procedure occur. In Deposit Guaranty National Bank v. Roper, 445 U.S. 326 (1980), the Supreme Court stated: A significant benefit to claimants who choose to litigate their individual claims in a class-action context is the prospect of reducing their costs of litigation, particularly attorneys fees, by allocating such costs among all members of the class who benefit from any recovery. Typically, the attorneys fees of a named plaintiff proceeding without reliance on Rule 23 could exceed the value of the individual judgment in favor of any one plaintiff. Here the damages claimed by the two named plaintiffs totaled $1,006.00. Such plaintiffs would be unlikely to obtain legal redress at an acceptable cost, unless counsel were motivated by the fee-spreading incentive and proceeded on a contingent-fee basis. This, of course, is a central concept of Rule 23. Id., 445 U.S. 326, 338 n. 9 [emphasis added]. In a similar vein, the California Supreme Court recognized in its landmark decision in Vasquez v. Superior Court, 4 Cal. 3d 800, 808 (1971) that: Protection of unwary consumers from being duped by unscrupulous sellers is an exigency of the utmost priority in contemporary society . . . The alternatives of multiple litigation (joinder, intervention, consolidation, the test case) do not sufficiently protect the consumers rights because these devices presuppose a group of economically powerful parties who are obviously able and willing to take care of their own interests individually through individual suits or individual decisions about joinder or intervention. [Citation omitted.] The California court further recognized that class actions generally have beneficial by-products, including a therapeutic effect on sellers who indulge in fraudulent practices, aid to legitimate business enterprises by curtailing illegitimate competition, and avoidance of multiple lawsuits involving identical claims. Even when individual actions could be brought, it is only through class action status and class-wide discovery that the defendants wrongful practice and its effect on large numbers of similarly-situated consumers may be carefully and accurately determined. Class action discovery thus can improve the strength and size of the eventual recovery for affected consumers. Class actions also can be abused. Moreover, any abuse is sure to be the focus of much adverse comment in the media and to be used in an attempt to change the law to disfavor class suits and thereby insulate abusive business practices from effective review. Through this paper, the National Association of Consumer Advocates (NACA) is undertaking to provide guidelines to specify what practitioners should be doing under the current state of the law. In some instances, the law does

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change urge that we should not establish a roving Rule 23 commission that authorizes class counsel to enforce the law against private wrongdoers. Request for Comment at 26. Attorneys who litigate consumer class actions hold the contrary view and believe that the focus on individual compensation misses a central point of class actions: deterring misconduct by the defendants. The class action device is particularly appropriate in consumer cases where individual recoveries are small, but which, in the aggregate, involve substantial sums, often millions of dollars in damages. Class actions serve an important purpose beyond simply compensating the injured. Often, class counsel and class representatives act as private attorneys general vindicating cumulative wrongs and obtaining significant injunctive relief or institutional change, and requiring disgorgement of illegal profits. HERBERT NEWBERG & ALBA CONTE, NEWBERG ON CLASS ACTIONS 5.49 & 5.51 (3d ed. 1992) [cited herein as Newberg]. To refuse to permit class actions on the grounds that individual recoveries are small, while ignoring the aggregate amounts involved, would encourage wrongful conduct and largely immunize entities engaged in schemes to steal millions in $10 increments. An illustrative example is found in the consumer class actions challenging excessive late and overlimit charges on credit card accounts which were criticized on the grounds that class members are eligible for only a few dollars apiece in compensation while class counsel get millions. Max Boot, WALL ST. J., Sept. 19, 1996. If Rule 23(b)(3)(F) were adopted, it could provide a basis for refusing to certify these classes because individual recoveries ranged from $3 to $50, which a court might deem to be trivial. Such a constricted view disregards the facts. For example, in the related Wells Fargo Bank and Crocker National Bank cases, total damages of almost $10 million were recovered, plus interest, and more than $6.5 million was distributed directly to the plaintiff classes. Each class member received the full amount which he or she was overcharged, plus interest, through credits to current customers accounts and refunds to former customers. Moreover, $3.3 million was given to consumer organizations which provided indirect benefit to absent class members, and the Banks were required to pay all but $115,668 of the $2,130,118 awarded in attorneys fees for work in the trial court. The plaintiff classes were required to pay only 1.28% of the fund for fees. These charges were imposed by the Banks in violation of California law. It would be unsound as a matter of policy to allow these large corporations to enrich themselves by $10 million through illegal conduct simply because each affected customer was overcharged by $50 or less. The Supreme Court has long recognized that without Rule 23 claimants with small claims would be unable to obtain relief. See Deposit Guaranty National Bank v. Roper, 445 U.S. 326, 338 n. 9 (1980), quoted above. To the same effect is Phillips Petroleum Co. v. Shutts, 472 U.S. 797 (1985). Class actions . . . may permit the plaintiffs to pool claims which would be uneconomical to litigate individually. For example, this lawsuit involves claims averaging about $100 per plaintiff; most of the plaintiffs would have no realistic day in court if a class action were not available. Id. at 809. In addition, assuming that it is desirable for a court to weigh the potential costs of class action litigation against its poten-

Appx. B-1B

tial benefits, it would be a mistake to focus solely on monetary relief recoverable as damages or restitution. Rather, many consumer class actions provide an additional social benefit deterrence. Recovery of a significant aggregate sum from the defendant will have a deterrent effect on resumption of the same or similar wrongful practices in the future, both by that defendant and by other similarly-situated entities. This deterrent effect is present regardless of the amount recovered by individual class members. Moreover, injunctive relief can specifically prohibit resumption of a wrongful activity. The importance of the deterrence factor in consumer cases is evidenced by the frequency with which Congress and the state legislatures have included fee-shifting provisions in consumer protection statutes. By including fee-shifting provisions, Congress and the state legislatures seek to encourage enforcement of these consumer laws through a system of private attorneys general, even where the amount of damages at stake would be too small to support litigation if the plaintiff had to absorb the cost of attorneys fees. See, e.g., De Jesus v. Banco Popular de Puerto Rico, 918 F.2d 232, 234 (1st Cir. 1990) (construing the Truth in Lending Act). This recognition of the importance of enforcing consumer protection laws, even in cases where the amount of damage to an individual consumer is small, is at least as applicable in the class action context as in the individual case context. Indeed, the use of class actions to deter widespread consumer fraud is probably preferable to the only practical alternative: punitive damage awards. If small compensation class actions are discouraged, the alternative will be to seek large punitive damage awards on behalf of a few consumers who, while litigating relatively small individual claims, can prove willful, wide-spread misconduct by the defendant. While both alternatives result in the appropriate extraction of a large payment from the defendant, class actions result in the distribution of that payment to the victims of the practice, rather than providing a seeming windfall to the few consumers who prevailed in their individual punitive damage claims. Finally, what may seem small to those of us fortunate enough to be lawyers and judges may be significant to those consumers whose annual incomes are at or below the poverty level. The sum of $50.00 represents two percent of the total annual poverty guideline allotment per family member under the United States Department of Health and Human Services 1995 poverty guidelines. For a low income consumer, that trivial $50.00 individual recovery has significant value, equivalent, as a percentage of income, to a $2,000 recovery by a single person earning $100,000 a year. While class actions, like any procedures, sometimes may be abused, protections against abuse already exist. Courts may and do refuse to allow classes to be certified where the potential recovery to each consumer is nominal or where a distribution would consume such substantial time and expense that the class members are unlikely to receive any appreciable benefit. See e.g., Buchet v. ITT Consumer Financial Corp., 845 F. Supp. 684 (D. Minn. 1994); Blue Chip Stamps v. Superior Court, 18 Cal.3d 381, 386, 134 Cal. Rptr. 393, 556 P.2d 755 (1976); City of San Jose v. Superior Court, 12 Cal.3d 447, 459, 15 Cal. Rptr. 797, 525 P.2d 701 (1974). Further protections are found in the requirements that courts must find any settlements to

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in the settlement addressed the animating principle of this lawsuit: that these GM pickup trucks pose a seriousbut remediablesafety hazard. The settlement was criticized and rejected by both federal and state courts. In re: General Motors Corp. Pick-up Truck Fuel Tank Products Liability Litigation, 55 F.3d 768 (3d Cir.), cert. denied, 116 S. Ct. 88 (1995); Bloyed v. General Motors Corp., 881 S.W.2d 422, (Tex. App.Texarkana 1994), affd, General Motors Corp. v. Bloyed, 916 S.W.2d 949 (Tex. 1996). One of the main points of criticism was the inadequacy of the certificates as the sole redress for the injured class members. The GM case, and others, have served to demonstrate the problems inherent in non-cash settlements. It is important to note, however, that settlements that do not actually deliver dollars into the hands of the class may be entirely appropriate. For example, credits to existing accounts are usually adequate substitutes for mailing checks to each class member; indeed, crediting is more efficient than mailing and should serve as the basis for increasing the amount paid to each class member. Similarly, if the amounts available to each class member are so small as to make delivery by checks economically unviable or if the class members are impossible to determine with certainty, distribution of the class benefit through cy pres awards is advisable, as discussed in Issue 6 below. The comments here are directed solely to certificate settlements that only offer class members the opportunity to purchase a product or service from the defendant in the future at a claimed discount from the regular price to the consumer. B. Viewpoints The potential problems with non-cash settlement of class members damages are many: 1 There is no principled reason why delivery of cash settlements cannot be achieved, aside from the fact that the defendant prefers not to do so. 1 For most of the class, redemption may not be an option, because they are unwilling or unable to make a future purchase. Thus the class members are not equally compensatedsome get more, others get less. This situation is at its most aggravated when the certificate requires purchase of a new car or other big ticket item. 1 Even where the coupon is for a small ticket item or is freely transferable, the defendant may be able to use its specialized knowledge of the industry to recover the cost of the coupon in the marketing of the relevant product. 1 Policy considerations disfavor rewarding the wrongdoing defendant with new sales from the victims of its illegal practices. 1 The actual value of certificates is uncertain, making valuation of attorneys fees impossible on a percentage basis, especially where discounted prices are common. 1 Proponents of certificate settlements claim that use of certificates makes settlements easier because the defendant is more willing to settle for terms that will only mean a discount from the retail price of the product or because the cost to the defendant is in the future, requiring the immediate outlay of less money. Proponents stress that the particular facts involved in a proposed certificate settlement may justify it, pointing for example to In re Sears

be fair and reasonable to the members of the class, F. R. CIV. P. 23(e), and that courts must approve amounts to be paid as attorneys fees. C. NACA Guideline The class action device is particularly appropriate in consumer cases where individual recoveries are small, but which, in the aggregate, involve millions of dollars in damages. This is precisely the type of case which encourages compliance with the law and results in substantial benefits to the litigants and the court. Denial of class certification in such instances would result in unjust advantage to the wrongdoer. Class actions should be deemed appropriate precisely because individual damages are too small to warrant redress absent a class suit, so long as significant aggregate pecuniary and/or nonpecuniary benefits to the class are sought. This is particularly true in cases with claims for which a legislative body has provided a fee-shifting remedy to encourage private enforcement actions. 2. Certificate Settlements A. The Issues There appears to be an increasing use of certificate settlements, offering relief to the class members in the form of certificates that are redeemable on future purchases from the defendant. Questions have been raised about the propriety of such settlements. It is important to differentiate between certificate settlements, which are discussed herein, and other settlements that do not deliver dollars directly into the hands of the class members, which may well be appropriate. An example of the latter type of settlement is one in which credits are issued to class members accounts with the defendant. When credits are made to existing accounts, the effect is similar to delivering cash, with increased efficiency. By contrast, the General Motors (GM) sidesaddle pickup truck case is a good example of the type of certificate settlement that should never have been proposed for court approval. That class action sought to resolve the worst vehiclefire safety hazard in history: exploding side-saddle gas tanks on GM pickups that have killed 400 people and badly burned more than 2,000 more. The plaintiffs alleged that these trucks are flawed by a dangerous and latent design defectthe placement of the gas tanks outside the frame railthat increases the likelihood that their fuel tanks will rupture in side-impact crashes, causing fuel-fed fires. The class action sought a recall of these GM trucks, with restitution and refunds to all class members, and an order directing GM to pay for the retrofitting of all GM pickups to correct the fuel tank defects. However, in the settlement, class counsel abandoned the recall/retrofit remedy in favor of an approach that limited class members recovery to discount coupons to buy new GM trucks. There was no provision requiring GM to recall or repair the trucks, or to reimburse owners who made the repairs themselves, nor was there any provision requiring GM to warn consumers about the hazards of the trucks, despite the demand for such relief in the complaint. In other words, nothing

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Automotive Center Consumer Litigation, (N.D. Cal. No. 922227 RHS). Here these proponents averred that the certificates involved could be redeemed for any merchandise sold at Sears stores (not merely the services and merchandise at issue in the litigation) and that 99.6% of the certificates issued were redeemed. C. NACA Guidelines Certificate settlements have many disadvantages and should be proposed by class counsel only in the rare case. For example, if (1) the primary goal of the litigation is injunctive and the defendant agrees to an injunction, or the certificates are good for the purchase of small ticket consumable items which class members are likely to purchase, or the certificates represent true discounts that would not otherwise be available, (2) the certificates are freely transferable, and (3) there is a marketmaker to insure a secondary transfer market, a certificate settlement might be appropriate. A few basic positions are clear: 1 Certificate-based settlements should never require identifiable class members to purchase major, large ticket items from the defendant as the sole significant relief to the class. 1 Certificates should have some form of guaranteed cash value. For example, the certificates could have a lesser cash redemption value (either upon issuance or within a reasonable period of time) that still gives the class members a benefit that is significant in relation to the actual damages which would be provable at trial. As a lesspreferable approach, the defendant could contract with a market maker that would promise to purchase all available certificates for a set price that is significant in relation to the likely recovery at trial. 1 Certificate settlements should never be proposed to the court unless it is apparent that the defendant is providing greater true value (i.e., not just the face value of the certificates or their potential value) to class members than would be available from an all-cash settlement. There may be legitimate tax or financial-accounting reasons why a greater recovery for class members can be had from a non-cash settlement. However, class counsel should inquire about the defendants reasons for preferring a noncash settlement. The beginning assumption should always be that the defendant prefers a non-cash to a cash settlement because it believes the true value to be less. Since the defendant will usually be in a superior position to predict the ultimate redemption rate and benefit to the class, its preference for a non-cash settlement should be viewed with skepticism. 1 A settlement involving certificates should require a minimum level of redemption by the class members within a reasonable period of time. In the event actual redemption does not meet this minimum level, the defendant should provide alternative relief in the form of a common fund. This requirement protects against the use of a meaningless certificate settlement that has little or no impact on a defendant, and little or no compensatory value to the plaintiff class.

Appx. B-3B

1 Class counsel and defendants should submit to the court and all counsel of record detailed information about redemption rates and coupon transfers during the entire life of the coupon. By doing so, a public record will be made of what works and what does not work in non-cash settlement cases. 3. Settlements When Other Class Actions Are on File A. The Issue Settlement of a class action when other similar cases are pending requires consideration of a series of specific questions. How should class counsel approach settlement when other class actions, whether putative or certified, have been filed? How can reverse auctions be avoided? How should counsel deal with differing geographic and/or substantive scope of multiple class actions? B. Viewpoints This issue was the most complex of all issues considered. There is general agreement that class counsel should be sensitive to the potential for wiping out claims asserted in other pending cases by settling a case, and should resist doing so. This problem is particularly apparent where the defendants suggest expanding a settlement class beyond the class definition contained in the complaint or in a prior order certifying a class, or expanding the claims settled, but offer no increased benefit to the additional class members or for settlement of the additional claims. There is also concern about the filing of nationwide class actions and agreeing to settlements which do not exclude from the class cases pending in certain states or locales. In either instance, the interests of the classes will not be well served by settlements which do not maximize benefits to class members. One particular area of concern exists when the multiple cases are pending in both state and federal courts and thus cannot be consolidated under the federal multi-district litigation rules. 28 U.S.C. 1407. Class counsel from California might be concerned about becoming involved in a related case pending in a rural area of Texas or Louisiana, where they are unfamiliar with the rules and traditions of practice. The Manual for Complex Litigation addresses this issue, and proposes several procedural steps to increase coordination. These steps include (1) joint conference calls among all judges (2) coordination of discovery, and (3) joint appointment of experts. MANUAL FOR COMPLEX LITIGATION, THIRD 30.3, 31.14, & 31.3 (1995). Another area of concern is the settlement of cases through a reverse auction by which defendants propose a cheap settlement and shop around among plaintiffs counsel until they find a lawyer willing to settle on their terms. Although there is no empirical evidence that this problem exists, anecdotes abound, and the potential for collusion and abuse is obvious if a lawyer agrees to a bad deal in order to secure fees. Commenters agreed that class counsel in overlapping actions should communicate with each other and work together to ensure that class members obtain the maximum settlement benefit. The personal interests of particular class counsel in receiving attorneys fees could discourage such cooperation at times. One member proposed that courts should be encour-

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4. Additional Compensation to Named Plaintiffs A. The Issue Is it appropriate to provide additional sums to named plaintiffs, beyond what each class member receives, and, if so, when and in what amounts? B. Viewpoints Earlier cases reflect a view that it is a conflict of interest for named plaintiffs to receive anything more than their proportionate share of damages in amounts which are equal to those received by absent class members. The theory was that named plaintiffs, like class counsel, are fiduciaries to the class, so every dollar they receive is taken from class members. Recently, some decisions have recognized that modest incentive awards to named plaintiffs, in the range of $2,0003,000, are generally desirable in order to compensate people for their efforts in achieving the results obtained and thereby encourage them to serve as class plaintiffs. GMAC Mortg. Corp. of Pa. v. Stapleton, 603 N.E.2d 767, 776 (Ill. App. 1 Dist. 1992); In re GNC Shareholder Litigation: All Actions, 668 F.Supp. 450, 451 (W.D. Pa. 1987); Troncelliti v. Minolta Corp., 666 F.Supp. 750, 752 (D.Md. 1987); In re Jackson Lockdown/MCO Cases, 107 F.R.D. 703, 709710 (E.D. Mich. 1985). Payments of even larger sums may be appropriate and necessary to compensate class representatives for the time they spend on the litigation. It is sometimes the case that named plaintiffs are subjected to embarrassment and harassment by defense counsel, and are required to submit to multiple days of depositions or to turn over their financial records for review. Named plaintiffs also may contribute to the litigation by reviewing records, reviewing and commenting on pleadings, responding to written discovery, giving assistance or advice to counsel and testifying at depositions and trial. It is appropriate that they receive additional payments to reimburse them for expenses they incur and time they spend in participating in the litigation. See, e.g., Bryan v. Pittsburgh Plate Glass Co., 59 F.R.D. 616, 617 (W.D. Pa., 1973), affd, 494 F.2d 799 (3rd Cir. 1974), cert. denied., 419 U.S. 900 (1974), reh. den., 420 U.S. 313 (1975) (approving special awards to those members of the plaintiff class who were most active in the prosecution of the case and who devoted substantial time and expense on behalf of the class); Thornton v. East Texas Motor Freight, 497 F.2d 416, 420 (6th Cir. 1974) (approving granting earlier seniority to those class members who had protested and helped to end discriminatory employment policy); Harris v. Pernsley, 654 F. Supp. 1042, 10521053 (E.D. Pa. 1987) (approving damage award to named plaintiff based on meritorious conduct); Genden v. Merrill Lynch, Pierce, Fenner & Smith, 700 F. Supp 208, 210 (S.D.N.Y. 1988) (approving award of $20,085 to one named plaintiff who, as an attorney, rendered consultative services to class counsel). C. NACA Guideline Awards to named plaintiffs are appropriate compensation for the time and expense they incur in serving as class representatives. The consumers who fight on behalf of an entire class should be reasonably compensated for their efforts when those efforts are successful. For anything more than modest sums in the range of $2,0003,000, the amounts of such awards should be based on the amount of time and money expended

aged not to approve settlements in copy cat actions and to consolidate actions whenever possible. However, experience in the federal securities area suggests that use of a first to file rule (whether used to determine who will be lead counsel or which should be favored for settlement approval) often produces unsatisfactory results. Cooperation among class counsel through a variety of means including sharing discovery, conducting joint discovery, using joint experts, coordinating document production, and coordinating scheduling of important motions, including motions for class certification, can expedite the handling of cases and minimize the cost to each counsel. C. NACA Guidelines Class counsel should attempt to learn of any pre-existing cases and to communicate with other plaintiffs counsel in such cases prior to or promptly after filing an overlapping case. Counsel should cooperate with each other to the maximum extent feasible in the pre-trial stage by agreeing to conduct joint discovery, use joint experts, and coordinate document production; or at a minimum sharing discovery among counsel in similar cases; and, where possible, by allocating responsibility for researching and drafting important pleadings and coordinating scheduling of important motions, including motions on the pleadings, for summary judgment, and for class certification. Counsel should be alert to the possibility that a defendant in multiple cases may seek to conduct a reverse auction, in which it negotiates separately with various plaintiffs counsel and attempts to strike a settlement most favorable to it. Bearing in mind the entitlement of class counsel to a fair fee given all the circumstances, the interests of the class must remain paramount. Counsel (1) should be reluctant to agree to expand the class definition at the settlement stage, (2) should refrain from agreeing to unnecessarily-broad releases which wipe out claims asserted in other pending cases, and (3) should be cautious about settling anything beyond what is alleged in the complaint and mindful of preserving the opt-out rights of class members. When a settlement has been reached, counsel should always notify class counsel and the court in other cases involving the same defendant and the same or similar issues. Such notice should occur well before the fairness hearing, in sufficient time to permit those counsel the opportunity to appear. After settlement, class counsel should also consider notifying persons and groups who have an interest in the proceedings that a tentative settlement has been reached and that a preliminary hearing will be scheduled to consider the fairness and adequacy of the settlement. For example, Trial Lawyers for Public Justice and Public Citizen would routinely be notified of class action settlements, the National Association of Attorneys General would receive notice of settlements involving motor vehicles which states purchase in large quantities, the American Association of Retired Persons would receive notice of settlements involving schemes that adversely affect the elderly such as telemarketing fraud and home equity scams, and NACA and the National Consumer Law Center would receive notice of settlements in consumer class actions such as challenges to deceptive home improvement financing schemes or overcharges by financial institutions. While such notification should not be an invariable rule, it should be the practice usually followed.

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in connection with prosecuting the case, or other special circumstances. 5. Class Member Releases A. The Issues When is it appropriate to release class claims without individual class member signatures? May the scope of releases exceed the scope of the claims certified by the Court? B. Viewpoints In agreeing to settle a class action, the defendant understandably wishes to obtain protection against later suits by class members for the same alleged wrongs that are being settled through the class actions. Ordinary principles of res judicata and collateral estoppel apply in the class action context to bar subsequent re-litigation of claims, so long as there was adequate representation of the class in the earlier case. Matsushita Electric Industrial Co., Ltd. v. Epstein, 516 U.S. 367, 116 S. Ct. 873, 134 L.Ed 2d 6 (1996). Nevertheless, as in individual cases, defendants generally insist upon the inclusion of releases within a negotiated settlement document. In some cases, defendants may also seek individual releases from class members, either as part of the language contained in claim forms or as an endorsement on settlement distribution checks. There does not appear to be any benefit from releases which do not exceed the scope of the res judicata bar, but neither does there appear to be any harm. Prior to Matsushita, there was some uncertainty whether class-wide releases which were broader than the scope of the pleadings and/or certified claims were binding upon individual class members in subsequent litigation. As a noted commentator states: A class action settlement agreement cannot release the claims of absent class members. Only absent class members can release their own claims. Newberg 12.17, at 12-52 (3d ed. 1992). However, Newberg subsequently notes that an alternative to individual releases is the inclusion of a constructive release clause in the settlement agreement to the effect that acceptance of settlement benefits releases whatever claims are described in the settlement agreement. Id. at 12-5212-56. The Supreme Courts recent decision in Matsushita, supra, clearly holds that res judicata bars re-litigation of noncertified claims (and even claims not contained in the pleadings) which are released on a class-wide basis, so long as there is adequate representation and an opportunity to opt out. Court approval of a proposed settlement should include a determination that plaintiffs and class counsel adequately represent the class on all of the settled issues, even if certification of some of the issues was previously denied. It was the unanimous view of those who submitted comments that individual releases are unnecessary and unproductive if the scope of the class-wide release is limited to those claims certified by the court for class treatment. There was also consensus that class counsel should be cautious in discussing settlement of claims beyond the scope of a prior class certification order (or, if no order has yet been entered, beyond the scope of the pleadings). Several comments suggested that counsel should seek additional settlement compensation if settlement of such claims is agreed to.

Appx. B-5C

The opportunity to opt out of a proposed settlement is particularly important if claims are being settled which have not been previously certified by the Court. It is common practice to offer class members only one opportunity to opt out of a class action. When there is a contested class certification motion, that opportunity usually comes immediately after certification. A subsequently-proposed settlement requires notice of the settlement terms and an opportunity to object, but usually not a second opportunity to opt out. If claims are being settled which were not described in the initial class notice, serious fairness issues are raised by the lack of a second optout opportunity. In addition, there are very serious, and probably fatal, objections to any settlement that purports to release potential future claims of persons who have not suffered any damage at the time of settlement. Settlements of this nature are rare, or even unknown, in consumer cases. Therefore, this paper will not discuss in depth the many issues relating to these settlements. However, we note that even if it were possible to notify such future-damaged class members, it is impossible to provide any meaningful notice and opportunity to opt out, since they have not been injured and thus cannot assess what the proposed settlement means to them. The Supreme Court addressed future-damage issues this past Term in Amchem Products, Inc. v. Windsor, 521 U.S. , 117 S. Ct. 2231, 138 L.Ed. 689 (1997). In that case, the Court found that including futuredamaged persons in the class defeated the predominance requirement of Rule 23(b)(3) and also made it impossible for the named class members (who were not future-damaged) to represent the interests of the absent future-damaged class members, as required by Rule 23(b)(4). 117 S. Ct. at 225051, 138 L.Ed. at 713714. In addition, the Court noted that there were significant problems of adequate notice to a class that included persons who were not then aware of their damages. 117 S. Ct. at 2252, 138 L.Ed. at 716. C. NACA Guidelines Class counsel should proceed cautiously in discussing settlement of claims other than those alleged in the pleadings and certified by the court. However, since the doctrines of res judicata and collateral estoppel will preclude subsequent litigation based on alternative legal theories arising out of the same set of facts, it is often reasonable to release any such alternative claims which could have been asserted, even if not contained in the pleadings or specifically certified. Except in unusual circumstances, counsel should not agree to any settlement which releases non-certified claims unless class members will be given a subsequent opportunity to exclude themselves from the settlement. If a defendant seeks a release of claims arising from factual circumstances not alleged in the complaint, or as to which certification has been sought but not granted, class counsel should seek additional compensation to the class for such releases. If possible, negotiation of the certified claims should precede negotiations as to non-certified ones. Adequacy of representation as to non-certified claims should be addressed in the briefs supporting a proposed settlement. A general release may be appropriate for the named class representatives. However, absent class members should not be required to release independent individual claims or claims

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pres distribution of unclaimed funds, although it found the specific use which had been approved inappropriate. The court reversed and remanded to the trial court to determine what remedy would best effectuate the goals of the underlying statute and the interests of the absent class members. Id. at 1309. Similarly, the Second Circuit in In Re Agent Orange Product Liability Litigation, 818 F.2d 179, 185 (2d Cir. 1987), concluded that a district court may set aside a portion of settlement proceeds for programs designed to assist the class in order to maximize the beneficial impact of the settlement fund on the needs of the class. The Court distinguished its earlier decision in Eisen v. Carlisle & Jacquelin, 479 F.2d 1005 (2d Cir. 1973) (Eisen III), vacated and remanded on other grounds, 417 U.S. 156 (1974) which reversed a trial court order allowing fluid recovery through a price reduction. The court explained that the fluid recovery at issue in Eisen III would have allowed plaintiffs to satisfy the manageability requirements of Rule 23 where they otherwise could not and would result in a greatly increased number of doubtful but astronomical class claims in the federal courts. That concern was not present in Agent Orange, which was maintainable as a class action regardless of the form of recovery available to the plaintiff class. In Re Agent Orange Product Liability Litigation, supra, at 185. Other courts approving cy pres remedies also have distinguished Eisen on the basis that the fluid recovery sought in that case would have eliminated statutorily required individual proof of damages and circumvented class action manageability requirements. Nelson v. Greater Gadsden Housing Authority, supra, at 409; Six Mexican Workers v. Arizona Citrus Growers, supra, at 1307. Those issues are very different from the question of cy pres distribution of unclaimed funds, an issue which does not subject defendants to greater liability or alter their substantive rights. Id. In addition, Newberg criticizes the Eisen III rationale as defective and inconsistent with the historic purposes of class action remedies and concludes that cy pres distributions have long been recognized as appropriate exercises of the courts general equitable powers under appropriate circumstances. Newberg, 10.22 at 10-57. State courts have also approved cy pres remedies in a number of unreported decisions in California and Georgia. See, e.g., Vasquez v. Avco Financial Services of Southern California, Los Angeles Superior Court Case No. NCC-11833B; Beasley v. Wells Fargo Bank, San Francisco Superior Court Case No. 861555, and a related case, Kovitz v. Crocker National Bank, San Francisco Superior Court Case No. 868914; McClendon v. Security Pacific National Bank, Alameda County Superior Court Case No. 613722-5; Patterson v. ITT Consumer Financial Corporation, San Francisco Superior Court Case No. 936818; In Re: Domestic Air Transportation Antitrust Litigation, No. 1-90 C 2485 MHOS & MAL No. 861 (consolidated Nov. 2, 1990); and Starr v. Fleet Finance, Inc., et al. Cobb County Georgia Superior Court Civil Action No. 9210-2314-06. The propriety of fluid recovery, including creation of a consumer trust fund, was recognized by the California Supreme Court in State of California v. Levi Strauss, 41 Cal.3d 460 (1986). Following the general principles that wrongdoing must be deterred and that deterrence requires disgorgement of ill-gotten gains, the court approved cy pres distribution of the portion of a damage fund which could not be distributed to the consumers who had been overcharged.

as yet unknown in order to receive settlement benefits. Specifically, if the class settlement only provides injunctive benefits that do not result in restitution or other monetary payments to individual class members, the release should provide that individual damages claims are not being released. 6. Cy Pres Awards A. The Issue It is typically the case that not all class members can be located to receive their pro rata share of a damage award, and questions arise concerning what happens to the undistributed residue. They include: Are there circumstances under which the residue should revert to the defendant? Under what circumstances is a cy pres distribution of all or part of the settlement fund appropriate? What is class counsels role in recommending recipients of such awards? B. Viewpoints Respondents unanimously agreed that cy pres remedies are appropriate to ensure that undistributed residues are used to provide indirect benefit to absent members of the plaintiff class or to further the purposes of the statutes which formed the basis for the underlying litigation. This view is supported by the case law. Bebchick v. Public Utilities Commission (D.C. Cir.) (en banc), cert. denied, 373 U.S. 913 (1963) approved use of the funds collected in an invalid fare increase for the benefit of those who paid it, that is, those who use that transit system. A fund was created in this non-class case to be used by the Commission to benefit transit users in any pending or future rate proceedings or to cover costs which might otherwise lead to an increase in fares, or aid in determining whether fares should be reduced. Several other circuits have approved the use of cy pres remedies. An early antibiotic antitrust class action settlement included the creation of a trust fund from which indirect benefit could be conferred upon consumers as a whole, and the settlement was approved, with the details of the cy pres remedy left to be resolved at later hearings. State of West Virginia v. Chas Pfizer Co., 314 F. Supp. 710, 728 (SDNY 1970), affd, 440 F.2d 1079, 1083 (2d Cir. 1971). The Seventh Circuit has adopted an approach requiring a case-by-case analysis of whether the use of a cy pres remedy is consistent with the policy reflected by the statute violated and whether the statute embodies policies of deterrence, disgorgement, or compensation. Simer v. Rios, 661 F.2d 655, 676 (7th Cir. 1981), cert denied, 456 U.S. 917 (1982) (finding an award inappropriate because it would not serve the goals of deterrence or disgorgement on the particular facts of that case). In Nelson v. Greater Gadsden Housing Authority, 802 F.2d 405, 409 (11th Cir. 1986), the court held that compensatory damages which were not claimed by class member public housing tenants were to be used by the housing authority to increase the energy efficiency of the apartment units or to improve the appliances supplied by defendant. In Six Mexican Workers v. Arizona Citrus Growers, 904 F.2d 1301, 1307 (9th Cir. 1990), the Ninth Circuit noted that the Eleventh Circuits decision expressly approved the use of fluid recovery to distribute unclaimed class action funds and expressed its agreement, holding that the district court properly considered cy

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The court concluded that such awards are appropriate where there is a nexus between the proposed use of the fund and the class on whose behalf the case was litigated, or where the proposed use furthers the purpose of the statutes which formed the basis for the underlying suit. In either instance, the use of the fund will provide indirect benefit to absent class members. The rationale for such awards is further explained in McCall, Sturdevant, Kaplan and Hillebrand, Greater Representation for California ConsumersFluid Recovery, Consumer Trust Funds, and Representative Actions, 46 Hastings Law J. 798 (1995). Thus, the case law supports creation of cy pres remedies in cases which are litigated to conclusion. Moreover, it is clearly permissible to settle with defendants and include a cy pres provision in the agreement, because a defendant may agree to a settlement which provides for fluid recovery notwithstanding the Eisen rule, Beecher v. Able, 575 F.2d 1010, 1016 n.3 (2d Cir. 1978). There are two views on allowing residues to revert to defendants. One considers that an unacceptable alternative which would reward defendants for engaging in wrongful conduct, except where there are no ill-gotten gains to be disgorged. The other is that it is appropriate where there is no incentive for defendants to fail to distribute the damage award or to assist in locating absent class members because allowing the return of the residue may enable counsel to negotiate better relief to known class members and obtain an agreement as to injunctive relief. There are also two divergent views on the propriety of cy pres awards of the entire damage fund with no distribution to the class. One view is that counsels fiduciary duty to the members of the class requires that there must always be a direct distribution to class members, and only the undistributed residue used for a cy pres remedy. The other view is that where individual recoveries are unduly costly to distribute or too small to warrant the cashing of checks, cy pres awards of the entire damage fund is appropriate. There is some authority for using a cy pres remedy for the entirety of a statutory damage award when the amount of damages to each class member is too small to warrant distribution. Gammon v. GC Services Ltd. Partnership, 162 F.R.D. 313 (N.D. Ill. 1995) was a suit under the Fair Debt Collection Practices Act involving a proposed class of four million people, each of whom would be entitled to 13 cents if plaintiffs prevailed. Class counsel, moving to certify the class under Rule 23(b)(2) of the Federal Rules of Civil Procedure, suggested cy pres distribution of the entire damage award. The defendant did not dispute the propriety of this remedy, which the court assumed would be suitable. Citing Newberg, the court noted that class actions are designed not only to compensate individuals who have been harmed, but also to deter violations of the law, especially when small individual claims are involved. It concluded: Disgorgement of illegal gains from wrongdoers, together with . . . application of the recovery for the benefit of class members under cy pres doctrines, would fulfill the deterrence objectives of class actions. Id. at 321, quoting Newberg, 4.36. (Note that in Mace v. Van Ru Credit Corporation, 109 F.3d 338, 345, (7th Cir. 1997), Gammon was limited to its own unique facts.) There is agreement that it is the role of class counsel, who have been found to be adequate representatives of the class,

Appx. B-6C

to recommend cy pres recipients. NACA has adopted the guidelines set forth in the McCall, Sturdevant, Kaplan and Hillebrand article at pp. 850851. Since it is the role of the court to protect the interests of absent class members, the court should carefully review the competence and record of organizations that are proposed as recipients. We believe that serious consideration should be given to using the unclaimed portion of the award for a longterm grant to an existing organization with competence in the issues raised in the underlying litigation. This will ensure that projects are of sufficient duration to result in real and concrete benefit to absent class members. C. NACA Guidelines In proposing a cy pres remedy, class counsel should propose a disposition of the unclaimed portion of the award that will either (1) protect the interests of the persons injured by the illegal conduct and thus indirectly benefit absent class members or (2) promote the purposes of the statutory prohibitions sought to be enforced in the underlying litigation. Counsel should also insist that the recipients of the award be accountable to the court and should enter into memoranda of understanding to that effect with recipient organizations. If counsel wishes to propose that a new organization receive the unclaimed funds, class counsel should be prepared to show the court how that organization has the ability and competence to work for the interests the underlying litigation sought to protect. This can be accomplished by providing information to the court about the current or proposed officers, directors, and staff of the organization. The work to be done by an existing or new organization should be set forth in a comprehensive proposal, together with time tables for accomplishing that work, which should indicate how the class will be indirectly benefited or the purposes of the underlying statutes will be furthered by these efforts. To ensure full accountability, counsel should usually negotiate a formal agreement with the proposed recipients which binds the recipients to restrictions on the use of the funds, and requires them to comply with accounting, auditing, and reporting requirements. Such a negotiated agreement offers assurance to the court that the proposed recipient will use the funds strictly in accordance with the terms of the courts order. For long term projects, counsel can oversee performance by requiring quarterly meetings with recipient organizations, semi-annual plans for work to be undertaken, and periodic reports of past accomplishments. Counsel should be entitled to compensation for work necessary to monitor implementation of the cy pres remedy at standard rates, with no enhancement or multiplier. Class counsel should agree that undistributed residues revert to defendants only in unusual circumstances. For example, reversion may be acceptable where there is no incentive for defendants to fail to perform their obligations in connection with distribution of the damage award and where there are no ill-gotten gains to be disgorged. Class counsel should insist on direct distribution of damages to class members before recommending a cy pres remedy for the undistributed residue except in unusual circumstances. These include instances where individual recoveries are unduly costly to distribute because, for example, defendants have

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Cir. 1974); City of Detroit v. Grinnell Corp., 495 F.2d 448 (2d Cir. 1975); Lindy Bros. Builders, Inc. v. American Radiator & Standard Sanitary Corp., 487 F.2d 161 (3d Cir. 1973), on remand, 383 F. Supp. 999 (E.D. Pa. 1974), revd on other grounds, 540 F.2d 102 (3d Cir. 1976) (en banc). Because the availability of multipliers of the lodestar fee is uncertain, prohibiting percentage fees could make some class actions impossible to bring, if the resources needed to commit to the litigation were so sizable that the only way a law firm could economically justify taking on the case, and running the risk of recovering nothing, would be the potential of a large percentage recovery. In addition, some commentators have suggested that basing a fee on an hourly rate could lead some class counsel to perform unnecessary work (churning). The opposite end of the spectrum from this viewpoint holds that a percentage recovery in the 2030% range is entirely appropriate and should be left to court approval. Percentage fees have been held appropriate in common fund cases: Boeing Co. v. Van Gemert, 444 U.S. 472, 47879 (1980); In re Activision Securities Litigation, 723 F. Supp. 1373 (N.D. Cal. 1989); Paul, Johnson, Alston & Hunt v. Graulty, 886 F.2d 268 (9th Cir. 1989); and have been required in cases not involving a fee shifting statute in Swedish Hospital Corp. v. Shalala, 1 F.3d 1261 (D.C. Cir. 1993) and Camden I Condominium Association v. Dunkle, 946 F.2d 768 (11th Cir. 1991). However, some commenters urge that this approach could in class counsel being unduly compensated for insufficient time and effort. Others feel that a blended approach is bestevaluating both percentage and lodestar fees, to determine a reasonable fee for the particular case. Under this approach judges would make a lodestar calculation based on the hours spent and hourly rates and compare that figure with the percentage awards made in similar cases. See, Strang v. JHM Mortgage Sec. Ltd. Partnership, 890 F. Supp. 499, 50203 (E.D. Va. 1995) (comparing the lodestar and percentage of common fund calculations to conclude that 25% rather than 30% of the fund was a reasonable fee). Still others urge that different bases for fee awards raise different issues and require different solutions. A complicating factor is that it is not always clear whether a case is a common fund, a fee-shifting, or a common benefit case. If the entire case is based on statutes that provide for fee-shifting (and most consumer class actions are primarily based on feeshifting statutes), some commenters felt that it would be inappropriate for class counsel to seek fees based on a percentage of the amount awarded the class. This view finds support in case law holding that the lodestar calculation is required in fee shifting cases: City of Burlington v. Dague, 505 U.S. 557, 562 (1992); Blum v. Stenson, 465 U.S. 886, 895 (1984). These commenters found it even more objectionable if class counsel sought to obtain percentage fees out of the amounts awarded the class, rather than insisting that the defendant pay the fees over and above all amounts given the class. These commenters felt that this problem was particularly acute in instances where fees are assessed against members of the class who did not actually receive any monetary benefit. This situation can arise when class members recoveries are credited to their accounts with the defendant but not every class member receives a credit.

no computerized records which would enable them to generate a list of class members names and addresses, or where individual damages are too small to warrant the issuance, processing, and cashing of checks. Class counsel should recommend cy pres remedies which will provide indirect benefit to absent members of the class or which will further the purposes of the underlying litigation. They should also recommend mechanisms which will provide for monitoring by class counsel, and, ultimately, judicial oversight of the expenditure of the funds. 7. Attorneys Fee Considerations A. The Issue The issue of attorneys fees is extremely important in class actions today, both because it serves as a rallying point for criticism of class actions and because the criticisms of excessive fees are in some instances well grounded. This is also a difficult and complicated issue since fee awards may be made on three different bases: statutory fee shifting, in which defendant pays the fee; common fund, in which the class members pay the fee from their recovery; and common benefit, in which the defendant pays the fee. There is no one problem and no one cure. The prime focus of criticism is the size of the fees. In many instances, this problem is more apparent than real. For example, when the individual recovery is $50.00 per consumer, an attorneys fee of $2 million seems excessive at first glance. However, if the dollars actually recovered by the individual class members in such a case were $15 million, then fees are less than 14% of the total recovery achieved for the class. This makes the fee reasonable with respect to the total actual recovery. However, the cases that receive the most criticism are those where the class does not obtain cash recovery that is several times the fees received by the attorneys. The strongest criticism is directed at cases in which the actual cash received by the class is minimal, if any, and the only other benefits received by the individual members are certificates, of questionable value. The GM Pickup Truck cases, In re: General Motors Corp. Pick-Up Truck Fuel Tank Products Liability Litigation, 55 F.3d 768 (3d Cir.), cert. denied, 116 S. Ct. 88 (1995); Bloyed v. General Motors Corp., supra, and the Bronco II case, In re: Ford Bronco II Products Liability litigation, 1995 U.S. DIST. LEXIS 3507 (E.D. La. 1995) (rejecting settlement of a class action challenging dangerous vehicles that provided relief to the class in the form of a flashlight and safety video but no damages) are well known examples of this problem, but it had its roots in cases such as the airline antitrust settlement, which also provided certificates to consumers and millions of dollars in attorneys fees to the class lawyers. B. Viewpoints There are a variety of proposed solutions, none of which would take care of the problem entirely. One viewpoint holds that class counsel should be paid only by hourly lodestar rates, enhanced by multipliers when appropriate, and that percentage calculation of fees is not appropriate. The leading lodestar calculation cases, which primarily consider time spent, hourly rates, the work done, and the results obtained, are: Johnson v. Georgia Highway Express, Inc., 488 F.2d 714 (5th

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These alternative bases for awarding fees are not necessarily in conflict: fees could be recovered from the defendant under a fee shifting statute or other theory and paid into the common fund, with class counsel receiving a percentage of the total recovery. This approach finds support in Skelton v. General Motors Corp., 860 F.2d 250 (7th Cir. 1988), which involved the settlement of statutory fee shifting claims. The court noted that a settlement merges all claims, including the clients statutory fee shifting claim, into one common fund that belongs to the class clients, and ordered fees to be calculated under common fund principles This view is also consistent with case law noting that the amount which an opposing party can be required to pay as a reasonable fee may be substantially less than a reasonable fee owed by the client (or class of clients). Venegas v. Mitchell, 495 U.S. 82 (1990). Whatever the method of calculating fees there is no question that any contingent fee award must take into account the difficulty, complexity, and the risk of the case, the relief obtained for the class, as well as the fact that some cases will result in no fee at all. Therefore, it is entirely appropriate in most class action cases to award fees that are in excess of a fee calculated solely on an hourly basis without any multiplier. When a fee is to be calculated on a percentage basis, there is no fixed percentage that is appropriate to all cases. A fee of 10% on a class recovery of $100 million might be excessive depending on the circumstances. On the other hand, a 40% fee award would be insufficient in a case where the primary relief sought is injunctive and the payment to the class minimal, but where thousands of hours of attorneys time was required and the extent of the injunctive relief justified it. Some commenters argue that there is an inherent problem with negotiating fees with opposing counsel, even when counsel have first agreed on relief to the class. Since the Court has an independent duty to examine the fees, these commenters feel, prior agreement does little but create the appearance of collusion between class counsel and the defendant. Others contend that settlement often would be impossible to achieve unless the defendants understand the extent of their total exposure, and urge that it is preferable to obtain relief promptly for class members and that there is no reason not to reach agreement on fees so long as negotiation of fees follows the obtaining of an agreement to relief for the class on the merits. C. NACA Guidelines Reasonable attorneys fees must be awarded in consumer class actions because fees are the incentive for lawyers to engage in private enforcement of the law, but excessive and unreasonable amounts should not be sought or awarded. Because the issue of reasonable attorneys fees is one that will be determined by the merits of the lawsuit and the nature of the settlement, there is no one possible remedy for the abuses that exist. However, a variety of partial solutions will be beneficial. 1 Time to discuss fees. Because the Supreme Court has recognized that in a fee-shifting case the defendant has an economic interest in resolving the fee issues in a settlement negotiation along with all other statutory claims [see White v. New Hampshire, 455 U.S. 445, 452 n.14 (1982)], class counsel should avoid any conflicts of interest that

Appx. B-7C

may increase the danger of an improper quid pro quo detrimental to the class. For example, if a defendant offers a $5 million lump sum settlement, with $4 million for the class and $1 million to counsel, it would be improper to accept this offer contingent upon $3 million being made available to the class and $2 million available to counsel. It would be appropriate, however, to state that the $4 million for the class is acceptable as long as counsels compensation is increased. One alternative is to obtain the defendants binding agreement to all class relief and then to submit the fees issue to the court for determination. In statutory fee-type cases, an acceptable alternative is to obtain the defendants agreement on class relief contingent on successfully negotiating an agreement on fees. It is also acceptable to negotiate fees after all relief has been agreed on for the class, and then submit the entire agreement as a whole to both the court and the class for review and approval. In common fund cases, there is no need to discuss fees with the defendant since the class clients, not the defendant, pay the fee from the fund that was created by their counsel, subject to court approval. 1 Percentage Benchmarks for most Common Fund Cases. For the vast majority of common fund cases, courts and counsel should examine the reasonableness of the fees requested by the percentage benchmarks that have been recognized in similar cases. See, e.g., Camden I Condominium Assn v. Dunkle, 946 F.2d 768 (11th Cir. 1991); Paul, Johnson, Alston & Hunt v. Graulty, 886 F.2d 268, 272 (9th Cir. 1989); Brown v. Phillips Petroleum Co., 838 F.2d 451, 454 (10th Cir.), cert. denied, 488 U.S. 822 (1988); Swedish Hosp. Corp. v. Shalala, 1 F.3d 1261, 1272 (D.C. Cir. 1994); Bebchick v. Washington Metro Area Transit, 805 F.2d 396, 406407 (D.C. Cir. 1986); see also In re General Motors Corp. Pick-up Truck Fuel Tank Prods. Liab. Litig., 55 F.3d 768, 82021 (3d Cir.), cert. denied, 116 S. Ct. 88 (1995); In re Continental Illinois Secs. Litig., 962 F.2d 566, 572 (7th Cir. 1992). In the absence of special circumstances, including either an unusually large monetary recovery or a relatively small monetary recovery coupled with very beneficial but difficult to value equitable relief, the courts have recognized percentage benchmarks ranging from 19 percent to 45 percent of the common fund. See, e.g., In re Greenwich Pharmaceutical Sec. Litig., [1995] Fed. Sec. L. Rep (CCH) k 98,774, p. 92,523 (E.D. Pa. Apr. 26, 1995); In re SmithKline Beckman Corp. Secs. Litig., 751 F. Supp. 525, 533 (E.D. Pa. 1990); In re Unysis Corp. Retiree Med. Benefits ERISA Litig., 886 F. Supp. 445, 467 (E.D. Pa. 1995); Mashburn v. National Medical Healthcare, Inc., 684 F. Supp. 679, 692 (M.D. Ala. 1988); In re Activision Secs. Litig., 723 F. Supp. 1373, 137478 (N.D. Cal. 1989). As one court has observed, [w]hen the prevailing method of compensating lawyers for similar services is the contingent fee, then the contingent fee is the market rate. Kirchoff v. Flynn, 786 F.2d 320, 324 (7th Cir. 1986). In the few (often highly publicized) cases in which the monetary relief, however valued or estimated, exceeds $30 million, reasonable fees will nearly always, though not necessarily, represent smaller than the benchmark percentages. In such cases, courts have encouraged use of a lodestar analysis to cross-check the reasonableness of fees in

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1 Percentage fee request if cash value of settlement cannot be determined at time of settlement approval. In some situations, the total cash value of a settlement may not be calculable at the time the settlement is finally approved. The two most common situations where this is true are (1) certificate settlements, where it is unknown how many of the certificates will ultimately be redeemed; and (2) claims made settlements, where it is unknown what proportion of the available funds will be claimed by class members or paid to a cy pres recipient. In such cases, it is inappropriate for class counsel to seek a percentage fee unless one of the following is true: (a) the settlement provides for a minimum settlement level which is guaranteed to be paid (either to class members or as a cy pres payment) and the fee sought is based upon a percentage of the minimum amount; (b) the settlement provides for an initial payment to class members (or as a cy pres payment) and the fee is sought based on a percentage of that initial payment; or (c) approval of payment of the fee to class counsel is not requested until such time as the court can accurately assess the actual value of the settlement (i.e. after the deadline for class member claims are after the certificates expire). 1 Notice to the class of fees. Another essential, but not sufficient, component of reform is a requirement that the maximum amount of attorneys fees to be sought must be disclosed to the class members at the time the notice of proposed settlement is sent to them, stated as a total dollar amount. In a common fund case where a percentage will be sought, that fact and the specific percentage to be requested should be stated in the notice. In statutory fee shifting cases, the lodestar, if agreed to by the parties, should be disclosed in the class notice. If there is no agreement, the amount class counsel intend to request from the court should be disclosed. It is also a good idea to disclose the amount of fees per class member, but the members of the class have the right to know how much their attorneys are making in total. For example, the class must be told that the lawyers will receive $2 million, but could also be told that this amounts to $6.67 per class member. The average fee per class member need not be disclosed when recoveries vary substantially among class members, since that number would not be meaningful. 8. Improved Notice of Settlement A. The Issues One significant problem with class action settlements is that Rule 23 does not specify the content of notice to the class. Consequently, the notices given to the class, whether individually or by publication, are not uniform and often are in such fine print and sufficiently complicated and unclear that the class members do not understand the nature of the relief sought or obtained in their names. They therefore do not actually have the information necessary to make an informed decision as to whether to remain members of the class, to opt out, or to object to the settlement.

such large cases. See, e.g., General Motors, 55 F.3d at 822; In re Washington Public Power Supply Sys. Litig., 19 F.3d 1291, 1295, 1298 (9th Cir. 1994). Although such crosschecks in typical cases simply add another level of analysis, and may even undermine the purposes of the percentageof-the-fund approach, in large cases the cross-checks are a useful tool in protecting the class from windfall fee awards. Similarly, when the common fund is relatively small or difficult to value precisely and the common benefit is undoubtedly valuable but difficult to quantify, the lodestar approach may properly supplant the percentage-of-thefund benchmarks. Provided the class receives real value and is receiving benefits commensurate with the fees to be awarded to class counsel, it is not per se unreasonable for counsel to set aside a monetary fund from which attorneys fees will be paid even though the class may be receiving primarily equitable benefits. However, counsel should be aware that the timing of fee negotiations in such cases may be considered as a factor by the courts in the review of the adequacy of the class representation. General Motors, 55 F.3d at 803804. 1 Recovering fees from the class. In a common fund case where the underlying claims are based on fee-shifting statutes, it is generally best to negotiate an additional amount representing the right to fees from the defendant directly, in order to limit the fees paid by class counsels clients and maximize the total recovery to the class. It may be appropriate in such a case to merge the statutory fee into the common fund (see Skelton, supra), and to also obtain a portion of the fees from the common fund. The same is true in common benefit cases. In instances where the only source of fees is the common fund, class counsel must insure that (1) no class member is assessed fees if that member did not receive a benefit and (2) the percentage of fees assessed against any class member is a reasonable percentage of that class members recovery. Class counsel must refuse to discuss any proposal by a defendant to pay one amount itself or to pay nothing itself but agree to class counsel seeking a greater amount from a common fund. If the defendant can be persuaded to offer an additional sum for fees, that can be accepted as a credit toward a common fund award made by the court. In a statutory fee shifting case which is not converted to a common fund case, fees should be recovered solely from the defendant and be based on the lodestar. 1 Non-cash settlements. In a case where relief to the class is not paid in cash (or by credit to an existing account), the attorneys fees should be based solely on a lodestar rate, with a multiplier when appropriate under existing case law. Otherwise, it is impossible to determine the value of the actual relief received by the class (as opposed to the theoretical value of non-cash relief) on which to base a percentage amount. If an agreement is negotiated with the defendant as to an amount of fees which the defendant will not contest, class counsel should still submit sufficient documentation to the court to justify, on a lodestar basis, whatever amount of fees is being sought. Alternatively, a percentage fee might be recovered, but only after a delay, as described below.

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B. Viewpoints Currently, there is no group advocating or opposing improved notice to the class. However, industry groups and the defense bar are readying attacks on class actions that could be fatal to the ability of individual consumers to use class actions to stop deceptive and illegal practices and to obtain relief after being victimized. Part of any consideration of changing class action practice should include finding a way to insure that the absent class members have the best tools possible to decide whether or not to support a class action settlement. Both the MANUAL FOR COMPLEX LITIGATION, THIRD and the foremost treatise on class actions recommend the content of notices of proposed settlements. The Manual suggests that notice include a description of the essential terms of the settlement, information about attorneys fees, disclosure of any special benefits for class representatives, specification of the time and place of the hearing to consider approval of the settlement, and an explanation of the procedure for allocating and distributing the settlement. 30.212 (1995). Newberg & Conte recommend that notice contain a description of the litigation, summary of the proposed settlement, requested allowance for attorneys fees, procedure for filing proofs of claims, procedure for filing appearances and objections, and procedure for obtaining documents related to litigation and settlement. Newberg, supra, at 8.32. C. NACA Position NACA supports a drive for simplified, plain-language, standardized disclosure of the salient aspects of a settlement. Disclosure should be required only of those points that are most important for consumers to know. This simplified form would be the first page of the class notice, whether by publication or individual mail. The details would continue to be placed in the body of the class notice. The standard form of notice should include the following: 1 A clear statement of how the consumer can tell whether he or she is a member of the class. 1 The number of members of the plaintiff class. 1 The total amount of relief to be granted the class, stated in dollars where the payment is in cash or credit to an account. 1 The individual relief to be received by each member of the class, broken down into sub-classes if necessary. Where this cannot be determined in advance of the claims process, there should be a good faith estimate of the range of individual recoveries for class members. 1 The total maximum fees, in dollars, to be sought by the class attorneys, and the method whereby they were calculated (hourly, hourly with a multiplier, percentage, or a combination), as well as the source from which payment will be sought. 1 Proposed distribution of any unclaimed funds, including whether they will revert to defendants. 1 Options available to class members including at least opting out and objecting. 1 An address to write for further information regarding the settlement. 9. Approval of Settlement Classes A. The Issue

Appx. B-9B

The growing use of settlement classes, especially when coupled with the increasingly-frequent proposals of settlements where the class members do not receive either monetary or equitable relief, raises serious concerns that the interests of the absent class members have not been adequately represented. The holdings in Amchem Products, Inc. v. Windsor, 117 S.Ct 2231 (1997) and In re: General Motors Corp. Pick-up Truck Fuel Tank Products Liability Litigation, 55 F.3d 768 (3d Cir.), cert. denied, 116 S. Ct. 88 (1995) should serve as a harbinger of increased judicial scrutiny of settlements of this nature. B. Viewpoints Most commenters agreed that the preferred approach is to seek and obtain class certification prior to any discussion of settlement. By seeking court involvement at an early stage, the class has the advantage of an adversary-based determination of such vital issues as adequacy of representation of the class, adequacy of class counsel, and the exact make-up of the class. Settlements before certification create problems. Commenters differed in the best approach to take. One approach to post-settlement certification entails a two-step process. First, the issue of certification would be the subject of a plenary hearing, after notice to the class but without notice of settlement of the merits. After the trial court has determined that the case should be certified as a class following hearing, the notice of settlement and of class certification would not need to be addressed again, and the trial court would focus on the Rule 23(e) determination that the settlement is fair, adequate, and reasonable to the class as a whole, as the law requires. Another approach to post-settlement certification, which is acceptable under the holdings of the Third Circuit, combines the two hearings into one, with notice to the class of both the certification and the fairness issues to be considered. The trial court would conduct a plenary hearing into both the certification of the class and the fairness issues, only reaching the fairness issues after determining the nature of the class to be certified pursuant to both subsections (a) and (b) of the Rule. Under Rule 23(c)(1), the trial court has always had the power to make certification conditional, before decision on the merits. It would appear to be within the scope of the Rule to make certification conditional on finality of the settlement, providing no subsequent res judicata effect if the settlement itself is rejected. Certainly, this approach adheres much more closely to the Rule than certification after less than full consideration of all Rule 23 requirements. This approach meets the holdings of the Third Circuit and also provides the salient benefit of avoiding both the appearance and the actuality of either collusion or inadequate representation of the absent class members. Some commenters felt that negotiating settlement prior to obtaining class certification is appropriate because it enables counsel to obtain prompt resolution of cases to the benefit of the class. Those commenters also felt that it was a waste of time for a court to conduct a hearing on class certification if

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be rejected as it is currently worded. It is unnecessary to amend Rule 23 at all to obtain the positive benefits of appropriate settlement classes. The preferable method is to obtain class certification prior to entering into settlement negotiations. However, the dynamics of settlement often create situations where settlement is reached early in the proceedings, before class certification. In those cases, as part of the settlement, class determination may be made contingent on finality of the approval of the settlement, as is commonly done when a court certifies a class for settlement purposes only. If the Rules Committee proposes a revised new rule, NACA should address it, and this position may change. 10. Interlocutory Appeal of Class Certification A. The Issue The Rules Committee also proposes new Rule 23(f), permitting interlocutory appeals of a district court order granting or denying class certification. The right to appeal is discretionary with the court of appeals. The proposed rule provides also that such an appeal does not stay the proceedings unless the district or appellate court orders. B. Viewpoint It is difficult to imagine a scenario where a defendant would not attempt to appeal an order granting class certification. It is also difficult to imagine a scenario where if appeal is permitted, either the district court or the court of appeals would not stay the proceedings. On the other hand, the likelihood of a plaintiff appealing a denial and seeking a stay of proceedings is minimal. However, it is virtually certain that, if the plaintiff did appeal a denial of certification, the defendant would seek, and likely obtain, a stay pending the appeal. Therefore, the rule as written does little to advance a plaintiffs situation, but does provide significant dilatory opportunities for defendants. The California state court approach is a variant on this theme. It is silent on the issue of stay, but permits immediate appellate review only of denial of certification, on the ground that a denial is a death knell because it effectively terminates the entire action as to the class. Granting class certification is not such an order, and is only harmful to the defendant if the plaintiff prevails at trial and on appeal, both on certification issues and on the merits, so is not immediately reviewable. See Stephen v. Enterprise Rent-A-Car, 235 Cal. App.3d 806 (1991) and Rosack v. Volvo of America Corp.. 131 Cal. App.3d 741 (1988). C. NACA Position The California state court approach is a balanced approach that preserves the rights of both plaintiffs and defendants. Immediate appeal should be allowed only if certification is denied. SUMMARY AND CONCLUSION Most class actions work the way Congress and the courts intended. They provide an efficient and appropriate way to obtain relief for many individuals harmed by illegal practices. In the consumer law area, class actions are particularly appro-

the defendant had agreed to class settlement and that the chance to opt out provided sufficient protection to the class members. The Supreme Court reviewed the Third Circuits holding in Georgine v. Amchem Products, Inc., 83 F.3d 610 (3d Cir. 1996), affd sub nom. Amchem Products, Inc. v. Windsor, 117 S. Ct. 2231, 138 L.Ed.2d 689. The opinion held that the decision of the Court of Appeal bears modification because it did not indicate that settlement is relevant to a class certification. It further held that the court did properly consider the terms of the settlement in concluding that the class certification could not be upheld because common questions did not predominate and future claimants interests were not adequately represented. The rule to be derived from that opinion is that a court must find that the requirements of Rule 23, subdivisions (a) and (b) are satisfied in order to approve a class certification in the context of a settlement. The analysis need not take into account the manageability of the case if it were to be tried, since if the settlement is approved there will be no trial, but must include consideration of the subdivision (a) requirements of numerosity, commonality of questions of law or fact, typicality of the claims or defenses of the representative parties with those of the class, and adequacy of representation in that the representative parties will fairly and adequately protect the interests of the class. Additionally, the court held that certification of a class requires compliance with the provisions of subdivision (b) (1), (2), or (3). In a Rule 23(b)(3) case such as this, in order to certify a class a court must find that common questions of law or fact predominate, but a common interest in a fair compromise can not satisfy the predominance requirement. In language that will be useful to litigators handling consumer protection cases, the court distinguished mass tort cases from consumer class actions, noting: Predominance is a test readily met in certain cases alleging consumer or securities fraud or violations of the anti-trust laws. 117 S. Ct. at 2250; 138 L.Ed.2d at 713. The Committee on Rules of Practice and Procedure of the Judicial Conference of the United States (Rules Committee) has recently proposed for comment an entirely new Rule 23(b)(4) that specifically permits use of a class in a settlement that did not otherwise meet the requirements of Rule 23(b)(3). See Preliminary Draft of Proposed Amendments to the Federal Rules of Appellate, Civil, and Criminal Procedure published in August, 1996. This proposal does not provide any criteria for a courts determination whether such settlement certification is proper; it is based solely on the agreement of the parties. Among others voicing strong opposition to this proposal is a group of some 150 law professors. The objections of the law professors are threefold: (1) the proposal contains no limiting guidelines or principles, (2) it fails to address serious constitutional and statutory problems, and (3) it formalizes what has until now been an extremely controversial practice and invites collusion. C. NACA Guidelines The specific Rule 23(b)(4) proposed by the Rules Committee fails to provide guidance for district courts exercise of discretion in approving a settlement class and therefore must

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priate because many people can be harmed by the same illegal practice, and the damages are often both quantifiable and individually too small to warrant separate lawsuits. Nonetheless, there are abuses by class counsel and the public perception is that some of those abuses are increasing. Rather than precipitously attacking the problem by restricting the availability of the class action device to consumers, the

Appx. B-10C

better practice is a combination of increased court scrutiny of class action settlements and heightened commitment on the part of class counsel to avoid even the appearance of abuse. The NACA guidelines and positions set forth in this paper are intended to give both bar and bench a reference point for aggressive yet responsible class action advocacy.

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Appendix C

Sample Authorization to Represent and Fee Agreement

C.1 Private Attorney Authorization to Represent1


AUTHORIZATION TO REPRESENT The undersigned hereby retains and authorizes [law firm] and any other lawyers they may find necessary to associate with them to investigate potential bases for suit and to represent the undersigned in a class action suit to be brought against [adverse party] with respect to my transactions with it. Defendants may include [adverse party] and any other persons and firms who the attorneys investigation leads them to believe may be liable to me. I understand that any fee for services to the undersigned or the class will be contingent upon effecting a recovery from the defendants, will be determined or authorized by the court, and will be payable solely from the defendants and/or any recovery obtained or protected for members of the class. All such fees belong to the attorneys and may not be waived by me. The attorneys will advance litigation expenses. I agree to cooperate in the prosecution of the litigation, including appearing at deposition and trial and producing documents and providing information. I understand that the attorneys will use their best efforts to achieve a favorable result, but do not guarantee what a court will do. I acknowledge that I have read this contract and received a copy for my reference. [Clients Name] [Address] [City] [State] [Zip] [Telephone number] Dated:

C.2 Private Attorney Fee Agreement2


CONTINGENT FEE AGREEMENT I, [clients name], hereby employ [law firm] to investigate and prosecute any claims I may have on account of my transactions with [adverse party]. Defendants may include [adverse party] and any other persons and firms who the attorneys investigation leads them to believe may be liable to me. As compensation for the attorneys legal services, I agree to pay them an amount equal to [percentage]% of any amounts that may be received by me or on my behalf, whether by suit, settlement or otherwise. Any sums that are credited to me by [adverse party], on my account with it, and any indebtedness which [adverse party] agrees not to collect from me as a result of the lawsuit, shall be treated as sums received by me. I further authorize the attorneys to incur reasonable and necessary expenses in the preparation and/or trial of my claim or lawsuit and agree to reimburse them in the actual amount of the costs and expenses so incurred. The attorneys will advance such expenses. Any expenses remaining unpaid at the time of a recovery will be deducted from the recovery prior to the 60-40 determination of the [percentage]% compensation for the attorneys legal services. The attorneys will also attempt to obtain an order from the court requiring the parties against whom suit will be filed to pay my attorneys fees and litigation expenses. If the case is settled, the attorneys will attempt to require the defendant to pay my attorneys fees and litigation expenses. All such sums belong to the attorneys. Any fees and expenses actually collected from a defendant will be credited against the portion of my recovery payable to the attorneys. The attorneys will attempt to proceed on behalf of others similarly situated with respect to my claim against [adverse party]. I agree to cooperate in the prosecution of the litigation, including appearing at deposition and trial and producing documents and providing information. I understand that the attorneys will use their best efforts to achieve a favorable result, but do not guarantee what a court will do.

1 This authorization is to be considered for use in conjunction with the Contingent Fee Agreement contained in Appendix C.2, infra.

2 This Contingent Fee Agreement is to be used in conjunction with the Authorization to Represent contained in Appendix C.1, supra.

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I understand that the attorneys have an enforceable lien for their fee on the amounts recovered by suit, settlement or otherwise. I acknowledge that I have read this contract and received a copy for my reference. [Clients Name] [Address] [City] [State] [Zip] [Telephone number] Dated:

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Appendix D

Sample Complaints

This appendix provides nine sample class action complaints. Additional examples of class action complaints (in print and on a WordPerfect disk) are included in National Consumer Law Center, Consumer Law Pleadings With Disk, Numbers One through Five. These sample complaints will be listed below by volume number, such as CLP#1 or CLP#2: 1 Case involving car dealers race discrimination against customers and rebate theft, CLP#3 3.6; 1 Creditors illegal practices in force placing automobile insurance, CLP#1 2.1, CLP#5 5.1; 1 Odometer rollbacks, CLP#1 3.1; 1 Complaint against bank that tried to avoid consumers defenses against car dealer, CLP#1 4.3; 1 Revolving repossession scam, CLP#3 9.3.1; 1 Automobile pawn case, CLP#3 4.3.1; 1 Warranty issues in automobile lease, CLP#1 9.1; 1 Campground membership case, CLP#1 6.1; 1 Rent-to-own case, CLP#4 11.1.1; 1 Home improvement financing scheme, CLP#4 1.1, 2.1.1; 1 Bankruptcy complaint objecting to secured claim and seeking enforcement of the TIL rescission remedy, CLP#1 8.2; 1 Uninhabitable mobile home park conditions, CLP#2 2.1.10; 1 Real estate broker fraud case, CLP#2 4.2.1; 1 Land installment sale case, CLP#3 10.1; 1 Nursing home quality of care case, CLP#4 3.1.1; 1 Infertility clinic misrepresentation, CLP#4 13.1; 1 Fair Debt Collection Practices Act case, CLP#3 3.1; 1 Collection agency litigation abuse case, CLP#2 11.2.1; 1 Student loan collection abuse, CLP#2 14.1; 1 Fraud by trade school and its officers, CLP#2 13.4 1 Complaint seeking declaration that loan is unenforceable because of school fraud, CLP#2 13.5; 1 Complaint against Department of Education for failing to provide false certification discharges, CLP#5 9.1.1; 1 Merchants illegal reaffirmation of debts discharged in bankruptcy, CLP#5 2.1.1; and 1 Tax agency filing baseless proof of claims in chapter 13 bankruptcies, CLP#3 7.2.1.

D.1 Federal Fair Debt Collection Case (Boddie)


IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION ) ) Plaintiff, ) ) v. ) ) LARRY CARSON; ) NATIONWIDE CASSEL, L.P.; ) and N.A.C. MANAGEMENT ) CORPORATION, ) Defendant. ) ) BRIAN BODDIE, COMPLAINTCLASS ACTION Brian Boddie (Boddie), suing on behalf of himself and all others similarly situated, complains as follows against Larry Carson (Carson), Nationwide Cassel, L.P. (Nationwide), and N.A.C. Management Corporation (NAC): INTRODUCTION 1. This is an action pursuant to the Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. 1692 et seq. JURISDICTION 2. This Court has jurisdiction under 15 U.S.C. 1692k(d) and 28 U.S.C. 1331. PARTIES 3. Plaintiff, Boddie, is a resident of Illinois and a consumer as defined by the FDCPA, 15 U.S.C. 1692a(3). 4. Defendant Carson is an attorney. Carson is engaged in the business of collecting consumer debts and regularly collects consumer debts. He is accordingly a debt collector as defined in the FDCPA, 15 U.S.C. 1692a(6). His usual office is located at [address], Chicago, Illinois. 5. Defendant Nationwide is a limited partnership which has its principal place of business at [address] Chicago, Illinois. Nationwide is engaged in the business of a sales finance

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CLASS ALLEGATIONS 18. This action is brought as a class action. Plaintiff tentatively defines the class as all persons who, during the one year prior to the filing of this complaint, were sent letters similar to Exhibit A [not attached herein]. Plaintiff may subsequently refine the class definition in light of discovery. 19. The class is so numerous that joinder of all members is impractical. On information and belief, letters similar to Exhibit A have been sent to hundreds of consumers. 20. There are questions of law and fact common to the class, which predominate over any questions affecting only individual class members. The principal question is whether defendants conduct in connection with the mailing of Exhibit A and similar letters to consumers violates the FDCPA. 21. There are no individual questions, other than whether a class member received one of the offending letters, which can be determined by ministerial inspection of defendants records. 22. Plaintiff will fairly and adequately protect the interests of the class. He is committed to vigorously litigating this matter. He is greatly annoyed at being the victim of defendants illegal practices and wishes to see that the wrong is remedied. To that end, he has retained counsel experienced in handling class claims and claims involving unlawful business practices. Neither plaintiff nor his counsel have any interests which might cause them not to vigorously pursue this claim. 23. Plaintiffs claim is typical of the claims of the class, which all arise from the same operative facts and are based on the same legal theories. 24. A class action is a superior method for the fair and efficient adjudication of this controversy. Most of the consumers who receive Exhibit A undoubtedly believe that they are receiving a letter from an attorney and have no knowledge that their rights are being violated by illegal collection practices. The interest of class members in individually controlling the prosecution of separate claims against defendant is small because the maximum damages in an individual action are $1,000. Management of this class claim is likely to present significantly fewer difficulties than those presented in many class claims, e.g., for securities fraud. COUNT I 25. Plaintiff incorporates kk124. 26. Carson violated 15 U.S.C. 1692e, 1692f, 1692g and 1692j by authorizing Nationwide to send the form of letter represented by Exhibit A [not attached herein]. 27. The use of Exhibit A violates 15 U.S.C. 1692e(3) and the general prohibition of false, misleading or deceptive representations in 15 U.S.C. 1692e, in that it makes the false representation or implication that it was sent by an attorney. 28. The use of Exhibit A violates the prohibition against unfair or unconscionable debt collection practices in 15 U.S.C. 1692f, in that it is calculated to intimidate consumers into paying Nationwide by making them believe that an attorney is about to sue them. 29. The use of Exhibit A violates 15 U.S.C. 1692g, which requires that a debt collector give a consumer 30 days in which to dispute or request validation of a debt, in that it purports to demand a response within five days in order to avoid legal action.

agency. Nationwide purchases motor vehicle retail installment contracts from car dealers and enforces the contracts against consumers. 6. Nationwide is subject to the FDCPA because, as described below, it is a creditor, who, in the process of collecting [its] own debts, uses any name other than [its] own which would indicate that a third person is collecting or attempting to collect such debts. 15 U.S.C. 1692a(6). 7. NAC is an Illinois corporation with its principal place of business located at [same address as Nationwide], Chicago, Illinois. NAC is a general partner of Nationwide and, on information and belief, based on filings with the Department of Financial Institutions, owns 1% of Nationwide. As the general partner, it is vicariously liable for all conduct of Nationwide Cassel. FACTS 8. During 1993, defendants have engaged in acts and practices in violation of the FDCPA in collection activity with respect to Boddies alleged personal debt to Nationwide, and with respect to the personal debts of other consumers similarly situated. 9. On or about May 5, 1993, Nationwide sent to Boddie, via the United States Mails, the letter attached hereto as Exhibit A [not attached herein]. The letter was apparently on the letterhead of defendant Carson, but did not include Carsons actual office address or telephone number. Said letter included a rubber-stamp signature of Larry Carsons administrative assistant, purportedly named Mr. Stone. 10. Exhibit A is a printed form letter which is regularly sent to large numbers of consumers on accounts of Nationwide. 11. Neither Carson nor his administrative assistant personally signed said letter; a mechanical impression was prepared which created the signature. 12. Neither defendant Carson nor anyone employed as his office staff personally prepared, signed or mailed the preprinted form letters in the form exemplified by Exhibit A. A call placed to Mr. Stone at Carsons office at [address], Chicago, Illinois, was answered with the response that Carson did not employ any such administrative assistant. 13. The address and telephone number on Exhibit A is that of Nationwide and NAC. Calls placed to Carson at the number given on Exhibit A are met with the response that Carson is out of the office, or in court. 14. Exhibit A contains the number of Nationwides file relating to Boddie, above his name. 15. Employees of Nationwide prepare and mail letters in the form represented by Exhibit A bearing a rubber-stamp signature of Larry Carsons administrative assistant, purportedly named Mr. Stone. 16. Carson approved the preprinted form letter and authorized Nationwide and NAC to imprint the rubber-stamp signature of his administrative assistant, purportedly named Mr. Stone, on Exhibit A. On information and belief, Carson did not review the file of Boddie or other consumers to whom letters in the form represented by Exhibit A were sent. 17. Because the address on Exhibit A is that of Nationwide, Nationwide receives any payments sent by a consumer in response to a letter in the form represented by Exhibit A.

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30. Carson violated 15 U.S.C. 1692j by authorizing the use of Exhibit A. Section 1692j makes it unlawful to design, compile, and furnish any form knowing that such form would be used to create the false belief in a consumer that a person other than the creditor of such consumer is participating in the collection of or in an attempt to collect a debt such consumer allegedly owes such creditor, when in fact such person is not so participating. The purpose and effect of Exhibit A is to create the false belief in consumers who receive it that Carson is attempting to collect their alleged debts, when Carson is not in fact so participating. WHEREFORE, plaintiff requests that the Court grant the following relief in his favor and in favor of the class and against defendant Carson: a. The maximum amount of statutory damages provided under 15 U.S.C. 1692k. b. Attorneys fees, litigation expenses and costs. c. Such other and further relief as is appropriate. COUNT II 31. Plaintiff incorporates kk124. 32. Nationwide, by sending consumers letters in the form represented by Exhibit A [not attached herein], is a creditor, who, in the process of collecting [its] own debts, uses any name other than [its] own which would indicate that a third person [Carson] is collecting or attempting to collect such debts. 15 U.S.C. 1692a(6). 33. Nationwide violated 15 U.S.C. 1692e, 1692f and 1692g by sending consumers the form of letter represented by Exhibit A. 34. The use of Exhibit A violates 15 U.S.C. 1692e(3) and the general prohibition of false, misleading or deceptive representations in 15 U.S.C. 1692e, in that it makes the false representation or implication that it was sent by an attorney. 35. The use of Exhibit A violates the prohibition against unfair or unconscionable debt collection practices in 15 U.S.C. 1692f, in that it is calculated to intimidate consumers into paying Nationwide by making them believe that an attorney is about to sue them. 36. The use of Exhibit A violates 15 U.S.C. 1692g, which requires that a debt collector give a consumer 30 days in which to dispute or request validation of a debt, in that it purports to demand a response within five days in order to avoid legal action. 37. NAC is liable for all conduct of Nationwide. WHEREFORE, plaintiff requests that the Court grant the following relief in his favor and in favor of the class and against defendants Nationwide and NAC: a. The maximum amount of statutory damages provided under 15 U.S.C. 1692k. b. Attorneys fees, litigation expenses and costs. c. Such other and further relief as is appropriate. [Attorney] JURY DEMAND Plaintiff demands trial by jury. [Attorney]

Appx. D.2

D.2 TIL Rescission and Deceptive Practices CaseHome Improvement Contract (Mount)
IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION MATTHEW MOUNT, LESLIE MOUNT, JOSEPH HEARD, MICHAEL McMURTRY, JR., LAURA McMURTRY, AMY CRONK and ADAM KLEINFELDER, Plaintiffs, v. LASALLE BANK LAKE VIEW, ) ) ) ) ) ) ) ) ) ) ) ) ) Defendant. ) )

THIRD AMENDED COMPLAINT Plaintiffs, Matthew Mount, Leslie Mount (Mr. and Mrs. Mount), Joseph Heard (Mr. Heard), Michael McMurtry, Jr., Laura McMurtry (Mr. and Mrs. McMurtry), Amy Cronk (Ms. Cronk) and Adam Kleinfelder (Mr. Kleinfelder), suing on behalf of themselves and all others similarly situated, complain as follows against defendant LaSalle Bank Lake View (Lake View Bank). INTRODUCTION 1. This action seeks redress for deceptive practices committed by Lake View Bank in connection with the financing of home improvement transactions. Plaintiffs allege that Lake View Bank, operating in conjunction with home improvement contractors (dealers), arranges for the dealers to procure consumers signatures on purportedly binding contracts, which contain clauses authorizing penalties for cancellation and for default judgment, and then, after the consumers are no longer at liberty to cancel those contracts, presents them with onerous financing terms. Plaintiffs allege, on behalf of themselves and a class of others similarly situated, that this practice violates the Truth in Lending Act (TILA), 15 U.S.C. 1601 et seq. (Count I), and the Illinois Consumer Fraud Act (CFA), Ill.Rev.Stats., ch. 121-1/2, k262 (Count II), and amounts to common law fraud (Count III). Plaintiffs also assert an individual claim for defective construction work (Count IV). JURISDICTION AND VENUE 2. This Court has subject matter jurisdiction over Count I pursuant to 15 U.S.C. 1640 and supplemental jurisdiction pursuant 28 U.S.C. 1367 over Counts II, III and IV. Venue in this district is proper because all parties are located here and the transactions complained of took place here.

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PARTIES told Mr. and Mrs. Mount that they had to sign Exhibit B because Budget had already commenced performance of the work, the terms in Exhibit B were the only ones Lake View Bank would offer, and if they did not sign Exhibit B, they would have to pay Budget cash for the work. Mr. and Mrs. Mount thereupon signed Exhibit B. 19. Lake View Bank was aware of the existence of Exhibit A and the discrepancy in terms between Exhibits A and B, both because of the conversation described above, and because Exhibit B is incomplete on its face and incorporates Exhibit A by reference. 20. Lake View Bank did not approve Mr. and Mrs. Mounts credit until on or about February 12, 1991. On or about that date, Mr. and Mrs. Mount received a printed form document notifying them that Lake View Bank had approved their credit. Exhibit C, attached [not attached herein], is a true and accurate copy of this document. 21. Exhibit B is written on a standard form supplied and/or approved by Lake View Bank. 22. Exhibit B is initially payable to Budget. Budget assigned the contract to Lake View Bank shortly after it was executed. Mr. and Mrs. Mount were advised that Exhibit B had been assigned to Lake View Bank, were furnished payment books instructing them to make payments to Lake View Bank, and made payments to Lake View Bank. 23. Under the terms of Exhibit B, Lake View Bank remains subject to claims and defenses that Mr. and Mrs. Mount have against Budget: NOTICE: ANY HOLDER OF THIS CONSUMER CREDIT CONTRACT IS SUBJECT TO ALL CL AIMS AND DEFENSES WHICH THE DEBTOR COULD ASSERT AGAINST THE SELLER OF GOODS AND SERVICES OBTAINED PURSUANT HERETO OR WITH THE PROCEEDS HEREOF. RECOVERY HEREUNDER BY THE DEBTOR SHALL NOT EXCEED AMOUNTS PAID BY THE DEBTORS HEREUNDER. This statement is required to be included in all retail installment contracts purchased by Lake View Bank by the Federal Trade Commission regulation abrogating the holder in due course rule in most consumer transactions, 16 C.F.R. part 433. On information and belief, it is in fact included in all such contracts purchased by Lake View Bank. 24. The work performed by Budget Construction Company was shoddy and grossly defective, in the following respects among others: a. The foundation for the addition was laid in a defective and unworkmanlike manner and does not conform to minimum FHA standards. Additionally, it is not bonded to the existing foundation in accordance with accepted construction industry standards. b. The crawl space under the new addition has no ventilation, as required by FHA standards, and has a lower vertical clearance than required by FHA standards. This condition will inevitably result in the wood used in the addition rotting.

3. Mr. and Mrs. Mount own and reside in a home at [address], Chicago, Illinois. 4. Mr. Heard owns and resides in a home at [address], Chicago, Illinois. 5. Mr. and Mrs. McMurtry own and reside in a home at [address], Chicago, Illinois. 6. Ms. Cronk owns and resides in a home at [address], Oak Park, Illinois. 7. Mr. Kleinfelder owns and resides in a home at [address], McHenry, Illinois. 8. Lake View Bank is a banking corporation with its principal place of business located at [address], Chicago, Illinois. FACTS RELATING TO MR. AND MRS. MOUNT 9. Among other things, Lake View Bank purchases consumer credit obligations generated by home improvement contractors (dealers), including but not limited to Budget Construction Company (Budget). 10. In 1990, Mr. and Mrs. Mount purchased home improvement goods and services from Budget, involving the construction of an addition to their home. 11. In connection with this transaction, Mr. and Mrs. Mount signed a contract on a standard printed form used by Budget, of which Exhibit A [not attached herein] is a true and accurate copy. 12. Mr. and Mrs. Mount did not have the funds necessary to pay for the home improvement goods and services in cash. Budget knew they did not have the funds. Accordingly, Budget took a credit application from Mr. and Mrs. Mount. Budget also included financing terms on Exhibit A. 13. Specifically, Budget provided in Exhibit A that Mr. and Mrs. Mount would receive an FHA Title I loan in the amount of $17,500, with an annual percentage rate of 14.0%, and monthly payments of $273.21 for 120 months. Although not stated in Exhibit A, this is a total of $32,785.20. In addition, they would pay Budget a principal amount of $8,500 in 36 monthly payments of $292.11 each. Although not stated in Exhibit A, this is a total of $10,515.96. The combined total of payments provided for in Exhibit A was thus $43,301.16. 14. Budget thereupon proceeded to commence performance of the home improvements. 15. After Budget had begun the work, Mr. and Mrs. Mount were presented with and signed the agreement attached as Exhibit B [not attached herein] to this complaint. They also signed a mortgage or trust deed on their home. 16. Exhibit B provides for an annual percentage rate of 16.0%, an amount financed of $29,550, finance charges of $30,220.80, and 120 monthly payments of $498.09 each, totalling $59,770.80. 17. The total payment obligation under Exhibit B, presented to Mr. and Mrs. Mount after Budget had begun the work, is thus more than $16,000 higher than the total payment obligation was represented to be prior to the time Budget began the work, under Exhibit A. 18. Mr. and Mrs. Mount informed a representative of Lake View Bank, who visited them at their home, that they objected to the terms of Exhibit B because it was more expensive than Exhibit A. The representative of Lake View Bank

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c. The girder support running down the center of the addition is unsafe and fails to conform to accepted construction industry standards, building codes, and FHA standards. Budget should have used a girder over twice as strong as that it actually used. d. Budget used shingles to cover a roof which does not have sufficient slope to permit the use of shingles as covering material. Under accepted construction industry standards, shingles should not be used on a roof which is flat or has a minimal slope because water will collect and leak through the shingles. A more impermeable material (such as tar) should have been used for Mr. and Mrs. Mounts roof. e. Both the heating and air conditioning systems are inadequate and improperly installed. f. Workmanship and finishes are executed poorly throughout. g. The concrete sidewalk installed by Budget was not trowelled and has a very rough surface. h. The construction site was improperly graded and the gutters leak, causing a serious flooding problem. i. The gutters do not connect to the sewer as required by the Chicago Building Code. j. The ceramic tile in the second floor bathroom was improperly installed, and the grout has already begun to crack. 25. Mr. and Mrs. Mount complained to Budget about the defective character of the work. Budget has failed and refused to correct the problems. Some of the problems cannot be corrected without very substantial work. 26. The indebtedness or obligation represented by Exhibit B is still outstanding. 27. Mr. and Mrs. Mount have given notice to Lake View Bank that they elect to rescind their transaction (Exhibit D, attached) [not attached herein], and again give notice by means of this complaint. Mr. and Mrs. Mount are continuing to pay their purported obligation under protest. FACTS RELATING TO MR. HEARD 28. Among other things, Lake View Bank purchases consumer credit obligations generated by home improvement contractors (dealers), including but not limited to Paul Construction Company (Paul). 29. In 1988, Mr. Heard purchased home improvement goods and services from Paul, involving the construction of a new porch with six steps and new gutters and downspouts to his home. 30. In connection with this transaction, Mr. Heard signed a contract on a standard printed form used by Paul, of which Exhibit E [not attached herein] is a true and accurate copy. 31. Mr. Heard did not have the funds necessary to pay for the home improvement goods and services in cash. Paul knew he did not have the funds. Accordingly, Paul took a credit application from Mr. Heard. Paul also included financing terms on Exhibit E. 32. Specifically, Paul provided in Exhibit E that Mr. Mount would be provided:

Appx. D.2
Finance to be obtained for owner (customer) at the best rate available not to exceed payments of $123.98 a month for 48 months. The loan amount of $4,200 was to be paid in monthly payments of $123.98 for 48 months. Although not stated in Exhibit E, this is a total of $5,951.04. 33. Exhibit E also contains the clause: To secure payment hereof, Buyer(s) jointly and severally, irrevocably authorize any attorney of any court of record to appear for any one or more of them in such court in term time or vacation after default in payment hereof and confess a judgment without process in favor of the holder hereof for such amount as may then appear unpaid hereon, together with costs and reasonable attorneys fees and to waive and release all errors which may intervene in any such proceeding and consents to an immediate execution upon such judgment hereby ratifying every act of such attorney hereunder. 34. The Federal Trade Commissions Credit Practices Rule, 16 C.F.R. 444.2, states: (a) In connection with the extension of credit to consumers in or affecting commerce, as defined in the Federal Trade Commission Act, it is an unlawful act or practice within the meaning of Section 5 of the Act for a lender or retail installment seller directly or indirectly to take or receive from a consumer an obligation that: (1) Constitutes or contains a cognovit or confession of judgment (for purposes other than executory process in the State of Louisiana), warrant of attorney, or other waiver of the right to notice and the opportunity to be heard in the event of suit or process thereon. 35. Paul thereupon proceeded to commence performance of the home improvements. 36. Mr. Heard was then presented with and signed the agreement attached as Exhibit F [not attached herein] to this complaint. He also signed a mortgage or trust deed on his home. 37. Exhibit F provides for an annual percentage rate of 15.0%, an amount financed of $4,200.00, finance charges of $1,898.40, and 60 monthly payments of $101.64 each, totalling $6,098.40. 38. The total payment obligation under Exhibit F is thus $147.36 higher than the total payment obligation was represented to be prior to the time Paul began the work, under Exhibit E. 39. Lake View Bank was aware of the existence of Exhibit E, and the confession of judgment clause contained therein, and the discrepancy in terms between Exhibits E and F, because Exhibit F incorporates Exhibit E by reference. 40. Exhibit F is written on a standard form supplied and/or approved by Lake View Bank. 41. Exhibit F is initially payable to Paul. Paul assigned the contract to Lake View Bank shortly after it was executed. Mr.

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49. The Truth In Lending Act, 15 U.S.C. 1635(a), provides: in the case of any consumer credit transaction . . . in which a security interest, including any such interest arising by operation of law, is or will be retained or acquired in any property which is used as the principal dwelling of the person to whom credit is extended, the obligor shall have the right to rescind the transaction until midnight of the third business day following the consummation of the transaction or the delivery of the information and rescission forms required under this section together with a statement containing the material disclosures required under this title, whichever is later, by notifying the creditor, in accordance with the regulations of the Board, of his intention to do so. 50. 1st Choice thereupon proceeded to commence performance of the home improvements. 51. Mr. and Mrs. McMurtry were then presented with and signed the agreement attached as Exhibit H [not attached herein] to this complaint. They also signed a mortgage or trust deed on their home. 52. Lake View Bank was aware of the existence of Exhibit G, and the 50% penalty for cancellation contained therein. 53. Exhibit H is written on a standard form supplied and/or approved by Lake View Bank. 54. Exhibit H is initially payable to 1st Choice. 1st Choice assigned the contract to Lake View Bank shortly after it was executed. Mr. and Mrs. McMurtry was advised that Exhibit H had been assigned to Lake View Bank, were furnished payment books instructing them to make payments to Lake View Bank, and made payments to Lake View Bank. 55. Under the terms of Exhibit H, Lake View Bank remains subject to claims and defenses that Mr. and Mrs. McMurtry has against 1st Choice: NOTICE: ANY HOLDER OF THIS CONSUMER CREDIT CONTRACT IS SUBJECT TO ALL CL AIMS AND DEFENSES WHICH THE DEBTOR COULD ASSERT AGAINST THE SELLER OF GOODS AND SERVICES OBTAINED PURSUANT HERETO OR WITH THE PROCEEDS HEREOF. RECOVERY HEREUNDER BY THE DEBTOR SHALL NOT EXCEED AMOUNTS PAID BY THE DEBTORS HEREUNDER. This statement is required to be included in all retail installment contracts purchased by Lake View Bank by the Federal Trade Commission regulation abrogating the holder in due course rule in most consumer transactions, 16 C.F.R. part 433. On information and belief, it is in fact included in all such contracts purchased by Lake View Bank. 56. The work performed by 1st Choice Remodeling Company was shoddy and grossly defective, in the following respects among others: a. the concrete was improperly poured and put down; b. the basement supports were glued into place rather than being properly installed;

Heard was advised that Exhibit F had been assigned to Lake View Bank, he was furnished payment books instructing him to make payments to Lake View Bank, and he made payments to Lake View Bank. 42. Under the terms of Exhibit F, Lake View Bank remains subject to claims and defenses that Mr. Heard has against Paul: NOTICE: ANY HOLDER OF THIS CONSUMER CREDIT CONTRACT IS SUBJECT TO ALL CL AIMS AND DEFENSES WHICH THE DEBTOR COULD ASSERT AGAINST THE SELLER OF GOODS AND SERVICES OBTAINED PURSUANT HERETO OR WITH THE PROCEEDS HEREOF. RECOVERY HEREUNDER BY THE DEBTOR SHALL NOT EXCEED AMOUNTS PAID BY THE DEBTORS HEREUNDER. This statement is required to be included in all retail installment contracts purchased by Lake View Bank by the Federal Trade Commission regulation abrogating the holder in due course rule in most consumer transactions, 16 C.F.R. part 433. On information and belief, it is in fact included in all such contracts purchased by Lake View Bank. FACTS RELATING TO MR. AND MRS. MCMURTRY 43. Among other things, Lake View Bank purchases consumer credit obligations generated by home improvement contractors (dealers), including but not limited to 1st Choice Remodeling Company (1st Choice). 44. In 1988, Mr. and Mrs. McMurtry purchased home improvement goods and services from 1st Choice, involving the installation of new roofing, sidewalk and walkway, tuck point chimney, etc. to their home. 45. In connection with this transaction, Mr. and Mrs. McMurtry signed a contract on a standard printed form used by 1st Choice, of which Exhibit G [not attached herein] is a true and accurate copy. 46. Mr. and Mrs. McMurtry did not have the funds necessary to pay for the home improvement goods and services in cash. 1st Choice knew they did not have the funds. Accordingly, 1st Choice took a credit application from Mr. and Mrs. McMurtry. 1st Choice also included financing terms on Exhibit G. 47. Specifically, 1st Choice provided in Exhibit G that Mr. and Mrs. McMurtry would be provided financing. The loan amount of $17,650 was limited to monthly payments of $307.65 for 120 months. Although not stated in Exhibit G, this is a total of $36,918.00. 48. Exhibit G also contains the clause: The undersigned property owner agrees if this contract is cancelled by him or them for any reason whatsoever to pay the contractor a sum of money equal to fifty per cent of the contract price herein agreed or contractor may at its option sue for the total of the contract price and render the Materials to be paid as fixed and liquidated damages without further proof of loss.

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c. the materials used were of an inferior quality; d. the wiring was not installed as promised. 57. The indebtedness or obligation represented by Exhibit H is still outstanding. FACTS RELATING TO MS. CRONK 58. Among other things, Lake View Bank purchases consumer credit obligations generated by home improvement contractors (dealers), including but not limited to 1st American Builders of Chicago, Inc. (1st American). 59. In 1990, Ms. Cronk purchased home improvement goods and services from 1st American, involving rebuilding the front porch and installing aluminum siding around the entire house. 60. In connection with this transaction, Ms. Cronk signed a contract on a standard printed form used by 1st American, Exhibit I, attached [not attached herein]. (Exhibit I is the Affidavit of Amy Cronk) 61. Exhibit I states: If I terminate this contract before work is started, I will pay you ten (10%) percent of the case price as liquidated damages and not as penalty. If I terminate this contract after work is started, I will pay you that portion of the case price equal to the portion of the work completed, plus all change orders completed, plus a sum equal to 25% of the cash price as liquidated damages and not as penalty. 62. Ms. Cronk did not have the funds necessary to pay for the home improvement goods and services in cash. 1st American knew she did not have the funds. 1st American supplied Ms. Cronk with the phone number of someone to call regarding financing, who Ms. Cronk called. 63. As a result of this referral, on October 3, 1990, Ms. Cronk signed the agreement attached as Exhibit I. She also signed a mortgage or trust deed on her home. 64. Ms. Cronk was advised that Exhibit I had been assigned to Lake View Bank. Ms. Cronk was given payment books and made payments to Lake View Bank. 65. Exhibit I provides for an annual percentage rate of 16.50%, an amount financed of $7,750.00, finance charges of $5,450.00, and 84 monthly payments of $157.15 each, totalling $13,200.00. FACTS RELATING TO MR. KLEINFELDER 66. Among other things, Lake View Bank purchases consumer credit obligations generated by home improvement contractors (dealers), including but not limited to Northern Illinois Vinyl Dist. (Northern). 67. In 1992, Mr. Kleinfelder purchased home improvement goods and services from Northern, involving the complete residing of his house, installation of new dryer vent and replacing crawl space vents. 68. In connection with this transaction, Mr. Kleinfelder signed a standard printed form used by Northern, of which Exhibit J [not attached herein] is a true and accurate copy. 69. Mr. Kleinfelder did not have the funds necessary to pay for the home improvement goods and services in cash. Northern knew he did not have the funds. Accordingly, Northern took a credit application from Mr. Kleinfelder.

Appx. D.2
70. Exhibit J stated that the price of the job was $5,955.00. Mr. Kleinfelder paid a downpayment of $1,955, leaving a balance of $4,000.00. 71. The $4,000.00 balance due Northern was to be paid in monthly payments of $110.94 for 48 months. Although not stated in Exhibit J, this is a total of $5,325.12. 72. Exhibit J contains the clause: If suit is required in order to secure payment, I agree to pay all collection costs, reasonable attorney fees, 18% interest until date of payment and waive all rights to claim exemption under the state laws. 73. Mr. Kleinfelder was later presented with and signed a retail installment contract, attached as Exhibit K [not attached herein]. 74. Exhibit K provides for the annual percentage rate of 14.0%, an amount financed of $4,000.00, finance charges of $1,275.68, 48 monthly payments of $109.91 each, including the downpayment of $1,955.00, totalling $7,230.68. 75. The total payment obligation under Exhibit K is thus $1,905.56 higher that the total payment obligation represented to be, prior to the time Northern began the work, under Exhibit J. 76. Exhibit K is written on a standard form supplied and/or approve by Lake View Bank. 77. Exhibit K is initially payable to Northern. Northern assigned the contract to Lake View Bank shortly after it was executed. Mr. Kleinfelder was advised that Exhibit K had been assigned to Lake View Bank, was furnished with payment books instructing him to make payments to Lake View Bank. 78. Under the terms of Exhibit K, Lake View Bank remains subject to claims and defenses that Mr. Kleinfelder has against Northern: NOTICE: ANY HOLDER OF THIS CONSUMER CREDIT CONTRACT IS SUBJECT TO ALL CL AIMS AND DEFENSES WHICH THE DEBTOR COULD ASSERT AGAINST THE SELLER OF GOODS AND SERVICES OBTAINED PURSUANT HERETO OR WITH THE PROCEEDS HEREOF. RECOVERY HEREUNDER BY THE DEBTOR SHALL NOT EXCEED AMOUNTS PAID BY THE DEBTORS HEREUNDER. This statement is required to be included in all retail installment contracts purchased by Lake View Bank by the Federal Trade Commission regulation abrogating the holder in due course rule in most consumer transactions, 16 C.F.R. part 433. On information and belief, it is in fact, included in all such contracts purchased by Lake View Bank. POLICY AND PRACTICE OF INTERFERING WITH RESCISSION RIGHTS 79. Under both federal and state law, a consumer who signs a home improvement contract has three business days after

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PURPOSE AND EFFECT OF PRACTICE 86. The purpose and effect of the practices set forth above was as follows: a. Consumers were locked into credit transactions before they learned the actual credit terms, or could evaluate the terms offered through other sources, or exercise their rescission rights in an informed manner. b. Free negotiations concerning credit terms were successfully precluded or inhibited. c. The cost of credit to the consumers was increased. The annual percentage rate charged to the average consumer was inflated by at least several percentage points. AGGRAVATING CIRCUMSTANCES 87. Not only were consumers induced to sign purportedly binding contracts prior to disclosure of the actual financing terms, but in many cases the consumers were promised financing and security terms other than those ultimately approved (i.e., a lower interest rate or more attractive payment structure was promised). For example, Mr. and Mrs. Mount were effectively switched from a 14% loan to a 16% loan, and their total payment obligation was increased by more than $16,000. 88. In other cases, the initial contracts would provide for oppressive termination penalties in the event the consumer attempted to cancel. For example, Mr. and Mrs. McMurtry were required by the contract to pay 50% of the contract price if they cancelled at any time. Confession of judgment provisions, such as that in Mr. Heards contract, waived the consumers defenses and right to redress. These penalties have been ruled unenforceable and illegal by the Federal Trade Commission since the 1970s, but are nevertheless included in contracts for the purpose of deceiving and intimidating unknowing consumers. 89. In some cases, such as that involving Mr. and Mrs. Mount, the dealer would commence work prior to the presentation of the final financing terms. This practice is known as spiking in the home improvement business. IDENTIFICATION OF AFFECTED TRANSACTIONS 90. The employment of the overall unlawful practice in a given instance can be identified by the fact that the credit check and credit approval in the Lake View Bank file are dated subsequent to the date of the original contract (such as Exhibit A signed by Mr. and Mrs. Mount). Sometimes other documents show this as well. The inclusion of illegal cancellation charges can be determined by inspection of the initial contract between the home improvement dealer and the consumer. OTHER VICTIMS 91. During the spring of 1987, Patricia Murphy, of [address], Chicago, Illinois, was induced to sign a home improvement contract by a dealer known as Chicago Lumber & Construction Co., since put out of business as a result of legal action by the Attorney General of Illinois. The contract contained substantial cancellation charges. Chicago Lumber thereafter pre-

the transaction is concluded and all terms are disclosed to reconsider and cancel the transaction, without obligation. This right is conferred by: a. Section 125 of the federal Truth in Lending Act, 15 U.S.C. 1635 (TILA), if the transaction involves an extension of credit secured by the consumers residence that is to be paid for in more than four installments. b. The FTC Home Solicitation Sales Regulation, 16 C.F.R. part 429, with respect to any contracts not covered by TILA. c. Section 2B of the Consumer Fraud Act, Ill.Rev.Stats., ch. 121-1/2, 262B, with respect to contracts with Illinois residents not covered by TILA that involve a sale of merchandise involving $25 or more . . . to a consumer as a result of or in connection with a persons contact with or call on the consumer. Merchandise is defined in Ill.Rev.Stats., ch. 121-1/2, k261 to include any objects, wares, goods, commodities, intangibles . . . or services, and includes home improvement transactions. 80. In each case, the consumer must be furnished with a written notice stating that he or she has until a specified time in which to reconsider and cancel the transaction, without obligation. The three days are to commence when a binding agreement, including the financing terms, is entered into. 81. In each case, the right to cancel is absolute. The seller is not entitled to charge any amount if the consumer exercises his or her right to cancel. 82. Lake View Bank and its dealers, acting in concert, would, as a regular practice, and using forms approved or promulgated by Lake View Bank, induce consumers to enter into binding obligations without complying with this requirement. Lake View Bank would have the dealers secure the consumers signatures on purportedly binding contracts, such as Exhibits A, B, and C, prior to finalization and approval of the credit terms. 83. The consumers would be informed that they had three days from the date of the purportedly binding obligation in which to cancel the home improvement contract, rather than three days from the later date on which all of the terms of the transaction, including financing, were finalized and approved. The effect of this is that the consumers were obligated to proceed with the home improvement purchase prior to disclosure of the actual financing terms. 84. Contracts which contained penalty clauses and confession of judgment provisions intimidated consumers and inhibited them from exercising their right to cancel or dispute those contracts. 85. The practice complained of effectively deprived the consumer of the right, afforded by state and federal law, to three business days in which to reconsider and cancel the entire transaction after its consummation. At the time the consumer was bound to the home improvement purchase (when Mr. and Mrs. Mount signed Exhibit A), he or she had not yet received disclosures of the final financing terms. When the financing terms were finalized and approved, the existence of the purported obligation to purchase the home improvements effectively prevented the consumer from canceling.

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sented Murphy with a retail installment contract and mortgage on forms approved or prepared by Lake View Bank. 92. In the spring of 1987, Mildred Dennis and two relatives, of [address], Chicago, Illinois, were induced to sign a home improvement contract by dealer known as House of Beauty Builders. Thereafter, they were presented with and signed a retail installment contract and mortgage on forms approved or prepared by Lake View Bank. LIABILITY OF LAKE VIEW BANK 93. Lake View Bank was aware of the practice complained of, and frequently had the initial contracts (of which Exhibits A, C, and E are representative) in its files. Lake View Bank also became aware of the practice complained of and the existence and nature of the initial contracts as a result of prior litigation. Notwithstanding its knowledge, Lake View Bank permitted the practice to continue. 94. In addition, and irrespective of its knowledge, Lake View Bank is subject to any claims and defenses that consumers, such as Mr. and Mrs. Mount, Mr. Heard, and Mr. and Mrs. McMurtry, had against the home improvement dealers, such as Budget, Paul and 1st Choice, by virtue of the language required to be included in each retail installment contract by the Federal Trade Commission regulation abrogating the holder in due course doctrine with respect to consumer transactions, 16 C.F.R. part 433. CLASS ALLEGATIONS 95. This action is brought on behalf of a class of all other persons injured by the conduct complained of. The class consists of all persons who satisfy the following criteria: a. They signed a contract with a home improvement contractor. b. They also signed a retail installment obligation that was purchased by Lake View Bank, directly or indirectly. c. The date on the contract with the home improvement contractor is earlier than the date of credit approval by Lake View Bank. d. The obligation to Lake View Bank is secured by real estate. e. The address of the real estate securing the obligation is the same as the consumers residence, as shown by the transaction file. 96. The class includes persons who signed contracts within three years next before the filing of this action, for purposes of Count I, persons whose contracts were outstanding at any time within three years next before the filing of this action, for purposes of Count II, and persons whose contracts were outstanding at any time within five years next before the filing of this action, for purposes of Count III. 97. Plaintiffs allege, on information and belief, that the class is so numerous that joinder of all members is impractical. This allegation is based on the facts that Lake View Bank conducts an extensive home improvement financing business and that the practice complained of took place at least as early as 1987 and continues to the present.

Appx. D.2
98. There are questions of law and fact common to the class, which questions predominate over any questions affecting only individual members. The principal common issues are: a. Whether Lake View Bank engaged in the practice alleged. b. Whether the practice alleged effectively circumvents and negates the consumers right to rescind, in violation of TILA. c. Whether the practice alleged is unfair and deceptive. 99. Plaintiffs claims are typical of those of the class. All are based on the same legal and factual theories. 100. Plaintiffs will fairly and adequately protect the interests of the class. They have suffered substantial pecuniary injury from the practices complained of. They have retained counsel experienced in handling class actions and actions involving unlawful business practices. Neither plaintiffs nor their counsel have any interests which might cause them not to vigorously pursue this claim. 101. Certification of a class under Fed.R.Civ.P. 23(b)(2) is appropriate, in that defendant has acted uniformly with respect to the class, and appropriate relief includes a declaration that each class member is entitled to rescind his or her transaction if he or she so elects and an injunction requiring defendant to permit such rescissions. 102. Certification of a class under Fed.R.Civ.P. 23(b)(3) is also appropriate, in that: a. Common questions predominate over any individual questions. b. A class action is superior for the fair and efficient adjudication of this controversy. The individual class members are likely to be unaware of their rights and are not in a position to commence individual litigation against Lake View Bank. This action is substantially similar to one certified as a class action in Heastie v. Community Bank of Greater Peoria, 125 F.R.D. 669 (N.D.Ill. 1989). Plaintiffs are represented by the same counsel as represented the class in that case. COUNT ITILA 103. Plaintiffs, Mr. and Mrs. Mount, Ms. Cronk and Mr. Kleinfelder, incorporate kk1102. 104. Defendant is engaged in the business of consumer lending and regularly extends credit to consumers in exchange for finance charges, or which is repayable in more than four installments. Defendant is therefore a creditor within the meaning of TILA. 105. Plaintiffs, Mr. and Mrs. Mount, Ms. Cronk and Mr. Kleinfelder, transactions were an extension of consumer credit by a creditor subject to TILA. 106. The class members transactions are also extensions of consumer credit by a creditor subject to TILA. 107. Since each of the transactions involved the creation of a security interest in the consumers residence other than for purposes of purchasing or constructing that residence, it was also subject to the rescission provisions of TILA, 15 U.S.C. 1635. 108. The right to rescind is fully enforceable against defendant by the terms of the retail installment contracts and by virtue of 15 U.S.C. 1641.

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were included in the contract, class members were inhibited from exercising their right of rescission. WHEREFORE, plaintiffs request that the Court enter judgment in their favor and in favor of the class members and against defendant as follows: a. For a declaration that each of the plaintiffs and class members has a continuing right to rescind his or her transaction. b. Providing a procedure for allowing the class members to exercise that right. c. For any further orders necessary to effectuate the rescission of transactions by class members so electing. d. For a declaration that the penalty clauses and confession of judgment provisions are illegal and for an injunction enjoining the enforcement of such clauses and provisions. e. For compensatory damages. f. For punitive damages sufficient to deter further unlawful conduct by defendant. g. For attorneys fees, litigation expenses and costs. h. For such other or further relief as the Court deems appropriate. COUNT IIICLASS CLAIM FOR COMMON LAW FRAUD 120. Plaintiffs, Mr. and Mrs. Mount, Joseph Heard, Mr. and Mrs. McMurtry, Ms. Cronk and Mr. Kleinfelder, incorporate kk1102 by reference. 121. The statements concerning the dates by which cancellation rights had to be exercised were statements of material fact, as the rescission rights of plaintiffs and the class members were dependent on them. 122. The statements concerning the dates on which the contracts were signed and the dates by which cancellation rights had to be exercised were signed were false. 123. Lake View Bank had a practice of causing or permitting dealers to misstate the date by which rescission rights had to be exercised. 124. Lake View Bank caused the false statements concerning the dates by which cancellation rights had to be exercised to be made intentionally and with full knowledge that the dates were not correct. 125. Lake View Bank caused the false statements concerning the dates by which cancellation rights had to be exercised to be made in order to induce plaintiffs to rely on the incorrect dates and not exercise their rescission rights. 126. The plaintiffs and class members acted in reliance on the false statements concerning the dates by which cancellation rights had to be exercised when they did not exercise their rescission rights. 127. The plaintiffs and class members suffered pecuniary injury as a result of the false statements which deprived them of their rescission rights. 128. The contract clauses or provisions imposing a penalty for cancellation of the contract and/or authorization of confession of judgment were statements of material fact, as the rights and duties of plaintiffs and the class members were dependent on them. 129. The statements concerning the enforceability of penalty clauses and confession of judgment provisions were false.

109. The practice complained of is intended to interfere and effectively interferes with and renders nugatory the right to cancel. 110. Accordingly, plaintiffs continue to have a right to rescind Exhibit B. 111. Each class member whose transaction was entered into on or after [3 years prior to filing] also continues to have a right to rescind his or her transaction. Plaintiffs, Mr. and Mrs. Mount, Ms. Cronk and Mr. Kleinfelder, seek a declaration that this right continues to exist. 112. Plaintiffs suffered actual damages from this violation, in that they paid excessive amounts for their financing. 113. The class members also suffered actual damage from this violation, in that the members paid excessive amounts for their financing. WHEREFORE, plaintiffs request that the Court enter judgment in their favor and in favor of the class members and against defendant as follows: a. For a declaration that each of the plaintiffs and class members has a continuing right to rescind his or her transaction. b. Providing a procedure for allowing the class members to exercise that right. c. For any further orders necessary to effectuate the rescission of transactions by plaintiffs and class members so electing. d. For statutory damages as provided by 15 U.S.C. 1640. e. For actual damages. f. For attorneys fees, litigation expenses and costs. g. For such other or further relief as the Court deems appropriate. COUNT II ILLINOIS CONSUMER FRAUD ACT 114. Plaintiffs, Mr. and Mrs. Mount, Joseph Heard, Mr. and Mrs. McMurtry, Ms. Cronk and Mr. Kleinfelder, incorporate kk1102. 115. At all relevant times, CFA 2 provided: [U]nfair or deceptive acts or practices, including but not limited to the use or employment of any deception, fraud, false pretense, false promise, misrepresentation or the concealment, suppression or omission of any material fact, with intent that others rely upon the concealment, suppression or omission of such material fact . . . in the conduct of any trade or commerce are hereby declared unlawful. . . . 116. The practices described above, including contract clauses or provisions imposing a penalty for cancellation of the contract and/or authorization of confession of judgment, are unfair and deceptive. 117. Defendant committed these practices in connection with the conduct of trade and commerce in (a) home improvement services and (b) the provision of financing. 118. Plaintiffs were damaged by these practices, in that they were charged excessive amounts for credit 119. The class members were damaged by these practices, in that they were charged excessive amounts for credit and, where penalty clauses and confession of judgment provisions

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130. Lake View Bank had a practice of causing or permitting dealers to include contract clauses or provisions imposing a penalty for cancellation of the contract and/or authorization of confession of judgment. 131. Lake View Bank caused the false statements concerning the enforceability of contract clauses or provisions imposing a penalty for cancellation of the contract and/or authorization of confession of judgment to be made intentionally and with full knowledge that the dates were not correct. 132. Lake View Bank caused the false statements concerning the enforceability of contract clauses or provisions imposing a penalty for cancellation of the contract and/or authorization of confession in order to induce plaintiffs and class members to rely on the incorrect statements and not exercise their rights to cancel or dispute the contract. 133. The plaintiffs and class members acted in reliance on the false statements concerning the enforceability of contract clauses or provisions imposing a penalty for cancellation of the contract and/or authorization of confession when they did not exercise their rights to cancel or dispute the contract. 134. The plaintiffs and class members suffered pecuniary injury as a result of the false statements which deprived them of their rights to cancel or dispute the contract. WHEREFORE, plaintiffs request that the Court enter judgment in their favor and in favor of the class members and against defendant as follows: a. For a declaration that each of the plaintiffs and class members has a continuing right to rescind his or her transaction. b. Providing a procedure for allowing the class members to exercise that right. c. For any further orders necessary to effectuate the rescission of transactions by class members so electing. d. For a declaration that contract clauses or provisions imposing penalties for termination of the contract or authorization of confession of judgment are invalid and illegal, and for an injunction enjoining the defendant from enforcing such clauses or provisions or, in the future, accepting assignment of contracts containing such clauses or provisions. e. For compensatory damages. f. For punitive damages sufficient to deter further unlawful conduct by defendant. g. For costs. h. For such other or further relief as the Court deems appropriate. COUNT IV BREACH OF CONTRACT 135. Plaintiffs Mr. and Mrs. Mount incorporate kk127 by reference. 136. Budget breached its contract with plaintiffs by doing defective and shoddy work, as described above. 137. Defendant is subject to all defenses which plaintiffs have against Budget, and is subject to all claims that they have against Budget to the extent of consideration paid by plaintiffs to defendant. WHEREFORE, the Court should enter judgment in favor of plaintiffs and against defendant, as follows: a. For appropriate compensatory damages.

Appx. D.3
b. For costs of suit; and c. For such other and further relief as the Court deems appropriate. [Attorney] JURY DEMAND Plaintiffs demand trial by jury. [Attorney]

D.3 TIL Disclosure CaseHidden Finance Charge in Car Sale (Willis)


IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION ) ) ) ) ) ) v. ) ) HARVEY CYCLE & ) CAMPER, INC., doing ) business as WATSON ) MOTORSPORT, LTD.; ) and WONDERLIC & ) ASSOCIATES, INC., doing ) business as WONDERLIC ) FINANCE, ) Defendants. ) ) CHRISTINE WILLIS, on behalf of herself and all others similarly situated, Plaintiff, COMPLAINT MATTERS COMMON TO ALL COUNTS INTRODUCTION 1. This action seeks redress for unlawful practices relating to an automobile transaction. Count I, brought on behalf of a class, alleges that defendants systematically understate the amount financed and annual percentage rate on automobile financing transactions. Count II alleges that the same conduct complained of in Count I violates the Illinois Sales Finance Agency Act. Counts III and IV allege that plaintiff was sold a defective and unmerchantable car, in violation of the Magnuson Moss Consumer Warranty Act and Illinois law. JURISDICTION AND VENUE 2. This Court has subject matter jurisdiction under 28 U.S.C. 1331 and 1367 and 15 U.S.C. 1640. Venue in this District is proper because all of the events complained of took place in this District.

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PARTIES COUNT ITRUTH IN LENDING 18. Plaintiff incorporates paragraphs 117. 19. Plaintiffs transaction and the transactions of each member of the class described below were consumer credit transactions within the meaning of the Truth in Lending Act, 15 U.S.C. 1601 et seq. (TILA), and Federal Reserve Board Regulation Z, 12 C.F.R. part 226. 20. The auto dealers through which the transactions of the plaintiff and class members were originated, including Watson, are creditors within the meaning of the Truth in Lending Act, in that each has originated more than 25 consumer credit contracts per annum. 21. The premiums for the V.S.I. Insurance were imposed by Watson and Wonderlic only in connection with credit transactions and were an incident to the extension of credit. The premiums for this insurance accordingly are covered by the general definition of finance charge in 12 C.F.R. 226.4. 22. Under TILA and Regulation Z, premiums for insurance covering property against loss or damage must be included in the finance charge unless the consumer has the option to obtain the insurance from his own company and this fact is disclosed to the consumer. 12 C.F.R. 226.4(d)(2), provides: Premiums for insurance against loss of or damage to property, or against liability arising out of the ownership or use of property, may be excluded from the finance charge if the following conditions are met: (i)The insurance coverage may be obtained from a person of the consumers choice, and this fact is disclosed. . . . 23. Wonderlic and the dealers that originated contracts for Wonderlic, including Watson, did not allow a consumer to obtain V.S.I. Insurance from an insurer of the consumers choice, and did not so advise the consumer. 24. Accordingly, the premiums were required to be included in the finance charge and the annual percentage rate. 25. Watson and Wonderlic did not so include them, resulting in an understatement of the finance charge and annual percentage rate in the transactions of plaintiff and each class member. 26. The violation is apparent on the face of each class members retail installment contract. 27. The retail installment contract assigned to Wonderlic provides by its terms that any holder is subject to claims and defenses which the buyer, Ms. Willis, has against the seller, Watson. 28. Watson and Wonderlic are accordingly liable as provided under 15 U.S.C. 1640 and 1641 to each consumer they charged for the V.S.I. Insurance. CLASS ALLEGATIONS 29. Ms. Willis brings Count I of this action on behalf of a class of all other persons similarly situated. The class consists of all persons who satisfy the following criteria:

3. Christine Willis (Ms. Willis) is an individual who resides at [address], Chicago, Illinois. 4. Defendant Harvey Cycle & Camper, Inc., doing business as Watson Motorsport, Ltd. (Watson), is an Illinois corporation which operates a used car dealership located at [address], Midlothian, Illinois. Its registered agent and office are R & S Agents, Inc., [address], Chicago, Illinois. 5. Defendant Wonderlic & Associates, Inc., doing business as Wonderlic Finance (Wonderlic) is a Delaware Corporation with its principal place of business located at [address], Libertyville, Illinois. PLAINTIFFS TRANSACTION 6. In early February 1994, Ms. Willis purchased a used 1985 Buick Century from Watson. Exhibit A, attached, [not attached herein] is a copy of the purchase contract. 7. Ms. Willis financed the purchase by means of a motor vehicle retail installment sales contract which Watson immediately assigned to Wonderlic. Exhibit B, attached, [not attached herein] is a copy of the retail installment contract. The contract was prepared on a printed form which Wonderlic devised and distributed to auto dealers such as Watson. 8. The Buick was worth not more than $2,400. However, Watson charged Ms. Willis $4,135.28 for the vehicle. 9. As part of the transaction, Watson also sold Ms. Willis an extended warranty or service contract for $595. As a result, Watson was prohibited from disclaiming implied warranties under the Magnuson Moss Consumer Warranty Act, 15 U.S.C. 2308 (MMCWA). 10. The retail installment contract financed a purported amount financed of $4,245.28 at a purported annual percentage rate of not less than 43.0%. In addition, it provided for a down payment of $600. 11. Watson, with the knowledge and at the instance of Wonderlic, included in the amount financed on the retail installment contract a charge for $50 to V.S.I. for insurance. 12. The charge was a standard $50 charge that Wonderlic had car dealers such as Watson insert in all retail installment contracts which were intended for sale to Wonderlic. 13. The $50 charge was for insurance protecting Wonderlic and/or Watson in the event that the customer, Ms. Willis, failed to obtain and maintain insurance covering the car against loss or damage. 14. It was the standard policy and practice of Wonderlic and car dealers with which Wonderlic did business, such as Watson, to include the $50 charge in the amount financed and to exclude it from the finance charge and the annual percentage rate. 15. The charge was inserted in the manner stated above by means of a computer. 16. The engine of the Buick sold to Ms. Willis was seriously defective at the time of the sale. Within a few days after the sale, the engine completely broke down and needed to be replaced. As a result, the vehicle was unfit for ordinary driving purposes. 17. Because of this serious defect, Ms. Willis lost confidence in the vehicle and revoked her acceptance. Exhibit C, attached [not attached herein].

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a. They signed a retail installment contract on Wonderlics printed form within one year prior to the filing of this action. b. The retail installment contract included a charge for V.S.I. insurance. c. The charge was included in the amount financed and excluded from the finance charge and the annual percentage rate. d. The transaction was documented as one for personal, family or household purposes (i.e., Truth in Lending disclosures were given). 30. On information and belief, based on the fact that a computer was used to insert the V.S.I. insurance charge on a standard printed form, the class is sufficiently numerous that joinder of all members is impractical. 31. There are questions of law and fact common to the class, which questions predominate over any questions peculiar to individual class members. The principal common question is whether the V.S.I. insurance was required to be included in the finance charge and annual percentage rate. 32. Ms. Willis has the same claims as the members of the class. All of the claims are based on the same factual and legal theories. 33. Ms. Willis will fairly and adequately represent the interest of the class members. Ms. Willis has retained counsel experienced in prosecuting class actions and in consumer protection matters. There is no reason why Ms. Willis and her counsel will not vigorously pursue this matter. 34. A class action is the only appropriate means of resolving this controversy. Most of the customers of Wonderlic and Watson are unsophisticated individuals of modest means, who are not aware of their rights. In the absence of a class action, a failure of justice will result. WHEREFORE, plaintiff requests that the Court grant the following relief on her behalf and that of the class and against Watson and Wonderlic: a. Statutory damages, as provided for in 15 U.S.C. 1640. b. Actual damages equal to all charges for the V.S.I. Insurance and finance charges thereon. c. Attorneys fees, litigation expenses and costs. d. Such other or further relief as the Court deems appropriate. COUNT IISALES FINANCE AGENCY ACT 35. Plaintiff incorporates paragraphs 128. This claim is brought against Wonderlic, only. 36. Wonderlic is a sales finance agency within the meaning of the Sales Finance Agency Act, Ill.Rev.Stats., ch. 17, k5201 et seq. (SFAA), in that it is engaged in Illinois in the business of purchasing retail installment contracts. 37. SFAA 8.5, Ill.Rev.Stats., ch. 17, k5213, defines as a violation of the SFAA the Purchase of any retail contract . . . after actual knowledge that the contract . . . violates . . . the Motor Vehicle Retail Installment Sales Act. The Motor Vehicle Retail Installment Sales Act (MVRISA) requires disclosures similar to those required under TILA, and then provides that disclosures which satisfy TILA also satisfy MVRISA.

Appx. D.3
38. Wonderlic purchased contracts from car dealers with actual knowledge that they violated MVRISA, in that the annual percentage rate and finance charge were understated. 39. SFAA 8.9, Ill.Rev.Stats., ch. 17, k5217, defines as a violation of the SFAA the Fraudulent misrepresentation, circumvention or concealment by the licensee through whatever subterfuge of device of any of the material particulars or the nature thereof required to be furnished to a retail buyer under . . . the Motor Vehicle Retail Installment Sales Act. 40. Wonderlic violated 8.9 in that it caused auto dealers to furnish buyers with retail installment contracts which understated the annual percentage rate and finance charge. 41. SFAA 8.2, Ill.Rev.Stats., ch. 17, k5210, defines as a violation of the SFAA the Willful violation or aiding any person in the willful violation of this Act or of any rule or regulation promulgated by the Director [of the Department of Financial Institutions]. 42. The Regulations of the Department of Financial Institutions require sales finance agencies to comply with TILA. 43. SFAA 16, Ill.Rev.Stats., ch. 17, k5234, provides: An individual who sustains loss as a result of a sales finance agencys violation of this Act may, in a civil action against the sales finance agency, recover damages, or may, in an action brought by the sales agency to collect an indebtedness arising out of a retail sales transaction, raise such damages by way of a counterclaim or offset. In either such action, the court may allow as an additional part of the recovery, offset or counterclaim, penal damages in an amount not more than 25% of the principal amount of the retail contract . . . which is the subject of the action. In addition, the court may allow that aggrieved individual his reasonable attorneys fees. 44. Plaintiff and each member of the class defined below sustained loss as a result of Wonderlics violation of the Sales Finance Agency Act, in that they signed retail installment contracts on which the finance charge and annual percentage rate were understated. CLASS ALLEGATIONS 45. Ms. Willis brings Count II of this action on behalf of a class of all other persons similarly situated. The class consists of all persons who satisfy the following criteria: a. They signed, in Illinois, a retail installment contract on Wonderlics printed form within five years prior to the filing of this action. b. The retail installment contract included a charge for V.S.I. insurance. c. The charge was included in the amount financed and excluded from the finance charge and the annual percentage rate. d. The transaction was documented as one for personal, family or household purposes (i.e., Truth in Lending disclosures were given). 46. On information and belief, based on the fact that a computer was used to insert the V.S.I. insurance charge on a

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61. The retail installment contract assigned to Wonderlic provides by its terms that any holder is subject to claims and defenses which the buyer, Ms. Willis, has against the seller, Watson. WHEREFORE, plaintiff requests that the Court enter judgment in her favor and against Watson and Wonderlic: a. For compensatory damages. b. For costs of suit. c. For such other or further relief as the Court deems appropriate. [Attorney] JURY DEMAND Plaintiff demands trial by jury. [Attorney]

standard printed form, the class is sufficiently numerous that joinder of all members is impractical. 47. There are questions of law and fact common to the class, which questions predominate over any questions peculiar to individual class members. The principal common question is whether the V.S.I. insurance was required to be included in the finance charge and annual percentage rate. 48. Ms. Willis has the same claims as the members of the class. All of the claims are based on the same factual and legal theories. 49. Ms. Willis will fairly and adequately represent the interest of the class members. Ms. Willis has retained counsel experienced in prosecuting class actions and in consumer protection matters. There is no reason why Ms. Willis and her counsel will not vigorously pursue this matter. 50. A class action is the only appropriate means of resolving this controversy. Most of the customers of Wonderlic and Watson are unsophisticated individuals of modest means, who are not aware of their rights. In the absence of a class action, a failure of justice will result. WHEREFORE, plaintiff requests that the Court enter judgment in favor of herself and the class and against Wonderlic for the following relief: a. Appropriate compensatory and statutory damages. b. Attorneys fees, litigation expenses, and costs. c. Such other or further relief as the Court deems appropriate. COUNT IIIMAGNUSON MOSS ACT 51. Plaintiff incorporates paragraphs 117. 52. Watson is a supplier within the meaning of the MMCWA. 53. The car sold to plaintiff was a consumer product within the meaning of the MMCWA. 54. The car sold to plaintiff by Watson was defective and unmerchantable, in violation of 2-314 of the Uniform Commercial Code, for the reasons stated above. 55. Because plaintiff was sold a service contract, Watsons attempted disclaimer of implied warranties is ineffective. 56. Plaintiff is entitled to bring suit for breach of the implied warranty under 15 U.S.C. 2310. 57. The retail installment contract assigned to Wonderlic provides by its terms that any holder is subject to claims and defenses which the buyer, Ms. Willis, has against the seller, Watson. WHEREFORE, plaintiff requests that the Court enter judgment in her favor and against Watson and Wonderlic: a. For compensatory damages. b. For attorneys fees, litigation expenses and costs of suit. c. For such other or further relief as the Court deems appropriate. COUNT IVUNIFORM COMMERCIAL CODE 58. Plaintiff incorporates paragraphs 117. 59. The car sold to plaintiff by Watson was defective and unmerchantable, in violation of 2-314 of the Uniform Commercial Code, for the reasons stated above. 60. Because plaintiff was sold a service contract, Watsons attempted disclaimer of implied warranties is ineffective.

D.4 TIL Untimely Disclosure Case (Diaz)


IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION ) ) ) ) ) ) v. ) ) WESTGATE LINCOLN ) MERCURY, INC., ) Defendant. ) ) SALVATOR DIAZ, on behalf of himself and all others similarly situated, Plaintiff, COMPLAINT Plaintiff, Salvator Diaz, complains as follows against defendant Westgate Lincoln Mercury, Inc. (Westgate): JURISDICTION AND VENUE 1. This is an action under the Truth in Lending Act, 15 U.S.C. 1601 et seq. The Court has jurisdiction under 15 U.S.C. 1640 and 28 U.S.C. 1331 and 1337. Venue in this District is proper because all events in question took place here. PARTIES 2. Plaintiff is an individual who resides at [address]. 3. Westgate operates a car dealership at [address]. 4. During each of the last three years, Westgate signed contracts with more than 25 consumers who agreed to pay finance charges or interest to Westgate or its assignees. FACTS RELATING TO DIAZ 5. On July 19, 1993, plaintiff, who speaks Spanish, was induced to sign the printed form document attached as Exhibit

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A [not attached herein] in connection with the proposed purchase of a car for personal purposes. 6. Exhibit A provides for the extension of credit to plaintiff, and also provides for the payment of interest at the rate of 20%. 7. Westgate did not furnish plaintiff with any of the disclosures required by the Truth in Lending Act, 15 U.S.C. 1601 et seq., in connection with this transaction. POLICIES AND PRACTICES ALLEGED 8. Exhibit A is a standard printed form document which Westgate has consumers sign where a financed transaction is intended, but before presentation of the disclosures of the financing terms required by the Truth in Lending Act. 9. Exhibit A also provides for a confession of judgment against the consumer. For years, the use of confession of judgment clauses in consumer contracts has been outlawed by Federal Trade Commission regulations. However, most consumers are not familiar with Federal Trade Commission regulations. 10. At the same time as it has the consumer sign Exhibit A, Westgate gives possession of the vehicle being purchased to the consumer and takes possession of any tradein vehicle that the customer has. 11. The purpose and effect of Exhibit A and the actions described in paragraphs 910 is to attempt to lock in the consumer to a binding contract without giving the disclosure of the financing terms required by the Truth in Lending Act. CLASS ALLEGATIONS 12. This action is brought on behalf of a class. The class consists of all persons who, on or after a date one year prior to the filing of the complaint, signed the same printed form as Exhibit A with Westgate, without previously or simultaneously receiving Truth in Lending disclosures relating to Exhibit A. 13. The class is so numerous that joinder of all members is impracticable. 14. There are common questions of law or fact, which predominate over any individual questions. The predominant common questions are whether the use of Exhibit A without making Truth in Lending disclosures complies with the Truth in Lending Act, and the appropriate amount of statutory damages to be assessed against defendant. The only individual question is whether each class member signed Exhibit A, a matter which should be ascertainable by a ministerial inspection of defendants records. 15. Plaintiffs claims are typical of those of the class members. All are based on the same legal and factual theories. 16. Plaintiff will fairly and adequately represent the class. He has retained counsel experienced in this type of litigation and has the same interests as the class members. 17. A class action is superior to other available methods to resolve this controversy. Most of the class members are probably unaware of their rights. The interest of individual class members in controlling the prosecution or defense of separate actions is minimal because the maximum statutory damages are $1,000 per transaction.

Appx. D.5
WHEREFORE, plaintiff requests the following relief for himself and the class: a. Statutory damages. b. Attorneys fees, litigation expenses and costs. c. Such other or further relief as the Court deems appropriate. [Attorney] JURY DEMAND Plaintiff demands trial by jury. [Attorney]

D.5 Consumer Leasing Act and Deceptive Practices CaseCar Lease (Shepherd)
IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF GEORGIA ATLANTA DIVISION ) ) Plaintiff, ) ) v. ) ) VOLVO FINANCE NORTH ) AMERICA, INC. and VOLVO ) CAR FINANCE, INC., ) Defendants. ) ) IAN SHEPHERD, COMPLAINT Comes now IAN SHEPHERD and respectfully shows the Court the following: MATTERS COMMON TO MULTIPLE COUNTS INTRODUCTION 1. This is a class action brought by Ian Shepherd under the Consumer Leasing Act, 15 U.S.C. 1667 et seq., Federal Reserve Board Regulation M, 12 C.F.R. part 213, and state law. JURISDICTION AND VENUE 2. This Court has jurisdiction over Count I under 15 U.S.C. 1640 and 1667d(c) and 28 U.S.C. 1331 and 1337. The Court has jurisdiction over Counts II and III under 28 U.S.C. 1367. Venue in this District is proper under 28 U.S.C. 1391(b). PARTIES 3. Plaintiff, Ian Shepherd (Shepherd), is an individual who resides at [address]. 4. Defendant, Volvo Finance of North America, Inc. (VFNA), is a Delaware corporation which does business in Georgia. Its principal place of business is located at [address]. Its registered agent is United States Corporation Company, [address], Atlanta, GA.

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14. The Consumer Leasing Act provides for substantive regulation of charges for early termination, delinquency and default: Penalties or other charges for delinquency, default, or early termination may be specified in the lease but only at an amount which is reasonable in light of the anticipated or actual harm caused by the delinquency, default, or early termination, the difficulties of proof of loss, and the inconvenience or nonfeasibility of otherwise obtaining an adequate remedy. 15 U.S.C. 1667b(b). 15. The Consumer Leasing Act and Regulation M also require a lessor to provide a lessee with extensive disclosures prior to the consummation of a lease, analogous to those required in the case of credit transactions by the Truth in Lending Act. 15 U.S.C. 1667a. The disclosures must be made clearly, conspicuously, [and] in meaningful sequence and either on a separate written statement or in the contract, above the place for the lessees signature. 12 C.F.R. 213.4(a). The Staff Commentary requires that all lease disclosures be reasonably understandable. 16. The disclosures must be made together on a single page (which may include both sides) and above the place for the lessees signature. (Commentary, 4(a)(2)) No required disclosures may be in fine print on the back. 17. The specific information that must be disclosed includes: a. The amount or method of determining the amount of any penalty or other charge for delinquency, default, or late payments. 12 C.F.R. 213.4(g)(10). b. A statement of the conditions under which the lessee or lessor may terminate the lease prior to the end of the lease term and the amount or method of determining the amount of any penalty or other charge for early termination. 12 C.F.R. 213.4(g)(12). c. A statement identifying any express warranties or guarantees available to the lessee made by the lessor or manufacturer with respect to the leased property. 12 C.F.R. 213.4(g)(7). d. The total amount paid or payable by the lessee during the lease term for official fees, registration, certificate of title, license fees, or taxes. 12 C.F.R. 213.4(g)(4). 18. The Consumer Leasing Act provides that any lessor who violates any requirement imposed by 15 U.S.C. 1667a, 1667b, and the implementing regulations is liable as provided in the Truth in Lending Act, 15 U.S.C. 1640. APPLICABILITY OF CONSUMER LEASING ACT TO PLAINTIFFS TRANSACTION 19. The Consumer Leasing Act and Regulation M were applicable to Shepherds lease because: a. VFNA was a lessor, in that it was regularly engaged in the business of leasing and offering to lease vehicles to natural persons for a period of time exceeding four months, and for a total contractual obligation not exceeding $25,000, primarily for personal, family or household purposes.

5. Defendant, Volvo Car Finance, Inc. (VCFI), is a Delaware corporation which does business in Georgia. Its principal place of business at [address] Montvale, NJ. Its registered agent is CT Corporation System, [address], Atlanta, GA. 6. VFNAs regular business activities include leasing and offering to lease motor vehicles and purchasing leases of motor vehicles. Many of the leases are made with natural persons who lease vehicles for personal, family or household purposes. On information and belief, the intended term of most or all VFNA vehicle leases exceeds four months. In many cases, the total contractual obligation under the lease is less than $25,000. 7. VCFIs regular business activities include servicing motor vehicle leases held by VFNA. VCFI was involved in the servicing of Shepherds lease, as more fully described below. VCFI and VFNA are under common ownership and control. PLAINTIFFS TRANSACTION WITH VFNA 8. On May 11, 1992, Shepherd entered into a consumer automobile lease with VFNA covering the lease of a 1992 Volvo 740 series automobile. The vehicle was leased for purposes of personal transportation, and the transaction was so documented by VFNA (the purpose of the lease is indicated by checking a box on the lease form). The scheduled term of the lease was 36 months. The total payments under the lease were $23,400. In connection with this transaction, VFNA issued a combination lease contract/Consumer Leasing Act disclosure statement. Exhibit A, attached, [not attached herein] is a true and accurate copy of this document. 9. In February 1993, Shepherd requested information from VFNA regarding the cost of terminating his lease early. A copy of his correspondence is attached as Exhibit B [not attached herein]. 10. In March 1993, Shepherd received a response from VCFI. A copy of the response is attached as Exhibit C [not attached herein]. 11. Contemporaneous with the filing of this complaint, Shepherd returned the leased car to VFNAs agent and notified VFNA that he was terminating the lease. CONSUMER LEASING ACT 12. The federal Consumer Leasing Act, 15 U.S.C. 1667 et seq. (Consumer Leasing Act), and implementing Federal Reserve Board regulations, 12 C.F.R. part 213 (Regulation M), and Staff Commentary, 12 C.F.R. part 213 Supp. I (Commentary), require extensive disclosures in consumer lease transactions and regulate certain substantive terms of such transactions. 13. The Consumer Leasing Act and Regulation M apply to any consumer lease. A consumer lease is defined as a contract in the form of a lease or bailment for the use of personal property by a natural person for a period of time exceeding four months, and for a total contractual obligation not exceeding $25,000, primarily for personal, family, or household purposes, whether or not the lessee has the option to purchase or otherwise become the owner of the property at the expiration of the lease. . . . Leases for agricultural, business, or commercial purposes are excluded. 15 U.S.C. 1667(1).

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b. Shepherd is a natural person. c. Shepherd leased the vehicle from VFNA for personal, family and household purposes, as was acknowledged by checking the box on Exhibit A [not attached herein] indicating that his was a personal as opposed to a business lease. d. Exhibit A is a contract in the form of a lease . . . for the use of personal property by a natural person. e. The term of the lease exceeded four months. f. Shepherds total contractual obligation under the lease did not exceed $25,000. COUNT ICLASSWIDE DISCLOSURE VIOLATIONS 20. Plaintiff incorporates paragraphs 119. 21. The printed form of lease attached as Exhibit A [not attached herein] violates the disclosure requirements of the Consumer Leasing Act and Regulation M in the following respects: a. The disclosures in Exhibit A of the default and early termination charges are inaccurate. VFNA and VCFI in fact require the lessee to pay in accordance with Exhibit C [not attached herein]. b. Part of the information necessary to determine early termination liability is set forth on a separate addendum, violating the requirement that all required disclosures be on two sides of a single paper. c. Exhibit A does not provide for the disclosure of The total amount paid or payable by the lessee during the lease term for official fees, registration, certificate of title, license fees, or taxes. 12 C.F.R. 213.4(g)(4). Item 7 provides for estimated additional payments on account of these matters during the life of the lease. No item on Exhibit A provides for disclosure of the information required by 12 C.F.R. 213.4(g)(4). d. Exhibit A does not provide a statement of the lessees warranty rights that is understandable by the average consumer. Item 36 states that VFNA agrees to assign you its assignable rights under the manufacturers limited warranties. . . . This requires the reader to know what rights under a warranty are assignable, a matter not within the understanding of the average consumer. e. The disclosure of late payment charges in Exhibit A is ambiguous as to the amount of the charge if part of the payment is timely and part is late. f. Although Item 35 of Exhibit A provides that the lessees liability upon default is based on the value of the leased car, Exhibit A fails to disclose that the consumer has the right to use an appraisal of the cars value where liability upon default or early termination is based on the value of the leased property, as required by 12 C.F.R. 213.4(g)(14). g. Item 35 of Exhibit A threatens the lessee with an unconscionable and unenforceable penalty for default. Specifically, Item 35 states that the lessee will be responsible for all payments and monies due for the balance of this lease and the Early Termination Value (paragraph 8) plus interest at 12% per annum. The lessees ostensible liability is not reduced to present value or otherwise adjusted to take into account the fact that VFNA is accel-

Appx. D.5
erating payments due over a period of years. A lease provision that requires immediate payment of sums due over a period of years without appropriate adjustment is patently unenforceable under state law and 15 U.S.C. 1667b(b), and a disclosure of such a nonexistent liability violates the disclosure requirements of the Consumer Leasing Act and Regulation M. CLASS ALLEGATIONS 22. This claim is brought on behalf of a class consisting of all persons (i) who signed contracts with VFNA using the printed VFNAform attached as Exhibit A (VFNA-82-0888, any revision), (ii) which had a scheduled duration in excess of four months, (iii) which called for total payments of $25,000 or less, (iv) which had the box marked for personal use checked, and (v) which were in effect at any time within one year prior to the filing of this action, or which are presently in effect. 23. Plaintiff seeks certification under Fed.R.Civ.P. 23(b)(2), or alternative or in addition, under Fed.R.Civ.P. 23(b)(3). 24. Shepherd alleges on information and belief that the class is so numerous that joinder of all members is impractical. Shepherd signed in 1992 a lease on a printed form bearing a legend stating that it was a June 1990 revision. Investigation discloses that prior revisions contained the same violations as the June 1990 revision. During a period of two years, VFNA undoubtedly entered into more than the 2030 contracts on this form necessary to satisfy the numerosity requirement. According to published reports, VFNA enters into 8,00012,000 leases per year. 25. There are questions of law and fact common to the class, which questions predominate over any questions affecting only individual class members. The principal issue is whether the lease form contains the disclosure violations alleged herein. 26. The claims of Shepherd are typical of those of the class members, in that they are based on the same legal and factual theories and predominant common questions. 27. Shepherd will fairly and adequately protect the interests of the class. Although his personal claim is not large enough to warrant individual litigation, he has enough at stake to ensure that he will vigorously litigate this matter. He wishes to obtain redress of the wrong. To that end, he has retained counsel experienced in handling class actions and actions involving unlawful business practices, including claims under the Consumer Leasing Act. Neither Shepherd nor his counsel have any interests which might cause them not to vigorously pursue this action. 28. Certification is appropriate under Fed.R.Civ.P. 23(b)(2), in that defendant has imposed uniform policies with respect to the entire class and injunctive and declaratory relief against the imposition of the policies is necessary under the state law claims. The monetary relief sought, including statutory damages, does not detract from the cohesiveness of the class. 29. Alternatively or in addition, plaintiff requests certification under Fed.R.Civ.P. 23(b)(3). The common questions predominate over any individual issues. A class action is superior for the fair and efficient adjudication of this dispute. Because VFNA is misstating its actual termination charges, most lessees will not realize that they have a claim. A class action is

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cal. Shepherd signed in 1992 a lease on a printed form bearing a legend stating that it was a June 1990 revision. Investigation discloses that prior revisions contained the same violations as the June 1990 revision. During a period of two years, VFNA undoubtedly entered into more than the 2030 contracts on this form necessary to satisfy the numerosity requirement. According to published reports, VFNA enters into 8,00012,000 leases per year. 41. There are questions of law and fact common to the class, which questions predominate over any questions affecting only individual class members. The principal issue is whether VFNA and VCFI may enforce termination and default charges that are not computed in accordance with the lease form. 42. The claims of Shepherd are typical of those of the class members, in that they are based on the same legal and factual theories and predominant common questions. 43. Shepherd will fairly and adequately protect the interests of the class. Although his personal claim is not large enough to warrant individual litigation, he has enough at stake to ensure that he will vigorously litigate this matter. He wishes to obtain redress of the wrong. To that end, he has retained counsel experienced in handling class actions and actions involving unlawful business practices, including claims under the Consumer Leasing Act. Neither Shepherd nor his counsel have any interests which might cause them not to vigorously pursue this action. 44. Certification is appropriate under Fed.R.Civ.P. 23(b)(2), in that defendant has imposed uniform policies with respect to the entire class and injunctive and declaratory relief against the imposition of the policies is necessary. The monetary relief sought, including statutory damages, does not detract from the cohesiveness of the class. 45. Alternatively or in addition, plaintiff requests certification under Fed.R.Civ.P. 23(b)(3). The common questions predominate over any individual issues. A class action is superior for the fair and efficient adjudication of this dispute. Because VFNA is misstating its actual termination charges, most lessees will not realize that they have a claim. A class action is therefore essential to prevent a failure of justice. Furthermore, even if a lessee did realize that VFNA is misstating its actual charges, the size of the claims involved does not warrant individual litigation of the magnitude and complexity necessary to challenge the legality of the charges. WHEREFORE, plaintiff requests that the Court enter judgment in his favor and in favor of the class and against defendants VFNA and VCFI: a. Enjoining defendants from imposing or collecting early termination and default charges. b. For compensatory damages equal to all termination and default charges collected by VFNA and/or VCFI that were computed in a manner inconsistent with the lease disclosures. c. For punitive damages. d. For such other or further relief as is appropriate. COUNT IIICLASS CLAIM FOR UNFAIR AND DECEPTIVE ACTS AND PRACTICES 46. Plaintiff incorporates paragraphs 118.

therefore essential to prevent a failure of justice. Furthermore, even if a lessee did realize that VFNA is misstating its actual charges, the size of the claims involved does not warrant individual litigation of the magnitude and complexity necessary to challenge the legality of the charges. WHEREFORE, plaintiff requests that the Court enter judgment in his favor and in favor of the class and against defendant VFNA: a. For statutory damages. b. For compensatory damages equal to all termination and default charges collected by VFNA that were computed in a manner inconsistent with the lease disclosures. c. For attorneys fees, litigation expenses and costs. d. For such other or further relief as is appropriate. COUNT IICLASS CLAIM FOR DECLARATORY AND OTHER RELIEF UNDER STATE LAW 30. Shepherd incorporates paragraphs 118. 31. On information and belief, based on a study conducted by the Attorney General of New York, a majority of automobile lessees terminate their leases prior to the scheduled expiration. The largest single reason for early termination is that lessees find it necessary or desirable to get newer vehicles. Some leases are terminated because of a casualty to the leased vehicle. Some lessees default because of financial difficulties; however, this category is typically a minority of early terminations. 32. Early termination charges under vehicle leases typically range between $2,000 and $30,000. 33. The lessees liability for default or early termination is therefore material information which should be accurately described by the lessor. 34. By misstating the charges actually imposed, VFNA misrepresented material information to lessees. 35. The default and early termination charges actually imposed by VFNA and VCFI are excessive and unreasonable, and are not necessary to compensate defendants for any loss actually anticipated. As such, they are unenforceable penalties. 36. Because of the unreasonable nature of the charges, and VFNAs misstatement of the charges actually imposed in its lease, VFNA and its affiliate VCFI should therefore be barred from enforcing their default and early termination charges. 37. A dispute exists between Shepherd and the class described below, on the one hand, and VFNA and VCFI, on the other, concerning the validity of these termination charges. CLASS ALLEGATIONS 38. This claim is brought on behalf of a class consisting of all persons (i) who signed contracts with VFNA using the printed VFNA form attached as Exhibit A [not attached herein] (VFNA-82-0888, any revision), (ii) who had early termination or default charges assessed against them at any time within six years prior to the filing of this action, or whose leases are presently in effect. 39. Plaintiff seeks certification under Fed.R.Civ.P. 23(b)(2), or alternative or in addition, under Fed.R.Civ.P. 23(b)(3). 40. Shepherd alleges on information and belief that the class is so numerous that joinder of all members is impracti-

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47. At all times during which VFNA used the forms of which Exhibit A is an example, each state had in force a statute, modelled after the Federal Trade Commission Act, prohibiting unfair and deceptive acts and practices in connection with consumer transactions. The New Jersey Consumer Fraud Act is N.J.S.A. 56:8-1 et seq. 48. VFNAs leases were sales of merchandise as defined in N.J.S.A. 56:8-1 et seq. N.J.S.A. 56:801(e) defines sale to include any sale, rental or distribution, offer for sale, rental or distribution or attempt directly or indirectly to sell, rent or distribute. N.J.S.A. 56:8-1(a) defines advertisement to include the attempt directly or indirectly by publication, dissemination, solicitation, indorsement or circulation or in any other way to induce directly or indirectly any person to enter or not enter into any obligation or acquire any title or interest in any merchandise. . . . 49. At all relevant times, N.J.S.A. 56:8-2 provided: The act, use or employment by any person of any unconscionable commercial practice, deception, fraud, false pretense, false promise, misrepresentation, or the knowing concealment, suppression, or omission of any material fact with intent that others rely upon such concealment, suppression or omission, in connection with the sale of advertisement of any merchandise or real estate, or with the subsequent performance of such person as aforesaid, whether or not any person has in fact been misled, deceived or damaged thereby, is declared to be an unlawful practice. . . . Unconscionable has been judicially determined to include any conduct which is incompatible with good faith, honesty in fact, and observance of fair dealing. 50. Plaintiff contends that the New Jersey statute applies to the entire class, in that VFNA and VCFI are headquartered in New Jersey and in that the practices complained of were conceived in and directed from that state. The statute has been judicially determined by New Jersey courts to apply to practices of a business headquartered in New Jersey directed against persons located elsewhere. 51. Defendants engaged in deceptive and unconscionable acts and practices by: a. Imposing unreasonable termination and default charges on lessees. b. Failing to accurately disclose the termination and default charges actually imposed. c. Misrepresenting the method of calculation of termination and default charges. 52. VFNA has imposed and/or collected the default and early termination charges specified in the form of which Exhibit A is an example from numerous lessees. Other lessees are subject to such charges by reason of having signed contracts using the same form as Exhibit A. VCFI has assisted VFNA in servicing the leases and imposing and collecting the charges. 53. N.J.S.A. 56:8-19 provides: Any person who suffers any ascertainable loss of moneys or property, real or personal, as a result of

Appx. D.5
the use or employment by another person of any method, act, or practice declared unlawful under this act or the act hereby amended and supplemented may bring an action or assert a counterclaim therefor in any court of competent jurisdiction. In any action under this section the court shall, in addition to any other appropriate legal or equitable relief, award threefold the damages sustained by any person in interest. In all actions under this section the court shall also award reasonable attorneys fees, filing fees and reasonable costs of suit. 54. Shepherd and the members of the class defined below suffered ascertainable loss of moneys or property as a result of being induced to sign through deceptive and unconscionable practices leases which require them to (i) pay money if they keep the leases in force or (ii) pay money to terminate the leases. Shepherd and each member of the class paid money, under one alternative or the other. 55. A dispute exists between Shepherd and the class defined below, on the one hand, and VFNA and VCFI, on the other, concerning the validity of these termination charges. CLASS ALLEGATIONS 56. This claim is brought on behalf of a class consisting of all persons (i) who signed contracts with VFNA using the printed VFNA form attached as Exhibit A (VFNA-82-0888, any revision), and (ii) who had early termination or default charges assessed against them at any time within six years prior to the filing of this action, or whose leases are presently in effect. 57. Plaintiff seeks certification under Fed.R.Civ.P. 23(b)(2), or alternative or in addition, under Fed.R.Civ.P. 23(b)(3). 58. Shepherd alleges on information and belief that the class is so numerous that joinder of all members is impractical. Shepherd signed in 1992 a lease on a printed form bearing a legend stating that it was a June 1990 revision. Investigation discloses that prior revisions contained the same violations as the June 1990 revision. During a period of two years, VFNA undoubtedly entered into more than the 2030 contracts on this form necessary to satisfy the numerosity requirement. According to published reports, VFNA enters into 8,00012,000 leases per year. 59. There are questions of law and fact common to the class, which questions predominate over any questions affecting only individual class members. The principal issue is whether VFNA and VCFI may enforce termination and default charges that are not computed in accordance with the lease form. 60. The claims of Shepherd are typical of those of the class members, in that they are based on the same legal and factual theories and predominant common questions. 61. Shepherd will fairly and adequately protect the interests of the class. Although his personal claim is not large enough to warrant individual litigation, he has enough at stake to ensure that he will vigorously litigate this matter. He wishes to obtain redress of the wrong. To that end, he has retained counsel experienced in handling class actions and actions involving unlawful business practices, including claims under the

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COMPLAINT INTRODUCTION 1. This action is brought by a consumer to secure redress for unfair, deceptive and unlawful trade practices perpetrated by defendants on plaintiff and, it is believed, numerous other persons, generally poor and unsophisticated. These practices are as follows: a. Defendants Octopus Bank and Octopus Financial Services maintained continuous business relationships with parties, such as Grand Satellite, that provided goods and services relating to home improvements (dealers), and referred their customers to Octopus Bank for financing. Accordingly, under Federal Trade Commission regulations, Octopus Bank is subject to claims and defenses which the customer has against the provider of goods and services. Octopus Bank attempts to deceive and coerce borrowers into making payment to it notwithstanding the nonreceipt of the agreed-upon consideration from the provider of goods and services. b. Octopus Bank entered into a tacit agreement with Grand Satellite and, on information and belief, other dealers, whereby (i) the dealer would sign a contract (home improvement contract) with the consumer which obligated the consumer to pay cash and purported to be a binding obligation; and (ii) more than three business days later (i.e., after the expiration of the statutory threeday rescission period and after the consumer was purportedly bound by the home improvement contract), the dealer would present the consumer with the loan papers from Octopus Bank and Octopus Financial Services (loan agreement), containing terms not previously part of the contractual relationship. In many cases, the home improvement contracts provided (i) that the consumer would receive financing terms more attractive than those ultimately provided by Octopus Bank and Octopus Financial Services, (ii) that the consumer was obligated to sign whatever financing documents were presented by the dealer and that failure to do so was an act of default, and/or (iii) that the consumer would have to pay substantial charges, from 15 to 25% of the contract price, if the consumer attempted to cancel the home improvement contract for any reason after the three-day rescission period expired. Mrs. Howards contract contained the first and third. 2. In this action, plaintiff alleges that defendants practices violated the Racketeer Influenced and Corrupt Organization Act, 18 U.S.C. 1961 et seq., and the Illinois Consumer Fraud and Deceptive Business Practices Act, Ill. Rev. Stats., ch. 121 1/2, 261 et seq. Plaintiff seeks compensatory and punitive damages on a classwide basis with respect to both practices, and in addition declaratory and injunctive relief with respect to the second practice. JURISDICTION 3. Jurisdiction over this action exists under 28 U.S.C. 1334, in that Mrs. Howard is currently the debtor in a Chapter 13 proceeding in the Northern District of Illinois and this action concerns debts listed in that proceeding. Jurisdiction also ex-

Consumer Leasing Act. Neither Shepherd nor his counsel have any interests which might cause them not to vigorously pursue this action. 62. Certification is appropriate under Fed.R.Civ.P. 23(b)(2), in that defendant has imposed uniform policies with respect to the entire class and injunctive and declaratory relief against the imposition of the policies is necessary. The monetary relief sought, including statutory damages, does not detract from the cohesiveness of the class. 63. Alternatively or in addition, plaintiff requests certification under Fed.R.Civ.P. 23(b)(3). The common questions predominate over any individual issues. A class action is superior for the fair and efficient adjudication of this dispute. Because VFNA is misstating its actual termination charges, most lessees will not realize that they have a claim. A class action is therefore essential to prevent a failure of justice. Furthermore, even if a lessee did realize that VFNA is misstating its actual charges, the size of the claims involved does not warrant individual litigation of the magnitude and complexity necessary to challenge the legality of the charges. WHEREFORE, plaintiffs requests that the Court enter judgment in his favor and in favor of the class and against defendants VFNA and VCFI: a. Enjoining defendants from imposing or collecting early termination and default charges. b. Damages equal to three times all such charges that have been collected, or for which lessees are ostensibly liable. c. Attorneys fees, litigation expenses and costs. d. Such other or further relief as the Court deems appropriate. [Attorney] JURY DEMAND Plaintiff demands trial by jury. [Attorney]

D.6 RICO and Deceptive Practices CaseLenders Failure to Include FTC Holder Notice (Howard)
IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION ) ) ) ) ) ) v. ) ) OCTOPUS BANK; OCTOPUS ) FINANCIAL SERVICES, INC.; ) and GRAND SATELLITE ) SYSTEMS, INC., ) Defendants. ) ) ROSA HOWARD, on behalf of herself and all others similarly situated Plaintiff,

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ists under 18 U.S.C. 1964 and principles of pendent jurisdiction. Venue in this District is proper, as the claim arose in this District, it involves real property located in this District, and the Chapter 13 is pending in this District. PARTIES 4. Plaintiff, Rosa Howard (Mrs. Howard), is an individual who resides at [address] Chicago, Illinois, in a modest home which she owns. She is an elderly widow of limited sophistication. 5. Defendant Octopus Bank (Octopus Bank) is an Illinois banking corporation with its principal place of business located at [address] Peoria, Illinois. 6. Defendant Octopus Financial Services, Inc. (Octopus Financial) is an Illinois corporation with its principal place of business located at [address] Peoria, Illinois. 7. On information and belief (based on discovery taken in this action), approximately 100% of the stock of Octopus Bank is or was owned by one Ronald Bracket. On information and belief, approximately 70% of the stock of Octopus Financial was owned by the same Ronald Bracket. The other 30% was equally divided between two individuals that Bracket hired to operate Octopus Financial, Dean Chaire and Carl Nayle, pursuant to the terms of the agreement whereby they were so hired. 8. On information and belief (based on discovery taken in this action), Octopus Financial has been given blanket authorization by Octopus Bank to originate loans on behalf of Octopus Bank. Octopus Financial would perform all loan origination functions, including locating the consumer, preparing the documents, and disbursing the funds, on behalf of Octopus Bank. Octopus Financial would also perform loan servicing functions for loans retained by Octopus Bank for some loans sold on the secondary market. 9. On information and belief, Octopus Financial has also been authorized to act on behalf of Octopus Bank in selling the loans originated by Octopus Financial on behalf of Octopus Bank on the secondary mortgage market. To facilitate this, Dean Chaire was made Vice President of Octopus Bank, enabling him to negotiate and sign documents on its behalf. 10. Defendant Grand Satellite Systems, Inc. (Grand Satellite) is an Illinois corporation with its principal place of business at [address] Wheeling, Illinois. It was engaged in the business of selling large satellite dish antennas, which an individual can purportedly use to receive various television programming. Grand Satellite has been the subject of a settlement, and is referred to herein only because proceeds of the settlement have not been distributed. MRS. HOWARDS TRANSACTION WITH GRAND SATELLITE 11. In late 1985, a representative of Grand Satellite, Leonard Krammer, came to Mrs. Howards home and solicited her for the purchase of a satellite dish antenna. 12. On December 4, 1985, Mrs. Howard signed a document entitled cash sales contract with Grand Satellite. This contract provided for the purchase by Mrs. Howard of an eightfoot satellite dish antenna and related equipment at a total

Appx. D.6
price of $4,000, payable on a completion of installation. It did not provide for a mortgage on Mrs. Howards home. 13. The December 4, 1985 contract provided that Customer has option to accept [sic] payments of $73.94 at 120 months. Mrs. Howard did not in fact have $4,000, and so advised Grand Satellite. At all relevant times, it was contemplated by both Mrs. Howard and Grand Satellite that Mrs. Howard would in fact pay for the antenna in more than four installments. 14. The representative of Grand Satellite told Mrs. Howard that Grand Satellite would procure financing for her on the terms stated in the option. 15. The December 4, 1985 contract also provided: In the case of cancellation of this contract for any reason whatsoever, purchaser agrees to pay seller, at sellers option, twenty-five (25%) percent of this contract as liquidating [sic] damages or the sellers salesman commission, etc. Purchaser further agrees to pay all reasonable attorneys fees and costs incurred in the enforcement of any provision of this contract or any judgment entered to enforce this contract. 16. Under 2B of the Illinois Consumer Fraud Act, Ill. Rev. Stats., ch. 121 1/2, k 262B, Mrs. Howard was entitled to three business days in which to cancel the December 4, 1985 transaction, and to be given a written notice of her right to cancel that could be returned to the seller. Ill. Rev. Stats., ch. 121 1/2, k 262B creates a right of rescission with respect to any transaction which includes a sale of merchandise involving $25 or more . . . to a consumer as a result of or in connection with a persons contact with or call on the consumer. Merchandise is defined in Ill. Rev. Stats., ch. 121 1/2, k 261 to include any objects, wares, goods, commodities, intangibles . . . or services. 17. No such notification was furnished to Mrs. Howard by Grand Satellite. 18. Under the Federal Truth in Lending Act, 15 U.S.C. 1601, et seq., Mrs. Howard was entitled to a disclosure statement from Grand Satellite summarizing the material terms of the transaction in the manner prescribed by the Act and implementing Federal Home Loan Bank Board regulations. No such disclosure statement was furnished. MRS. HOWARD IS SWITCHED TO OCTOPUS BANK 19. More than three business days after December 4, 1985, Grand Satellite advised Mrs. Howard that it had found financing for her with Octopus Bank. In fact, Grand Satellite had a written dealer agreement with Octopus Bank and/or Octopus Financial under which Octopus Bank provided financing to persons purchasing equipment from Grand Satellite. This agreement was a standard form arrangement setting forth the terms which governed the relationship between all home improvement dealers doing business with Octopus Bank and Octopus Financial, whether or not a particular dealer executed the form.

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in an action brought by the Attorney General of Illinois; and Rokke Construction, also the subject of action by the Attorney General. 26. The Grand Satellite contracts were all written on the same form as Mrs. Howards. Celebrations contracts provided for a 25% cancellation charge, purportedly enforceable through a confession of judgment clause, and usually promised specific financing terms. The contract form used by Idlers companies, Albert, Idelco, Rokke, and Gray were all substantially identical except for the name and logo of the dealer. All provided for a cancellation charge of 15 to 25%, depending on the time of cancellation, that the consumer would sign whatever financing papers were presented by the dealer, and a confession of judgment clause. The Emerald contracts were very similar to those used by Idlers companies, Albert, Idelco, Rokke, and Gray. 27. On information and belief (based on compilation of the information in the loan files, which is still ongoing), Celebration was the largest single dealer, and accounted for around 25% of the home improvement loans originated by Octopus Financial Services. Dealers engaging in the practice complained of accounted for a majority of such loans. FTC HOLDER RULE 28. A document, purporting to be issued by Octopus Bank and Octopus Financial, and furnished by Grand Satellite to Mrs. Howard in connection with the loan, stated: In accordance with my (our) credit application dated December 19, 1985 I (we) understand that the selection of the dealer and the acceptance of the materials used and the work performed is my (our) responsibility and that the financial institution does not guarantee the material or workmanship or inspect the work performed. 29. In 1976, the Federal Trade Commission promulgated a regulation, having the force and effect of law, intended to address the problem of consumer liability for loans used to purchase non-conforming goods and services. In its Holder Rule, 16 C.F.R. part 433, the FTC provided that any creditor who makes a cash advance to a consumer which the consumer applies, in whole or substantial part, to a purchase of goods or services from a seller who (1) refers consumers to the creditor or (2) is affiliated with the creditor by common control, contract, or business arrangement (16 C.F.R. 433.1(d)) is subject to all claims and defenses which the debtor could assert against the seller of goods and services obtained with the proceeds, up to the amounts paid by the consumer to the creditor. (16 C.F.R. 433.2) 30. The FTC Holder Rule defines contract to include [a]ny oral or written agreement, formal or informal, between a creditor and a seller, which contemplates or provides for cooperative or concerted activity in connection with the sale of goods or services to consumers or the financing thereof. (16 C.F.R. 433.1(f)) Business arrangement is defined to include any understanding, procedure, course of dealing, or arrangement, formal or informal, between a creditor and a seller, in connection with the sale of goods or services to con-

20. Grand Satellites representative brought the loan papers to Mrs. Howard on December 19, 1985. These papers provided for a loan from Octopus Bank on the following terms: a. An amount financed of $4643.00; b. A finance charge of $4690.60; c. An annual percentage rate of 16%; d. Monthly payments of $77.78 for 10 years, to commence January 20, 1986, irrespective of whether the installation of the antenna was completed at that time; e. Credit insurance; f. A second mortgage on Mrs. Howards home; and g. Payment of $4000 to Grand Satellite. 21. Since Mrs. Howard believed that she was obligated to pay $4,000 to Grand Satellite, she signed the loan papers. 22. Octopus Bank did provide Mrs. Howard with a form stating that she had three days in which to cancel the loan transaction. However, this was of no benefit or value to Mrs. Howard because she was already obligated to Grand Satellite. 23. Octopus Financial serviced the loan for Octopus Bank. Mrs. Howard was directed to make payments to Octopus Financial. 24. Prior to the transaction with Mrs. Howard, Octopus Bank entered into a tacit agreement with Grand Satellite and, on information and belief, other dealers, whereby: a. The dealers enter into purportedly binding contracts with consumers requiring them to pay amounts which they do not have available in cash. In many cases, the home improvement contracts provided (i) that the consumer would receive financing terms more attractive than those ultimately provided by Octopus Bank and Octopus Financial Services, (ii) that the consumer was obligated to sign whatever financing documents were presented by the dealer and that failure to do so was an act of default, and/or (iii) that the consumer would have to pay substantial charges, from 15 to 25% of the contract price, if the consumer attempted to cancel the home improvement contract. b. The dealers undertake to provide or find financing for the consumers on relatively favorable terms. c. The dealers wait until expiration of the three-day period in which the consumers may cancel their contracts with the dealers without liability. d. The dealers then steer the consumers to Octopus Bank. e. Octopus Bank attempts to deceive and/or coerce the consumers into paying, notwithstanding the fact that they did not receive the work they bargained for. 25. The principal dealers involved were Grand Satellite Systems, now defunct; Celebration Builders, Inc., ultimately enjoined from doing business in this state in an action brought by the Attorney General of Illinois; Albert Home Improvements Corporation; Gray Construction Corporation; Steven Idler, trading as City Lumber & Construction and All Aluminum Construction, and the subject of a pending Attorney General action; Idelco Construction; Alex Turner, trading as First County Builders, among others, and ultimately enjoined from doing business in this state in an action brought by the Attorney General of Illinois; Emerald Remodeling, Lumber & Supply Co., ultimately enjoined from doing business in this state

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sumers or the financing thereof. (16 C.F.R. 433.1(g)) A creditor is defined as any person who, in the ordinary course of business, lends purchase money or finances the sale of goods or services to consumers on a deferred payment basis. (16 C.F.R. 433.1) 31. The financing of dealer transactions by Octopus Bank and Octopus Financial, including those with Grand Satellite, was subject to the FTC Holder Rule. In all cases, the arrangement between Octopus Bank/Octopus Financial and the dealer was that the dealer would refer consumers to Octopus Bank/ Octopus Financial on a regular basis, and that the dealer would act as the agent of Octopus Bank/Octopus Financial for the purpose of obtaining the execution of loan documents. In all cases, there existed the type of understandings and arrangements that trigger applicability of the FTC rule. 32. Octopus Bank and Octopus Financial attempts to deceive and/or coerce unsophisticated borrowers into making payment to it notwithstanding the nonreceipt of what they paid for. The preparation and dissemination of the document described in paragraph 28, above, is part of this effort. 33. After Celebration and some of the other contractors were put out of business by the Attorney General, Octopus Bank hired an expert to examine the work done for a number of its borrowers. The expert inspected the borrowers properties, verified that the work had not been done properly by the dealers, and calculated the amount required to redo or repair the work. Even though its own expert had thus determined, in effect, that Octopus Bank had some liability under the FTC rule, Octopus Bank insisted that the borrowers repay their existing loans in full. It instead offered to make additional loans to cover the cost of repairing the work. This demand and offer were acts in furtherance of the unlawful practice complained of. MRS. HOWARD ATTEMPTS TO REFUSE TO PAY FOR DEFECTIVE GOODS 34. The satellite dish antenna purchased by Mrs. Howard proved to be defective and useless. In addition, the representatives of Grand Satellite damaged Mrs. Howards roof while installing it. 35. After making some payments, Mrs. Howard notified Octopus Bank and Octopus Financial of these problems and refused to make further payments for a defective antenna. Octopus Bank and Octopus Financial insisted that Mrs. Howard pay, threatening to foreclose on her home unless she refinanced the arrearage. GENERAL PRACTICE 36. Plaintiff is informed, on the basis of investigation of Octopus Bank/Octopus Financial transactions with other borrowers, that the events described above are part of the general practice involving Octopus Bank/Octopus Financial and certain dealers. The essence of the practice is as follows: a. The dealers enter into purportedly binding contracts with consumers requiring them to pay amounts which they do not have available in cash. In many cases, the home improvement contracts provided (i) that the consumer would receive financing terms more attractive than those ultimately provided by Octopus Bank and Octopus Finan-

Appx. D.6
cial Services, (ii) that the consumer was obligated to sign whatever financing documents were presented by the dealer and that failure to do so was an act of default, and/or (iii) that the consumer would have to pay substantial charges, from 15 to 25% of the contract price, if the consumer attempted to cancel the home improvement contract. b. The dealers undertake to provide or find financing for the consumers on relatively favorable terms. c. The dealers wait until expiration of the three-day period in which the consumers may cancel their contracts with the dealers without liability. d. The dealers then steer the consumers to Octopus Bank. e. Octopus Bank attempts to deceive and/or coerce the consumers into paying, notwithstanding the fact that they did not receive the work they bargained for. 37. The United States mails were used on multiple occasions in connection with both the practice generally and Mrs. Howards transaction in particular. Specifically: a. Mrs. Howard alleges on information and belief that the mails were used in connection with the transmission of the documents described in paragraphs 20 and 28 to Grand Satellite. b. Mrs. Howard and other borrowers were told to remit their payments to Octopus Bank, care of Octopus Financial, by mail. Few if any borrowers paid in person. c. Demands for payment were transmitted by mail to all borrowers. COUNT I RICO VIOLATIONUNLAWFUL INDUCEMENT 38. Mrs. Howard incorporates paragraphs 137 by reference. 39. Each of the following is an enterprise within the meaning of 18 U.S.C. 1961(4): (a) Octopus Bank; (b) Octopus Financial; (c) Octopus Bank and Octopus Financial, as a corporate group; (d) Grand Satellite; (e) each of the other home improvement dealers whose transactions were financed by Octopus. These enterprises affect interstate commerce. Among the ways in which interstate commerce is affected are: a. some of the loans originated by Octopus Financial in the name of Octopus Bank were resold to purchasers located in other states; b. the funds used to make the loans were obtained by Octopus Bank in other states; and c. the materials used in making home improvements generally come from other states (very few raw materials used in building are indigenous to Illinois). 40. Octopus Bank, Octopus Financial and dealers financed by Octopus Bank and Octopus Financial devised and implemented the scheme described in paragraph 24. This scheme constitutes a scheme or artifice to defraud, within the meaning of 18 U.S.C. 1341. 41. As described above, the mails were used for the purpose of executing this scheme and artifice. 42. Octopus Bank and Octopus Financial each participated as a principal in this scheme and then used the proceeds of the scheme in the operation of their respective businesses, in violation of 18 U.S.C. 1962(a). The transactions induced in

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RELIEF 51. Mrs. Howard requests that the Court grant the following relief against Octopus Bank and Octopus Financial: a. Treble damages; b. Attorneys fees, litigation expenses and costs; c. Such other or further relief as the Court deems appropriate. COUNT II CONSUMER FRAUD ACT VIOLATIONUNLAWFUL INDUCEMENT 52. Mrs. Howard incorporates paragraphs 137 by reference. 53. At all relevant times, 2 of the Illinois Consumer Fraud and Deceptive Business Practices Act, Ill. Rev. Stats., ch. 121 1/2, k 262, provided: [U]nfair or deceptive acts or practices, including but not limited to the use or employment of any deception, fraud, false pretense, false promise, misrepresentation or the concealment, suppression or omission of any material fact, with intent that others rely upon the concealment, suppression or omission of such material fact . . . in the conduct of any trade or commerce are hereby declared unlawful. . . . 54. Octopus Bank and Octopus Financial violated 2 by devising and implementing the scheme described in paragraph 24, above. This unfair and deceptive practice was committed in connection with the conduct of trade and commerce in (a) the goods and services financed by Octopus Bank and Octopus Financial and (b) the provision of financing. 55. Mrs. Howard and each member of the class described below suffered pecuniary injury as a result of these violations. 56. Pursuant to 10a of the Consumer Fraud Act, Ill. Rev. Stats., ch. 121 1/2, 270a, Mrs. Howard and each class member is entitled to actual and punitive damages, attorneys fees and costs, and other appropriate relief. CLASS ALLEGATIONS 57. This claim is brought on behalf of a class. The class consists of all persons who satisfy the following criteria: a. they signed a contract with a provider of goods and services; b. the provider of goods and services referred them to Octopus Bank; c. they signed a loan agreement with Octopus Bank, the proceeds of which were used to pay for the goods or services; and d. they did not receive notice of their right to cancel the contract with the dealer at the time they signed the loan agreement with Octopus Bank. 58. Plaintiff alleges on information and belief that the class is so numerous that joinder of all members is impractical. 59. There are questions of law and fact common to the class. The principal issues raised are: a. Whether Octopus Bank and Octopus Financial engaged in the scheme alleged in this Count; and

this manner comprised at least 50% of the home repair financing transactions that Octopus Financial procured for Octopus Bank. Octopus Financial had little business other than home improvement financing, and the loans procured for Octopus Bank by Octopus Financial were a large portion of Octopus Banks business. 43. Octopus Bank and Octopus Financial also conducted and participated in the conduct of the affairs of an enterprise consisting of Octopus Bank and Octopus Financial through the scheme described above, in violation of 18 U.S.C. 1962(c). 44. Mrs. Howard and each member of the class and subclass described below suffered pecuniary injury as a result of these violations. CLASS ALLEGATIONS 45. This claim is brought on behalf of a class. The class consists of all persons who satisfy the following criteria: a. they signed a contract with a provider of goods and services; b. the provider of goods and services referred them to Octopus Bank; c. they signed a loan agreement with Octopus Bank, the proceeds of which were used to pay for the goods or services; and d. they did not receive notice of their right to cancel the contract with the dealer at the time they signed the loan agreement with Octopus Bank. 46. Plaintiff alleges on information and belief that the class is so numerous that joinder of all members is impractical. 47. There are questions of law and fact common to the class. The principal issues raised are: a. Whether Octopus Bank and Octopus Financial engaged in the scheme alleged in this Count; and b. Whether such a scheme constitutes a violation of the federal mail fraud statute, 18 U.S.C. 1341. 48. Plaintiffs claim is typical of the claims of the class members. All are based on the same legal and remedial theory. 49. Plaintiff will fairly and adequately protect the interests of the class. She feels that she has been gouged, wishes to obtain redress of the wrong, and wants defendants stopped from perpetrating similar wrongs on others. To that end, she has retained counsel experienced in handling class actions and actions involving unlawful business practices. Neither plaintiff nor her counsel have any interests which might cause them not to vigorously pursue this action. 50. Certification of the class under Rule 23(b)(3) is appropriate. The questions of law and fact common to the members of the class predominate over any questions affecting only individual members. A class action is superior to other available methods for the fair and efficient adjudication of the controversy, in that: a. The poor and unsophisticated individuals targeted by defendants are not readily capable of individually controlling the prosecution or defense of separate actions; b. Concentration of the litigation concerning this matter in this Court is desirable; and c. The class is of moderate size and the difficulties likely to be encountered in the management of a class action are not great.

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b. Whether such a scheme constitutes a violation of 2 of the Consumer Fraud Act. 60. Plaintiffs claim is typical of the claims of the class members. All are based on the same legal and remedial theory. 61. Plaintiff will fairly and adequately protect the interests of the class. She feels that she has been gouged, wishes to obtain redress of the wrong, and wants defendants stopped from perpetrating similar wrongs on others. To that end, she has retained counsel experienced in handling class actions and actions involving unlawful business practices. Neither plaintiff nor her counsel have any interests which might cause them not to vigorously pursue this action. 62. Certification of the class under Rule 23(b)(3) is appropriate. The questions of law and fact common to the members of the class predominate over any questions affecting only individual members. A class action is superior to other available methods for the fair and efficient adjudication of the controversy, in that: a. The poor and unsophisticated individuals targeted by defendants are not readily capable of individually controlling the prosecution or defense of separate actions; b. Concentration of the litigation concerning this matter in this Court is desirable; and c. The class is of moderate size and the difficulties likely to be encountered in the management of a class action are not great. RELIEF 63. Mrs. Howard requests that the Court grant the following relief against Octopus Bank and Octopus Financial: a. Appropriate compensatory and punitive damages; b. Attorneys fees, litigation expenses and costs; and c. Such other or further relief as the Court deems appropriate. COUNT III CONSUMER FRAUD ACT VIOLATION EVASION OF FTC HOLDER RULE 64. Mrs. Howard incorporates paragraphs 137 by reference. 65. At all relevant times, 2 of the Illinois Consumer Fraud and Deceptive Business Practices Act, Ill. Rev. Stats., ch. 121 1/2, 262, provided: [U]nfair or deceptive acts or practices, including but not limited to the use or employment of any deception, fraud, false pretense, false promise, misrepresentation or the concealment, suppression or omission of any material fact, with intent that other rely upon the concealment, suppression or omission of such material fact . . . in the conduct of any trade or commerce are hereby declared unlawful. . . . 66. Octopus Bank and Octopus Financial violated 2 by agreeing to and carrying out a scheme calculated to evade the Federal Trade Commission Holder Rule, thereby inducing multiple consumers to pay Octopus Bank and Octopus Financial even though they did not receive the agreed upon consideration from the dealers financed by Octopus Bank and Octopus Financial. This unfair and deceptive practice was commit-

Appx. D.6
ted in connection with the conduct of trade and commerce in (a) the goods and services financed by Octopus Bank and Octopus Financial and (b) the provision of financing. 67. Mrs. Howard and each member of the class described below suffered pecuniary injury as a result of these violations. 68. Pursuant to 10a of the Consumer Fraud Act, Ill. Rev. Stats., ch. 121 1/2, k 270a, Mrs. Howard and each class member is entitled to actual and punitive damages, attorneys fees and costs, and other appropriate relief. Other appropriate relief includes a declaratory judgment invalidating the language quoted in paragraph 28, and an injunction preventing Octopus Bank and Octopus Financial from attempting to enforce that provision. CLASS ALLEGATIONS 69. This claim is brought on behalf of a class. The class consists of all persons who satisfy the following criteria: (a) they were referred to Octopus Bank by a provider of goods or services; (b) they obtained a loan from Octopus Bank, the proceeds of which were used to pay for the goods or services; and (c) they received the document described in paragraph 28, above. 70. Plaintiff alleges on information and belief that the class is so numerous that joinder of all members is impractical. 71. There are questions of law and fact common to the class. The principal issues raised are: a. Whether Octopus Bank and Octopus Financial devised a scheme calculated to evade the Federal Trade Commission Holder Rule; and b. Whether the use of the document described in paragraph 28 is an unfair and deceptive practice. 72. Plaintiffs claim is typical of the claims of the class members. All are based on the same legal and remedial theory. 73. Plaintiff will fairly and adequately protect the interests of the class. She feels that she has been gouged, wishes to obtain redress of the wrong, and wants defendants stopped from perpetrating similar wrongs on others. To that end, she has retained counsel experienced in handling class actions and actions involving unlawful business practices. Neither plaintiff nor her counsel have any interests which might cause them not to vigorously pursue this action. 74. Certification of the class under Rule 23(b)(2) is appropriate insofar as plaintiff seek injunctive and declaratory relief invalidating the language quoted in paragraph 28. Octopus Bank and Octopus Financial acted in the same manner toward the entire class, by causing each class member to sign a form document, the provisions of which are challenged. 75. Certification of the class under Rule 23(b)(3) is appropriate insofar as damages are sought. The questions of law and fact common to the members of the class predominate over any questions affecting only individual members. A class action is superior to other available methods for the fair and efficient adjudication of the controversy, in that: a. The poor and unsophisticated individuals targeted by defendants are not really capable of individually controlling the prosecution or defense of separate actions; b. Concentration of the litigation concerning this matter in this Court is desirable; and

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PARTIES 2. The named plaintiff, Carmen Ortiz, is a resident of Cook County, Illinois. 3. The plaintiff brings this action on her own behalf and on behalf of all other persons similarly situated pursuant to 2-801 of the Illinois Code of Civil Procedure, Ill. Rev. Stat., ch. 110, 2-801. The class is composed of all persons who: a. financed purchases of motor vehicles for their own personal and/or household use through General Motors Acceptance Corporation (hereafter GMAC); b. purchased the vehicle from an automobile dealer located within the state of Illinois; c. had single interest physical damage insurance purchased for them by GMAC through Motors Insurance Corporation (hereafter MIC) after December 2, 1980. There is a subclass of plaintiffs who also: d. had the motor vehicle damaged while the MIC policy was in force and either received no payment or credit from the MIC insurance policy or were required to surrender the automobile to GMAC in order to receive the payment or credit. 4. The class and subclass are so numerous that joinder of all members is impracticable. There are questions of fact or law common to the class and subclass which common questions predominate over any questions that affect only individual members. The representative party will fairly and adequately protect the interest of the class and subclass. The class action is an appropriate method for the fair and efficient adjudication of the controversy. 5. Defendant GMAC is a New York corporation and maintains an office or transacts business within Cook County, Illinois and is licensed as a sales finance agency. 6. Defendant MIC is a New York corporation and maintains an office or transacts business within Cook County, Illinois. 7. MIC is a wholly owned subsidiary of GMAC. STATEMENT OF FACTS 8. On or about September 18, 1981, the plaintiff entered into a motor vehicle retail installment sales contract with an automobile dealer Fenci-Tufo, for the purchase of a 1981 Chevrolet. The contract, signed by both the plaintiff and FenciTufo, is made a part of the complaint and is attached as Exhibit A [not attached herein]. 9. GMAC prepared the printed form Retail Installment Contract used in the above transactions. 10. GMAC is the purchaser, assignee or transferee of the consumer credit sales transaction and also extended credit to plaintiff herein by financing the contract. 11. The retail installment contract for the transaction contained the following provisions on the front of the contract: Required Physical Damage Insurance Insurance Company Term: Months: $ Deductible collisionand also select one of the following: Full Comprehensive includingFire-Theft and Combined Additional Coverage. $ Deductible Comprehensive including Fire-Theft and

c. The class is of moderate size and the difficulties likely to be encountered in the management of a class action are not great. 76. Mrs. Howard requests that the Court grant the following relief against Octopus Bank and Octopus Financial: a. Appropriate compensatory and punitive damages; b. Attorneys fees, litigation expenses and costs; c. A declaratory judgment in favor of Mrs. Howard and all class members, providing that the contractual language quoted in paragraph 28 is null and void; d. An injunction restraining Octopus Bank and Octopus Financial from attempting to enforce that provision against Mrs. Howard or class members; and e. Such other or further relief as the Court deems appropriate. [Attorney] JURY DEMAND Plaintiff demands trial by jury. [Attorney]

D.7 Deceptive Practices Case Vendors Single Interest Insurance (Ortiz)


IN THE CIRCUIT COURT OF COOK COUNTY, ILLINOIS COUNTY DEPARTMENT, LAW DIVISION ) ) ) ) ) ) v. ) ) GENERAL MOTORS ) ACCEPTANCE ) CORPORATION, INC. and ) MOTORS INSURANCE ) CORPORATION, INC. ) Defendants. ) ) CARMEN ORTIZ, individually and on behalf of all others similarly situated, Plaintiffs, CLASS ACTION COMPLAINT COUNT 1 PRELIMINARY STATEMENT 1. Count I is brought as a class action pursuant to the Illinois Consumer Fraud and Deceptive Business Practices Act, Ill. Rev. Stat., ch. 121 1/2, 261 et seq. to recover damages from defendants in the sale and purchase for plaintiffs of single interest physical damage insurance policies and their failure to pay benefits due under the policies.

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Combined Additional Coverage. Fire-Theft and Combined Additional Coverage. 12. Paragraph 3(a) on the reverse side of the retail installment contract under the heading Additional Terms which makes reference to the required physical damage insurance, states: . . . Buyer shall furnish satisfactory evidence that the property continues to be effectively and adequately covered by such insurance at all times during the term of this contract. Upon failure of the buyer to do so for any reason, seller may . . . (b) Proceeds of the aforesaid required physical damage insurance, by whomsoever procured, shall be applied toward replacement of the property or payment of this obligation at the option of the seller . . . (d) In the event that . . . such insurance is procured by the . . . buyer but subsequent to the issuance thereof and during the term of this contract such insurance is cancelled, the buyer agrees that the seller may procure insurance covering solely the interest of the seller hereunder. 13. At the time the plaintiff purchased the car, she had it insured against theft, collision and other loss by Allstate Insurance Company. 14. Allstate Insurance Company subsequently notified the plaintiff and GMAC that it was cancelling its coverage of plaintiffs car. 15. On or above November 11, 1981, GMAC purchased an insurance policy from MIC insuring the plaintiffs automobile. GMAC sent the plaintiff two letters, both dated November 11, 1981, notifying her they had done so. The letters are made a part of this complaint and attached as Exhibits B and C [not attached herein]. 16. GMAC was required to send plaintiffs a copy of the policy pursuant to the Motor Vehicle Retail Installment Sales Act, Ill. Rev. Stat., ch. 121 1/2 569 (hereinafter MVRISA) which provides in part: The holder of a contract which includes an amount for insurance purchased by the seller or holder must, within 30 days after the date of the contract cause to be sent to the buyer the policies or certificates of insurance clearly setting forth the amount of the premium, the types of insurance, the coverages and all the terms exceptions, limitations, restrictions and conditions of the insurance. 17. GMAC was required to send plaintiffs a copy of the policy and explain clearly the type, cost, benefits, and limitations of the policy pursuant to Rules and Regulations of the Department of Financial Institutions governing sales finance agencies 17(c)(4) and (5) which provides: It shall be the licensees responsibility to explain clearly to the obligor the type, cost, benefits and limitations of any insurance requested by licensee after acquisition of the account. The licensee shall also deliver or cause to be

Appx. D.7
delivered to the obligor a copy of the policy or policies, certificate, or other evidence thereof acquired by the license in connection with the indebtedness. 18. Plaintiff did not receive a copy of the insurance policy for which she was charged. The only written explanations regarding the policy and its coverage and the period of time it would be in effect were disclosed in the contract (Exhibit A) and the letters of November 11, 1983 (Exhibits B and C). 19. Plaintiffs subsequently learned that said policy was not the required physical damage insurance described on the front of the contract, but was single interest coverage with a maximum benefit equal to the amount still owed on the contract minus a pro rata share of the finance charge. 20. Single interest coverage insurance may not be required under a retail installment contract pursuant to MVRISA 568, which provides, in part: A seller under a retail installment contract may require insurance against substantial risk of loss of or damage to the motor vehicle protecting the seller or holder as well as the buyer. 21. In purchasing said insurance and charging the cost thereof to the plaintiffs account, GMAC acted as the agent of the plaintiff. 22. GMAC purchased the insurance from MIC, a wholly owned subsidiary of GMAC. 23. The cost of the single interest coverage was $914.00. 24. Upon information and belief the premium charges for the insurance was excessive for the actual coverage. 25. Upon information and belief, GMAC received a substantial rebate on the purchase of the insurance from MIC. 26. Upon information and belief, GMAC profited on the purchase of the insurance as the insurance was obtained from its subsidiary. 27. On January 28, 1982, plaintiffs car was involved in an accident and $1,900 damage was done to her car. 28. Shortly after January 28, 1982, the plaintiff spoke with Mr. Sylvester, an employee of GMAC. She told him the car had been in an accident and she wanted to have the MIC policy pay to repair it. Mr. Sylvester told her that if she desired, GMAC could consider that her car had been totally destroyed and she could then (a) return her contract, and (b) she would then have to pay the balance of the amount owed on the contract. He also told her that unless she gave up the car, she would receive nothing from the insurance policy to have her car repaired or to apply to her debt. 29. On June 23, 1982, the plaintiff informed GMAC she would obtain her own insurance, and wanted the insurance they had purchased from MIC cancelled. She then obtained other insurance. 30. Both GMAC and MIC were requested to provide the plaintiff with a copy of the insurance policy with MIC for which she had paid. Both defendants refused to honor her request. The letter from MIC refusing to provide the policy is made a part of the complaint and is attached as Exhibit D. 31. Contrary to the representations of GMACs employee the MIC policy does cover physical damage to the vehicle

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coverage of the insurance purchased, plaintiff and the class have been damaged in the sum of the cost of the policy and the interest charged. 41. As the result of the unfair and deceptive acts and practices of the defendants, in concealing the rebate paid to GMAC, the plaintiff and class are entitled to damages in the amount of the rebate and interest attributable to the portion of the premium that was rebated. 42. As the result of the unfair and deceptive acts and practices of the defendants, in purchasing insurance at an excessive rate, plaintiff and the class have been damaged in the amount of the excessive rate charged for the insurance and the interest charged that is attributable to the excess charge. 43. As the result of the unfair and deceptive acts and practices of the defendants in concealing the fact that the insurance was purchased through a wholly owned subsidiary, plaintiff and the class are entitled to recover the sum that GMAC and MIC profited on the sale of the insurance. 44. As the result of the unfair and deceptive acts and practices of the defendants in falsely representing to plaintiff and the subclass that physical damage to their vehicles was not covered by the insurance unless the vehicles were totally destroyed or turned over to GMAC, plaintiff and the subclass were damaged: (a) in the amount of the repairs to their vehicles if they kept the cars or (b) the value of their vehicles at the time they turned them over to GMAC if they gave the cars to GMAC to get the insurance. 45. As the result of defendants willful and wanton conduct plaintiff and the class are entitled to a punitive damage award against defendants. WHEREFORE, plaintiffs pray that the court: a. Enter judgment against the defendant and for plaintiff and the class and subclass in an amount equal to the damages set forth in paragraphs 39 through 45. b. Award plaintiff and the class $2,000,000.00 in punitive damages to be shared equally. c. Award plaintiffs costs and attorneys fees. d. Grant such additional relief as the Court finds proper. COUNT II PRELIMINARY STATEMENT 1. Count II is brought as a class action to recover damages from defendants arising out of the breach of the physical damage insurance agreements covering the vehicles of plaintiff and the class members. 2. Plaintiff Carmen Ortiz is a resident of Cook County, Illinois. 3. The plaintiff brings this action on her own behalf and on behalf of all other persons similarly situated pursuant to 2-801 of the Illinois Code of Civil Procedure, Ill. Rev. Stat. ch. 110, 2-801. The class is composed of all persons who: a. financed purchases of motor vehicles for their own personal and/or household use through General Motors Acceptance Corporation (hereafter GMAC); b. purchased the vehicle from an automobile dealer located within the state of Illinois; c. has single interest physical damage insurance purchased for them by GMAC through Motors Insurance Corporation (hereafter MIC) after October 11, 1980; and

while it is in the possession of the purchaser. A copy of the MIC single interest policy is made a part of this complaint and attached as Exhibit E. 32. MIC knew or should have known that GMAC was failing to provide plaintiffs with a copy of the policy and the other information required by law and also concealed and suppressed that material fact from the plaintiff. 33. MIC knew or should have known that excessive premiums were being charged for the insurance. 34. MIC knew or should have known that GMAC was requiring surrender of the automobile before processing claims although such surrender was not required by the policy. 35. On information and belief, defendants concealed information regarding the MIC policy from class members and/or misrepresented to class members that the policy did not cover damage to their vehicles unless plaintiffs surrendered possession of their cars, in which case the amount necessary to repair damages would be credited to their accounts. 36. On information and belief defendants concealed GMACs ownership and financial relationship with MIC and that GMAC received a rebate on the policies bought from MIC. CAUSE OF ACTION 37. The defendants have engaged in a pattern and practice of violating the Illinois Consumer Fraud and Deceptive Business Practices Act, Ill. Rev. Stat., ch. 121 1/2, 262 as to the plaintiff and all class members as follows: a. by deceptively concealing and misrepresenting the actual coverage of the physical damage insurance that would be purchased if the purchaser failed to keep their own insurance in force; b. by deceptively concealing the name of the insurance company as well as the actual coverage of the physical damage insurance, and by failing to send a copy of the insurance policy thereby concealing the terms exceptions, limitations, restrictions and conditions of the policy; c. by concealing the fact that a rebate on the policy was received by GMAC; d. by charging an excessive rate for the insurance purchased; and e. by concealing the fact that the insurance was purchased through a wholly owned subsidiary of GMAC and thereby profited GMAC. 38. The defendants have engaged in a pattern and practice of violating the Illinois Consumers Fraud and Deceptive Business Practices Act, Ill. Rev. Stat., ch. 121 1/2, 262 as to plaintiff and the subclass as follows: a. by falsely representing to plaintiffs that physical damage to their vehicles was not covered by the insurance policy unless the car was totally destroyed or turned over to GMAC to be considered repossessed; b. by failing to pay for repairs to the vehicles of class members although such damage was within the coverage of the insurance policy. 39. Defendants unfair and deceptive acts and practices as set forth in paragraphs 37 and 38 above were done willfully, wantonly and maliciously. 40. As the result of the unfair and deceptive acts and practices of the defendants, in concealing and misrepresenting the

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d. had that motor vehicle damaged while the MIC policy was in force and received no payment on the MIC insurance policy. 4. The class is so numerous that joinder of all members is impracticable. There are questions of fact or law common to the class which common questions predominate over any questions that affect only individual members. The representative party will fairly and adequately protect the interest of the class. The class action is an appropriate method for the fair and efficient adjudication of the controversy. 536. Plaintiff realleges paragraphs 536 of Count I as paragraphs 536 of Count II. CAUSE OF ACTION 37. The insurance policy provided at page 2; the company will pay for loss to automobile occurring while it is in the possession of retail purchasers and under coverage. 38. Plaintiff and the class members are retail purchasers as described in the policy. 39. Plaintiff and the class members are entitled to recover for loss to their automobiles while in their possession under the terms of the policy. 40. Defendants acted in concert in refusing to pay valid claims of plaintiff and the class members. 41. Defendants refusal to pay such claims was vexatious and unreasonable within the meaning of the Illinois Insurance Code provision allowing attorneys fees and other damages. Ill. Rev. Stat., ch. 73, 767. WHEREFORE plaintiffs pray that court: a. Enter judgment against the defendants and for plaintiff in the sum of $1,900.00 for repair of her automobile. b. Enter judgment against defendants and for all class members in the sums which should have been paid under the MIC policy. c. Award plaintiff $5,000.00 based on defendants vexatious and unreasonable refusal to pay policy benefits. d. Award each class member the greater of 25% of the amount they were entitled to recover under the policy of $5,000.00 whichever is greater. e. Award plaintiffs their costs and attorneys fees. f. Grant such additional relief as the Court finds proper. COUNT III PRELIMINARY STATEMENT 1. Count III is brought as a class action against GMAC based on GMACs breach of its fiduciary duty as agent in the purchase of physical damage insurance. PARTIES 236. Plaintiffs reallege paragraphs 236 of Count I as paragraphs 236 of Count III. CAUSE OF ACTION 37. In making the purchase of the physical damage insurance for plaintiffs, GMAC was acting as an agent of plaintiffs and owed plaintiffs a duty to act as a fiduciary in the purchase of the insurance and all matters relating to its coverage.

Appx. D.7
38. GMAC breached its fiduciary duty to plaintiffs by: a. receiving a rebate from MIC in the purchase of the insurance; b. purchasing insurance at an excessively high premium; c. making a profit on the sale of the insurance through its subsidiary, MIC; d. concealing the actual coverage of the policy; e. failing to obtain the insurance from an independent insurance company rather than a subsidiary; and f. effectively not obtaining a policy but instead serving as a self-insurer. 39. As the result of GMACs breach of fiduciary duty plaintiff and the class are entitled to recover the entire premium, and interest thereon paid to GMAC. 40. As the result of GMACs breach of its fiduciary duty, plaintiff and the subclass have been damaged in the sum of the cost of repairs to their vehicles or the loss of those vehicles (if turned over to GMAC to get insurance coverage). WHEREFORE, plaintiffs pray that the court: a. Enter judgment against GMAC and in favor of plaintiff and subclass members in the amount of the premium, and interest thereon, paid to GMAC. b. Enter judgment against GMAC on behalf of plaintiff and the subclass in the sum of the cost of repairs to their vehicles or the value of the vehicles. c. Grant plaintiff and the class such additional relief as the Court finds proper. COUNT IV PRELIMINARY STATEMENT 1. Count IV is brought as a class action against GMAC pursuant to the Illinois Sales Finance Agency Act, Ill. Rev. Stat., ch. 17, 5201 et seq., (hereinafter SFA) to recover damages and other relief from GMAC for its violations of the SFA. 2. The named plaintiff, Carmen Ortiz, is a resident of Cook County, Illinois. 3. The plaintiff brings this action on her own behalf and on behalf of all other persons similarly situated pursuant to 2-801 of the Illinois Code of Civil Procedure, Ill. Rev. Stat., ch. 110, 2-801. The class is composed of all persons who: a. financed purchases of motor vehicles for their own personal and/or household use through General Motors Acceptance Corporation (hereafter GMAC); b. purchased the vehicle from an automobile dealer located within the state of Illinois; c. has single interest physical damage insurance purchased for them by GMAC through Motors Insurance Corporation (hereafter MIC) after October 11, 1980. 436. Plaintiff realleges paragraphs 436 of Count I as paragraphs 436 of Count IV. CAUSE OF ACTION 37. GMAC has violated SFA 4210 by willfully violating the SFA and the rules and regulations promulgated by the Director of Financial Institutions by fraudulently misrepresenting, circumventing and concealing by subterfuge and device

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the terms, conditions, benefits and limitations of the single interest policy and failing to provide plaintiff and class members with copies of said policy. 38. GMAC has violated SFA 5215 by the use of printed forms which are misleading or deceptive with regard to the type of insurance that will be purchased upon cancellation of the buyers prior insurance. 39. GMAC has violated SFA 5217 by fraudulently misrepresenting, circumventing, concealing by subterfuge and device the type, cost, benefits and limitations of the single interest insurance purchased by GMAC for the buyer. 40. GMAC has violated MVRISA 568-569 by purchasing single interest insurance and failing to send to the buyer the policies or certificates of insurance setting forth the amount of the premium, the types of insurance, the coverages and all the terms, exceptions, limitations, restrictions and conditions of the insurance. 41. Pursuant to MVRISA 584, as a result of GMAC violations of MVRISA, it is not entitled to recover any finance charge, any delinquency or collection charge or any refinance charge in connection with the retail installment contract. 42. GMAC has charged and collected from plaintiff and class members finance charges, delinquency and collection charges and refinance charges. 43. As a result of GMACs collection of the finance charges and the other violations set forth above, plaintiff and class members have sustained loss as a result of GMACs actions and violations of SFA. 44. Pursuant to SFA 5234, plaintiff and each class member may recover any finance charge, collection charge or refinance charge paid to GMAC and an additional amount equal to 25% of the principal amount of the retail contract. WHEREFORE, plaintiff prays that this court: a. Enter judgment against the defendant GMAC and in favor of the plaintiffs and each member of the class in an amount equal to the amount of all finance charges, collection or late charges and refinance charges paid by the plaintiff and each individual class member, plus 25% of the principal amount of the retail contract of the plaintiff and each class member. b. Award plaintiffs cost and attorneys fees. c. Grant plaintiffs such additional relief as the Court deems proper. [Attorney]

D.8 State Usury Case (Adams)


IN THE CIRCUIT COURT OF COOK COUNTY, ILLINOIS COUNTY DEPARTMENT, CHANCERY DIVISION ) ) ) ) ) ) v. ) ) RECKLESS SAVINGS & ) LOAN ASSOCIATION and ) PREDATORY FINANCE ) COMPANY, ) Defendants. ) ) PATRICIA ADAMS, on behalf of herself and all others similarly situated, Plaintiff, COMPLAINT Plaintiff, Patricia Adams (Mrs. Adams), suing on behalf of herself and all others similarly situated, complains as follows against defendants Reckless Savings & Loan Association (Reckless) and Predatory Finance Company (Predatory Finance): PARTIES 1. At all relevant times, Mrs. Adams resided in a singlefamily home which she owns at [address] Chicago, Illinois. 2. Reckless is a corporation engaged in the business of extending consumer credit. Its principal place of business is located at [address] Chicago, Illinois. 3. Predatory Finance is a corporation engaged in the business of extending consumer credit. Its principal place of business is located at [address] Illinois. FACTS RELATING TO MRS. ADAMS 4. In 1988, Mrs. Adams contracted with Fix-It Remodeling for home improvement goods and services. Fix-It arranged for financing with Predatory Finance. 5. On or about May 16, 1988, Mrs. Adams signed a contract with Predatory Finance for a loan of $2,418.75 at an annual percentage rate of not less than 26.29%. Exhibit A [not attached herein] is a true and accurate copy of the contract. 6. At the same time, Mrs. Adams signed a mortgage on her home in favor of Predatory Finance to secure payment of the contract. Exhibit B [not attached herein] is a true and accurate copy of the mortgage. 7. Shortly after Mrs. Adams signed the contract and mortgage, Predatory Finance assigned them to Reckless. Exhibit C [not attached herein] is a true and accurate copy of the assignment. PRACTICES ALLEGED 8. Both Predatory Finance and Reckless extend credit to consumers using standard form contracts. Many or all of these

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standard form contracts contain a promise by the consumer to pay an amount consisting of all principal and interest. The contracts further provide that upon prepayment or acceleration (involuntary prepayment) of the indebtedness, the borrower will receive a rebate of the interest under the Rule of 78s. 9. For example, the contract signed by Mrs. Adams (Exhibit A) [not attached herein] provides: REBATE FOR PREPAYMENT: Undersigned may prepay the loan in full at any time before maturity and shall receive a rebate of unearned interest calculated in accordance with the Rule of 78s, except if the amount of the rebate is less than $1 no rebate will be made. 10. Mrs. Adams alleges, on information and belief, that the consumer credit contracts entered into by both Predatory Finance and Reckless are generally secured by mortgages on residential property in Illinois. 11. Use of the Rule of 78s in computing the amount due upon prepayment or acceleration of a mortgage will result in the borrower owing substantially more than use of the actuarial method of computing interest, under which the amount of interest due is proportionate to the amount of time the loan was outstanding. 12. On information and belief, Reckless utilized the Rule of 78s in computing the amount claimed from Mrs. Adams upon acceleration of her indebtedness. 13. The use of the Rule of 78s with respect to residential mortgages in Illinois is illegal. At all times since January 1, 1986, Ill. Rev. Stat., ch. 17, k 6404(b)(3) provided, in pertinent part: In any contract or loan which is secured by a mortgage, deed of trust, or conveyance in the nature of a mortgage, on residential real estate, the interest which is computed, calculated, charged, or collected pursuant to such contract or loan, or pursuant to any regulation or rule promulgated pursuant to this Act, may not be computed, calculated, charged, or collected for any period of time occurring after the date on which the total indebtedness, with the exception of late payment penalties, is paid in full. . . . 14. Liability for violation of k 6404(b)(3) is prescribed by Ill. Rev. Stat., ch. 17, k 6413. 15. The provision in the standard form Predatory Finance and Reckless consumer credit contracts, including that signed by Mrs. Adams, requiring the borrower to promise to repay all principal and interest, and providing for a rebate of interest under the Rule of 78s, is unlawful under k 6404(b)(3), subjecting both Predatory Finance and Reckless to the liability prescribed by k 6413. KNOWLEDGE 16. The actions of Reckless and Predatory Finance in imposing and collecting interest on residential mortgages using the Rule of 78s were knowing within the meaning of k 6413. CLASS ALLEGATIONS

Appx. D.8

17. Pursuant to 2-801 et seq. of the Illinois Code of Civil Procedure, Mrs. Adams brings this claim on behalf of a class consisting of all other persons injured by the conduct complained of. The class consists of all persons (a) who entered into credit contracts (b) which were secured by mortgages on residential real estate in Illinois and (c) which provided for the calculation of interest or finance charges upon prepayment using the Rule of 78s, and (d) which were held at any time by Reckless or Predatory Finance. 18. Mrs. Adams alleges on information and belief that the class is so numerous that joinder of all members is impractical. This belief is based on (a) the fact that Predatory Finance and Reckless used/purchased standard form contracts providing for calculation of interest using the Rule of 78s, (b) an examination of court files showing that Reckless brought suit to enforce numerous such contracts, and (c) an examination of Recklesss filings with the Savings & Loan Commissioner of Illinois. For example, during 1986 alone, Predatory Finance made more than 300 home improvement loans in Illinois. 19. There are questions of law and fact common to the class, which predominate over any questions affecting only individual members. The principal issue raised by this action is whether the provisions in the standard form contracts used by Reckless and Predatory Finance are unlawful under k 6404(a)(3). 20. The only individual questions concern (a) whether the transaction is secured by residential property and (b) the amount of liability under k 6413. This can be determined by a ministerial examination of loan files. 21. Mrs. Adams will fairly and adequately protect the interests of the class. She has retained counsel experienced in handling class actions and actions involving unlawful business practices. Neither Mrs. Adams nor her counsel have any interests which might cause them not to vigorously pursue this action. 22. A class action is an appropriate method for the fair and efficient adjudication of this controversy. WHEREFORE, Mrs. Adams requests that the Court enter judgment in her favor and in favor of the class members: a. For the amounts provided by k 6413; b. To the extent that the amounts provided by k 6413 exceed the remaining amounts due, canceling the class members mortgages; c. For attorneys fees, litigation expenses and costs; and d. For such other or further relief as the Court deems appropriate. [Attorney]

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SEVENTH CLAIM FOR RELIEF COMMON LAW FRAUD AND CONSPIRACY JURY DEMAND INTRODUCTORY STATEMENT 1. This case is brought against a finance company arising out of a revolving repossession or churning scheme whereby used cars were sold to the public by Charlie Falks Auto Wholesale, Inc. (CFAW) and financed by defendant, TranSouth Financial Corp. (TranSouth). Charlie Falks Auto Wholesale, Inc. sold the cars at extravagantly high prices, and frequently set the interest rates as high as 36%. For the period in question, over ninety-five percent (95%) of CFAWs sales were financed and one hundred percent (100%) of those were financed by TranSouth. Moreover, TranSouth often force placed collision insurance on more than the value of the car, and at unconscionably high rates, which placement was accompanied by kickbacks of the insurance premiums. Under the terms of a repurchase agreement, CFAW was obligated to buy back the loan and the car from TranSouth upon default by a customer. CFAW then assigned the loans to its own subsidiary collection agency, JB Collection Corporation (JB), for collection. 2. After default by a customer, TranSouth initiated repossession of the car and sent a false and misleading notice of private sale to the customer. In fact, the announced sale was a complete sham, and was not a commercially reasonable private sale under the law of Virginia. Instead, the car and note were merely transferred to CFAW under the terms of the repurchase agreement. In a bogus transaction, an artificially low price was then set for the car by inventing the private sale. Charles Falk, Jr., John Doe, or another Falk executive would meet or telephone Linwood Harrison, L. Smith, or another TranSouth executive and bid a low price for the car (typically $750 to $1,500), which bid would be accepted by the TranSouth executive. No check or reimbursement was ever sent from TranSouth to CFAW as a consequence of the dollar figures supposedly agreed upon during these sales, because CFAW had already paid TranSouth for the cars pursuant to the repurchase agreement. Accordingly, the dollar figures agreed upon had no economic purpose, and were entirely bogus. TranSouth and CFAW ceased holding these meetings and bogus sales immediately after this lawsuit was filed, demonstrating their understanding that the meetings were illegal and improper. No other purchaser ever attended these sales. 3. JB Collection then used that fraudulently established price as the basis for an additional fraudulent notice to the defaulting customer that a legal sale had taken place and also as the basis for a demand that the customer pay the difference between what the customer owed at the time of the default and the fraudulent price set at the non-transaction between CFAW and TranSouth. Further, when, as always happened, the customer was unable to pay the fraudulently established debt, JB used the fraudulent debt as the basis for a deficiency action against the customer. 4. Most of the cars were then resold by CFAW to new customers at prices which far exceeded the amount used as the bases for the deficiencies. Since the resale price of these cars exceeded the customers loan amount, TranSouth was obligated by law to pay a surplus to the customer; however,

D.9 RICO, Deceptive Practices and Fraud CaseRevolving Repossessions (Carr)


IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF VIRGINIA ) ) ) ) ) ) ) ) CASE NO. Plaintiffs, ) ) v. ) ) TRANSOUTH FINANCIAL ) CORPORATION ) Defendant. ) ) NELL CARR and TERRY WOOD and LOIS LEWIS and SALLY SHORE FIFTH AMENDED CLASS ACTION COMPLAINT AND JURY DEMAND Plaintiffs Nell Carr, Terry Wood, Lois Lewis and Sally Shore through their attorneys, make the following complaint against defendant TranSouth Financial Corporation. TABLE OF CONTENTS INTRODUCTORY STATEMENT THE PARTIES CO-CONSPIRATORS JURISDICTION VENUE FACTS APPLICABLE TO ALL COUNTS FACTS APPLICABLE TO NAMED PLAINTIFFS NELL CARR TERRY WOOD LOIS LEWIS SALLY SHORE CLASS ACTION ALLEGATIONS CIVIL RICO SUMMARY FIRST CLAIM FOR RELIEF VIOLATION OF FEDERAL LAW18 U.S.C. 1962(a) SECOND CLAIM FOR RELIEF VIOLATION OF FEDERAL LAW18 U.S.C. 1962(c) THIRD CLAIM FOR RELIEF VIOLATION OF FEDERAL LAW18 U.S.C. 1962(d) FOURTH CLAIM FOR RELIEF VIOLATION OF FEDERAL LAW18 U.S.C. 1962(d) FIFTH CLAIM FOR RELIEF VIOLATION OF THE VIRGINIA UNIFORM COMMERCIAL CODE SIXTH CLAIM FOR RELIEF VIOLATION OF THE VIRGINIA CONSUMER PROTECTION ACT

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TranSouth paid no surpluses to the class members. TranSouth then financed these new customers who also were highly likely to default. THE PARTIES 5. Plaintiff Nell Carr is an individual who resides at [Address]. 6. Plaintiff Terry Wood is an individual who resides at [Address]. 7. Plaintiff Lois Lewis is an individual who resides at [Address]. 8. Plaintiff Sally Shore is an individual who resides at [Address]. 9. Defendant TranSouth is a South Carolina corporation with a principal place of business at 250 Carpenter Freeway, Irving, Texas with offices, at times pertinent hereto, at 3420 Holland Road, Virginia Beach, Virginia. At all times pertinent herein, TranSouth engaged in the acquisition of loans assigned to it by CFAW and, upon default by a customer transferred those loans and collateral back to CFAW, pursuant to the terms of a repurchase agreement with CFAW. CO-CONSPIRATORS 10. Conspirator CFAW is a Virginia corporation with a principal place of business at 536 West 21st Street, Norfolk, Virginia. At all times pertinent herein, CFAW was engaged, inter alia, in the sale of high mileage used cars to individuals with poor credit ratings and the arranging of financing for such sales through TranSouth. 11. Conspirator JB is a Virginia corporation with its principal place of business at 536 West 21st Street, Norfolk, Virginia. At all times pertinent herein, JB was a subsidiary of CFAW and was engaged in the business of collecting on defaulted loans for CFAW. 12. The defendant and the conspirators participated as coconspirators with each other and various other persons, firms and entities in the offenses charged, and have performed acts and made statements in furtherance thereof. JURISDICTION 13. This Court has subject matter jurisdiction over this action pursuant to 18 U.S.C. 1964(c) (RICO), 28 U.S.C. 1331 (Federal Question), and 28 U.S.C. 1367 (Supplemental Jurisdiction). VENUE 14. Venue is proper in this District because, under 28 U.S.C. 1391(b), a substantial part of the events giving rise to claims herein occurred within this District. FACTS APPLICABLE TO ALL COUNTS 15. CFAW sold high mileage used automobiles at extravagant prices in the Tidewater area of Virginia from eight locations to people with poor credit. 16. CFAW arranged financing for its customers with TranSouth and frequently set the interest rates on the loans as high as 36%, dramatically reducing the likelihood that the purchaser could pay off the loan.

Appx. D.9
17. These security agreements were set forth on forms provided to CFAW by TranSouth. 18. Under a Repurchase Agreement, CFAW agreed with TranSouth to repurchase the loans, and pay off remaining principal to TranSouth in the event of a default by a customer. 19. TranSouth, when notified that a class member failed to place or keep collision insurance, force placed collision insurance through National Underwriters, Inc., for more than the value of the car, at unconscionably high rates, and received kickbacks from the insurer or broker. These excessive premiums were separately billed to the class member and made it even more likely that the class member would default. 20. In the event of default by a customer, TranSouth began the process of repossessing the automobiles from the purchasers. In most cases TranSouth hired a wholly owned subsidiary of CFAW to repossess the cars. 21. Upon repossession of a car, TranSouth sent a notice of private sale to the cars owner, with a cc to CFAW. The notice ostensibly provided an opportunity to the cars owner to redeem the car by payment of any deficiency. In the event the owner failed to do so, the notice announced that the repossessed car would be sold at a private sale. The letter was designed to give the defaulting customer assurances that the customers collateral was being liquidated legally and legitimately and to thus lull the customer into a false sense of legitimacy preventing the customer from taking action such as retaining an attorney. The letter succeeded in this respect. 22. The reason that TranSouth sent these notices of private sale was that CFAW insisted that TranSouth do so, and it was a precondition of doing business with CFAW. See Memo from Lance to Neil, January 22, 1992, HW 439, attached as Exhibit 1 hereto [not reprinted herein]. Doing business with CFAW was highly profitable for TranSouth, and TranSouth was willing to engage in the bogus transactions as a means of continuing that profit. 23. The notice also represented to the defaulting customer that he or she had until a date certain to redeem the repossessed car, a fact which Transamerica knew was false under Virginia law. 8.9-506, Code of Virginia. 24. TranSouth also utilized the scheme to give itself the opportunity to issue force placed insurance to a number of class members valued at more than the value of the car and at unconscionably high rates which in part were kicked back to TranSouth. TranSouth was intimately aware of nearly every aspect of CFAWs business. CFAWs employees provided a good deal of information to TranSouth, at TranSouths request. See Letter from Stewart to Falk, February 2, 1993, HW 282, attached as Exhibit 2 hereto [not reprinted herein]. TranSouth employees met with CFAW accountants and attorneys, toured CFAWs headquarters, and the like. See letter from Cole to Falk, March 18, 1992, attached as Exhibit 3 hereto [not reprinted herein]. TranSouth had access to audits of CFAWs business. See Memo from Stewart to Neil, November 24, 1992, HW 468, attached as Exhibit 4 hereto [not reprinted herein]. TranSouth advised CFAW on its various obligations under the U.C.C. See, e.g., Memo from Lance to Neil, January 22, 1992, HW 439, attached as Exhibit 1 hereto. Transouth made a great deal of money from the scheme. See internal TranSouth memo from B. D. Davis to J. J. Abbott on December 11, 1989, at-

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fraudulent and fictitious price. In some cases, the subsequent sales price of the car paid to CFAW by the next consumer was greater than the original price paid by the consumer who defaulted. By law, if the actual sales price exceeded the amount of the customers loan, TranSouth was obligated to pay this surplus back to the customer. In fact, no surplus sums were paid to plaintiffs or the Class and the defaulting customer was never advised of the amount of the subsequent actual sale. FACTS APPLICABLE TO NAMED PLAINTIFFS A. NELL CARR 34. Plaintiff Nell Carr bought a used 1988 Pontiac LeMans from CFAW on May 16, 1992. The cash price was $6,525. 35. TranSouth financed the loan. 36. After the sale, Ms. Carr defaulted on the loan. The car was repossessed by TranSouth and CFAW. 37. On June 16, 1992, TranSouth issued, through the use of the U.S. mails, a knowingly fraudulent notice of private sale to Ms. Carr. That notice is attached hereto as Exhibit 10 [not reprinted herein]. Ms. Carr received the notice, and read the notice. Ms. Carr did not learn from the notice the fact that TranSouths operation was not proceeding according to law. Ms. Carr did not redeem the car. 38. Instead of holding a legally sufficient sale of the collateral as set forth in the TranSouth notice, TranSouth merely transferred the car back to CFAW. Separately, TranSouth and CFAW agreed to set a fictitious and fraudulent sales price at only $1,000. 39. After transfer of the car and the loan from TranSouth to CFAW, the establishment of the fraudulent sales price, and assignment of the loan by CFAW to JB for collection, JB, through the use of the U.S. mails, issued a fraudulent demand letter to Ms. Carr on August 17, 1992. The letter, using the fraudulent $1,000 figure as the basis for setting an alleged deficiency at $3,661.96 is attached as Exhibit 11 [not reprinted herein]. 40. On July 6, 1992, JB brought suit against Ms. Carr, through the use of the U.S. mails, in the General District Court of the City of Virginia Beach, Virginia, seeking a judgment for this fraudulently calculated deficiency, plus a 25% attorneys fee (although JB did not file suit using an attorney). The suit is attached as Exhibit 12 [not reprinted herein]. 41. On July 29, 1992, the car which had been repossessed from Ms. Carr was sold off the lot by CFAW to a new customer Susan Lord, for $6,900; this was $375 more than Ms. Carr had originally paid for it. No surplus was paid by CFAW, TranSouth, or JB to Ms. Carr, and Ms. Carr was never told the sum for which collateral was sold. 42. Plaintiff further reasonably relied to her detriment upon the statement in Exhibit 11 [not reprinted herein] that her car had been sold for a particular figure in concluding that the sale of her collateral had proceeded legally and legitimately. Ms. Carr did not seek the assistance of counsel to protect her interest and secure her rights under the law. 43. If Ms. Carr had then suspected that TranSouths operation was illegal and illegitimate, she would have sought the assistance of counsel to protect her interests and secure her rights under the law.

tached as Exhibit 5 hereto [not reprinted herein], stating that CFAW repurchases TranSouths repossessions and has paid us over $140,000 in repos in November alone. 25. In particular, TranSouth was intimately aware that an extraordinarily high volume of repossessions was a centerpiece of CFAWs business. See, e.g., Memo from Newman to Abbott, November 22, 1989, attached as Exhibit 6 hereto [not reprinted herein] (TranSouth aware of role of repossessions a large part of CFAWs business); Memo from Cole to Credit Committee, April 11, 1990, and attachments, attached as Exhibit 7 hereto [not reprinted herein] (CFAW sent TranSouth a Wall Street Journal article about a used car dealer with very high repossessions; TranSouth understood it to be an indication of CFAWs hopes for its own business). TranSouth employees praised CFAW for properly handling and understanding repossessions. See Memo from Davis to Abbott, December 11, 1989, attached as Exhibit 8 hereto [not reprinted herein]. Finally, and most seriously, TranSouth actually wanted CFAW to have more repossessions, and communicated that hope to CFAW, in a November 19, 1992 letter from Dennis Cole (TranSouth) to Charles Falk, Sr. (Exhibit 9 hereto) stating that TranSouths repossessions are not yet large and [o]f course, to have more repossessions we must book more loans and we will need your help to achieve this. (Emphasis added). 26. TranSouth never sold these repossessed cars at commercially reasonable private sales. Instead, TranSouth transferred the cars back to CFAW pursuant to its repurchase agreement with CFAW. CFAW then eventually again sold the cars off its lot, often at or above the price charged to the original defaulting customer. 27. The transfer of a repossessed automobile back to CFAW under the terms of a repurchase agreement is not a legal sale of the collateral. The sale of the collateral announced by TranSouths fraudulent letter in fact did not take place as suggested by the letter. Instead, CFAW and TranSouth merely set bogus prices, in transactions described above, which were grossly undervalued in relation to the original price of the car paid by the customer, and in relation to the subsequent sales price which CFAW obtained from the next consumer in this scheme. 28. JB then used the fictional and fraudulent sales price cooked up between TranSouth and CFAW as the basis for a fraudulent demand letter, calculating the deficiency allegedly owed by the defaulting customer and threatening suit if the fraudulently calculated deficiency was not paid. 29. CFAW and JB thereafter used the false and artificially low private sale price which was set between CFAW and TranSouth as a basis for a subsequent collection action filed against the customer in a district court in Virginia. 30. After the transfer of repossessed cars from TranSouth to CFAW pursuant to their contractual arrangement, CFAW assigned the loans to JB for collection. 31. JB shared common officers and directors with CFAW and pursued collection actions only for CFAW. 32. In every action brought by JB against every class member, the amount of the alleged deficiency was based upon the false and fraudulent price for the car agreed upon between CFAW and TranSouth. 33. CFAW then sold the car to the next customer in this churning scheme at a price which was much greater than the

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B. TERRY WOOD 44. Plaintiff Terry Wood bought a used 1987 Pontiac Sunbird from CFAW on September 9, 1991. The cash price was $6,000. 45. TranSouth financed the loan. 46. Ms. Wood defaulted on the loan. The car was repossessed by TranSouth and CFAW. 47. Shortly thereafter, in or about November 1991, TranSouth issued, through the use of the U.S. mails, a knowingly fraudulent notice of private sale to Ms. Wood. That notice is attached hereto as Exhibit 13 [not reprinted herein]. Ms. Wood received the notice, and read the notice. Ms. Wood did not learn from the notice the fact that TranSouths operation was not proceeding according to law. Ms. Wood did not redeem the car. 48. Instead of holding a legally sufficient sale of the collateral, as set forth in the TranSouth notice, TranSouth merely transferred the car back to CFAW. Separately, TranSouth and CFAW agreed to set a fictitious and fraudulent sales price. 49. After transfer of the car and the loan from TranSouth to CFAW, the establishment of the fraudulent sales price, and assignment of the loan by CFAW to JB for collection, JB issued a fraudulent demand letter in or about December 1991, through the use of the U.S. mails, to Ms. Wood. The letter used the fictitious sales figure as the basis for setting an alleged deficiency. 50. On January 14, 1992, the same car which had been repossessed from Ms. Wood was sold by CFAW for $6,300 to Roger Thorpe. This was $300 more than Ms. Wood had originally paid for it. No surplus was paid by CFAW, TranSouth, or JB to Ms. Wood, nor was she ever advised of the sale or the amount of the sale of her collateral. 51. On May 20, 1992, four months after selling the car for $6,300, JB sued Ms. Wood, through the U.S. mails, in the General District Court of the City of Virginia Beach, Virginia seeking a fraudulent deficiency judgment in the amount of $3,586.22, plus attorneys fees (although JB did not file suit using an attorney). That lawsuit is attached as Exhibit 14 [not reprinted herein]. 52. Plaintiff further reasonably relied to her detriment upon the statement that her car had been sold for a particular figure in concluding that the sale of her collateral had proceeded legally and legitimately. 53. If Ms. Wood had then suspected that TranSouths operation was illegal and illegitimate, she would have sought the assistance of counsel to protect her interests and secure her rights under the law. Ms. Wood did not seek the assistance of counsel to protect her interest and secure her rights under the law. C. LOIS LEWIS 54. Plaintiff Lois Lewis bought a used 1988 Chevrolet Corsica from CFAW on May 7, 1991. The cash price was $7,475. 55. TranSouth financed the loan. 56. On April 14, 21, 22 and 23, 1992, TranSouth wrote to Ms. Lewis about the serious past due nature of [her] account, threatening her credit standing and her collateral.

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57. Ms. Lewis defaulted on the loan. The car was repossessed by TranSouth and CFAW. 58. On June 4, 1992, TranSouth issued, through the use of the U.S. mails, a knowingly fraudulent notice of private sale to Ms. Lewis. That notice is attached hereto as Exhibit 15 [not reprinted herein]. Ms. Lewis received the notice, and read the notice. Ms. Lewis did not learn from the notice the fact that TranSouths operation was not proceeding according to law. Ms. Lewis did not redeem the car. 59. Instead of holding a legally sufficient sale of the collateral, as set forth in the TranSouth notice, TranSouth merely transferred the car back to CFAW on May 21, 1992. Separately, TranSouth and CFAW agreed to set a fictitious and fraudulent sales price of $1,100. 60. On September 9, 1992, the car which had been repossessed from Ms. Lewis was sold off the lot by CFAW to new customers, A. Douglas and Tina North, for $7,350. This was only $125 less than Ms. Lewis had originally paid for it. No surplus was paid by CFAW, TranSouth, or JB to Ms. Carr, nor was she ever advised of the sale or the amount of the sale of her collateral. 61. After transfer of the car and the loan from TranSouth to CFAW, the establishment of the fraudulent sales price, and assignment of the loan by CFAW to JB for collection, JB issued a fraudulent demand letter to Ms. Lewis on November 2, 1992, through the use of the U.S. mails. The letter, using the fictitious $1,100 figure as the basis for setting an alleged deficiency at $3,647.33, is attached hereto as Exhibit 16 [not reprinted herein]. 62. On November 27, 1992, two months after selling the car for $7,350, JB brought suit against Ms. Lewis, through the use of the U.S. mails, in the general District Court of the City of Virginia Beach, Virginia, seeking a judgment for this fraudulent alleged deficiency, plus a 25% attorneys fee (although JB did not file suit using an attorney). That lawsuit is attached as Exhibit 17 [not reprinted herein]. 63. Plaintiff further reasonably relied to her detriment upon the statement in Exhibit 16 [not reprinted herein] that her car had been sold for a particular figure in concluding that the sale of her collateral had proceeded legally and legitimately and in failing to seek the assistance of counsel to protect her interest and secure her rights under the law. 64. If Ms. Lewis had then suspected that TranSouths operation was illegal and illegitimate, she would have sought the assistance of counsel to protect her interests and secure her rights under the law. D. SALLY SHORE 65. Plaintiff Sally Shore bought a used 1984 Dodge Aries from CFAW on August 21, 1987. The cash price was $6,492.00. 66. TranSouth financed the loan. 67. Ms. Shore defaulted on the loan. The car was repossessed by TranSouth and CFAW. 68. On October 28, 1988 TranSouth issued, through the use of the U.S. mails, a knowingly fraudulent notice of private sale to Ms. Shore. Ms. Shore received the notice, and read the notice. Ms. Shore did not learn from the notice the fact that TranSouths operation was not proceeding according

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78. There are numerous questions of law and fact common to the Class. Such common questions include, but are not limited to: (a) the acts and practices of conspirators in the scheme described in paragraphs 15 through 74 above; (b) the fraudulent and illegal nature of the conspirators practices; (c) the contractual, conspiratorial and illegal relationships among conspirators; (d) the applicability of Public Law 91-452 to the activities of the conspirators; (e) the existence of an enterprise and a pattern of unlawful activity with respect to conspirators under that law; (f) the commission by conspirators of numerous acts of mail fraud in furtherance of their scheme; (g) the violation of state common law and state statutory provisions by all conspirators in a uniform and fraudulent scheme; (h) whether the repossessed vehicles were sold in a commercially reasonable manner; (i) whether TranSouth sent or directed the sending of knowingly false letters through the mail. 79. Plaintiffs are members of the Class, and their claims are typical of other class members claims in that, like all class members, each named plaintiff purchased a car from CFAW, financed the purchase of that car through TranSouth, defaulted on the loan, received improper, fraudulent and deceptive notices of private sale from TranSouth, were sued or threatened with suits for deficiencies by JB, using fraudulent and fictitious figures to calculate an alleged deficiency, and were denied a credit or surplus of the sums actually resulting from subsequent sales. In many cases, their repossessed cars were subsequently sold by CFAW at prices which far exceeded the prices used to set the alleged deficiencies, and far exceeded the amount owed by the defaulting purchaser at the time of the default, but no surplus sums were paid to them. 80. Plaintiffs are adequate representatives of the Class interests in that they will and have vigorously pursued this action on behalf of the entire Class, have no conflicts with the Class, have interests completely coincident with the Class interests, and have retained experienced Class counsel to represent them. 81. Questions of law and fact common to the Class, including the legal and factual issues relating to operation of the scheme described herein by defendant, and the liability and the nature of the relationships among the conspirators, predominate over any questions affecting only individual members. 82. A class action is superior to other available methods for the fair and efficient adjudication of this controversy: the Class is readily definable, and can be easily identified by examination of defendants records; prosecution of this case as a class action will eliminate the possibility of repetitious litigation and will provide redress for claims which otherwise may be too small to support the expense of individual, complex litigation against the defendants; there are no problems which would make this case difficult to manage as a class action.

to law. That notice is attached hereto as Exhibit 18 [not reprinted herein]. Ms. Shore did not redeem the car. 69. Instead of holding a legally sufficient sale of the collateral, as set forth in the TranSouth notice, TranSouth merely transferred the car back to CFAW. Separately, TranSouth and CFAW agreed to set a fictitious and fraudulent sales price of only $1,500. 70. After transfer of the car and the loan from TranSouth to CFAW, the establishment of the fraudulent sales price, and assignment of the loan by CFAW to JB for collection, JB, through the use of the U.S. mails, issued a fraudulent demand letter to Ms. Shore on December 27, 1988. The letter, using the fictitious $1,500 figure as the basis for setting an alleged deficiency at $2,743.85, is attached hereto as Exhibit 19 [not reprinted herein]. 71. On February 16, 1989, JB brought suit against Ms. Shore, through the use of the U.S. mails, in the General District Court of the City of Virginia Beach, Virginia, seeking a fraudulent deficiency judgment in the amount of $2,743.85, plus interest and costs. That lawsuit is attached as Exhibit 20 [not reprinted herein]. 72. On May 20, 1989, the car which had been repossessed from Ms. Shore was sold off the lot by CFAW to a new customer for $6,300; this was only $192 less than Ms. Shore had originally paid for it. No surplus was paid by CFAW, TranSouth, or JB to Ms. Shore, nor was she ever advised of the sale or the amount of the sale of her collateral. 73. Plaintiff further reasonably relied to her detriment upon the statement in Exhibit 19 [not reprinted herein] that her car had been sold for a particular figure in concluding that the sale of her collateral had proceeded legally and legitimately and in failing to seek the assistance of counsel to protect her interest and secure her rights under the law. 74. If Ms. Shore had then suspected that TranSouths operation was illegal and illegitimate, she would have sought the assistance of counsel to protect her interests and secure her rights under the law. CLASS ACTION ALLEGATIONS 75. Plaintiffs bring this action on behalf of themselves and on behalf of a class of similarly situated persons pursuant to Fed. R. Civ. P. 23. The Class is defined as follows: All persons who purchased cars from Charlie Falks Auto Wholesale, Inc., entered into Security Agreements with Charlie Falks Auto Wholesale, Inc. to finance such purchases, whose loans were assigned by Charlie Falks Auto Wholesale, Inc. to TranSouth Financial Corporation, and who defaulted on their loans and did not redeem their cars after repossession by TranSouth and/or Charlie Falks Auto Wholesale, Inc. 76. Members of the class number above two thousand, five hundred. The exact identity of each class member in this case is on file in this Court. 77. Members of the Class are so numerous that joinder of all of them is impracticable.

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CIVIL RICO SUMMARY 83. In connection with the activities giving rise to this action, the defendant acted with malice, intent, and knowledge, and with a wanton disregard of the rights of named plaintiffs and the Class herein. 84. During relevant times herein, the enterprise described below was engaged in interstate commerce in that inter alia, the used cars which are the subject of the scheme to defraud were used and transported in interstate commerce. 85. During relevant times herein, in connection with the activities giving rise to this action, the defendant conspired with each of the other conspirators to engage in the various activities set forth herein, agreed to participate in the operation of the conspiracy to defraud the named plaintiffs and Class members herein, and aided and abetted one another in these activities, all as proscribed as set forth further herein below. 86. As set forth herein, during the relevant times, and in furtherance of and for the purpose of executing the scheme and artifice to defraud, the defendant and conspirators on numerous occasions used and caused to be used mail depositories of the United States Postal Service by both placing and causing to be placed mailable matters in said depositories and by removing and causing to be removed mailable matter from said depositories. Each such use of the U.S. mails in connection with the scheme and artifice to defraud constituted the offense of mail fraud as proscribed and prohibited by 18 U.S.C. 2, 1341. These instances of mail fraud were a substantial factor in the sequence of responsible causation; and the injuries to plaintiffs and the class were reasonably foreseeable or anticipated as a natural consequence of the mail fraud; and plaintiffs and the class suffered damages by reason of the mail fraud. FIRST CLAIM FOR RELIEF VIOLATION OF FEDERAL LAW18 U.S.C. 1962(a) 87. The allegations of paragraphs 1 through 86 are incorporated herein by reference as if fully set forth. 88. Each Plaintiff and each class member is a person within the meaning of 18 U.S.C. 1961(3) and 1964(c). 89. The Defendant and each of the other conspirators is a person within the meaning of 18 U.S.C. 1961 (3) and 1962 (a). 90. Through the repurchase agreement and other agreements between TranSouth and CFAW, and through the contractual arrangement and joint management activity between CFAW and JB, defendant formed an association-in-fact with the other conspirators which constitutes an enterprise engaged in illegal activities affecting interstate commerce pursuant to 18 U.S.C. 1961(4) and 1962(a). 91. Each of the conspirators was associated with this enterprise and did use or invest income derived from a pattern of unlawful activity under 18 U.S.C. 1961(1) and (5) to operate, maintain control of, and maintain an interest in the enterprise. 92. These unlawful activities included multiple instances of mail fraud in the issuance of false and deceptive notices of private sale, multiple instances of mail fraud in the issuance of false and deceptive demand letters, multiple instances of

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mail fraud in the issuance and collection of unconscionably and fraudulently high premiums on force placed insurance, multiple instances of mail fraud in the receipt of sums representing kickbacks of premiums from the insurer or broker, and multiple instances of mail fraud in the issuance of service of process and pleadings on named plaintiffs and Class members herein in improper deficiency suits filed against them in General District Courts in Virginia, all in violation of 18 U.S.C. 2, 1341. 93. The purpose of the defendants and conspirators association-in-fact was to sell cars, to sell fraudulently high force placed insurance, and to give effect to the revolving repossession and churning scheme described above. This association-in-fact by defendant and the other conspirators enabled them to sell cars and force placed insurance and to defraud the public by selling and reselling used cars at very high prices and exorbitant interest rates; defendant and the other conspirators were then able to create improperly calculated deficiencies after default, and to collect deficiencies which were not properly due while CFAW actually resold the used cars to new customers, thereby starting the churning cycle once again. 94. The association-in-fact had a common or shared purpose, that is to sell cars, to sell force placed insurance, to defraud members of the public, to give effect to the revolving repossession and churning scheme described above, and had a distinct division of labor. It continued as a unit, with a core membership, over a substantial period of time and was an ongoing organization established for an economic motive. The association-in-fact remained viable and active at the time this action was filed. 95. In this association-in-fact, CFAW made the initial contact with the consumer through advertising in commercial media. CFAW set the initial price for the car, and, with TranSouth, the initial interest rate on loans and terms of repayment. 96. CFAW actively participated in and negotiated the terms of its repurchase agreement(s) with TranSouth. The improper use of repurchase agreements permitted CFAW and TranSouth to create artificially low bid or transfer prices for repossessed cars, and these bid prices were then used to calculate improperly inflated deficiency amounts upon default by customers. 97. CFAW also participated in repossession of the vehicles by contracting with TranSouth to repossess cars and to hold them on CFAW lots pending formal transfer of title from TranSouth back to CFAW. 98. CFAW and TranSouth played a substantial role in initiating collection actions and in the issuance of false and fraudulent demand letters by JB to customers who had defaulted in that CFAW and TranSouth set the fraudulent price which was used as the basis of the amount sought as a deficiency. 99. Surplus monies received over and above actual deficiencies in subsequent sales of repossessed cars to the general public off CFAW used car lots should have been refunded to the previous consumer in this scheme, but were not. These improperly retained funds were then reinvested in the enterprise alleged herein and used in its operation. 100. TranSouth utilized this scheme to generate a large volume of very high interest loans with little or no appreciable

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chaser, or in much smaller actual deficiencies which were never revealed or credited to the defaulting purchaser. TranSouth again financed the high interest rate subsequent loans, at no risk, for a huge profit. 106. All of these activities of the association-in-fact form a pattern, continuous in nature, which consists of numerous unlawful individual acts directed to each named plaintiff and to each class member. The illegal activities of defendants persisted over an extended period of time. Each fraudulent letter and notice by TranSouth, each fraudulently high force placed insurance premium invoice, each receipt of a kickback from the broker or insurer, and each fraudulent letter and pleading by JB were acts in furtherance of the conspiracy for which the defendant is liable. The reliance of the plaintiff and the members of the class on the falsehoods contained in such documents, and on the omissions of information such as the subsequent sales price of the repossessed vehicles, was reasonable and justified because such documents would and did cause persons of ordinary experience to be convinced of the legality and regularity of the process and to refrain from defending what appeared to be a justifiable lawsuit. 107. These activities of the defendant and other conspirators entailed multiple instances of mail fraud consisting of intentional mail fraud intended to induce, and inducing, plaintiffs and the class to part with property and/or to surrender legal rights in violation of 18 U.S.C. 2, 1341. 108. Through the use of this illegal and fraudulent scheme, and through its efforts to operate and maintain the enterprise described herein and to maintain the conspiracy to churn vehicles, and to create illegal profits, the defendant and other conspirators have been able to retain money which is rightfully payable to plaintiffs and Class members, and to collect money not properly due from plaintiffs or Class members. 109. Defendant and the other conspirators retained these illegally gained funds and reinvested and used those funds in their operations in violation of 18 U.S.C. 2, 1962(a). 110. Plaintiffs and all class members have been injured in their property by reason of the operation of the enterprise in this unlawful manner. WHEREFORE, plaintiffs seek judgment against the defendant, on behalf of themselves and the Class herein, consisting of their actual damages suffered as a result of the illegal acts set forth herein, including amounts improperly collected from them pursuant to deficiency judgments obtained by JB Collection, amounts improperly collected through payment of force placed insurance premiums, and surplus amounts received by CFAW on the resale of cars transferred to CFAW by TranSouth, plus treble damages, plus reasonable costs and attorneys fees, plus pre and post judgment interest, plus such further relief as this Court deems appropriate. SECOND CLAIM FOR RELIEF VIOLATION OF FEDERAL LAW18 U.S.C. 1962(c) 111. The allegations of paragraphs 1110 are incorporated herein by reference as if fully set forth. 112. Each Plaintiff and each class member is a person within the meaning of 18 U.S.C. 1961(3) and 1964(c).

risk. To further the scheme, TranSouth issued false and deceptive notices of private sale which were intended to and which did mislead the public about its repossession and redemption rights. 101. Each member of the class was sent TranSouths notices. 102. TranSouths notices (which contained fraudulent and false statements made to plaintiffs and members of the class) and private sales were intended to and did assure the plaintiffs herein and the class that the repossession and liquidation of their collateral was proceeding legitimately and legally, and influenced the plaintiffs and the class to accept the process without question, thus depriving plaintiffs and the class of the opportunity to assert a meritorious defense to JBs deficiency suit or seek other available legal remedies. The plaintiffs and members of the class received the impression from the TranSouth notice of sale letter that the liquidation of their collateral was proceeding legally and legitimately. Plaintiffs and the class members did not learn from the notices the fact that TranSouths operation was not proceeding according to law. If plaintiffs and the class members had then suspected that TranSouths operation was illegal and illegitimate, they would have sought the assistance of counsel to protect their interests and secure their rights under the law. None of plaintiffs or class members did seek the assistance of counsel, however, because of their reasonable reliance upon the deceptive notices of sale. No member of the class redeemed his or her automobile. Plaintiffs and the Class reasonable reliance on the notices of private sales (by not asserting a meritorious defense or seeking other remedies) enabled the scheme to continue, and thus was one proximate cause of the damages suffered by plaintiffs and the class. 103. TranSouths false and fraudulent notices of private sale furthered the purposes of the enterprise described herein, that is, to generate subsequent sales of the same cars for CFAW at inflated prices, to generate a high rate of force placed insurance, to create improper deficiency amounts which CFAW attempted to collect through JB, and to permit CFAW to retain and reinvest surplus funds otherwise owed to class members as a result of post-repossession sales. TranSouth participated in a massive fraud, an illegal and profitable scam, which took advantage of the plaintiffs, and the class reasonable reliance on the apparent legitimacy of the operation. 104. JBs role in this scheme was to issue deceptive, threatening demand letters, and to pursue collection actions against consumers who have defaulted. The dunning letters, threats, and collection actions had as their bases the improperly calculated deficiency amounts based on the repurchase transaction and the contractual, conspiratorial, and fraudulent transfer of collateral between TranSouth and CFAW. The class relied upon the JB dunning letter as establishing that the liquidation of their collateral announced by the earlier fraudulent TranSouth notice of sale letter had proceeded legally and legitimately. 105. JB then proceeded to collect or attempt to collect sums from consumers which were not properly due under the law. These sums were then invested in the enterprise described herein and used in its operation. CFAW actually sold the repossessed cars on the open market at prices which either resulted in surpluses which were never paid the defaulting pur-

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113. Defendant and each of the other co-conspirators are persons within the meaning of 18 U.S.C. 1961(3) and 1962 (c). 114. The association-in-fact described in the First Claim for Relief above was an enterprise within the meaning of 18 U.S.C. 1961(4) and 1962(c), which enterprise was engaged in, and the activities of which affect, interstate commerce. 115. Defendant was associated with the enterprise through its repurchase agreement, and its fraudulent force placed insurance and kickback scheme, and participated in its management and operation by directing its affairs and by executing the repurchase agreement and assisting in the car churning scheme. The defendant participated, directly and indirectly, in the conduct of the enterprises affairs through a pattern of unlawful activity under 18 U.S.C. 1961 (1), consisting of multiple acts of mail fraud, in violation of 18 U.S.C. 3, 1341. 116. The unlawful activity described in the foregoing paragraphs consists of multiple instances of mail fraud in violation of 18 U.S.C. 2, 1341, including, inter alia, issuance of illegal, deceptive and fraudulent notices of private sale by TranSouth to customers of CFAW, the issuance of multiple illegal, deceptive and fraudulent invoices for force placed insurance, the receipt of multiple illegal and fraudulent kickbacks, and the issuance of illegal, deceptive and fraudulent demand letters, pleadings and process by JB with respect to collection actions against defaulted CFAW customers. WHEREFORE, plaintiffs seek judgment against TranSouth on behalf of themselves and the Class herein, consisting of their actual damages suffered as a result of the illegal acts set forth herein, including amounts improperly collected from them pursuant to deficiency judgments obtained by JB, amounts improperly collected through payment of force placed insurance premiums, and surplus amounts received by CFAW on the resale of cars transferred to CFAW by TranSouth, plus treble damages, plus reasonable costs and attorneys fees, plus pre and post judgment interest, plus such further relief as this Court deems appropriate. THIRD CLAIM FOR RELIEF VIOLATION OF FEDERAL LAW18 U.S.C. 1962(d) 117. The allegations of paragraphs 1116 are incorporated herein by reference as if fully set forth. 118. Plaintiffs and each member of the Class are persons within the meaning of 18 U.S.C. 1961(3) and 1964(c). 119. The defendant and the other conspirators are persons within the meaning of 18 U.S.C. 1961(3) and 1962(d). 120. The association-in-fact described in the First Claim for Relief above was an enterprise within the meaning of 18 U.S.C. 1961(4) and 1962(a), which enterprise was engaged in, and the activities of which affect interstate commerce. 121. The defendant and each of the other conspirators were associated with the enterprise described herein, and conspired within the meaning of 18 U.S.C. 1962(d) to violate 1962(a). 122. Defendant and the other conspirators conspired to use or invest income derived from a pattern of unlawful activ-

Appx. D.9
ity under 18 U.S.C. 1961 (1) to operate, maintain control of, and maintain an interest in the enterprise and have done so through a pattern of unlawful activity including under 18 U.S.C. 1961(1), inter alia, multiple instances of mail fraud in violation of 18 U.S.C. 2, 1341. 123. Each named plaintiff and each Class member has suffered injury to his property within the meaning of 18 U.S.C. 1964(c) by reason of the commission of overt acts constituting illegal activity in violation of 18 U.S.C. 1961(1), 1962(d). WHEREFORE, plaintiffs seek judgment against defendant TranSouth, on behalf of themselves and the Class herein, consisting of their actual damages suffered as a result of the illegal acts set forth herein, including amounts improperly collected from them pursuant to deficiency judgments obtained by JB, amounts improperly collected through payment of force placed insurance premiums, and surplus amounts received by CFAW on the resale of cars transferred to CFAW by TranSouth, plus treble damages, plus reasonable costs and attorneys fees, plus pre and post judgment interest, plus such further relief as this Court deems appropriate. FOURTH CLAIM FOR RELIEF VIOLATION OF FEDERAL LAW18 U.S.C. 1962(d) 124. The allegations in paragraphs 1-123 are incorporated herein by reference as if fully set forth. 125. Plaintiffs and each class member are persons within the meaning of 18 U.S.C. 1961(3) and 1964(c). 126. Defendant and each other conspirator are persons within the meaning of 18 U.S.C. 1961(3) and 1962(d). 127. The association-in-fact described in the First Claim for Relief above was an enterprise within the meaning of 18 U.S.C. 1961(4) and 1962(c), which enterprise was engaged in, and the activities of which affect, interstate commerce. 128. Defendant was associated with and participated in the operation of the enterprise and conspired within the meaning of 18 U.S.C. 1962(d) to violate 18 U.S.C. 1962(c). Defendant conspired with the other conspirators to conduct or participate, directly or indirectly, in the conduct of the affairs of the enterprise in relationship to the Class and to named plaintiffs, through a pattern of unlawful activity, including under 18 U.S.C. 1961(1), inter alia, multiple instances of mail fraud in violation of 18 U.S.C. 2, 1341. 129. Each named plaintiff and each Class member has suffered injury to his property within the meaning of 18 U.S.C. 1964(c) by reason of the commission of overt acts constituting illegal activity in violation of 18 U.S.C. 1961(1), 1962(d). WHEREFORE, plaintiffs seek judgment against TranSouth on behalf of themselves and the Class herein, consisting of their actual damages suffered as a result of the illegal acts set forth herein, including amounts improperly collected from them pursuant to deficiency judgments obtained by JB Collection, amounts improperly collected through payment of force placed insurance premiums, and surplus amounts received by CFAW on the resale of cars transferred to CFAW by TranSouth, plus treble damages, plus reasonable costs and attorneys fees, plus pre and post judgment interest, plus such further relief as this Court deems appropriate.

247

Appx. D.9

Consumer Class Actions: A Practical Litigation Guide


139. These violations caused plaintiffs to suffer actual damages. WHEREFORE plaintiffs seek judgment against defendant TranSouth, on behalf of themselves and the Class herein, for all sums due them after the sales of their repossessed cars by CFAW pursuant to the terms of the Virginia Uniform Commercial Code, including any surplus sums received by CFAW on resale of repossessed cars, plus a sum equal to the credit service charge imposed on each of them, plus 10% of the principal pursuant to 8.9-507 of the Code of Virginia, plus pre and post judgment interest, plus such further relief as this Court deems appropriate. SIXTH CLAIM FOR RELIEF VIOLATION OF THE VIRGINIA CONSUMER PROTECTION ACT 140. The allegations of paragraphs 1 through 139 are incorporated herein by reference as if fully set forth. 141. The sales and subsequent repossessions of the vehicles described herein were consumer transactions as defined in 59.1-198(A) of the Code of Virginia, otherwise known as the Virginia Consumer Protection Act of 1977. 142. The defendant engaged and conspired to engage in deceptive and fraudulent practices under that Act by, inter alia: a. misrepresenting to the named plaintiffs and to Class members, or failing to inform named plaintiffs or class members of the time, place and nature of proper repossession sales with respect to their consumer goods; b. misleading the named plaintiffs and Class members herein regarding their rights of redemption; c. failing to account for surplus achieved by defendants in actual private sales after repossession of the cars purchased by named plaintiffs and Class members herein; d. failing to deal with the named plaintiffs and Class members in good faith; e. failing to hold a commercially reasonable sale of repossessed collateral with respect to each named plaintiff and each Class member herein; f. insuring the automobiles for more than they were worth, which is a consumer fraud and violates Virginia Insurance Law (38.2-124). 143. This wrongful behavior was conducted intentionally, for the sole benefit of defendant and the conspirators, with malice and with reckless disregard for plaintiffs and the class statutory and common law rights. WHEREFORE plaintiffs seek judgment against TranSouth, on behalf of themselves and the Class herein, for all sums due them after the sales of their repossessed cars by CFAW pursuant to the terms of the Virginia Uniform Commercial Code, as well as attorneys fees pursuant to 59.1-204 of the Code of Virginia, plus pre and post judgment interest, plus such further relief as this Court deems appropriate. SEVENTH CLAIM FOR RELIEF COMMON LAW FRAUD AND CONSPIRACY 144. The allegations of paragraphs 1 through 143 are incorporated herein by reference as if fully set forth.

FIFTH CLAIM FOR RELIEF VIOLATION OF THE VIRGINIA UNIFORM COMMERCIAL CODE 130. The allegations of paragraphs 1 through 129 are incorporated herein by reference as if fully set forth. 131. All of the cars purchased by the named plaintiffs and by Class members herein from CFAW were consumer goods as set forth in 8.9-109 of the Code of Virginia. 132. All of the used car purchases by named plaintiffs and Class members herein were financed under security agreements prepared by CFAW on forms provided by or approved by TranSouth and assigned by CFAW to TranSouth. 133. Under the alleged authority of the terms of the financing and security agreements executed between the named plaintiffs and CFAW, and between each Class member and CFAW, the consumer goods of each named plaintiff and of each class member were repossessed by TranSouth, with the assistance and/or participation of CFAW, upon the plaintiffs and Class members default on their loans. 134. Pursuant to the terms of repurchase agreements between CFAW and TranSouth, CFAW paid the outstanding balance on each named plaintiffs and each class members loan and received from TranSouth a transfer of the repossessed collateral. 135. In each of the named plaintiffs cases, and in the case of each Class member, the transfer of collateral was wrongfully treated by defendant and the conspirators as a commercially reasonable sale pursuant to the Virginia Uniform Commercial Code. In fact, the sales were not commercially reasonable and could not properly be treated as such by CFAW, TranSouth or JB, which pursued collection actions against named plaintiffs and against each Class member herein. 136. In the course of each transaction described above, defendant TranSouth sent a misleading, deceptive and fraudulent notice of private sale to each named plaintiff and to each Class member stating that a bona fide private sale was to be held (which violates 8.9-504(5) of the Code of Virginia) and stating falsely that plaintiffs had until a particular date to redeem their collateral (which violates 8.9-506 of the Code of Virginia). 137. In the course of each transaction described above, defendant JB sent a misleading, deceptive and fraudulent demand letter to each named plaintiff and each Class member. 138. Defendant and the conspirators have violated and conspired to violate the provisions of Sections 8.9-101 et seq. of the code of Virginia by, inter alia: a. failing to give proper notice to each named plaintiff and each Class member of private/public sales of repossessed collateral; b. misleading each named plaintiff and each Class member regarding their rights of redemption; c. failing to account properly for any surplus which was obtained by defendants in actual private sales of collateral by CFAW to third parties; d. failing to deal with named plaintiffs and each Class member in good faith; e. failing to hold a commercially reasonable sale of repossessed collateral with respect to each named plaintiff and each Class member.

248

Sample Complaints
145. The defendant and other conspirators knowingly, maliciously and intentionally conspired to induce or coerce the named plaintiffs and the Class members herein to fail to assert meritorious defenses to the deficiency claims and actions, or to seek other available legal remedies, and/or to pay deficiency amounts to them, when the deficiencies had been intentionally miscalculated by defendant, and when no commercially reasonable sale of repossessed vehicles occurred as required under the law of Virginia. 146. Plaintiffs and Class members herein reasonably relied to their detriment upon fraudulent misrepresentations of and omissions by the defendant and the other conspirators as set forth, inter alia, in notices of private sale, demand letters, JB demand letters and pleadings and summonses sent to each of them. 147. Defendant and the other conspirators deliberately concealed from plaintiffs, and from all Class members, the fact that the amount of the deficiency as to each repossessed vehicle was calculated upon artificially low transfer prices set be-

Appx. D.9
tween TranSouth and CFAW under the terms of a repurchase agreement between TranSouth and CFAW. 148. The acts of defendant described herein were done with malice and reckless disregard for the rights of the named plaintiffs and Class members herein. WHEREFORE plaintiffs seek judgment against TranSouth for themselves and for all class members, consisting of all sums received by CFAW in the sales of cars which had been repossessed from plaintiffs and Class members herein, as well as fifteen percent (15%) of the net worth of Defendant TranSouth in punitive damages, plus pre and post judgment interest, plus such further relief as this Court deems appropriate. JURY DEMAND Plaintiffs request that their claims be tried before a jury. By: TRIAL LAWYERS FOR PUBLIC JUSTICE Exhibit List [not reprinted herein]

249

Appendix E

Sample Discovery

The following are sample interrogatories, requests for the production of documents and requests for admissions. While the appendix separates, for ease of retrieval, each type of discovery into a different subsection, a plaintiffs first set of interrogatories and production of documents are often sent together as a First Discovery Request. Sometimes the first discovery request also includes a first request for admissions. Most discovery is accompanied by instructions and definitions. In general, this appendix sets out instructions only in Appx. E.1.1 for interrogatories and E.1.2 for requests for production of documents and sets out definitions only at Appx. E.1.1. Other discovery in this appendix merely refers to the instructions and definitions found at those subsections. Note the slight differences in instructions between E.1.1 (for interrogatories) and E.1.2 (for requests for production of documents). Always refer only to the appropriate cross-referenced instructions, i.e. E.1.1 or E.1.2. A 1993 amendment to Fed. R. Civ. P. 33 limits the number of interrogatories to 25 without leave of the court. The advisory committee notes that: Parties cannot evade this presumptive limitation by the device of joining as subparts questions that seek information about discrete separate subjects. However, a question asking about communications of a particular type should be treated as a single interrogatory even though it requests that the time, place, persons present, and contents be stated separately for each such communication. Fed. R. Civ. P. 33 Advisory Committees Note. Certain of the documents in this appendix were created before this amendment was in effect, and may not be consistent with this requirement. Additional examples of class action discovery (in print and on a WordPerfect disk) are included in National Consumer Law Center, Consumer Law Pleadings With Disk, Numbers One through Five. These sample examples will be listed below by volume number, such as CLP#1 or CLP#2: 1 Case involving car dealers race discrimination against customers and rebate theft, CLP#3 9.2.29.2.6; 1 Creditors illegal practices in force placing automobile insurance, CLP#5 5.2; 1 Used car sales financing, CLP#1 4.5; 1 Automobile leasing, CLP#1 9.2; 1 Automobile pawn case, CLP#3 4.3.24.3.4; 1 Rent-to-own case, CLP#4 11.1.2; 1 Home improvement financing scheme, CLP#4 1.2, 1.3; 1 Uninhabitable mobile home park conditions, CLP#2 2.1.4, 2.1.5 1 Membership campground fraud case, CLP#1 6.26.5;

Land installment sale case, CLP#3 10.2; Nursing home quality of care case, CLP#4 3.1.3; Infertility clinic misrepresentation, CLP#4 13.1; Collection agency litigation abuse case, CLP#2 11.2.2; Student loan collection abuse, CLP#2 14.2; Department of Educations failure to provide false certification discharges, CLP#5 9.1.2; and 1 Tax agency filing baseless proof of claims in chapter 13 bankruptcies, CLP#3 7.2.2, 7.2.3.

1 1 1 1 1 1

E.1 Federal Fair Debt Collection Case (Boddie)


E.1.1 Interrogatories
IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION ) ) Plaintiff, ) ) v. ) ) LARRY CARSON; ) NATIONWIDE CASSEL, L.P.; ) and N.A.C. MANAGEMENT ) CORPORATION, ) Defendant. ) ) BRIAN BODDIE, PLAINTIFFS FIRST DISCOVERY REQUEST Plaintiff hereby requests that each defendant respond to the following interrogatories. Unless otherwise specified in a particular paragraph, the time period covered by this request is January 1, 1992 to the present. Throughout this request: a. Nationwide means Nationwide Cassel, L.P. b. NAC means N.A.C. Management Corporation. Other instructions and definitions to be used in making your response are attached hereto as Exhibit 1. If any paragraph of this request is believed to be ambiguous or unduly burdensome, please contact the undersigned and an effort will be made to remedy the problem.

251

Appx. E.1.1

Consumer Class Actions: A Practical Litigation Guide


INTERROGATORIES if the office is in the same premises used by defendants Nationwide and NAC there is any physical division between the office space used by Carson and the offices of Nationwide and NAC. 13. Describe all signs that identify Carsons office at [address], Chicago, Illinois. 14. Identify the party or parties a. to which the telephone company has issued the number [number], b. who pay the telephone bills for the number [number]. 15. State the full name and home address and telephone number of the Mr. Stone whose name appears on Exhibit A to the complaint in this action. 16. State whether anyone other than Mr. Stone signed (manually or by facsimile) letters similar to Exhibit A to the complaint in this action. 17. If Mr. Stone did not personally place a handwritten original signature on each demand letter similar to Exhibit A to the complaint that bears his name, describe the process by which his signature is placed thereon and identify the persons authorized to place his signature on such letters. 18. Identify all persons who answer the telephone number [number]. State the full name of the entity that issues a paycheck to each such person. 19. Identify all persons who respond to communications from consumers who have been sent letters similar to Exhibit A and who dispute their alleged obligations. 20. Identify all documents relating to plaintiffs alleged debt that Carson reviewed or was furnished prior to the sending to plaintiff of Exhibit A to the complaint in this action. 21. State what steps were taken and by whom to review the plaintiffs account before the transmission to plaintiff of Exhibit A to the complaint in this action. 22. If you are declining to produce any document or respond to any paragraph in whole or in part because of a claim of privilege, please: a. identify the subject matter, type (e.g., letter, memorandum), date, and author of the privileged communication or information, all persons that prepared or sent it, and all recipients or addressees; b. identify each person to whom the contents of each such communication or item of information have heretofore been disclosed, orally or in writing; c. state what privilege is claimed; and d. state the basis upon which the privilege is claimed. 23. State the net worth of each defendant. 24. If any document requested was, but no longer is, in your possession or subject to your control, please state: a. the date of its disposition; b. the manner of its disposition (e.g., lost, destroyed, transferred to a third party); and c. an explanation of the circumstances surrounding the disposition of the document. [Attorney]

1. Describe in detail the financial and business relationship(s) between defendant Carson and the other defendants. Include in your answer the billing method, rate, frequency and media; expenses billed; funds remittance method, rate, frequency and media; the nature and extent of services rendered (e.g., letter only, letter followed by suit in what circumstances); fee arrangement for each identified type of service. 2. Describe in detail the financial and business relationship(s) between defendant Nationwide Cassell and defendant N.A.C. Management. 3. State the location (address including floor or suite) and owner of the copier, printer or other mechanical device which printed collection letters in the form represented by Exhibit A [not attached herein] to the complaint in this action. 4. Identify the person(s) who operate the mechanical device to produce collection letters in the form represented by Exhibit A to the complaint in this action. 5. Identify by code name or number and date sent all documents transmitted to plaintiff by any defendant in effort to collect a debt allegedly owed by plaintiff to any of the defendants. 6. State the number of collection letters in the form represented by Exhibit A to the complaint in this action that were sent to consumers within the year prior to the filing of the complaint in this action. 7. Were any such letters sent to persons outside of Illinois? If so, state the number. 8. Provide the name and address of each consumer to whom a collection letter in the form represented by Exhibit A to the complaint in this action was sent within the year prior to the filing of the complaint in this action. 9. Describe, step-by-step, the process which resulted in Exhibit A to the complaint in this action being transmitted to plaintiff, beginning with the date and method of transmission of debtor information to Carson, e.g., computer tapes or other media delivered (when, by whom, where and to whom); content of computer tape or media; data input (where and by whom); computer entry or other means of directing transmission letters (where and by whom entry made), letter with debtor information printed (from where and by whom); letter with debtor information mailed (from where and by whom), computer tapes or media returned (on what occasion, when, by whom and to whom). 10. State the full name and home address and telephone number of each person employed by Carson at any time during the last three years a. at an office located at [address], Chicago, Illinois, and b. at an office located at [address], Chicago, Illinois. 11. State whether any employees of Carson are paid directly or indirectly by Nationwide, NAC, or anyone other than Carson. 12. Describe in detail the office maintained by Carson at [address], Chicago, Illinois, and the financial arrangements for the maintenance of that office. Include in your answer: the size of the office; whether there is or was a written lease; the full name and address of the lessor; the monthly rent; who uses or works in the office; whether the office is in the same premises used by defendants Nationwide and NAC; whether

252

Sample Discovery
EXHIBIT 1 INSTRUCTIONS A. All answers are to be furnished in writing and under oath within [30] days of the date of the filing of these Interrogatories. B. Identify the person responding to each interrogatory, including the length of time the respondent has held his/her position with [adverse party], and the duties performed for [adverse party]. If more than one person responds or participates in the preparation of the answer to an interrogatory, each person responding or participating in preparation of the answers to each shall be similarly identified. The person under whose control or supervision these responses were prepared, shall be similarly identified and you shall state whether or not such person(s) will offer supporting or directly related testimony. C. For each interrogatory the following further information shall be given: a. The administrative unit of [adverse party] which maintains the information used in preparing the response; b. The name of the witness(es) most likely to testify concerning the material or information contained in the response; c. The date on which the response was prepared; and d. The [adverse partys] response to the requested item. D. In order to minimize duplication of time and effort in the discovery process, it is specifically requested that each and every page of [adverse partys] response to requests made herein be proofread by a responsible employee of [adverse party] to insure that all text, figures, etc. are clearly legible and that all abbreviations and any symbols are intelligible to any person who may have occasion to read the responding documents. E. Each interrogatory shall be answered upon your entire knowledge from all sources and all information in [adverse partys] possession or otherwise available from [adverse party], including information from [adverse partys] officers, employees, agents, representatives, attorneys, investigators, or consultants and information which is known by each of them. An incomplete or evasive answer is a failure to answer. F. Where an individual interrogatory calls for an answer which involves more than one part, each part of the answer should be clearly explained so that it is understandable. G. If you cannot answer any or all of the following interrogatories in full, after exercising due diligence to do so, state your inability and answer to the extent possible, state reasons for your inability to answer the remainder (including a list of sources which were consulted for a response), and state whatever information or knowledge you have concerning the unanswered portions. H. Each interrogatory is considered continuing, and if [adverse party] obtains information which renders its response to one of them incomplete or inaccurate, [adverse party] is obligated to serve amended answers on the undersigned. I. If any interrogatory may be answered fully by a document, the document may be attached in lieu of an answer if the document is marked to refer to the interrogatory to which it responds. J. If [adverse party] feels that any of the interrogatories is ambiguous or unclear in any way, it should notify [plaintiffs]

Appx. E.1.1
attorney so that the item(s) may be properly clarified prior to the preparation of the written response(s). K. When asked to identify, attach, describe or produce any documents, provide the following information: (a) the type of document (e.g., installment contract, letter, etc.); (b) the date the document bears; (c) the date on which it was prepared; (d) identities of the person(s) who prepared the same; (e) the identity of each signatory thereto; (f) the person(s) for whom the document was prepared, and each recipient; (g) the title of the document, or some other means of identifying it; (h) its present location and the identity of its present custodian; and, (i) if the original document has been destroyed, the date and reason for or circumstances under which it was destroyed. L. If any document which is required to be produced or identified is claimed to be privileged or to constitute work product or to be otherwise confidential, state the grounds upon which such privilege, work product or confidentiality is being asserted, and include a brief description of the document, identifying its author and persons receiving copies thereof. DEFINITIONS For the purpose of this request the following definitions apply: A. The terms document or documents shall refer to all writings and recorded materials, of any kind, that are or have been in the possession, control or custody of [adverse party] of which [adverse party] has knowledge, whether originals or copies. Such writings or recordings include but are not limited to: contracts, bills of sale, agreements, promissory notes, documents, applications, file memoranda, correspondence, telegrams, forms, bank statements, tax invoices, files, books, pamphlets, circulars, transcripts, orders, bulletins, periodicals, letters, reports, advertisements, graphs, charts, plans, records, studies, logs, manuals, minutes, photographs or microfilm, diagrams, drawings or other visual materials, lists, working papers, rough drafts, research material, notes, papers, ledgers, journals or other books of account, computer print-outs or discs or tapes, computer programs, intra- and inter-office memoranda, notebooks, desk calendars, diaries, statistical computations, confirmations, reports and/or summaries of interviews or conversations, reports and/or summaries of investigations, opinions or reports of consultants, statements or expressions of policy, appraisals, forecasts, of all natures and kinds whether handwritten, typed, printed, mimeographed, photocopied or otherwise reproduced, all tape recordings (whether for computer, audio or visual replay), models, or other manner of tangible things on which words, phrases, symbols, information or other matter are written, printed or recorded. If any document asked to be identified, described, or produced is not in your possession or subject to your control, give the reason therefor and its present location and the identity of the present custodian of the document and of any copy or summary thereof. B. Person shall mean natural persons, groups of natural persons acting in a collegial capacity (e.g., a committee or board of directors), corporation, partnerships, associations, joint ventures, labor unions, and any other incorporated or unincorporated business, governmental, public or social entity. C. Communication shall mean any or all transmittals of information, whether oral or reduced to writing, whether hand-

253

Appx. E.1.2

Consumer Class Actions: A Practical Litigation Guide


burdensome, please contact the undersigned and an effort will be made to remedy the problem. REQUESTS FOR PRODUCTION OF DOCUMENTS Please produce: 1. All form letters in use by Carson during 1992 or 1993 with respect to matters involving Nationwide, NAC or any related entity. 2. All documents transmitted to Carson by Nationwide or NAC with respect to the alleged debt of plaintiff. 3. All documents, or the form thereof if copies are not available, transmitted by Carson to plaintiff or to any other person (including NAC or Nationwide) with respect to the alleged debt of plaintiff. 4. All documents in which Carson was authorized to represent Nationwide, NAC or any other creditor with respect to plaintiffs alleged debt. 5. All agreements between Carson and either or both of the other defendants. 6. All documents, logs, and correspondence relating to plaintiffs alleged debt. 7. Copies of all policy manuals and instructions provided by any defendant to employees regarding collection practices or procedures. 8. All bills for professional services rendered by Carson to the other defendants. 9. All periodic reports made by Carson to the other defendants. 10. The most recent financial statement issued, or given to any third party, by each defendant. 11. Any insurance policy which provides coverage with respect to the matters complained of, or which may provide such coverage, or with respect to which a claim has been or will be filed in connection with this action. 12. All documents relating to the plaintiff, or which are indexed, filed or retrievable under his name or any number, symbol, designation or code (such as a loan number or Social Security number) assigned to him or his transaction or automobile. [Attorney] EXHIBIT 1 INSTRUCTIONS A. All documents are to be furnished in writing and under oath within [30] days of the date of the filing of these Requests. B. Identify the person responding to each Request, including the length of time the respondent has held his/her position with [adverse party], and the duties performed for [adverse party]. If more than one person responds or participates in the preparation of the response to a request, each person responding or participating in preparation of the answers to each shall be similarly identified. The person under whose control or supervision these responses were prepared, shall be similarly identified and you shall state whether or not such person(s) will offer supporting or directly related testimony. C. For each request the following further information shall be given:

written, typewritten, tape-recorded, or produced by electronic data processing, irrespective of how conveyed (e.g., telephone, telegram, telegraph, United States mail, private mail or courier service, facsimile transmittal, face-to-face contact), including but not limited to: inquiries, discussions, conversations, negotiations, agreements, understandings, meetings, telephone conversations, letters, notes, telegrams, advertisements, or other forms of verbal intercourse, whether oral or written. D. Relating to and regarding shall mean relating to, regarding, consisting of, referring to, reflecting, manifesting, prepared in connection with, describing, containing, attesting to, or being in any way legally, logically, or factually connected with the matter discussed, whether directly or indirectly. E. When requested to identify or provide information as to the identity of a person, state his/her full name, occupation, position or business relationship to [adverse party], currently and at the relevant period, and current or last known home and work addresses and telephone numbers, current or last known employment address, and social security number. F. The relevant period shall mean the period from the time [plaintiff] first came to [adverse partys] place of business [or: other significant event or date] up to and including the time when [relevant event or date]. G. When used without qualification, the transaction or the subject transaction means the transaction consummated by [plaintiff] on or about [date], involving [describe the substance of the transaction].

E.1.2 Requests for Production of Documents


IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION ) ) Plaintiff, ) ) v. ) ) LARRY CARSON; ) NATIONWIDE CASSEL, L.P.; ) and N.A.C. MANAGEMENT ) CORPORATION, ) Defendants. ) ) BRIAN BODDIE, PLAINTIFFS FIRST DISCOVERY REQUEST Plaintiff hereby requests that each defendant respond to the following Requests for Production of Documents. Unless otherwise specified in a particular paragraph, the time period covered by this request is January 1, 1992 to the present. Throughout this request: a. Nationwide means Nationwide Cassel, L.P. b. NAC means N.A.C. Management Corporation. Other instructions and definitions to be used in making your response are attached hereto as Exhibit 1. If any paragraph of this request is believed to be ambiguous or unduly

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Sample Discovery
a. The administrative unit of [adverse party] which maintains the documents provided; b. The name of the witness(es) most likely to testify concerning the material or information contained in the response; c. The date on which the response was prepared; and d. A designation of which documents are provided in response to that request. You may wish to number each document so that you can refer to it by number. D. In order to minimize duplication of time and effort in the discovery process, it is specifically requested that each and every document in response to the requests be proofread by a responsible employee of [adverse party] to insure that all text, figures, etc. on copies are clearly legible and that all abbreviations and any symbols are intelligible to any person who may have occasion to read the responding documents. E. You shall respond to each request from all sources and all information in [adverse partys] possession or otherwise available from [adverse party], including information from [adverse partys] officers, employees, agents, representatives, attorneys, investigators, or consultants and information which is known by each of them. F. Where an individual request calls for a response which involves more than one part, documents produced in response to each part of the request should be clearly designated so that it is clear to which part of the request it is responsive. G. If you cannot provide any or all of the documents requested, after exercising due diligence to do so, state your inability and provide any documents available, state reasons for your inability to provide the documents or the remainder of them (including a list of sources which were consulted for a response), and state whatever information or knowledge you have concerning the present location of the document(s) and the identity of its present custodian. H. Each document request is considered continuing, and if [adverse party] obtains information which renders its response to one of them incomplete or inaccurate, [adverse party] is obligated to serve amended responses on the undersigned. I. If [adverse party] feels that any of the document requests is ambiguous or unclear in any way, it should notify [plaintiffs] attorney so that the item(s) may be properly clarified prior to production of the documents. J. When asked to produce, identify, attach, or describe any documents, provide the following information: (a) the type of document (e.g., installment contract, letter, etc.); (b) the date the document bears; (c) the date on which it was prepared; (d) identities of the person(s) who prepared the same; (e) the identity of each signatory thereto; (f) the person(s) for whom the document was prepared, and each recipient; (g) the title of the document, or some other means of identifying it; (h) its present location and the identity of its present custodian; and, (i) if the original document has been destroyed, the date and reason for or circumstances under which it was destroyed. K. If any document which is required to be produced or identified is claimed to be privileged or to constitute work product or to be otherwise confidential, state the grounds upon which such privilege, work product or confidentiality is being asserted, and include a brief description of the document, identifying its author and persons receiving copies thereof. DEFINITIONS

Appx. E.1.3

[Not reprinted herein, but identical to definitions found at E.1.1, Exhibit 1, supra.]

E.1.3 Requests for Admissions


IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION ) ) Plaintiff, ) ) v. ) ) LARRY CARSON; ) NATIONWIDE CASSEL, L.P.; ) and N.A.C. MANAGEMENT ) CORPORATION, ) Defendants. ) ) BRIAN BODDIE, PLAINTIFFS FIRST DISCOVERY REQUEST Plaintiff hereby requests that each defendant respond to the following Requests for Admissions. Unless otherwise specified in a particular paragraph, the time period covered by this request is January 1, 1992 to the present. Throughout this request: a. Nationwide means Nationwide Cassel, L.P. b. NAC means N.A.C. Management Corporation. Other instructions and definitions to be used in making your response are attached hereto as Exhibit 1 [not attached herein, but see sample instructions and definitions at Exhibit 1 at end of E.1.1, supra]. If any paragraph of this request is believed to be ambiguous or unduly burdensome, please contact the undersigned and an effort will be made to remedy the problem. REQUESTS FOR ADMISSIONS 1. Defendant Carson is an attorney. 2. Carson is engaged in the business of collecting consumer debts and regularly collects consumer debts. 3. Carson is listed in Sullivans Law Directory as having an office located at [address], Chicago, Illinois. 4. Carson is not listed in any telephone, legal or business directory as having an office located at [address], Chicago, Illinois. 5. Defendant Nationwide is a limited partnership which has its principal place of business at [address], Chicago, Illinois. 6. Nationwide is engaged in the business of a sales finance agency. Nationwide purchases motor vehicle retail installment contracts from car dealers and enforces the contracts against consumers. 7. NAC is an Illinois corporation with its principal place of business located at [address], Chicago, Illinois. 8. NAC is a general partner of Nationwide. 9. NAC owns 1% of Nationwide. 10. On or about May 5, 1993, Nationwide sent to Boddie, via the United States Mails, the letter attached as Exhibit A [not attached herein] to the complaint filed in this action.

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Consumer Class Actions: A Practical Litigation Guide


PLAINTIFFS FIRST DISCOVERY REQUEST Plaintiff hereby requests, pursuant to Rule 33 of the Federal Rules of Civil Procedure, that defendant respond to the following Interrogatories. Throughout this request: a. VFNA means Volvo Finance of North America, Inc. b. VCFI means Volvo Car Finance, Inc. Other instructions and definitions are attached as Exhibit 1 [not attached herein, but see sample instructions and definitions at Exhibit 1 at end of E.1.1, supra]. INTERROGATORIES 1. Describe in detail how VFNA and VCFI determine the amount of a lessees liability for (i) voluntary early termination and (ii) default. 2. State the number of persons who satisfy the following criteria: (i) they signed contracts with VFNA using printed VFNA form VFNA-82-0888, any revision, (ii) the contract has a scheduled duration in excess of four months, (iii) the contract called for total payments of $25,000 or less, (iv) the contract had the box marked for personal use checked, and (v) the contract was in effect at any time within one year prior to the filing of this action, or is presently in effect. 3. State the name and address of each such person. 4. State which of these persons actually paid early termination or default charges. 5. State the number of persons who satisfy the following criteria: (i) they signed contracts with VFNA using the printed VFNA form, VFNA-82-0888, any revision, (ii) they had early termination or default charges assessed against them at any time within four years prior to the filing of this action, or have leases that are still in effect. 6. State the name and address of each such person. 7. State which of these persons actually paid early termination or default charges. 8. State whether any efforts were made, prior to or after the issuance of the form of contract of which Exhibit A [not attached herein] to the complaint in this action is an example, to estimate or quantify the financial impact of the early termination or default of a consumer automobile lease. If so, describe the efforts and provide the following information for each individual involved in the efforts: full name; present or last known home and business addresses and telephone numbers; whether presently employed by VFNA; all job title(s) at VFNA and dates during which each job was held; if not presently employed by VFNA, Social Security number and exact date of birth. 9. State whether VFNA made or purchased any automobile leases written on forms other than that of which Exhibit A to the complaint in this action is an example. 10. State whether any decision was made to cease using or modify the form of contract of which Exhibit A to the complaint in this action is an example. If so, state when such decision was made, the reasons for such decision, whether it was implemented, and provide the following information for each person who was involved in the decision: full name; present or last known home and business addresses and telephone numbers; whether presently employed by VFNA; all job ti-

11. Exhibit A is a printed form letter which has been sent to more than 100 persons who have accounts with Nationwide. 12. Neither Carson nor his administrative assistant Mr. Stone personally signed the letter attached as Exhibit A to the complaint in this action. 13. Neither defendant Carson nor anyone employed by him personally prepared, signed or mailed the preprinted form letters in the form exemplified by Exhibit A to the complaint in this action. 14. The address and telephone number on Exhibit A to the complaint in this action is that of Nationwide and/or NAC. 15. The number [number] is issued by Illinois Bell Telephone Company to Nationwide and/or NAC. 16. The number [number] is not issued by Illinois Bell Telephone Company to Carson. 17. Calls placed to Carson at [number] are not answered by Carson. 18. Exhibit A to the complaint contains the number of Nationwides file relating to Boddie, above his name. 19. Employees of Nationwide prepare and mail letters in the form represented by Exhibit A to the complaint bearing a rubber-stamp signature of Larry Carsons administrative assistant, purportedly named Mr. Stone. 20. Carson approved the preprinted form letter and authorized Nationwide and NAC to imprint the rubber-stamp signature of his administrative assistant, purportedly named Mr. Stone, on Exhibit A to the complaint. 21. Carson did not personally review the file of Boddie before he was sent the letter attached as Exhibit A to the complaint in this action. 22. Nationwide receives any payments sent by a consumer in response to a letter in the form represented by Exhibit A to the complaint in this action. [Attorney]

E.2 Consumer Leasing Act and Deceptive Practices CaseCar Lease (Shepherd)
E.2.1 Interrogatories
IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF GEORGIA ATLANTA DIVISION ) ) Plaintiff, ) ) v. ) ) VOLVO FINANCE NORTH ) AMERICA, INC. and VOLVO ) CAR FINANCE, INC., ) Defendants. ) ) IAN SHEPHERD,

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Sample Discovery
tle(s) at VFNA and dates during which each job was held; if not presently employed by VFNA, Social Security number and exact date of birth. 11. Describe in detail all items or elements of loss which VFNA suffers when a lease is terminated early and the amounts thereof, either as an absolute number or in relation to other items (such as the price of the car). 12. Identify all communications concerning early termination or default charges on automobile leases between any of the VFNA and any regulatory or law enforcement or consumer protection agency (including any state Attorney Generals office), the Federal Trade Commission, the Better Business Bureau, or other public or private agency which receives consumer complaints. 13. Identify all complaints (including claims in lawsuits) from lessees or other persons concerning early termination charges on automobile leases. 14. State whether a computer is used to perform any functions relating to the administration of automobile leases or to communications with lessees under such leases. If so, describe each such function and how a computer is used to perform it. State when a computer was first used to perform each such function and how that function was performed previously. 15. State, broken down by state or zip code, the number of automobile leases VFNA entered into and/or purchased that (i) indicate on their face that they were entered into for personal, family or household purposes, (ii) were entered into with natural persons. (iii) were for a period of time exceeding four months, (iv) were for a total contractual obligation not exceeding $25,000, and (v) were written on the printed form of which Exhibit A to the complaint in this action is an example. State how many such leases are still outstanding. State how many such leases had early termination charges assessed. 16. State whether VFNA ever agreed to the voluntary early termination of a lease written on the printed form attached as Exhibit A to the complaint in this action. If the answer is in the affirmative, describe how any charge imposed on the lessee was computed. 17. Provide the following information for each person who was involved in the decision to adopt the form of contract of which Exhibit A to the complaint in this action is an example: full name; present or last known home and business addresses and telephone numbers; whether presently employed by VFNA; all job title(s) at VFNA and dates during which each job was held; if not presently employed by VFNA, Social Security number and exact date of birth. 18. State, broken down by year, the total amount that was (i) assessed and (ii) collected on account of early termination and default charges. Explain in detail the reasons for the difference between the two figures, including a statement of any amounts assessed on account of early termination or default charges that were compromised. 19. If your response to any of the requests for admissions is anything other than an unqualified admission, please explain the basis for your denial. 20. If you are declining to produce any document or respond to any paragraph in whole or in part because of a claim of privilege, please: identify the subject matter, type (e.g., letter, memorandum), date, and author of the privileged communication or information, all persons that prepared or sent it,

Appx. E.2.2
and all recipients or addressees; identify each person to whom the contents of each such communication or item of information have heretofore been disclosed, orally or in writing; state what privilege is claimed; and state the basis upon which the privilege is claimed. 21. If any document requested was, but no longer is, in your possession or subject to your control, please state: the date of its disposition; the manner of its disposition (e.g., lost, destroyed, transferred to a third party); and an explanation of the circumstances surrounding the disposition of the document. 22. With respect to each expert whom you will or may call upon to give evidence in connection with this case, please state: his name, address, telephone number, occupation, and current employment; the subject matter of his expertise; his educational background, academic degrees, employment history, employment experience, and any other matters which you contend qualify him as an expert; the substance of all facts and opinions to which he could testify if called as a witness; a summary of the grounds for each such opinion; the identification of all documents provided to or obtained by the expert in connection with this case; the identification of all documents relied upon by the expert as a basis for each of his opinions; the contractual arrangements for his retention, including the amount of his compensation, whether that compensation has already been paid, and whether any compensation is contingent on the outcome of this litigation; the name and docket number of each judicial, administrative, or legislative proceeding in which he has testified or otherwise (as by deposition or affidavit) given evidence within the last ten years, plus the name of the court or other body before which the evidence was given; and the identification of each book, article, paper, or public statement by the expert that relates to the subject matter of his expertise. [Attorney]

E.2.2 Requests for the Production of Documents


IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF GEORGIA ATLANTA DIVISION ) ) Plaintiff, ) ) v. ) ) VOLVO FINANCE NORTH ) AMERICA, INC. and VOLVO ) CAR FINANCE, INC., ) Defendants. ) ) IAN SHEPHERD, PLAINTIFFS FIRST DISCOVERY REQUEST Plaintiff hereby requests, pursuant to Rules 34 of the Federal Rules of Civil Procedure, that defendant respond to the following Requests for Production of Documents. Throughout this request:

257

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Consumer Class Actions: A Practical Litigation Guide


14. All documents relating to any judicial or administrative proceeding in which VFNA was accused of any illegal or improper conduct relating to automobile leases, or in which allegations were made that any provision in a VFNA lease form was not enforceable. 15. All communications concerning early termination or default charges on automobile leases between any of the defendants and any regulatory or law enforcement or consumer protection agency (including any state Attorney Generals office), Better Business Bureau, or other public or private agency which receives consumer complaints. 16. All documents summarizing information on automobile leases that VFNA entered into and/or purchased. Include only documents containing information relating to two or more leases. 17. One copy of each different advertisement and piece of promotional literature, including literature disseminated through automobile dealers, concerning leasing motor vehicles through VFNA. In the case of print advertising, provide one copy of the advertisement and a list of the newspapers or other media in which it appeared. In the case of radio advertising, provide a script and a description of when and where it was broadcast. In the case of television advertising, provide a script and the story boards and a description of when and where it was broadcast. 18. All documents summarizing information concerning the amounts VFNA (i) assessed and (ii) collected on account of early termination or default charges on automobile leases. Include only documents containing information relating to two or more leases. 19. All insurance policies that may afford coverage with respect to the matters complained of. (Alternatively, you may state the name and address of the insurer, the policy limits per claim, occurrence and aggregate, and the policy language relevant to how a claim or occurrence is defined in the event of a class action or other multiple person claim.) 20. All budgets, forecasts, projections and other planning documents which describe, discuss, mention, or otherwise relate to early termination or default charges on automobile leases. 21. All documents that discuss, describe, refer to and/or relate to formula(s) and/or method(s) for determining the amount or method of determining the amount of any penalty or other charge for delinquency, default, or late payments on an automobile lease. 22. One example of each form of automobile lease that VFNA made or purchased, other than that of which Exhibit A [not attached herein] to the complaint in this action is an example. 23. All documents which describe or discuss the ability of consumers to understand the disclosures made in VFNAs automobile lease forms, or lease forms generally. 24. All documents relating to any Lease-Trak study. 25. All manuals and other documents that VFNA provided to other companies (including automobile dealers) to inform, instruct or advise them how to fill out automobile lease forms or how to determine the amounts to be inserted in such forms. 26. All documents relating to the plaintiff, or which are indexed, filed or retrievable under his name or any number, symbol, designation or code (such as a transaction number or Social Security number) assigned to him or his transaction.

a. VFNA means Volvo Finance of North America, Inc. b. VCFI means Volvo Car Finance, Inc. Other instructions and definitions are attached as Exhibit 1 [not attached herein, but see sample instructions at Exhibit 1 at end of E.1.2, supra and sample definitions at end of E.1.1, supra]. REQUESTS FOR PRODUCTION OF DOCUMENTS Please produce: 1. All documents describing practices or policies or procedures relating to the computation or enforcement of the lessees liability upon voluntary early termination. 2. All documents describing practices or policies or procedures relating to the computation or enforcement of the lessees liability upon early termination by default. 3. All documents containing summary or statistical information relating to termination or default by lessees. 4. All documents describing practices or policies or procedures relating to the origination or purchase of leases or the making of disclosures in connection with leases. 5. All documents describing practices or policies or procedures relating to the circumstances under which VFNA or VCFI agrees to the early termination of a vehicle lease, including the consideration to be paid for such early termination. 6. The complete file for each person who satisfies the following criteria: (i) they signed contracts with VFNA using printed VFNA form VFNA-82-0888, any revision, (ii) the contract has a scheduled duration in excess of four months, (iii) the contract called for total payments of $25,000 or less, (iv) the contract had the box marked for personal use checked, and (v) the contract was in effect at any time within one year prior to the filing of this action, or is presently in effect. 7. The complete file for each person who satisfies the following criteria: (i) they signed contracts with VFNA using the printed VFNA form, VFNA-82-0888, any revision, (ii) they had early termination or default charges assessed against them at any time within four years prior to the filing of this action, or have leases that are still in effect. 8. All documents compiling or summarizing information relating to early termination or default charges on automobile leases. 9. All documents compiling or summarizing information relating to the financial impact on VFNA of the early termination or default of automobile leases. 10. All documents describing practices or policies or procedures relating to the compromise of amounts demanded by VFNA on account of early termination or default charges on automobile leases. 11. All documents relating to any complaint, criticism or inquiry, by any person, concerning VFNAs computation or method of computation of automobile lease early termination or default charges, including the pleadings in any other litigation involving that subject. 12. All documents relating to any complaint, criticism or inquiry, by any person, concerning VFNAs disclosures of the terms of automobile leases, including the pleadings in any other litigation involving that subject. 13. VFNAs annual financial statements, annual reports and semiannual and quarterly financial statements.

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27. All documents discussing the early termination or default charges, or formulas for determining early termination or default charges, in the automobile lease forms of companies other than the VFNA. [Attorney]

Appx. E.2.3
8. All forms of leases which VFNA used or purchased between August 1, 1984 and the present had a space provided for indicating whether the lease was made for personal, family or household purposes. 9. On May 11, 1992, Shepherd entered into a lease with VFNA covering the lease of a 1992 Volvo 740 series automobile. Exhibit A [not attached herein] to the complaint filed in this action is an accurate copy of the lease. 10. In February 1993, Shepherd requested information from VFNA regarding the cost of terminating his lease early. A copy of his correspondence is attached as Exhibit B [not attached herein] to the complaint in this action. 11. In March 1993, Shepherd received a response from VCFI. A copy of the response is attached as Exhibit C [not attached herein] to the complaint in this action. 12. Contemporaneous with the filing of the complaint in this action, Shepherd returned the leased car to VFNAs agent and notified VFNA that he was terminating the lease. 13. VFNA and VCFI in fact require a lessee to pay in accordance with the calculations set forth in Exhibit C. 14. VFNA disseminated the form of which Exhibit A to the complaint in this action is an example. 15. Exhibit A to the complaint in this action is a standard form that was promulgated by VFNA in June 1990. 16. There are more than 100 persons who satisfy the following criteria: (i) they signed contracts with VFNA using printed VFNA form VFNA-82-0888, any revision, (ii) the contract has a scheduled duration in excess of four months, (iii) the contract called for total payments of $25,000 or less, (iv) the contract had the box marked for personal use checked, and (v) the contract was in effect at any time within one year prior to the filing of this action, or is presently in effect. 17. There are more than 1000 persons who satisfy the following criteria: (i) they signed contracts with VFNA using printed VFNA form VFNA-82-0888, any revision, (ii) the contract has a scheduled duration in excess of four months, (iii) the contract called for total payments of $25,000 or less, (iv) the contract had the box marked for personal use checked, and (v) the contract was in effect at any time within one year prior to the filing of this action, or is presently in effect. 18. There are more than 100 persons who satisfy the following criteria: (i) they signed contracts with VFNA using the printed VFNA form, VFNA-82-0888, any revision, (ii) they had early termination or default charges assessed against them at any time within four years prior to the filing of this action, or have leases that are still in effect. 19. There are more than 1000 persons who satisfy the following criteria: (i) they signed contracts with VFNA using the printed VFNA form, VFNA-82-0888, any revision, (ii) they had early termination or default charges assessed against them at any time within four years prior to the filing of this action, or have leases that are still in effect. [Attorney]

E.2.3 Requests for Admissions


IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF GEORGIA ATLANTA DIVISION ) ) Plaintiff, ) ) v. ) ) VOLVO FINANCE NORTH ) AMERICA, INC. and VOLVO ) CAR FINANCE, INC., ) Defendants. ) ) IAN SHEPHERD, PLAINTIFFS FIRST DISCOVERY REQUEST Plaintiff hereby requests, pursuant to Rule 36 of the Federal Rules of Civil Procedure, that defendant respond to the following Requests for Admissions. Throughout this request: a. VFNA means Volvo Finance of North America, Inc. b. VCFI means Volvo Car Finance, Inc. Other instructions and definitions are attached as Exhibit 1 [not attached herein, but see sample instructions and definitions at Exhibit 1 at end of E.1.1, supra]. REQUESTS FOR ADMISSIONS 1. Plaintiff, Ian Shepherd (Shepherd), is an individual who resides at [address] Athens, Georgia. 2. Defendant, Volvo Finance of North America, Inc. (VFNA), is a Delaware corporation which does business in Georgia. Its principal place of business is located at [address] Montvale, NJ. Its registered agent is CT Corporation System, [address] Atlanta, GA. 3. Defendant, Volvo Car Finance, Inc. (VCFI), is a Delaware corporation which does business in Georgia. Its principal place of business at [address], Montvale, NJ. Its registered agent is United States Corporation Company, [address], Atlanta, GA. 4. VFNAs regular business activities include leasing and offering to lease motor vehicles and purchasing leases of motor vehicles. 5. Many of VFNAs leases are made with natural persons who lease vehicles for personal, family or household purposes. 6. The scheduled term of most or all VFNA vehicle leases exceeds four months. 7. VCFIs regular business activities include servicing motor vehicle leases held by VFNA.

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Consumer Class Actions: A Practical Litigation Guide

E.2.4 Second Request for Production of Documents


IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF GEORGIA ATLANTA DIVISION ) IAN SHEPHERD, ) Plaintiff, ) ) v. ) ) VOLVO FINANCE NORTH ) AMERICA, INC. and VOLVO ) CAR FINANCE, INC., ) Defendants. ) ) PLAINTIFFS SECOND DISCOVERY REQUEST Plaintiff hereby requests, pursuant to Rule 34 of the Federal Rules of Civil Procedure, that defendants respond to the following Requests for Production of Documents. a. VFNA means Volvo Finance of North America, Inc. b. VCFI means Volvo Car Finance, Inc. Other instructions and definitions are attached as Exhibit 1 [not attached herein, but see sample instructions at Exhibit 1 at end of E.1.2, supra and sample definitions at Exhibit 1 at end of E.1.1, supra]. REQUESTS FOR PRODUCTION OF DOCUMENTS Please produce: 1. All manuals or similar documents which explain the meaning of the entries on document VS000000015. 2. All documents which discuss when the various forms identified as documents VS000000025 through 52 were used or to be used. 3. All manuals or similar documents which explain or list form codes. 4. All documents which comprise the manual referred to on document VS000000071. 5. All manuals or similar documents which explain the meaning of the entries on document VS000000071. 6. All manuals or similar documents which explain the meaning of the entries on document VS000000078. 7. All manuals or similar documents which explain the meaning of the entries on document VS000000081. 8. All manuals or similar documents which explain the meaning of the entries on document VS000000082. 9. The Monroney stickers for the vehicles leased to plaintiff, or if not available, the appropriate price lists necessary to compute the sticker price for the vehicles and all equipment thereon. 10. All manuals or similar documents which explain the meaning of the entries on document VS000000077. [Attorney]

E.3 Deceptive Practices Case Vendors Single Interest Insurance (Ortiz)


E.3.1 Interrogatories
IN THE CIRCUIT COURT OF COOK COUNTY, ILLINOIS COUNTY DEPARTMENT, LAW DIVISION ) ) Plaintiff, ) ) v. ) ) GMAC, GENERAL ) MOTORS ACCEPTANCE ) CORPORATION ) Defendant. ) ) CARMEN ORTIZ, FIRST SET OF INTERROGATORIES TO DEFENDANT GMAC The plaintiffs, pursuant to Rule 213 of the Supreme Court Rules, propound the following interrogatories to be answered by defendant General Motors Acceptance Corporation (GMAC), fully, separately and in writing within twenty-eight days of service hereof. INSTRUCTIONS [Not attached herein, but see sample instructions at Exhibit 1 at end of E.1.1, supra.] DEFINITIONS [Sample Definitions AG are not reprinted herein, but are found at Exhibit 1 at end of E.1.1, supra.] H. As used herein the term single interest physical damages insurance (SII) means the insurance sold by defendant MIC which insured the vehicles purchased by plaintiff Ortiz and the putative class members. I. As used herein putative class members and putative subclass members are the persons defined as the class members and subclass members in plaintiffs complaint at paragraph 3. INTERROGATORIES 1. State the name, title and business address of the person answering these interrogatories. 2. State the name, title and business address of all persons who participated in preparing the answers to these interrogatories and which interrogatory answers each person assisted in preparing. 3. How many persons are putative class members in this litigation?

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Sample Discovery
a. For each putative class member, state their name, address, and SII premium charge and the finance charge each was assessed on the SII policy. 4. How many persons are putative subclass members in this litigation. a. For each putative subclass members whose car was damaged or stolen while the MIC policy was in force, but who received no payment or credit from the policy, state their name, address, and any information known about the damage or theft. b. For each putative subclass member whose car was damaged or stolen while the SII policy was in force and who surrendered their vehicle to GMAC, state their name, address, the make and model and year of their insured vehicle, the cash value of the vehicle at the time of loss, the cost of repairs to the vehicle, the outstanding balance on their retail installment contract and amount of payment received by GMAC from MIC due to the loss. 5. Does the automobile dealer who sold the car receive any economic or other benefit when the retail purchaser has SII purchased by GMAC. If the answer is yes, what is the economic benefit? 6. Does GMAC receive any economic benefit when a retail purchaser has SII purchased by GMAC? If the answer is yes, what is the economic benefit? 7. Using the actual numbers, how was the premium computed for plaintiff Ortiz SII policy? 8. Using the actual numbers, how was the finance charge calculated on the SII premium for plaintiff Ortiz? 9. State the name, title, job description and current business address of persons employed by G.M.A.C. who have responsibility for SII claims, sales or any other matter regarding SII and for each person indicate what aspect(s) of SII they have responsibility for. 10. In years 19801984, in each year, what were the dollar amount of profits to GMAC generated by the sale of SII in Illinois? Indicate the actual calculation and accounting method used to calculate the profit figure for each years profit. 11. Does GMAC purchase SII from anyone other than MIC? If the answer is yes, state from what company the SII is purchased. 12. What was the term of the SII policy purchased for plaintiff Ortiz? 13. Could plaintiff Ortiz have purchased the SII policy directly from MIC? [Attorney]

Appx. E.3.2

E.3.2 Requests for Production of Documents


IN THE CIRCUIT COURT OF COOK COUNTY, ILLINOIS COUNTY DEPARTMENT, LAW DIVISION ) ) Plaintiff, ) ) v. ) ) GMAC, GENERAL ) MOTORS ACCEPTANCE ) CORPORATION ) Defendant. ) ) CARMEN ORTIZ, FIRST SET OF REQUESTS FOR PRODUCTION OF DOCUMENTS TO DEFENDANT GMAC The plaintiffs, through their attorneys, and pursuant to Illinois Supreme Court Rule 214 direct defendants General Motors Acceptance Corporation (GMAC) to produce within twenty-eight days for inspection and photocopying the documents listed below. INSTRUCTIONS [Not reprinted herein, but see Instructions at Appx. E.1.2, Exhibit 1, supra.] DEFINITIONS [Not reprinted herein, but see Definitions at Appx. E.1.1, Exhibit 1, supra.] DOCUMENTS REQUESTED 1. All documents concerning the sale, financing, SII insurance, or any other matter relating to the 1981 Chevrolet Monte Carlo (hereafter car) purchased by plaintiff Carmen Ortiz on September 19, 1981. 2. The SII policy which insured Carmen Ortiz car. 3. All documents regarding GMACs policies and procedures, for the sale or financing of SII policies sold in Illinois which were in effect from December 2, 1980 to the present. 4. All documents regarding GMACs policies and procedures for the application for payment of claims made on SII policies sold in Illinois which were in effect from December 2, 1980 to the present. 5. All documents, regarding SII, sent to or received from the: Illinois Department of Insurance; Illinois Attorney General; Department of Financial Institutions; or Federal Trade Commission. 6. All documents sent to or received from MIC concerning SII. 7. All form letters used, from December 2, 1980 to the present, to communicate with persons whose motor vehicles were purchased from Illinois automobile dealerships and financed by GMAC, regarding SII.

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Appx. E.4

Consumer Class Actions: A Practical Litigation Guide


less) respond to the following interrogatories. Unless otherwise specified in a particular paragraph, the time period covered by this request is January 1, 1986 to the present. Other instructions and definitions to be used in making your response are attached at Exhibit 1. [Not attached herein, but see sample instructions and definitions at Exhibit 1 at end of E.1.1, supra]. If any paragraph of this request is believed to be ambiguous or unduly burdensome, please contact the undersigned and an effort will be made to remedy the problem. Throughout this request, credit agreement includes any note, loan agreement, or retail installment contract. INTERROGATORIES 1. Provide the following information for all notes and loan agreements purchased by Reckless which (a) have dates after December 31, 1985, (b) are secured by a mortgage or trust deed on real estate, the address of which is the same as that used as a mailing address by the obligor (at any time), and (c) provided for the computation of finance charges upon prepayment using the Rule of 78s or sum of the digits method: a. Total number; b. Full name and address of each payee; c. Number of notes and loan agreements payable to each payee; and principal amount of each; d. If different from (b), full name and address of each party from which Reckless purchased notes and loan agreements; e. Number of notes and loan agreements purchased from each party identified in response to (d) and principal amount of each; f. With respect to each party identified in response to (b) and (d), whether you have any reason to believe that the party was licensed under any law regulating the extension of credit to consumers and if so, under what law; g. Whether any of the notes or loan agreements were executed in connection with retail installment contracts, and if so, the number of such notes and loan agreements, the principal amounts of each, the names of the payees of each, and the identities of the parties from which each was purchased; h. Number and principal amount of the notes and loan agreements which have been voluntarily prepaid; i. Number of the notes and loan agreements upon which Reckless accelerated the balance due (whether or not such acceleration was later rescinded or modified) and principal amount of each; and j. Whether any of the notes or loan agreements were sold by Reckless and if so, the full name and address of each purchaser, the number of the notes or loan agreements sold to each such party and principal amount of each, and the date of each sale. 2. Provide the following information for all notes and loan agreements entered into by Reckless which (a) have dates after December 31, 1985, (b) are secured by a mortgage or trust deed on real estate, the address of which is the same as that used as a mailing address by the obligor (at any time), and (c) provided for the computation of finance charges upon prepayment using the Rule of 78s or sum of the digits method:

8. All documents received from putative class members, regarding complaints or requests for policy benefits to have automobiles repaired under SII policies and all documents recording phone calls from or meetings with putative class members regarding complaints or requests for SII policy benefits. 9. All advertising materials, concerning SII, directed to Illinois automobile dealers for the dealers use or to be provided to retail automobile purchasers by the dealers. 10. All documents sent to Illinois automobile dealers who sell, assign or transfer consumer credit sales contracts to GMAC, regarding SII. 11. All documents regarding the number of SII policies sold to putative class members and the premium and interest charges for each SII policy. 12. All documents regarding: (a) the number of SII claims paid by MIC to repair the cars of putative class members; and (b) the amount of each claim paid. 13. All documents regarding putative class members who turned their cars over to GMAC to be treated as repossessions after damage or loss to the vehicle, the respective amounts collected or paid by way of a deficiency by each putative class member, and the outstanding balance on each contract. 14. All documents provided to shareholders concerning GMAC for fiscal or calendar years 1980 to present. 15. A list of the GMAC offices located in Illinois. 16. All advertising materials, concerning SII, provided to GMAC or Illinois automobile dealers who finance retail sales through GMAC. [Attorney]

E.4 State Usury Case (Adams)


E.4.1 Interrogatories
IN THE CIRCUIT COURT OF COOK COUNTY, ILLINOIS COUNTY DEPARTMENT, CHANCERY DIVISION ) ) ) ) ) ) v. ) ) RECKLESS SAVINGS AND ) LOAN, ASSOCIATION, and ) PREDATORY FINANCE ) COMPANY, ) Defendants. ) ) PATRICIA ADAMS, on behalf of herself and all others similarly situated, Plaintiff, PLAINTIFFS FIRST SET OF INTERROGATORIES TO DEFENDANT Plaintiff Patricia Adams (Mrs. Adams) hereby requests that defendant Reckless Savings & Loan Association (Reck-

262

Sample Discovery
a. Total number; b. Whether any of the notes or loan agreements were executed in connection with retail installment contracts, and if so, the number of such notes and loan agreements, the principal amounts of each, the names of the payees of each, and the identities of the parties from which each was purchased; c. Number and principal amount of the notes and loan agreements which have been voluntarily prepaid; d. Number of the notes and loan agreements upon which Reckless accelerated the balance due (whether or not such acceleration was later rescinded or modified) and principal amount of each; e. Whether any of the notes or loan agreements were sold by Reckless and if so, the full name and address of each purchaser, the number of the notes or loan agreements sold to each such party and principal amount of each, and the date of each sale; 3. Name all Illinois counties where Reckless has filed collection or foreclosure actions since January 1, 1986; 4. Provide the full name and address of each attorney or law firm through which Reckless has filed collection or foreclosure actions since January 1, 1986, in Illinois; 5. If your response to any of the requests for admissions is anything other than an unqualified admission, please explain the basis for your denial; 6. If you are declining to produce any document or respond to any paragraph in whole or in part because of a claim of privilege or otherwise, please: a. identify the subject matter, type (e.g., letter, memorandum), date, and author of the privileged communication or information, all persons who prepared or sent it, and all recipients or addresses; b. identify each person to whom the contents of each such communication or item of information have heretofore been disclosed, orally or in writing; c. state what privilege or other reason for nonproduction is claimed; and d. state the basis upon which the privilege is claimed. 7. If any document requested was, but no longer is, in your possession or subject to your control, please state: a. the date of its disposition; b. the manner of its disposition (e.g., lost, destroyed, transferred to a third party); and c. an explanation of the circumstances surrounding the disposition of the document. 8. With respect to each expert whom you will or may call as a witness at the trial of this case, please: a. state the experts name, address, telephone number, occupation, and current employment; b. state the subject matter of the experts expertise; c. state the experts educational background, academic degrees, employment history, employment experience, and any other matters which you contend qualify the witness as an expert; d. state the substance of all facts and opinions to which the expert could testify if called as a witness; e. state a summary of the grounds for each such opinion; f. identify all documents provided to or obtained by the expert in connection with this case;

Appx. E.4.1
g. identify all documents relied upon by the expert as a basis for each opinion; h. state the contractual arrangements for the experts retention, including the amount of compensation, whether that compensation has already been paid, and whether any compensation is contingent on the outcome of this litigation; i. state the name and docket number of each judicial, administrative, or legislative proceeding in which the expert has testified or otherwise (as by deposition or affidavit) given evidence within the last ten years, plus the name of the court or other body before which the evidence was given; and j. identify each book, article, paper, or public statement by the expert which relates to the subject matter of the witnesss expertise. 9. Identify all insurance policies which may afford coverage with respect to the matters complained of. State the insurer, nature of policy, deductible, limits per occurrence and in the aggregate, and any provisions relating to the computation of the limits in the case of a class action or where multiple claims are involved. 10. Provide the following information for all credit agreements entered into by Reckless between January 1, 1986 and the present which (a) were secured by residential property in Illinois and (b) provided for the computation of finance charges upon prepayment using the Rule of 78s or sum of the digits method: the full name, home and business addresses, and telephone number of each obligor. 11. Provide the following information for all credit agreements purchased by Reckless which (a) bear dates between January 1, 1986 and the present, (b) were secured by residential property in Illinois and (c) provided for the computation of finance charges upon prepayment using the Rule of 78s or sum of the digits method: the full name, home and business addresses, and telephone number of each obligor. 12. Provide the following information for all credit agreements dated after January 1, 1986 with respect to which Reckless has used the Rule of 78s in computing the amount due upon voluntary prepayment or acceleration: a. full name, home and business addresses, and telephone number of each obligor; b. amount of finance charge due on each agreement as computed by Reckless; c. amount of finance charge which would have been due on each agreement had the actuarial method been utilized. 13. Identify all other judicial or administrative proceedings (not involving the undersigned counsel) in which Reckless was accused of fraud, unlawful or deceptive trade practices, violation of laws regulating the terms of credit transactions, consumer fraud or consumer protection violations, and/or violation of laws requiring disclosures to consumers, or in which the court declined to enforce any portion of the amount claimed to be due to Reckless on the grounds that it was unlawful or unconscionable. State (a) the full name and docket number of the proceeding, (b) the court or other tribunal before which it was pending, (c) the nature of the proceeding, and (d) its outcome.

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Appx. E.4.2

Consumer Class Actions: A Practical Litigation Guide

14. Identify and provide the following information for each person who was an officer or director of Reckless during any portion of the period from January 1, 1986 to the present: a. full name; b. home and business addresses and telephone number; c. whether currently an officer or director; d. positions held; e. if not currently an officer or director, social security number and exact date of birth. 15. Identify and provide the following information for each employee of Reckless who participated in originating credit agreements, purchasing credit agreements, or computing amounts due upon prepayment or acceleration of credit agreements, during any portion of the period from January 1, 1986 to the present: a. full name; b. home and business addresses and telephone number; c. job titles; d. whether currently employed by Reckless; e. if not currently employed, social security number and exact date of birth. 16. Identify and provide the following information for each attorney or law firm that advised Reckless during any portion of the period from January 1, 1986 to present with respect to the terms of the credit agreements it entered into or purchased: a. full name; b. home and business addresses and telephone number; c. whether Reckless is claiming reliance on the advice of such attorney in connection with this litigation; and d. if so, precisely when the advice in question was given and what it was. 17. State whether any person referred to in any of the preceding interrogatories or identified in response to any of the preceding interrogatories has been convicted of any criminal offense punishable by imprisonment in excess of one year or involving dishonesty, deception or false statement. If your answer is in the affirmative, name the person(s) involved and state the full name and docket number of the proceeding, the court before which it was pending, the nature of the charges, and the judgment or sentence imposed. 18. State whether Reckless has any policy or regular practice concerning the destruction, disposal and/or retention of any documents requested herein. If so, describe such policy or practice in detail, stating the time period(s) for which documents are to be kept. [Attorney]

E.4.2 Requests for Production of Documents


IN THE CIRCUIT COURT OF COOK COUNTY, ILLINOIS COUNTY DEPARTMENT, CHANCERY DIVISION PATRICIA ADAMS, on behalf of herself and all others similarly situated, Plaintiff, v. ) ) ) ) ) ) ) ) )

RECKLESS SAVINGS AND LOAN, ASSOCIATION, and PREDATORY ) FINANCE COMPANY ) Defendants. ) )

PLAINTIFFS FIRST REQUEST FOR PRODUCTION OF DOCUMENTS Plaintiff Patricia Adams (Mrs. Adams) hereby requests that defendant Reckless Savings & Loan Association (Reckless) respond to the following document requests. Documents are to be produced at the office of plaintiffs counsel, where they will be copied and promptly returned. Unless otherwise specified in a particular paragraph, the time period covered by this request is January 1, 1986 to the present. Other instructions and definitions to be used in making your response are attached as Exhibit 1 [not attached herein, but see sample instructions at Exhibit 1 at end of E.1.2, supra and sample definitions at Exhibit 1 at end of E.1.1, supra]. If any paragraph of this request is believed to be ambiguous or unduly burdensome, please contact the undersigned and an effort will be made to remedy the problem. Throughout this request, credit agreement includes any note, loan agreement, or retail installment contract. DOCUMENTS REQUESTED 1. All documents describing, discussing or referring to the use of the Rule of 78s with respect to credit agreements secured by mortgages. 2. All credit agreements entered into or purchased by Reckless which (a) bear dates between January 1, 1986 and the present, (b) were secured by residential property in Illinois and (c) provided for the computation of finance charges upon prepayment using the Rule of 78s or sum of the digits method. 3. All credit agreements bearing dates after January 1, 1986 with respect to which Reckless has used the Rule of 78s or sum of the digits method in computing the amount due upon voluntary prepayment or acceleration. 4. All documents relating to the amount of unearned finance charges Reckless has obtained during any portion of the period from January 1, 1986 to the present. 5. All financial statements issued by Reckless at any time between January 1, 1986 and the present.

264

Sample Discovery
6. All insurance agreements and agreements in the nature of insurance (e.g., bonds, indemnification agreements) which may afford coverage with respect to the matters complained of, including all policies of errors and omissions insurance and comprehensive general liability policies in effect at any time between January 1, 1986 and the present. 7. All agreements between Reckless and Fix-It Remodeling Company. 8. All agreements between Reckless and any other party from which Reckless purchased credit agreements which (a) bear dates between January 1, 1986 and the present, (b) were secured by residential property of Illinois and (c) provided for the computation of finance charges upon prepayment using the Rule of 78s or sum of the digits method. 9. All filings made by Reckless with any regulatory agency (including the Department of Financial Institutions and the Office of the Savings & Loan Commissioner) between January 1, 1986 and the present. 10. All documents provided to Reckless by any regulatory agency between January 1, 1986 and the present. 11. All documents which refer or relate to Patricia Adams, or which are filed, indexed, stored or retrievable under her name, or under any identifying number, symbol, code or designation assigned to her. [Attorney]

Appx. E.4.3
less) respond to the following requests for admissions. Unless otherwise specified in a particular paragraph, the time period covered by this request is January 1, 1986 to the present. Other instructions and definitions to be used in making your response are attached as Exhibit 1 [not attached herein, but see sample instructions and definitions at Exhibit 1 at end of E.1.1, supra]. If any paragraph of this request is believed to be ambiguous or unduly burdensome, please contact the undersigned and an effort will be made to remedy the problem. Throughout this request, credit agreement includes any note, loan agreement, or retail installment contract. REQUESTS FOR ADMISSIONS 1. At all times between May 1, 1988 and July 1, 1989, Mrs. Adams resided in a single-family home which she owns at [address] Chicago, Illinois. 2. Fix-It Remodeling Company is not licensed by the Department of Financial Institutions. 3. During the period from January 1, 1986 to the present, Reckless purchased in excess of 100 notes which (a) were secured by residential property in Illinois and (b) provided for the computation of finance charges upon prepayment using the Rule of 78s or sum of the digits method. 4. During the period from January 1, 1986 to the present, Reckless entered into in excess of 100 loan agreements which (a) were secured by residential property in Illinois and (b) provided for the computation of finance charges upon prepayment using the Rule of 78s or sum of the digits method. 5. Reckless purchased in excess of 250 notes which (a) were dated after December 31, 1985, (b) were secured by residential property in Illinois and (c) provided for the computation of finance charges upon prepayment using the Rule of 78s or sum of the digits method. 6. During the period from January 1, 1986 to the present, Reckless entered into in excess of 250 loan agreements which (a) were secured by residential property in Illinois and (b) provided for the computation of finance charges upon prepayment using the Rule of 78s or sum of the digits method. 7. Reckless has used the Rule of 78s in computing the amount due for voluntary prepayment of credit agreements which provide for the use of the Rule of 78s upon prepayment. 8. Reckless has used the Rule of 78s in computing the amount due upon acceleration of credit agreements which provide for the use of the Rule of 78s upon prepayment. [Attorney]

E.4.3 Requests for Admissions


IN THE CIRCUIT COURT OF COOK COUNTY, ILLINOIS COUNTY DEPARTMENT, CHANCERY DIVISION ) ) ) ) ) ) v. ) ) RECKLESS SAVINGS AND ) LOAN, ASSOCIATION, ) and PREDATORY ) FINANCE COMPANY, ) Defendants. ) ) PATRICIA ADAMS, on behalf of herself and all others similarly situated, Plaintiff, PLAINTIFFS FIRST REQUEST FOR ADMISSIONS Plaintiff Patricia Adams (Mrs. Adams) hereby requests that defendant Reckless Savings & Loan Association (Reck-

265

Appendix F

Sample Response to Defendants Motion to Stay Discovery

IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION ) ) Plaintiff, ) ) v. ) ) LASALLE NORTHWEST ) NATIONAL BANK, ) Defendant. ) ) ALLISON BROWN, PLAINTIFFS RESPONSE TO LASALLES MOTION TO STAY DISCOVERY Plaintiff submits this memorandum in response to the motion to stay discovery filed by LaSalle Northwest National Bank (LaSalle). As demonstrated below, there is no merit to LaSalles motion, which was obviously filed as a post hoc attempt to justify a persistent refusal to provide any meaningful discovery while repeatedly representing and promising to provide discovery. Parts IIV of this response refute each of the assertions in LaSalles motion, point by point. Part V of this response outlines the history of LaSalles refusal to provide discovery. I. BROWN, WITH THE ASSISTANCE OF HER SON MICHAEL ALEXANDER, CAN REPRESENT THE CLASS LaSalles motion substantially misstates the facts and the law. Mrs. Brown is an elderly lady who got through the second grade while working in the fields in rural Mississippi. She is functionally illiterate and has a great deal of difficulty communicating or understanding. She has nevertheless managed to hold the same job for at least 20 years, filling packages on an assembly line and taking home about $7.50 an hour. LaSalle substantially misstates what Ms. Brown said at her deposition. As will become apparent from the transcript if the Court reads it, most of what she said was simply nonresponsive and indicative of a person of limited capacity. Mrs. Browns affairs have always been handled by her adult son, Michael Alexander. They live together and share household expenses. Michael Alexander handled the purchase of the car that gave rise to her claim against LaSalle (Alexander Dcl. [Exhibit A], kk412 [not attached herein]), and all subsequent dealings with LaSalle (Alexander Dcl., k15).

There have been many class actions in which the class representative was incapable of handling their own affairs without assistance. Indeed, classes have been certified in such extreme situations as where the named plaintiffs were certified psychotics, Coley v. Clinton, 635 F.2d 1364, 1379 (8th Cir. 1980) (trial court committed reversible error by failing to certify a class of inmates in the maximum security ward of the Arkansas state hospital for the criminally insane); Johnson v. Brelje, 482 F.Supp. 121 (N.D.Ill. 1979) (certifying class in similar case), persons not sui juris, Beavers v. Sielaff, 400 F.Supp. 595 (N.D.Ill. 1975) (class certified in action complaining that rights of minors had been violated), or convicted felons, Haywood v. Barnes, 109 F.R.D. 568, 579 (E.D.N.C. 1986) (Incarcerated felons have long been certified as class plaintiffs in numerous cases). However, with the assistance of her son, Ms. Brown can nevertheless represent the class. Surowitz v. Hilton Hotels Corp., 383 U.S. 363 (1966), is directly on point. The named plaintiff in that case was a Polish immigrant with a very limited English vocabulary and practically no formal education, who worked as a seamstress in New York where by reason of frugality she saved enough money to buy some thousands of dollars worth of stocks, thereby making herself a potential victim for corporate manipulators and securities fraudsters. (383 U.S. at 368) She was unable to understand anything about the actionMrs. Surowitz demonstrated in her oral testimony that she knew nothing about the content of the suit (383 U.S. at 372)but signed the complaint on the advice of her grown son-in-law, who handled her business affairs and did understand the complaint and the action. The district court and the Seventh Circuit dismissed the complaint. The opinion of the Court of Appeals indicates in several places that a woman like Mrs. Surowitz, who is uneducated generally and illiterate in economic matters could never under any circumstances be a plaintiff in a derivative suit brought in the federal courts to protect her stock interests. (383 U.S. at 372) The Supreme Court reversed and remanded to the District Court for trial on the merits. (383 U.S. at 374) The Supreme Court stated that it would not construe Rule 23 in such a manner as to foreclose bona fide complaints [from being] carried to an adjudication on the merits. (383 U.S. at 373) LaSalle attempts to suggest that Surowitz is not in point because it is a derivative action. LaSalle fails to mention that a derivative action is a species of class action. When Surowitz was decided, under the pre-1966 version of Rule 23, derivative actions were addressed under the same Rule 23 dealing with other class actions. The 1966 revisers of the Federal Rules

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Appx. F

Consumer Class Actions: A Practical Litigation Guide


must be able to communicate fluently in English without the assistance of family members may be issuing a license to wrongdoers who would take advantage of the persons in society least able to protect themselves. Jane B., supra. For this reason, most courts do not impose stringent requirements on class representatives. Hernandez v. United Fire Insurance Co., 79 F.R.D. 419, 426-7 (N.D.Ill. 1978); Aguirre v. Bustos, 89 F.R.D. 645 (D.N.M. 1981); In re Bristol Bay, Alaska, Salmon Fishery Antitrust Litigation, 78 F.R.D. 622 (W.D.Wash. 1979). Carried through to its logical conclusion, Koenig would hold that an investment fraud directed against recent immigrants from a non-English-speaking country is not actionable. If no one spoke fluent English, they could not serve as class representative, and individual actions are not feasible. The same conclusion might apply in cases involving wrongs directed against Hispanic farm workers, Aguirre v. Bustos, supra, or Native Alaskan fishermen, Bristol Bay, supra. Thus, while such persons are theoretically entitled to the equal protection of the laws, their rights are incapable of vindication. The scheme alleged in this case is, although not perhaps obviously so, one directed at disadvantaged persons. Why, and from what group of people, would LaSalle seek to originate loans through a network of insurance agents obtaining business from used car lots? Not from the average white middleclass person who has free access to credit. Most such persons interested in financing would telephone several banks, get their rates and compare what the dealer offers. However, significant segments of society do not have free access to bank credit. If they buy a car, they finance it through the dealer, who normally arranges credit through finance companies. LaSalle sought to tap this marketwhile illegally insulating itself from responsibility for the conduct of the car dealers. The average class member in this case is thus an AfricanAmerican or Hispanic individual with a blue-collar or clerical job. Such persons can ill-afford LaSalles evasion of legal protections intended to protect their automobile investment. The impact is especially pernicious because, by evading a significant operating expense that law-abiding competitors bear (having to inquire into the business conduct of car dealers that refer business and write off paper where the dealer does not deliver as promised), LaSalle could slightly undercut any lawabiding competitor and gain substantial market share. II. MISCELLANEOUS MATTERS RAISED BY LASALLE LaSalle claims that its first knowledge of Michael Alexanders existence and his importance in this case did not occur until the Plaintiffs deposition (LaSalle Mot., p. 6, k13). Nothing is cited for this assertion. In fact, LaSalle had been dealing with Michael Alexander all along. (Alexander Dcl., k15) We believe that LaSalle knew perfectly well that the son was handling his mothers affairs, and that the sole purpose of taking the mothers deposition was to manufacture an excuse for refusing to respond to discovery (see below, for the history of discovery in this case). In any event, LaSalles counsel could have asked plaintiffs counsel, through interrogatories or otherwise, who dealt with his client and the car dealer. He could also have asked his clients personnel whom they had dealt with on the Brown account. He did not do the first. He suggests that he did not do the latter, although it seems rather incredible. In any event, for LaSalle to now claim that its counsels supposed ignorance about who was dealing with LaSalle was the result of a delaying tactic by the Plaintiffs

created a separate rule dealing with derivative actions, Rule 23.1, because A derivative action by a shareholder of a corporation or by a member of an unincorporated association has distinctive aspects which require the special provisions set forth in the new rule. Notes of Advisory Committee on Rules, 1966 comment to Rule 23.1. However, both before and after the 1966 revision, the plaintiff in a derivative action had to, in the words of present rule 23.1, fairly and adequately represent the interests of the shareholders or members similarly situated. . . . The Supreme Court in Surowitz nevertheless mandated that the action proceed to trial on the merits something it clearly would not have done had it believed that Ms. Surowitz could not, as a matter of law, satisfy the adequacy of representation requirement of Rule 23. Numerous subsequent decisionsincluding decisions from this District, which LaSalle does not disclosehave treated Surowitz as precedent with respect to class actions as well as derivative actions. E.g., Schwartz v. System Software Associates, Inc., 138 F.R.D. 105, 107 (N.D.Ill. 1991); Ridings v. Canadian Imperial Bank, 94 F.R.D. 147, 154 (N.D.Ill. 1982); DuraBilt Corp. v. Chase Manhattan Corp., 89 F.R.D. 87, 10203 and n. 18 (S.D.N.Y. 1989); In re Bristol Bay, Alaska, Salmon Fishery Antitrust Litigation, 78 F.R.D. 622 (W.D.Wash. 1979); Landy v. Amsterdam, 96 F.R.D. 19, 21 and n. 2 (E.D.Pa. 1982) (similar requirements have been applied to test the adequacy of representation for stockholder derivative actions under Rule 23.1. . . . Thus I conclude that my reliance upon Surowitz, 383 U.S. at 363, is not misplaced). Many of these decisions, and others as well, note that the cases relied upon by LaSalle are inconsistent with Surowitz, which of course is controlling. Schwartz v. System Software Associates, Inc., supra; Fickinger v. C. I. Planning Corp., 103 F.R.D. 529, 533 and n. 5 (E.D.Pa. 1984); Persky v. Turley, CCH Fed.Sec.L.Rptr. k96,462, at p. 92,046 (D.Ariz. 1991); Landy v. Amsterdam, supra; Dura-Bilt v. Chase Manhattan, supra. LaSalle also miscites Koenig v. Benson, 117 F.R.D. 330 (E. D.N.Y. 1987). The court in Koenig felt that a named plaintiff who only spoke Yiddish might not be able to provide adequate representation in a securities fraud case because he could not respond to unique defenses based on typicality, reliance, and credibility. Koenig has no application here. For one thing, the causes of action asserted do not raise any questions of individual reliance or credibilityif there was a scheme to refer consumers to LaSalle while omitting the FTCmandated notice subjecting LaSalle to claims and defenses, its execution is ascertainable from the existence of a note, the issuance of a check to an auto dealer that referred business to LaSalle, and the omission of the FTC-mandated notice in the note. More importantly, Michael Alexander not only acted on Ms. Browns behalf in connection with the filing of suit, but with the underlying transaction. If any reliance is necessary, it was his reliance. More fundamentally, Koenig is wrongly decided. There are many people in the United States who do not speak English, cannot read, or suffer from mental impairments. They nevertheless are productive members of society, earn money, own property, and have rights that are violated. Indeed, their difficulties may cause them to be especially attractive targets. In many cases, the only practical way to secure redress for such violations is through a class action. Jane B. v. New York City Dept. of Social Services, 117 F.R.D. 64, 71 (S.D.N.Y. 1987). Thus, a court which holds that a class representative

268

Sample Response to Defendants Motion to Stay Discovery


counsel is frivolous. Significantly, LaSalle has now known not only about Michael Alexander but what he would say for several weeks, but has made no effort to ask for his deposition. LaSalle also objects to making Michael Alexander coplaintiff. No one has requested anything of the sort. The legal holder of the claim is Mrs. Brown. If the Court deems it necessary to include his name in the action, it might be appropriate to include Michael Alexanders name in the caption as next friend of his mother. In addition, the entire issue is besides the point. Another victim of the practice complained of, Edward Martin Jr., has moved to intervene as a plaintiff and class representative, thereby cutting short LaSalles attempt to stall the case. LaSalle cannot claim ignorance of Edward Martin Jr.it sued him in state court on a note he executed to pay for a car that had concealed wreck damage and rapidly became inoperable, whereupon he retained plaintiffs counsel to represent him. (Exhibit B, attached,[not attached herein]) LaSalle asserts that the Court should not allow the complaint to be amended, without stating any reasons why the Court should not allow an amendment in a case that is only six months old.1 Mr. Martin could in any event file his own action, which he has authorized if necessary. III. LASALLE IS NOT ENTITLED TO A STAY OF DISCOVERY LaSalle also asks that the Court stay discovery as to any documents or information which exceed the scope of the Plaintiffs individual transaction with LaSalle Northwest until the court rules on class certification. (LaSalle Mot., p. 8, k16) LaSalle conveniently ignores the fact that the nature of the case is such that all discovery pertains equally to class and meritsthe elements of the class and individual claims coalesce. Heastie v. Community Bank of Greater Peoria, 125 F.R.D. 669 (N.D.Ill. 1989). Plaintiff cannot prove that 16 C.F.R. part 433 applies without proving a pattern of dealer referrals through State Farm agents. Plaintiff also cannot prove a RICO case without proving a pattern. Discovery concerning other victims is also relevant under state law claims to show (i) applicability of 16 C.F.R. part 433, (ii) intent,2 (iii) the appropriateness of punitive damages.3 LaSalle is in effect asking the Court to prevent plaintiff from proving her case. Nothing that LaSalle cites even remotely supports such a stay. This is not a case where a motion will render discovery
1 Courts have frequently allowed intervention to protect the interests of the class from defenses and objections applying solely to the original named plaintiff. Williams v. Frey, 551 F.2d 932 (3d Cir. 1977); Deutschman v. Beneficial Corp., 132 F.R.D. 359, 380 (D.Del. 1990); In re Commonwealth Oil/Tesoro Petroleum Corp. Securities Litigation, 467 F.Supp. 227, 258 (W.D.Tex. 1979); Ex parte Hayes, 579 So.2d 1343 (Ala. 1991). 2 Joseph Taylor Coal Co. v. Dawes, 122 Ill.App. 389 (1905), affd, 220 Ill. 147, 77 N.E. 131 (1906); Eaves v. Penn, 587 F.2d 453, 463-4 (10th Cir. 1978); Edgar v. Fred Jones LincolnMercury, 524 F.2d 162, 167 (10th Cir. 1975). 3 Carter v. Mueller, 120 Ill.App. 3d 314, 457 N.E.2d 1335, 1337 (1st Dist. 1983) (a pattern of deception justifies an award of punitive damages); accord, Tetuan v. A.H. Robins, 738 P.2d. 1210 (Kan. 1987); Eichenseer v. Reserve Life Ins. Co., 934 F.2d 1377 (5th Cir. 1991).

Appx. F

unnecessary. What LaSalle really wants is to prevent Plaintiffs counsels search for a replacement class representative (LaSalle Mot., p. 11, k23), without realizing that it has aggrieved so many consumers, such as Mr. Martin, that no search is required. This is not some sort of Milli Vanilli class action involving a small or trivial loss to class members. Those class members who have need of their rights under 16 C.F.R. part 433 generally have damages of at least several thousand dollars. While the consumers are, in the absence of the required disclosure, ignorant of their rights, and it is not economically feasible to pursue a $5,000 or $10,000 claim that requires the plaintiff to establish a pattern of conduct on the part of a defendant that strains to avoid any meaningful discovery, the loss of $5,000 or $10,000 is a serious blow to the average working man or woman who lives from paycheck to paycheck. The Courts decisions have been reported, at least on the computer services, and are known to anyone likely to receive inquiries from aggrieved consumers (legal services offices, bar association referral services, bankruptcy attorneys,4 etc.), so that the problem is one of efficiently dealing with a large number of aggrieved consumers, not finding a plaintiff willing to lend his or her name to a nonexistent grievance. IV. LASALLES REQUEST THAT PLAINTIFFS COUNSEL BE PREVENTED FROM COMMUNICATING WITH OTHER BORROWERS IS BASELESS As an afterthought, LaSalle asks that the Plaintiffs counsel be precluded from contacting the automobile loan customers identified in the documents already produced by LaSalle Northwest. (LaSalle Mot., p. 8, k16) LaSalle cites no authority for the proposition that a partys counsel can be prevented from contacting persons who are witnesses in the case, as well as potential class members. In a decision which LaSalle does not cite, the Supreme Court has almost completely prohibited such orders. Gulf Oil Co. v. Bernard, 452 U.S. 89 (1981). Furthermore, the identities of LaSalles automobile loan customers are a matter of public record. The only way in which a lien can be perfected on an automobile is by having it placed on the title. Automobile titles are matters of public record. The identities of those customers against which LaSalle commenced legal proceedings, such as Mr. Martin, are also found in public court records. LaSalle cites no authority suggesting that it is appropriate for a court to suppress public record information in the manner it requests. It quite clearly is not. Florida Star v. BJF, 491 U.S. 524, 535 (1989); Cox Broadcasting Corp. v. Cohn, 420 U.S. 469 (1975); Sasu v. Yoshimura, 147 F.R.D. 173, 175 (N.D. Ill. 1993).

4 The difficulty of litigating a $5,000 or $10,000 consumer claim is such that many consumers faced with liability on a note which on its face admits of no defenses, and who have not received what they bargained for, seek to discharge the debt in bankruptcy. If the consumer does not really have a debt problem, but a purported debt which he or she should not have to repay, this result is unconscionable.

269

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Consumer Class Actions: A Practical Litigation Guide


names of borrowers whose names are within the alphabetical range covered by the 50 files, but whose files were omitted, are: Josie Paul Emile; Richard M. Evans; Eduardo and Mercedes Espinoza; Mulugeta Endale. Copies of some of these individuals contracts are attached as Exhibit E [not attached herein]. 7. Obviously, LaSalle selectively produced 50 files that it felt would be relatively innocuous, thereby defeating the entire purpose of requesting the first 50 files of persons whose names began with the letter E. Significantly, Exhibit D does not disclose that the files produced were not those requested i.e., the first 50. 8. While the attempted deception was unavailingplaintiffs counsel had obtained the names of sufficient LaSalle customers from public records to catch any such trickthe fact that it was attempted underscores LaSalles approach toward discovery. LaSalle attempted to avoid producing any information for as long as possible and then tried to pass off records other than the sample requested as being the random sample requested. Clearly, LaSalle would not have done this had it not been convinced that a random sample would support plaintiffs case. 9. Upon discovering the trick, plaintiffs counsel requested access to all of LaSalle customer records, without selection. 10. LaSalle then filed its motion to stay discovery, which seeks to perpetuate the present state of affairsthe case has been pending for six months and LaSalle has produced essentially no meaningful information. CONCLUSION LaSalles motion to stay discovery should be denied. Respectfully Submitted, [Attorney]

V. LASALLE IS SIMPLY ATTEMPTING TO AVOID DISCOVERYA COURSE OF CONDUCT UPON WHICH IT HAS BEEN EMBARKED ALL ALONG We set forth below the history of discovery in this matter. It is a history of delay. LaSalles entire course of conduct confirms that they never intended to provide any discovery: 1. Plaintiff served her first discovery request on LaSalle on February 16, 1993. LaSalles counsel agreed to respond by May 10, 1993. LaSalle did not in fact respond until more than a month later, on June 7, 1993, all the while assuring counsel for plaintiff that the discovery was forthcoming. (Declaration of Cathleen Combs [Exhibit C, attached] [not attached herein]). 2. LaSalles answers to interrogatories referred plaintiff to documents that LaSalle now refuses to produce. For example, instead of responding with the names of witnesses, LaSalle referred plaintiff to the documents. 3. LaSalles counsel then asked the Court to bifurcate discovery. The Court declined. 4. On June 7, 1993, LaSalle drafted a discovery plan calling for the production of documents and information which LaSalle now refuses to produce. See Exhibit D, [not attached herein] showing that the drafts emanated from LaSalle. Plaintiffs counsel agreed to the discovery plan with the understanding that plaintiff would have easy access to the discovery that LaSalle had agreed to produce. The deadlines set by the Court anticipate that plaintiffs would get the discovery. If plaintiff does not get the documents, the deadlines could easily result in plaintiff being prevented from having access to the documents she needs to prove her case. 5. One of the items that LaSalle was to provide was the first 50 files of borrowers beginning with the letter E. See Declaration of Cathleen Combs (Exhibit C, attached) [not attached herein]. The purpose was to determine what entries in the file indicated a referral relationship with the car dealer. 6. While 50 files were provided, they were not the first 50. The list of files provided is attached as Exhibit D. Among the

270

Appendix G

Sample Pleadings to Compel Discovery

G.1 Motion to Compel Answers


IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA ) ) ) ) ) ) v. ) NO. 97) AMERICAN GENERAL ) CONSUMER DISCOUNT ) COMPANY, ) Defendant. ) ) DINA L. WALSH, on behalf of herself and all others similarly situated, Plaintiff, PLAINTIFFS MOTION TO STRIKE DEFENDANTS OBJECTIONS AND TO COMPEL ANSWERS TO INTERROGATORIES AND REQUEST FOR PRODUCTION OF DOCUMENTS ADDRESSED TO DEFENDANT Plaintiff, by and through her attorneys files this Motion to Strike Defendants Objections to Plaintiffs Interrogatories and Request for Production of Documents and to compel discovery pursuant to Federal Rule of Civil Procedure 37 and in support thereof avers as follows: 1. This is a consumer class action arising out of the Defendants unconscionable lending practices of flipping loans into additional higher rate loans and packing loans with unrequested, extravagantly priced insurance products. Plaintiff sues for violations of the Truth in Lending Act, 15 U.S.C. 1601 et seq., the Pennsylvania Unfair Trade Practices and Consumer Protection Law, 73 P.S. 201-1 et seq. and common law fraud and unconscionability. 2. On August 13, 1997 Plaintiff served Defendant, American General Consumer Discount Company (American General) Interrogatories (First Set) and Request for Production of Documents (First Set). True and correct copies of the discovery requests are attached hereto and made a part hereof respectively as Exhibits A and B [not reprinted herein]. 3. On or about September 12, 1997 Defendant Responded to Plaintiffs Interrogatories and Document Requests. Defendant objected to every single Interrogatory and objected to Document Requests Nos. 911, 15, 19, 20. Defendant advised that documents responsive to Documents Requests 18, 1214, 1618 would be produced. True and correct copies of Defen-

dants responses to the Interrogatories and Document Requests are respectively attached hereto as Exhibits C and D [not reprinted herein]. 4. On October 1, 1997, this Court Ordered that all discovery shall proceed forthwith and continue in such a manner as will assure that all requests for, and responses to, discovery will be served, noticed and completed by August 22, 1998. A true and correct copy of this Courts October 1, 1997 Order is attached hereto as Exhibit E [not reprinted herein]. 5. On or about November 6, 1997, counsel for Plaintiff and counsel for Defendant held an extended telephone conversation in an attempt to resolve the discovery dispute. 6. During the November 6, 1997 telephone conversation, Defendants counsel reaffirmed objections to Interrogatory Nos. 1, 2, 614, 16, 1923, 2941, 4454, 61, 6364. 7. During the November 6, 1997 telephone conversation Defendants counsel agreed to withdraw objections to Interrogatories 4, 5, 15, 18, 42, 43, 55, 5860, 62 and agreed to provide partial responses to Interrogatories 17, 2428, 56 and 57. 8. In addition, during the November 6, 1997 telephone conversation Defendants counsel agreed to produce documents responsive to Document Requests Nos. 118 and reaffirmed objections to Requests Nos. 19 and 20. A true and correct copy of the November 7, 1997 letter memorializing the parties positions is attached hereto as Exhibit F [not reprinted herein]. 9. On November 13, 1997 Plaintiff moved for class certification. 10. On November 13, 1997, Plaintiffs counsel faxed a reminder to Defendants counsel to produce the requested discovery. A true and correct copy of the reminder letter is attached hereto as Exhibit G [not reprinted herein]. 11. By letter, dated November 21, 1997, Defendants counsel confirmed the parties positions. Further, Defendant withdrew its objections to Interrogatories 1923 and 61 and reaffirmed its previous objections. Defendants counsel advised that responsive documents and revised interrogatory answers would be provided on or before December 15, 1997. A true and correct copy of the November 21, 1997 letter is attached as Exhibit H [not reprinted herein]. 12. On January 6, 1998 Defendant submitted un-indexed bate-stamped documents D0001-D0345. Defendants counsel admitted that the production was incomplete and represented that additional documents would be produced. A true and correct copy of the cover letter accompanying the documents is attached hereto as Exhibit I [not reprinted herein]. 13. The documents produced represent some, but not all of Defendants policies and procedures regarding lending and

271

Appx. G.2

Consumer Class Actions: A Practical Litigation Guide

insurance. Review of the documents indicates that there are additional policies and procedures not produced. 14. The documents produced are non responsive as they fail to adequately identify what requests the documents are responding to. 15. On January 29, 1998, Plaintiffs counsel again faxed a reminder letter to Defendants counsel regarding Defendants outstanding discovery responses. A true and correct copy of the January 29, 1998 reminder letter is attached hereto as Exhibit J [not reprinted herein]. No response has been received as of this writing. 16. Despite Defendants agreement to answer all, or in part, Interrogatories Nos. 4, 5, 15, 1728, 4243, 5562 and produce documents responsive to Requests Nos. 118, as of todays date, other than the 345 unidentified pages, no answers have been supplied nor documents produced. 17. As to those interrogatories which Defendant has not agreed to answer, Defendants objections to the discovery are unfounded and should be stricken and Defendant should be ordered to produce complete discovery answers. 18. The parties after reasonable effort are unable to resolve this dispute. See Certification of Counsel, attached hereto as Exhibit K [reprinted as Appx. G.2, infra]. 19. Plaintiff incorporates by reference the accompanying Memorandum of Law as though set forth fully at length herein. The Memorandum describes in detail the discovery requested and the responses received by Plaintiff. WHEREFORE, Plaintiff moves this Court to Strike the objections and compel Defendant to provide full and complete answers to each of the Interrogatories and provide documents requested in the Production of Documents within ten (10) days. Respectfully Submitted: DATE: CARY L. FLITTER, ESQUIRE SCOTT F. WATERMAN, ESQUIRE Lundy, Flitter, Beldecos & Berger, P.C. 450 N. Narberth Avenue Narberth, PA 19072 MICHAEL D. DONOVAN, ESQUIRE Donovan Miller, LLC 1608 Walnut Street, Suite 1400 Philadelphia, PA 19103 Attorneys for Plaintiff

G.2 Certificate of Counsel That Parties Are Unable to Resolve the Dispute [Exhibit K]
IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA ) ) ) ) ) ) v. ) NO. 97) AMERICAN GENERAL ) CONSUMER DISCOUNT ) COMPANY, ) Defendant. ) ) DINA L. WALSH, on behalf of herself and all others similarly situated, Plaintiff, CERTIFICATION OF COUNSEL CARY L. FLITTER, being of full age, hereby certifies: 1. I am co-counsel for Plaintiff. 2. On or about November 6, 1997, I had telephone conversation with Martin C. Bryce, Jr., Esquire, counsel for Defendant in an attempt to resolve the discovery dispute at issue. 3. During the November 6, 1997 telephone conversation, Defendants counsel reaffirmed objections to Interrogatory Nos. 1, 2, 614, 16, 17, 1923, 29-41, 4454, 61, 6364. 4. During the November 6, 1997 telephone conversation, Defendants counsel agreed to withdraw objections to Interrogatories 15, 18, 42, 43, 55, 5860, 62 and agreed to provide partial responses to Interrogatories 17, 2428, 56 and 57. 5. In addition, during the November 6, 1997 telephone conversation, Defendants counsel agreed to produce documents responsive to Document Requests Nos. 1-18 and reaffirmed objections to Requests Nos. 19 and 20. 6. On November 13, 1997, I faxed a reminder to Defendants counsel to produce the requested discovery. 7. By letter, dated November 21, 1997, Defendants counsel confirmed the parties positions. Further, Defendant withdrew its objections to Interrogatories 1923 and 61 and reaffirmed its previous objections. Defendants counsel advised that responsive documents and revised interrogatory answers would be provided on or before December 15, 1997. 8. On January 6, 1998, Defendant submitted un-indexed date-stamped documents D0001-D0345. These documents represent some, but not all of Defendants policies and procedures regarding lending and insurance. Review of the documents indicates, and Defendant admits, that there are additional policies and procedures not produced. 9. On January 29, 1998, I again faxed a reminder letter to Defendants counsel regarding Defendants outstanding discovery responses. I advised that if we did not receive the requested discovery within ten days, we would file a motion to compel.

272

Sample Pleadings to Compel Discovery


10. To date, the requested discovery materials have not been received. 11. Plaintiffs counsel has attempted to resolve this discovery dispute without court involvement, however, the parties, after reasonable effort, are unable to resolve this dispute. I certify that the foregoing statements made by me are true. I understand that if any of the foregoing statements made by me are wilfully false, I am subject to punishment. DATE: CARY L. FLITTER, ESQUIRE Attorney for Plaintiff

Appx. G.4

G.4 Memorandum in Support of Motion to Compel Answers


IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA ) ) ) ) ) ) v. ) NO. 97) AMERICAN GENERAL ) CONSUMER DISCOUNT ) COMPANY, ) Defendant. ) ) DINA L. WALSH, on behalf of herself and all others similarly situated, Plaintiff, MEMORANDUM OF LAW IN SUPPORT OF PLAINTIFFS MOTION TO STRIKE DEFENDANTS OBJECTIONS AND TO COMPEL ANSWERS TO INTERROGATORIES, EXPERT INTERROGATORIES AND REQUEST FOR PRODUCTION OF DOCUMENTS I. INTRODUCTION This is a consumer class action arising out of the Defendants unconscionable lending practices. American General flips lower rate loans into additional high rate loans and packs the loans with unnecessary, extravagantly priced insurance products issued by affiliated insurance companies. Plaintiff sues for violations of the Truth in Lending Act, 15 U.S.C. 1601 et seq., the Pennsylvania Unfair Trade Practices and Consumer Protection Law, 73 P.S. 201-1 et seq. and common law fraud and unconscionability. Initially, Defendant objected to 100% of Plaintiffs interrogatories. After a lengthy telephone conversation, Defendants counsel still objected to over 37 Interrogatories and to date all Interrogatories remain unanswered and the Document Request has been answered insufficiently. II. STATEMENT OF FACTS On August 13, 1997, Plaintiff served Defendant with Interrogatories (First Set) and Request for Production of Documents (First Set). A. Defendants Failure to Produce Any Documents Responsive to Request for Production of Documents (First Set) On or about September 12, 1997, Defendant responded to Plaintiffs Request for Production. During an extended telephone conversation between counsel for Plaintiff and counsel for Defendant, Defendants counsel agreed to produce documents responsive to Document Requests Nos. 118. See, Flitter November 7, 1997 letter and Bryce reply letter of November 21, 1997. On January 6, 1998, Defendant submitted unindexed bate-stamped documents D0001-D0345. Defendant admits that these documents represent some, but obviously not all of Defendants policies and procedures regarding lend-

G.3 Proposed Order Compelling Defendant to Respond to Plaintiffs Requests


IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA ) ) ) ) ) ) v. ) NO. 97) AMERICAN GENERAL ) CONSUMER DISCOUNT ) COMPANY, ) Defendant. ) ) DINA L. WALSH, on behalf of herself and all others similarly situated, Plaintiff, ORDER AND NOW, this day of , 1998, upon consideration of Plaintiffs Motion to Strike Defendants Objections and to Compel Answers to Interrogatories and Request for Production of Documents, the Motion is GRANTED. It is ORDERED: 1. Defendants objections to Plaintiffs Interrogatories (First Set) are stricken; and Defendant shall provide Plaintiff with formal written complete answers, without objection, to Plaintiffs Interrogatory numbers 12, 464 within ten (10) days; 2. Defendant objections to Document Requests are stricken; and Defendant shall provide Plaintiff with all documents, without objection, responsive to Plaintiffs Request for Production (First Set) within ten (10) days; 3. Plaintiff is awarded counsel fees pursuant to F.R.Civ.P. 37. Plaintiff shall submit an Affidavit documenting reasonable counsel fees. Failure to comply with this Order may subject Defendant to sanctions. BY THE COURT: Judge

273

Appx. G.4

Consumer Class Actions: A Practical Litigation Guide


These interrogatories are not premature. Interrogatories seeking the identity of witnesses and other tangible evidence may be sought, even if a case is in its infancy. Fischer and Porter Co. v. Tolson, 143 F.R.D. 93 (E.D. Pa. 1992). Answers are needed to help focus discovery in the case and to prepare to refute Defendants defenses. This case was removed to this Court on August 15, 1997. Defendants objections should be stricken and Defendant ordered to answer the interrogatories. Interrogatory Number 6. Plaintiffs Interrogatory No. 6 asks: Provide the following information for all persons who were involved in any manner in the adoption or drafting of the forms represented by Appendices A and B hereto; full name, present or last known home and business addresses and telephone numbers; whether presently employed by Defendant; all job title(s) and dates during which each job was held; if not presently employed by Defendant, Social Security Number and exact date of birth. Defendant objected claiming: See General Objections. American General further objects on the ground that the information sought is neither relevant nor reasonably calculated to lead to the discovery of admissible evidence. General, unspecified objections to interrogatories are insufficient and improper. Josephs v. Harris Corp., 677 F.2d 985 (3rd Cir. 1982); Stabilus, A Div of Fichtel, Baldwin, Johnson and Greaves, 144 F.R.D. 258 (E.D. Pa. 1992). Relevance in the context of discovery is construed more liberally than at trial. Fort Washington Resources, Inc. v. Tannen, 153 F.R.D. 78, 79 (E.D. Pa. 1994). Information which is reasonably likely to lead to other matter which could bear on any issue that is or may be in the case is relevant. Id. (citing Leksi, Inc. v. Federal Ins. Co., 129 F.R.D. 99, 104 (D.N.J. 1989)). The answer to Interrogatory No. 6 is relevant to determine who prepared Defendants documents and whether Defendants employees deliberately attempted to deceive Defendants customers. It may lead to information about the number of such forms in use by Defendant, which is relevant to issues of numerosity and commonality. Interrogatory Numbers 7 to 13. Defendant objected to Interrogatories 713 although they directly address the numerosity and commonalty issues involved in this class action. These Interrogatories were amended during the November 6, 1997 telephone conference, for Defendant to provide the number of borrowers and the state of each in lieu of a full answer at this time. Plaintiffs amended Interrogatory Number 7 asks: Identify by state, the number of all customers of Defendant from July 1991 through the present who obtained additional loans or refinancings and purchased credit insurance from you substantially similar to Appendix C.

ing and insurance. Review of the documents indicates that they refer to additional policies and procedures not produced. As discussed below, all responsive documents must be produced. The unlabelled responses to the Document Requests are non-responsive as they fail to adequately identify the attached documents and the fail to identify which, if any, are responsive to the individual document requests. B. Unanswered Interrogatories During the extended telephone conversation concerning discovery, Defendant, through counsel, agreed to answer Interrogatory Nos. 4, 5, 15, 1728, 4243, 5562. See, Flitter letter of November 7, 1997. By Mr. Bryces letter dated November 21, 1997, Defendant reconsidered and withdrew objections to Interrogatories nos. 1923 and 61. (See Bryce letter, Exhibit H)[not reprinted herein]. Though the Plaintiff allowed an additional month, until December 15th, no supplemental responses have been forthcoming whatever. On January 29, 1998, Plaintiffs counsel sent another reminder letter to Defendant that Defendants Answers to Plaintiffs Interrogatories were outstanding. To date those Answers have not been provided. III. LEGAL ARGUMENT A. Unobjectionable Interrogatories Must be Answered Forthwith As noted, although Defendant originally objected to every Interrogatory on some basis, an extended telephone conference resulted in Defendants agreement to withdraw objections to Interrogatories Nos. 4, 5, 15, 18, 42, 43, 55, 58-60, 62 and agreed to provide partial responses to Interrogatories 17, 2428, 56 and 57. See, Flitter letter of November 7, 1997 and Bryce reply letter of November 21, 1997. Two weeks later Defendant agreed to withdraw other objections, and agreed to answer Interrogatories Nos. 1923 and 61. See, Bryce letter, November 21, 1997. Notwithstanding the withdrawal of objections, Plaintiffs Interrogatories, submitted in August 1997, have still not been answered at all. As to Interrogatories Nos. 4, 5, 15, 1728, 4243, 5562, the Court should Order that they be answered forthwith. Fed.R.Civ.P. 37(a). As to the remaining Interrogatories, for the reasons set forth below, the objections should be stricken. B. Defendants Objections to the Interrogatories Must Be Stricken Interrogatory Numbers 1 and 2. Interrogatory 1 asks: Identify each person Defendant may call as a witness in this case. Interrogatory 2 asks: Identify each document which Defendant may introduce into evidence in this case. Defendant responded: See General Objections. American General further objects on the grounds that this interrogatory is premature.

274

Sample Pleadings to Compel Discovery


Plaintiffs amended Interrogatory Number 8 asks: Identify by state, the number of persons that Defendant sold credit life insurance policies to, from July 1991 until present in a form substantially similar to Appendix B. Plaintiffs amended Interrogatory Number 9 asks: Identify by state, the number of persons that Defendant sold credit disability policies to, from July 1991 until present in a form substantially similar to Appendix C. Plaintiffs amended Interrogatory Number 10 asks: Identify by state, the number of persons that Defendant sold collateral protection policies to, from July 1991 until present in a form substantially similar to Appendix D. Plaintiffs amended Interrogatory Number 11 asks: Identify by state, the number of persons that Defendant sold nonfiling insurance policies to, from July 1991 until present. Plaintiffs amended Interrogatory Number 12 asks: Identify by state, the number of persons who refinanced their loans with you from July 1991 through the present who did not purchase any insurance from you. Plaintiffs amended Interrogatory Number 13 asks: Identify by state, the number of persons that Defendant sold term life insurance policies from July 1991 until present in a form substantially similar to Appendix D. Defendant objected to these interrogatories claiming: See General Objections. American General further objects to [these] interrogator[ies] on the grounds that, since a class has not been certified, the names and addresses of its customers are neither relevant nor reasonably calculated to lead to the discovery of admissible evidence; providing such names and addresses would be unduly burdensome; and providing such names and addresses would invade the privacy of American Generals customers. The information is relevant especially regarding the issue of whether the class action should be certified. Rule 23(a)(1) requires that the proponent of a class action demonstrate that the class is so numerous that joinder is impracticable. Fed. R.Civ.P. 23(a)(1). The answers to these interrogatories are appropriate to prove numerosity. These interrogatories are also relevant and probative on this issue of commonality because the greater number of Defendants customers who un-

Appx. G.4

derwent purchases similar to Plaintiff evidences Defendants concerted effort to pack loans with high priced insurance. Fed.R.Civ.P. 23(a)(2). See Robinson v. Countrywide Credit Industries, No. 97-2747, 1997 U.S. Dist. LEXIS 15712 (E.D. Pa. Oct. 8, 1997)(common issues included whether the Defendant lender purchased unauthorized coverage for the consumer borrowers, inflated the amount of forced placed insurance and improperly inflated commissions). These limited interrogatories only seek the number of customers, not their finances. Such an inquiry is not an invasion of privacy. See Russ Stonier, Inc. v. Droz Wood Co., 52 F.R.D. 232 (E.D. Pa. 1971)(disclosure of customer list allowed). In addition, the request is not too burdensome. The requests are limited in scope and time and it is likely that this information is electronically stored and available. Such statistical data is appropriate and not subject to objection. See Naglak v. Pennsylvania State University, 133 F.R.D. 18, 24 (M.D. Pa. 1990). Finally, as these interrogatories are probative to the class certification issue, the objections must be stricken and Defendant must be ordered to answer them. Interrogatory Number 14. Plaintiffs Interrogatory Number 14 asks: Identify every person who has or who claims to have knowledge or information regarding any facts, circumstances or issues in this lawsuit. With respect to each and every person named, state: (a) Whether this person has given an oral or written statement, and if so, designate which; (b) A summary of the knowledge relevant to this lawsuit that each such person has or claims to have. Defendant objected claiming See General Objections. General, unspecified objections to interrogatories are insufficient and improper. Josephs v. Harris Corp., 677 F.2d 985 (3rd Cir. 1982); Stabilus, A Div of Fichtel, Baldwin, Johnson and Greaves, 144 F.R.D. 258 (E.D. Pa. 1992). The answers are needed to identify those individuals with knowledge of the acts alleged in the Complaint. Seeking the identity of fact witnesses is completely permissible. Fischer and Porter Co. v. Tolson, 143 F.R.D. 93 (E.D. Pa. 1992). Defendants objection must be stricken. Interrogatory Number 16. Plaintiffs Interrogatory Number 16 asks: Prior to the date of filing of this lawsuit, did Defendant have any attorney or any other person advise Defendant as to whether its business practices were in compliance with the Truth in Lending Act? If so, please identify each such person. Defendant objected claiming: See General Objections. American General further objects on the ground that the information sought is neither reasonably calculated to lead to the discovery of admissible evidence.

275

Appx. G.4

Consumer Class Actions: A Practical Litigation Guide


General, unspecified objections to interrogatories are insufficient and improper. Josephs v. Harris Corp., 677 F.2d 985 (3d Cir. 1982); Stabilus, A Div of Fichtel, Baldwin, Johnson and Greaves, 144 F.R.D. 258 (E.D. Pa. 1992). It is probative to know the financial arrangement Defendant had with these insurance companies. They are believed to be affiliated companies. Is Defendant earning more money from the insurance business than from the lending business? These interrogatories are relevant on the issue of Defendants incentive to sell unwanted and overpriced insurance products to consumers as part of its routine consumer lending. Plainly, these interrogatories are relevant issues for discovery purposes. See Fort Washington Resources v. Tannen, 153 F.R.D. 78, 79 (E.D. Pa. 1994). Accordingly, the objections must be stricken. Interrogatories Numbers 31, 34, 3741. Interrogatories Numbers 31, 34, 3741 concern the percentage of customers who refinanced their loans with Defendant who also purchased insurance. Interrogatory Number 31 asks: Identify the percentage of customers who refinanced their loans with you from July 1991 through the present who also purchased credit property insurance from you. Interrogatory Number 34 asks: Identify the percentage of customers who refinanced their loans with you from July 1991 through the present who also purchased term life insurance from you. Interrogatory Number 37 asks: Identify the percentage of customers who refinanced their loans with you from July 1991 through the present who also purchased single life insurance and/or disability insurance from you. Interrogatory Number 38 asks: Identify the percentage of customers who refinanced their loans with you from July 1991 through the present who also purchased collateral protection insurance from you. Interrogatory Number 39 asks: Identify the percentage of customers who refinanced their loans with you from July 1991 through the present who also purchased non-filing insurance from you. Interrogatory Number 40 asks: Identify the percentage of customers who refinanced their unsecured loan with you from July 1991 through the present who also purchased nonfiling insurance from you.

First, if Defendant was advised by individuals who were not attorneys, then the attorney-client privilege does not apply. Second, Defendant has failed to demonstrate how or why this Interrogatory is burdensome. See, Hall v. Harleysville Ins. Co., 164 F.R.D. 406 (E.D. Pa. 1996). Finally, the request is relevant to corroborate whether Defendant knew it was violating the Truth in Lending Act. Interrogatories Numbers 2930, 3233, 3536. Plaintiffs Interrogatory Numbers 2930, 3233, 3536 concern Defendants relationship with the insurance companies whose products it sold to Plaintiff. Interrogatory Number 29 asks: (a) What is the relationship between you and Yosemite Insurance Company? (b) Do you have any ownership interest in Yosemite Insurance Company? If yes, please explain. Interrogatory Number 30 asks: Are you under contract (formal or informal) to sell insurance on behalf of Yosemite Insurance Co.? If yes, set forth in detail the terms of the agreement including provisions for payment of commission(s), fees and expenses. Interrogatory Number 32 asks: (a) What is the relationship between you and Protective Life Insurance Co.? (b) Do you have any ownership interest in Protective Life Insurance Co. If yes, please explain. Interrogatory Number 33 asks: Are you under contract (formal or informal) to sell insurance on behalf of Protective Life Insurance Co.? If yes, please set forth in detail the terms of the agreement including provisions for payment of commission(s), fees and expenses. Interrogatory Number 35 asks: (a) What is the relationship between you and Union Fidelity Insurance Company? (b) Do you have any ownership interest in Union Fidelity Life Insurance Co. If yes, please explain. Interrogatory Number 36 asks: Are you under contract (formal or informal) to sell insurance on behalf of Union Fidelity Life Insurance Company? If yes, please set forth in detail the terms of the agreement including provisions for payment of commission(s), fees and expenses. Defendant objected to each of these Interrogatories claiming: See General Objections.

276

Sample Pleadings to Compel Discovery


Interrogatory Number 41 asks: Identify the percentage of customers who refinanced their loans with you from July 1991 through the present who did not purchase any insurance from you. Defendant objected to each of these interrogatories claiming: See General Objections. As stated above, general, unspecified objections to interrogatories on the ground of work product or attorney client privilege is insufficient and improper. Josephs v. Harris Corp., 677 F.2d 985 (3rd Cir. 1982); Stabilus, A Div of Fichtel, Baldwin, Johnson and Greaves, 144 F.R.D. 258 (E.D. Pa. 1992). An interrogatory is not objectionable simply because it seeks information which requires research and compilation of data. Hall v. Harleysville Ins. Co., 164 F.R.D. 406 (E.D. Pa. 1996); Naglak v. Pennsylvania State University, 133 F.R.D. 18 (M.D. Pa. 1990). This data should be on Defendants computers and it should be relatively easy for Defendant to compute the numbers. Further, the information sought is relevant for both the class action issues and the substantive claims. Regarding the class action issues, the interrogatories are relevant on the issue of commonalty, i.e. to what extent Plaintiffs experience is similar to other customers. See Fed.R.Civ.P. 23(a)(2). The interrogatories are also relevant on the issue of whether the insurance sales were truly voluntary or in fact coerced. See In re Milbourne, 108 B.R. 522, 542 (Bky., E.D. Pa. 1989)(Evidence that a very high percentage of customers purchase insurance is probative in customers attempt to establish that insurance was required even where it was professed to be voluntary). If the sales were not truly voluntary, the cost of the premiums should be disclosed as part of the finance charge under the Truth in Lending Act, 15 U.S.C. 1601 et seq. Plaintiffs objections are ill-founded and unspecific. Therefore, they must be stricken. Interrogatories Numbers 4454. Interrogatory Numbers 4454 concern the commissions, profits and fees Defendant received from the various insurance companies whose products it sold to Plaintiff. Interrogatory Number 44 asks: (a) Regarding the purchase of the non-filing1 insurance, did you at any time receive a rebate from the insurer regarding the purchase of non-filing insurance? (b) If yes, explain when you received the rebate and the amount of the rebate. Interrogatory Number 45 asks: Identify the amount of commission(s), profits and/or fees you received for selling Plaintiff credit life insurance.
1 Non filing Insurance is insurance creditors elect to purchase against the potential consequences of not filing the documents necessary to perfect their security interest. See 15 U.S.C. 1605(d)(2).

Appx. G.4

Interrogatory Number 46 asks: Identify the total amount of commission(s), profits and/or fees you received for selling credit life insurance to your customers from July 1991 through the present. Interrogatory Number 47 asks: Identify the amount of commission(s), profits and/or fees you received for selling Plaintiff credit disability insurance. Interrogatory Number 48 asks: Identify the total amount of commission(s), profits and/or fees you received for selling credit disability insurance to your customers from July 1991 through the present. Interrogatory Number 49 asks: Identify the amount of commission(s), profits and/or fees you received for selling Plaintiff collateral protection insurance. Interrogatory Number 50 asks: Identify the total amount of commission(s), profits and/or fees you received for selling collateral protection insurance to your customers from July 1991 through the present. Interrogatory Number 51 asks: Identify the amount of commission(s), profits and/or fees you received for selling Plaintiff nonfiling insurance. Interrogatory Number 52 asks: Identify the amount of commission(s), profits and/or fees you received for selling to all your customers nonfiling insurance from July 1991 through the present. Interrogatory Number 53 asks: Identify the amount of commission(s), profits and/or fees you received for selling Plaintiff term life insurance. Interrogatory Number 54 asks: Identify the amount of commission(s), profits and/or fees you received for selling term life insurance to your customers from July 1991 through the present. Defendant objected to each of these Interrogatories again claiming: See General Objections.

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fendant submitted over 345 pages of documents assumedly in response to Request No. 9. which seeks: 9. All operating manuals, memoranda or other documents concerning internal procedures of Defendant regarding the sale of insurance products, including collateral protection, credit life, credit disability, nonfiling and/or term life insurance. Fed.R.Civ.Pro. 34(b) provides in part: A party who produces documents for inspection shall produce them as they are kept in the usual course of business or shall organize and label them to correspond with the categories in the request. Defendant has failed to organize and label the responsive documents. Defendant is left to guess which documents, if any, are responsive to the individual document requests. This is impermissible. See Fed.R.Civ.Pro. 34(b); Stiller v. Arnold, 167 F.R.D. 68 (N.D. Ind. 1996). The documents appear to be some of Defendants policies and procedures regarding lending and insurance. However, the documents are not all of the documents responsive to Document Request No. 9. The documents refer to additional policies and procedures which have not been produced. For example document D0007 directs that branch employees must be trained on the proper insurance sales policies and procedures found in the following sources: 1 1 1 1 1 1 1 Directive and Information System, Section 6; Insurance Product Guide (IPG); Lending Manual, Section 5; Business Development Manual, Section 6; District Manager Desk manual, Task #46; Branch Manager Desk manual, Task #13; Customer Service Representative Desk Manual, task#9,#10 and #13. 1 State Operating procedure 6000; and 1 Miscellaneous Insurance brochures and publications available from Insurance operations. A copy of document D0007 is attached as Exhibit L. None of these other documents were produced. A half-hearted document production is not acceptable. Accordingly, Pursuant to Fed.R.Civ.Pro. 37(a)(3), Defendants responses to Document Request No. 9 must be stricken and Defendant shall produce and identify all documents responsive to Plaintiffs Document Production. Regarding Document Requests 18, 1018, during an extended telephone conversation between counsel for Plaintiff and counsel for Defendant, Defendants counsel agreed to produce documents responsive to Document Requests Nos. 118. See, Flitter November 7, 1997 letter and Bryce reply letter of November 21, 1997. As of todays date, the documents have yet to be produced. These requests address Plaintiffs specific claims and Defendants financial relationship with

As stated above, general, unspecified objections to interrogatories are insufficient and improper. Josephs v. Harris Corp., 677 F.2d 985 (3rd Cir. 1982); Stabilus, A Div of Fichtel, Baldwin, Johnson and Greaves, 144 F.R.D. 258 (E.D. Pa. 1992). The answer to each of these interrogatories is relevant to whether there are Truth in Lending and consumer fraud violations. If Defendant is obtaining rebates, profits and commissions for the insurance at rates which exceed the lawful maximums Defendants actions may be violations. Profit data or commission data is also evidentiary on the pervasiveness of the practice or itself a violation of law, if excessive. Defendants ill-founded objections must be stricken. Interrogatory Number 63. Plaintiffs Interrogatory number 63 asks: Identify all other lawsuits in which you have been named in the past 5 years which alleged any violation of the Truth in Lending Act. Include counsel names and addresses. Defendant again objected stating: See General Objections. Interrogatories which ask whether Defendant has been sued by other customers in similar lawsuits are relevant and proper. See Corrigan v. Methodist Hospital, 158 F.R.D. 54 (E.D. Pa. 1994)(Court ruled that requests for information seeking complaints and expert reports from any other medical malpractice lawsuits are acceptable, if properly limited). In our case, Plaintiffs interrogatory is limited and narrow in scope. It is only for a time frame of five years and only concerns lawsuits involving the Truth in Lending Act. The Interrogatory is probative on the issue of notice and intent on behalf of Defendant and may lead to discovery of evidence. Accordingly, Defendants objection should be stricken. Interrogatory Number 64. Plaintiffs Interrogatory Number 64 asks: Identify each person who prepared, provided information or assisted in the preparation of your answers to the forgoing interrogatories and the accompanying document request. Defendant again objected stating: See General Objections. However, an interrogatory seeking the names of persons who assisted in the preparation of the interrogatories is permissible. Ballard v. Allegheny Airlines, Inc., 54 F.R.D. 67 (E.D. Pa. 1972). Defendants objection should be stricken. C. Defendants Response to Plaintiffs Document Request Is Unacceptable Plaintiff lodged Document Requests. Defendant withdrew objections to Requests 118. Defendant reaffirmed objection to Requests 1920. See, Flitter letter of November 7, 1997 and Bryce Letter of November 21, 1997. On January 6, 1998, De-

278

Sample Pleadings to Compel Discovery


the various insurance companies. Without the requested documents Plaintiff will be prejudiced as it will be impossible to verify Plaintiffs claims. Accordingly, Defendant should be Ordered to produce said documents. See Fed.R.Civ.Pro. 37(a). Document Request No. 19 seeks: All documents [Defendant] intend[s] to introduce into evidence. Defendant objected, claiming: See General Objections. American General further objects to this request as premature. Discovery requests seeking the identity of witnesses and other tangible evidence may be sought, even if a case is in its infancy. Fischer and Porter Co. v. Tolson, 143 F.R.D. 93 (E.D. Pa. 1992). Defendant should produce the documents it may introduce into evidence. Defendants objection should be stricken. Document Request No. 20 seeks: All documents referred to in preparing answers to the foregoing interrogatories. Defendant objected: See General objections and Objections to interrogatories. All non-privileged documents responsive to these Requests should be produced. If Defendant is referring to documents in order to answer its Interrogatories, then all non- privileged original documents should be produced. Those documents are just as relevant as the interrogatories. It would seem irrational for Defendant to agree to answer Interrogatories Nos. 4, 5, 15, 1728, 4243, 5562 but object to a document request which seeks the documents which form the basis for the interrogatory answers. The original documents are just as relevant as the interrogatory answers. Accordingly, Plaintiffs response must be stricken. D. Attorneys Fees. Plaintiff is entitled to reasonable counsel fees to pay its costs of preparing this motion to compel. Fed. R. Civ. P. 37(a)(4)(A) provides the relevant rule:

Appx. G.4

If the motion [to compel] is granted,. . . .the court shall, after affording an opportunity to be heard, require the party or deponent whose conduct necessitated the motion or the party or attorney advising such conduct or both of them to pay to the moving party the reasonable expenses incurred in making the motion, including attorneys fees, unless the court finds that the motion was filed without the movant first making a good faith effort to obtain the disclosure or discovery without the court action, or that the opposing partys nondisclosure, response, or objection was substantially justified, or that other circumstances make an award of expenses unjust. Plaintiffs counsel has demonstrated that he first attempted to resolve the problem without court involvement and Defendant has no substantial justification for refusing to produce the requested material. As to all the objections which have been withdrawn, Plaintiff has still not received the answers or documents. Even the questions which Defendant agreed to answer have not been answered, in nearly five months. As to the other discovery requests, most of any answers are general or generic, or ill founded. Fed. R. Civ. P. 37(a)(4)(A) states that the court shall award attorneys fees under such circumstances. Therefore, the court should order Defendant to pay Plaintiffs counsels fees for filing this motion. IV. CONCLUSION All discovery sought by Plaintiff relates to facts which are relevant and material to the case. Defendants recalcitrance cannot be condoned. Plaintiffs Motion to Compel under Federal Rules of Civil Procedure 37 should be granted. DATE: CARY L. FLITTER, ESQUIRE Lundy, Flitter, Beldecos & Berger, P.C. 450 N. Narberth Avenue Narberth, PA 19072 MICHAEL D. DONOVAN, ESQUIRE Donovan Miller, LLC 1608 Walnut Street, Suite 1400 Philadelphia, PA 19103 Attorneys for Plaintiff

279

Appendix H

Sample Motion and Order for Protection of Class Members Files

IN THE CIRCUIT COURT OF COOK COUNTY, ILLINOIS COUNTY DEPARTMENT, LAW DIVISION ) ) ) ) ) ) v. ) ) CHICAGO ACCEPTANCE ) CORP., and Illinois corporation, ) ILLINOIS MOTOR SALES, ) INC., an Illinois corporation, ) and PAUL ROBERTS AUTO ) SALES, INC., an Illinois ) corporation ) Defendants. ) ) BRASMO CORRAL, individually and on behalf of all others similarly situated. Plaintiffs, MOTION FOR A PROTECTIVE ORDER Now comes the plaintiff, Brasmo Corral, by his attorneys, and moves this Court to issue a protective order pursuant to Illinois Supreme Court Rule 101(c)(1). In support of his motion plaintiff would show: 1. Plaintiff filed this class actions on June 17, 1983, on behalf of all persons who purchased a motor vehicle from Illinois Motor Sales, Inc. pursuant to a retail installment sales contract that was assigned to Chicago Acceptance Corporation and from whom the secured collateral was repossessed by Chicago Acceptance Corp., subsequent to June 18, 1980 and later resold to a dealer affiliated with Chicago Acceptance Corp., Illinois Motor Sales, Inc., or Paul Roberts Motor Sales, Inc. 2. Plaintiff seeks to protect any and all documents, books, and records in the possession of any defendant which relate to the sale, repossession, or resale after repossession of motor vehicles purchased by persons who are class members. 3. Plaintiff requests this protective order so that he will be able to gain access to documents, books, and records described above through discovery procedures. 4. Plaintiff has a right to gain access to such documents, books, and records through discovery since they are relevant to the subject matter of the complaint.

5. Since this action has been brought on behalf of a class, plaintiff needs access to the above-described documents, books, and records to determine the identity of class members. 6. None of the defendants would in any way be prejudiced if the Court grants this motion. 7. After personal consultation and reasonable attempts, the parties are unable to reach an accord on this matter. WHEREFORE, plaintiff moves this Court to enter a protective order forbidding defendants from destroying the documents, books, and records described herein. [Attorney] IN THE CIRCUIT COURT OF COOK COUNTY, ILLINOIS COUNTY DEPARTMENT, LAW DIVISION ) ) ) v. ) ) Chicago Acceptance Corp., et seq. ) ) Corral, et al. ORDER This case having come on to be heard on plaintiffs request for a Protective Order, all parties being present through their attorneys, and the Court being fully advised of the premises, IT IS HEREBY ORDERED that: 1. Defendants Chicago Acceptance Corp., Illinois Motor Sales, Inc. and Paul Roberts Motor Sales, Inc. are prohibited from destroying, tampering with or removing from Cook County any and all documents, books and records pertaining to putative class members in the above-styled action, specifically including but not limited to documents pertaining to repossession, repossession sales, any subsequent resale and calculations of any surplus or any deficiency resulting from the repossession of any putative class members automobile. 2. Defendants attorney shall notify defendant of this order immediately by telephone. [Judge]

281

Appendix I

Brief in Support of Plaintiffs Motion to Restrict Defendants Communications with Class Members

IN THE COURT OF COMMON PLEAS OF ALLEGHENY COUNTY PENNSYLVANIA CIVIL DIVISION In Re: Metropolitan Life Insurance Company Policyholders Litigation This Document Relates To: All Cases ) ) ) ) ) No. GD94-2685 ) ) )

Floyd v. City of Philadelphia, 1 Phila. 188, 1978 Phila. Cty. Rptr. LEXIS 34 (Phila Cty. 1978) Gulf Oil v. Bernard, 452 U.S. 89 (1981) Howle v. Columbia Organic, C.A. 3:92-1110-17 (D.C.S.C 1992) Impervious Paint Industries, Inc. v. Ashland Oil, 508 F. Supp. 720 (W.D. Ky), appeal dismissed without opinion, 659 F.2d 1081 (6th Cir. 1981) In Re Silicone Gel Breast Implants Products, Liability Litigation No. CV 92-P-1000-S (S.D. Ohio 1992) In Re Federal Skywalk Cases, 97 F.R.D. 370 (W.D.Mo. 1983) Kleiner v. First National Bank of Atlanta, 751 F.2d 1193 (11th Cir. 1985) Pekular v. Eich, 355 Pa. Super 276, 513 A.2d 427 (1986) Resnick v. American Dental Assn, 95 F.R.D. 372 (N.D. Ill, 1982) Tedesco v. Mishkin, 629 F. Supp. 1474 (S.D.N.Y. 1986) Miscellaneous Manual for Complex Litigation (Second), 30.24 (1985) BRIEF IN SUPPORT OF PLAINTIFFS MOTION TO PROHIBIT METLIFE FROM MAILING UNSUPERVISED, ONE-SIDED AND MISLEADING COMMUNICATIONS TO CLASS MEMBERS I. INTRODUCTION The planned communications by Metropolitan Life Insurance Company (MetLife) to thousands of Pennsylvania residents who are class members in these class actions without this Courts approval threatens serious prejudice to their rights because it provides one-sided and misleading information and is seeking a release of their life insurance replacement claims. See MetLifes letter to this court dated March 23, 1994 with the attached letters it proposes to send class members attached hereto as Exhibit A [not reprinted herein]. Rule 1713 of the Pennsylvania Rules of Civil Procedure places the duty on the courts in class actions to supervise communications from Defendants to class members to prevent one-sided and misleading communications. As demonstrated below, the facts of these cases and the law from cases where the courts have considered non-judicially

TABLE OF CONTENTS TABLE OF AUTHORITIES I. INTRODUCTION II. STATEMENT OF THE CASE A. The Class Action Claims Against MetLife B. The Pennsylvania Insurance Departments Extensive Investigation of MetLifes Replacement Practices C. The Insurance Departments Recommendations D. The Letters Developed by Metlife Are One-Sided and Misleading 1. MetLifes One-Sided and Misleading Letters 2. The Proposed Letters To Be Mailed to Class Members Conflict With The Insurance Departments Findings 3. MetLifes Proposed Release Is One-Sided and Misleading 4. MetLifes Proposed Phone Bank Creates the Potential For One-Sided and Misleading Communications III. LEGAL ARGUMENT A. This Court Has The Duty To Supervise and Regulate Metlifes Communications With Class Members B. Courts in Pennsylvania and Elsewhere Have Recognized Their Duty To Supervise Communications Between Defendants and Class Members CONCLUSION TABLE OF AUTHORITIES Bower v. Bunker Hill Co., 689 Supp. 1032 (E.D. Wash. 1985) Erhardt v. Prudential Group, Inc., 629 F.2d 843 (2d Cir. 1980)

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FINDINGS AND CONCLUSIONS The observed pattern of deceptive solicitations and concealed replacements by MetLife sales representatives appears to have been for the purpose of increasing their commissions. Report at p. 58. C. The Insurance Departments Recommendation The Report incorporates an Order rendered by the Insurance Department resulting from its MetLife examination (Ex. 1, Report under front cover). The Order adopts certain Recommendations listed in the Report whereby MetLife is directed to develop a plan to identify and notify policyholders affected by MetLifes improper replacement insurance activity within the three-year reporting period and to take steps to restore the policyholder to his or her prior policies.4 It is now unknown whether the Insurance Department has explicitly approved the letters that MetLife proposes to mail to class members. But irrespective of whether or not it was, this Court has an independent duty under Pa.R.Civ.P. 1713 to supervise such notices. Plaintiffs claims here cannot be extinguished by the Insurance Department nor by the Insurance Department and MetLife acting in concert. See Pekular v. Eich, 355 Pa. Super. 276, 513 A.2d 427 (1986). In Pekular, the Court recognized that the Pennsylvania legislature in enacting the Unfair Insurance Practices Act, 40 P.S.
4 See Report at p. 164 providing the following Recommendations as to MetLifes Replacement Activity during the reporting period: 2. MetLife shall develop a plan to identify and notify Pennsylvania policyholders, whether active or inactive, who purchased life insurance during the period January 1, 1990 through December 31, 1993, funded in whole or in part, by values taken from other MetLife insurance policies or annuity contracts. (a) Those policyholders who might have been misled or deceived in the purchase of a replacement policy during the period described above shall be surveyed and asked if they were misled or deceived, and any affirmative response in either of these regards shall cause MetLife to take appropriate steps to restore the policyholder to his or her prior policy(ies). (b) All other policyholders who purchased replacement policies during the period described above shall be surveyed and asked if they were misled or deceived. If the policyholder responds affirmatively in a sworn writing stating with specificity the nature of the misrepresentation or deception, MetLife shall take appropriate steps to restore the policyholder to his or her prior policy(ies). 3. MetLife shall implement corrective measures in order to make whole all policyholders identified as having incurred an expense load charge on a new policy funded in whole or in part from another MetLife insurance or annuity policy, which would not have occurred had the replacement activity been fully disclosed.

approved defendant communications to a class, demonstrate that Courts routinely prevent unsupervised Defendant communications to Class members. II. STATEMENT OF THE CASE A. The Class Action Claims Against MetLife These two class actions were filed on February 18, 1994 and February 28, 1994. The Representative and Class Plaintiffs are or were policyholders of MetLife who were sold replacement insurance policies which were funded by the cash value in an existing policy from 1983 until the present (The Classes). The Classes assert, inter alia, that MetLife violated the Pennsylvania Unfair Trade And Deceptive Practice Act (the Consumer Protection Law), breached their fiduciary duty to the Classes, and its duty of good faith and fair dealing, committed concealment by deceit and negligently supervised their agents in the sale of insurance. B. The Pennsylvania Insurance Departments Extensive Investigation Of MetLifes Replacement Practices The Pennsylvania Department of Insurance (The Insurance Department) released a Report of Market Conduct Examination (Report) on March 11, 1994 condemning the insurance selling tactics of MetLife in Pennsylvania.1 The Report highlights and details the Insurance Departments extensive examination of MetLifes management, marketing and sales practices and procedures in Pennsylvania from January 1, 1990 to December 31, 1992. (Ex. 1 p. 4)2 One aspect of the Insurance Departments examination focused on MetLifes policies and practices involved in the sale of replacement insurance. (Report at pp. 15-59)3 The Report concluded that for the four-year period between January 1990 and December 1993 MetLife had engaged in an observed pattern of . . . concealed replacements. The Report found inter alia:

1 The Insurance Department has the authority to undertake a market conduct examination of licensed insurance companies pursuant to 40 P.S. Sec. 323.5 to determine whether any insurer in Pennsylvania has engaged in unfair insurance practices. 2 The Report will be submitted separately to the Court [not reprinted herein]. 3 The Report defines Replacement as: . . .a transaction in which new life insurance or a new annuity is to be purchased, and it is known or should be known to the proposing agent, broker, or proposing insurer if there is no agent, that by reason of the transaction, existing life insurance or an annuity has been or is to be one of the following: Lapsed, forfeited, surrendered, assigned to replacing insurer or otherwise terminated. Converted to reduced paid-up insurance, continued as extended term insurance or otherwise reduced in value by the use of nonforfeiture benefits, dividend cash values or other policy cash values. . . . Id. at p. 910.

284

Brief in Support of Plaintiffs Motion


1 et seq. (UIPA) did not intend to make the limited remedies available to the Insurance Department under the UIPA the exclusive remedy for insureds but instead intended that they be permitted to pursue their private rights to sue irrespective of actions taken by the Insurance Department under the Unfair Trade Practice and Consumer Protection Law, 73 P.S. 201 et seq. as well as other laws. The Court in Pekular unequivocally held: We see no inconsistency between the UIPA providing for administrative investigation and an imposition of limited penalties and the CPL providing a means by which a consumer may privately seek compensation for wrongs allegedly suffered. Our conclusion that there is no inherent irreconcilable conflict is supported by the fact that the UIPA contains no provision either stating or implying that the power vested in the Insurance Commissioner represents the exclusive means by which an insurers unfair or deceptive acts are to be penalized or that the insured is precluded from seeking private compensation for damages incurred. Id. at 434. Therefore, this Court under Pa.R.Civ.P. 1713 has a duty to supervise MetLifes proposed Class member communications and prevent one-sided and misleading communications.5 D. The Letters Developed By MetLife Are One-Sided and Misleading By letter dated March 23, 1994, MetLife notified this Court and Class counsel of its intent to send Pennsylvania class member policyholders letters and attempt to obtain releases from them. See Exhibit A. The letters proposed by MetLife will be mailed to some but not all of the Class members in these actions, i.e., they will only be mailed to those Class members whose policies were replaced between 1990 and 1993. The defined classes here extend back to 1983. 1. MetLifes One-Sided and Misleading Letters The letters proposed to be sent by MetLife include a release. The letters advise them that if they [the Class member] were misled or deceived in the sale of replacement in5 Rule 1713 provides in relevant part: RULE 1713. CONDUCT OF ACTIONS (A) In the conduct of actions to which this rule applies, the court may make appropriate orders (1) determining the course of proceedings or prescribing measures to prevent undue repetition or complication in the presentation of evidence or argument; (2) requiring, for the protection of the members of the class or otherwise for the fair conduct of the action, that notice, other than notice under Rule 1712, be given in such manner as the court may direct to some or all of the members of any step in the action, or of the proposed extent of the judgment, or of the opportunity of members to signify whether they consider the representation fair and adequate.

Appx. I

surance MetLife is willing to cancel the replacement transaction and restore any transferred value to the original policy. This relief, however, without adjustments to take into account, interest, dividends, etc. could not make the policyholders whole. If the policyholder without any guidance from MetLife or the Insurance Department is somehow able to determine that the replacement transaction involved deception, then the policyholder is requested to mail a claim form and Release to MetLife. The letters are one-sided and misleading because they do not: 1. Inform Class members about the nature of the Insurance Department findings about MetLifes replacement practices and policies how they were or could have been injured by such practices and policies; 2. Inform the Class members about the serious charges of replacement insurance wrongdoing found by the Pennsylvania Insurance Department against MetLife to enable them to make an informed decision before signing the MetLife release; 3. Inform Class members how to determine whether or not they were deceived or misled by MetLife; 4. Inform Class members of facts they should consider to determine whether or not they were deceived or misled by MetLife; 5. Inform Class members of the value of the consideration offered by MetLife to settle their claims before executing a broad release; 6. Inform Class members that by signing the proposed MetLife release they may be releasing all their claims in these class actions; 7. Inform Class members about these class actions and the valuable claims asserted on behalf of policyholders in these class actions against MetLife; 8. Inform Class members about the availability of undersigned counsel to represent class members in pursuing claims against MetLife; 9. Inform the Class members about the serious charges of replacement insurance wrongdoing alleged by the representative plaintiffs in these actions to enable them to make an informed decision before signing the MetLife release; 10. Inform Class members they may not receive any monetary benefits by signing the MetLife release; 11. Inform Class members that MetLife may have violated their fiduciary duties to them, and may have interests that conflict with the policyholders interests in obtaining releases from Class members; 12. The MetLife letters provide for a phone bank where it will engage in unsupervised oral communications with Class members which have a potential for being onesided and misleading. 2. The Proposed Letters To Be Mailed To Class Members Conflict With The Insurance Departments Findings The proposed letters require policyholders to somehow determine if they were misled or deceived. However, the proposed letters do not provide any description of the deception found in the replacement activities of MetLife agents by the

285

Appx. I

Consumer Class Actions: A Practical Litigation Guide


III. LEGAL ARGUMENT A. This Court Has The Duty To Supervise And Regulate MetLifes Settlement Communications With Class Members Pa.R.Civ.P. 1703(b) provides that upon filing of the complaint the class action shall be assigned forthwith to a judge who shall be in charge of it for all purposes. A class subject to the class rules is presumed to exist until and unless the Court rules otherwise. See Pa.R.Civ.P. 1701(a). The judge to whom the case is assigned has the duty to make appropriate orders controlling the course of the action. See Pa.R.Civ.P. 1713 and its Explanatory Note. The supervisory judge must also approve any compromise or settlement of the class action. See Pa.R.Civ.P. 1714(A) which provides: (A) No class action shall be compromised, settled or discontinued without the approval of the court after hearing. This Court therefore has the duty to regulate MetLifes proposed settlement communications with Class members. See, Floyd v. City of Philadelphia, 1 Phila. 188, 1978 Phila. Cty. Rptr. LEXIS 34 (Phila. Cty. 1978) (Exhibit B attached hereto) [not reprinted herein] (Court exercises authority to regulate misrepresentations in defendants settlement communications prior to certification). The duty created by Rule 1713 to supervise any step in a class action has also long been recognized under Rule 1713s federal counterpart Federal Rule 23(d).6 See, In Gulf Oil v. Bernard, 452 U.S. 89 (1981) where the Supreme Court recognized that inherent in the policy underlying federal Rule 23 is the district courts duty to police the class action: Class actions serve an important function in our system of civil justice. They present, however, opportunities for abuse as well as problems for courts and counsel in the management of cases. Because of the potential for abuse a district court has both the duty and the broad authority to exercise control over a class action and to enter appropriate orders governing the conduct of counsel and parties. 452 U.S. at 99100. The duty of the Court to supervise and regulate communications between defendants and class members before and after class certification has been recognized by many courts. See Floyd v. City of Philadelphia, supra, Kleiner v. First National Bank of Atlanta, 751 F.2d 1193 (11th Cir. 1985); Howle v. Columbia Organic, C.A. 3:92-1110-17 (D.C.S.C. 1992) (precertification order prohibiting defendants communication with prospective class members) (Exhibit C attached hereto) [not re6 Fed.R.Civ.P. Rule 23(d)2 provides, inter alia: (d) Orders in Conduct of Actions. In the conduct of actions to which this rule applies, the court may make appropriate orders: (2) requiring, for the protection of the members of the class or otherwise for the fair conduct of the action, that notice be given in such manner as the court may direct to some or all of the members of any step in the action. . . .

Insurance Department such that policyholders can determine if they were subject to these deceptive practices. Instead, the letters only inform policyholders that the replacement activity may be appropriate in many individual situations which suggests to policyholders that MetLifes replacement activity was permitted. This statement is false and directly contradicts the Insurance Department Report: Written instructions to MetLifes sales force state . . . the replacement of existing life or health insurance or annuities, in this or any other company, is generally to the disadvantage of the policyowner, and Company representatives are, of course, forbidden to solicit insurance for replacement of existing insurance in all cases where it is unlawful and, even if lawful, where it is contrary to the best interests of the policyowner. Id. at p. 17. The letters also as noted above do not provide policyholders with any information about these class actions, their claims in these actions or that they are represented by counsel in these actions who they can consult. 3. MetLifes Proposed Release Is One-Sided and Misleading MetLifes proposed Release is one-sided and misleading because it is a general release of all claims, including claims in these actions, and must be executed before the policyholder is even apprised of the consideration, if any, to be provided in return for the release. Class member policyholders should be provided with specific information about the nature and scope of their claims and the monetary value of any offer to settle their claims so that they can make an informed judgment before deciding to release their claims. 4. MetLifes Proposed Phone Bank Creates The Potential For One-Sided and Misleading Communications Given the one-sided complicated nature of replacement insurance transactions it can be expected that many policyholders will have questions. MetLifes proposed letters to policyholders thus provide policyholders with an 800 phone bank number to call. It is expected that MetLife agents will be advising policyholders as to whether they were deceived or misled and as to their rights, if any, to obtain a settlement from MetLife. Policyholders having received a proposed letter may call the 800 number and seek to obtain additional information from MetLife agents. The proposed phone bank, which will involve unsupervised oral communications between MetLife agents and Class members has the potential for additional one-sided and misleading communications. This is especially true here, because of the already serious breaches of fiduciary duty found by the Insurance Department and the conflict between MetLife and its replacement policyholders to settle any and all claims as cheaply as possible.

286

Brief in Support of Plaintiffs Motion


printed herein]; In Re Federal Skywalk Cases, 97 F.R.D. 370, 377 (W.D.Mo. 1983). For other cases where courts have recognized their duty to supervise and regulate communications between defendants and class members see, Erhardt v. Prudential Group, Inc., 629 F.2d 843, 845 (2d Cir. 1980); Impervious Paint Industries, Inc. v. Ashland Oil, 508 F. Supp. 720, 72224 (W.D.Ky.), appeal dismissed without opinion, 659 F.2d 1081 (6th Cir. 1981); Tedesco v. Mishkin, 629 F. Supp. 1474, 1484 (S.D.N.Y. 1986); Resnick v. American Dental Assn, 95 F.R.D. 372, 37677 (N.D. Ill. 1982); and Bower v. Bunker Hill Co., 689 F. Supp. 1032, 103334 (E.D.Wash. 1985). See also Manual for Complex Litigation (Second) 30.24 (1985) ([T]he court should not enter any order restricting communications between the litigants or their counsel and the potential or actual class members except when justified by actual or threatened misconduct of a serious nature . . . Nevertheless, a limited restrictionsuch as precluding a defendant from soliciting class members to opt out of the litigationwill sometimes be justified). (footnotes omitted) That these class actions have not yet been certified is irrelevant since Pa.R.Civ.P. 1701 explicitly provides that the action is a class action until the Court rules otherwise. See Rule 1701(a) defining a class action: (a) As used in this chapter Class action means any action brought by or against parties as representatives of a class until the court by order refuses to certify it as such or revokes a prior certification under these rules. Class members in Pennsylvania are therefore afforded protection of the class action rules upon the filing of the class action complaint. See also Impervious Paint Industries v. Ashland Oil, 508 F. Supp. 720 (W.D.Ky. 1981) where the court explained class members entitlement to protection under federal Rule 23 upon filing of the class action complaint: During the time between the institution of a class action and the close of the opt-out period, the status of plaintiffs counsel in relation to the class members cannot be stated with precision. While class counsel clearly have the duty to represent the interests of the absent class members, it would also appear that contact initiated by class counsel prior to the close of the opt-out period would be unethical as direct solicitation of clients, if the purpose or predictable effect of the contact is to discourage a decision to opt out of the class. Thus, the peculiar status of time may place additional burdens on class counsel: For purposes of the obligation to avoid compromising the rights of the class members, class counsel must treat them as clients; for purposes of the obligation to avoid unethical solicitation, class counsel must treat the class members as non-clients. (Emphasis added) 508 F. Supp. at 722. This Court therefore has the duty to supervise and regulate the form and content of letters that MetLife proposes to send Class members.

Appx. I

B. Courts In Pennsylvania and Elsewhere Have Recognized Their Duty To Supervise Communications Between Defendants And Class Members Communications, especially settlement communications, to Class members such as that proposed by MetLife are routinely regulated by the Courts. The only now known Pennsylvania court to consider the supervision of defendant settlement communications with individual class members was in Floyd v. City of Philadelphia, 1 Phila. 188, 1978 Phila. Cty. Rptr. LEXIS 34 (Phila. Cty. 1978) (attached hereto as Exhibit B) [not reprinted herein]. In Floyd, the defendant city owned a water treatment plant which leaked chlorine gas which allegedly injured the Plaintiffs upon inhalation. Prior to certification, the city sought to correspond with class members to settle their claims individually. The Floyd court exercised its power to regulate correspondence by entering an order which prohibited inter alia: 1. Any misrepresentations as to the status, purpose and effects of the actions and of actual or potential court orders; 2. Representations which reflected adversely on any party, counsel, the Court or the administration of justice; 3. Solicitations for opt-outs pursuant to R.Civ.P. 1711(A). Ex. B, p. 6. More recently, settlement communication schemes similar to MetLifes were supervised by the courts in the breast implant litigation. See, e.g., order entered in In Re Silicone Gel Breast Implants Products Liability Litigation, CV 92-P-1000-S (S.D. Ohio 1992) (Ex. D) [not reprinted herein]. In the Silicone Gel case, District Court Judge Pointer entered an order regulating the defendants settlement communications with class members which included provisions requiring disclosure of the class action, identification of class counsel, a prohibition on the dispensation of legal advice and requiring the mailing of neutrally worded form letters agreed to between class counsel and defendants. (Ex. D) The rationale for supervising such communications was explained in Erhardt v. Prudential Group, 629 F.2d 843, 845 (2d Cir. 1980) where the court found that unapproved, legally incomplete, untruthful, nonobjective communications would not be judicially approved: It is the responsibility of the court to direct the best notice practicable to class members, Rule 23(c)(2), and to safeguard them from unauthorized, misleading communications from the parties or their counsel. Unapproved notices to class members which are factually or legally incomplete, lack objectivity and neutrality, or contain untruths will surely result in confusion and adversely affect the administration of justice. To prevent abusive practices in the absence of a local rule, the court should include in its order of notice a provision limiting within constitutional parameters any unauthorized correspondence by parties and their counsel with class members.

287

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are likely to seriously prejudice Class members rights. It is therefore requested that this Court prohibit the mailing of the letters and releases and supervise and regulate MetLifes communications with Class members. A proposed Order is attached [not reprinted herein]. Attorney Counsel for the Representative Plaintiff and the Class

Erhardt, 629 F.2d at 846. And see Bower v. Bunker Hill, 689 F. Supp. 1032, 1034 (E.D.Wash. 1985). For the reasons stated above, this Court has a duty to supervise MetLifes proposed communications to Class members and should not permit MetLife to send any letters or releases to Class members that are one-sided and misleading. CONCLUSION MetLifes proposed letters and releases to be mailed to Class members are one-sided and misleading and therefore

288

Appendix J

Sample Objection to Defendants Document Request to Named Plaintiff

IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) )

ADDITIONAL OBJECTION TO DEPOSITION DOCUMENT REQUEST Now comes the plaintiff DENISE SMITH, through her attorneys and objects to producing a certain document in connection with her deposition as follows: Request number 6 asks for: 6. All documents which related to telephone communications between plaintiff and her attorneys. Objection: Because of the attorney-client privilege plaintiff objects to production of the document described below. The correspondence was written after DENISE SMITH had become a client of the Legal Assistance Foundation, which was on April 10, 1980. Mrs. Smith came to the office seeking legal advice regarding the subject matter of this suit and all communications after April 10, 1980 between her and her attorneys are privileged. Description of document: The document is a letter dated February 2, 1981 sent by DENISE SMITH to Louisa Seston an attorney for Legal Assistance Foundation. The letter concerns the hospital bill owed to Cook County Hospital for DENISE SMITHs admission of December 28, 1978 and phone collection efforts by the defendants.

DENISE SMITH, and CECILIA SAUCEDO a/k/a ARRES, individually and on behalf of all others similarly situated, Plaintiffs, v. DAVID D. MIKELL, DOCTORS SERVICE BUREAU, INC., a corporation and THE BUREAUS, INC. a corporation, Defendants.

One of Plaintiffs Attorneys

289

Appendix K

Sample Motions for Class Certification

This appendix provides five sample class certification motions. Additional examples of class certification motions (in print and on a WordPerfect disk) are included in National Consumer Law Center, Consumer Law Pleadings With Disk, Numbers One through Five. These sample motions for class certification will be listed below by volume number, such as CLP#1 or CLP#2: 1 Odometer rollback case, CLP#1 3.3; 1 Financing of automobile sales, CLP#1 4.8; 1 Case involving car dealers race discrimination against customers and rebate theft, CLP#3 3.6; 1 UDAP, warranty and lemon law claims arising out of leasing of vehicles, CLP#1 9.3; 1 Uninhabitable mobile home park conditions, CLP#2 2.1.7; 1 Real estate broker fraud case, CLP#2 4.2.2; 1 Fair Debt Collection Practices Act case, CLP#3 3.2; 1 Collection agency litigation abuse case, CLP#2 11.2.5; 1 Student loan collection abuse case, CLP#2 14.3; 1 Trade school abuses and student loan collections, CLP #2 13.8.1; and 1 Tax agency filing baseless proof of claims in chapter 13 bankruptcies, CLP#3 7.2.4.

PLAINTIFFS MOTION FOR CLASS CERTIFICATION Plaintiffs, by counsel, hereby move this Court, pursuant to Rule 23 of the Federal Rules of Civil Procedure, to certify this action as a class action and Plaintiffs Gene C. Bauer and Carol A. Bauer as class representatives. Plaintiffs seek certification of a class of all persons in the United States who, during the one year prior to the filing of this action, received letters or other communications from Defendants substantially in the form of Exhibit A and Exhibit B attached to Plaintiffs Complaint [not reprinted herein]. Excluded from the Class are all officers and directors of the Defendants. Respectfully submitted ROSS & MARLER, P.C. By: M.D. Marler Address Phone Number Justin Hunt, LLC M.D. Justin D.A. Reardon Address Phone Number Dated: January 7, 1999 Attorneys for Plaintiffs

K.1 Fair Debt Collection Practices ActMotion and Proposed Order (Bauer)
UNITED STATES DISTRICT COURT EASTERN DISTRICT OF PENNSYLVANIA ) ) ) ) ) ) v. ) CIVIL ACTION NO: 98) FIRST UNION MORTGAGE ) CLASS ACTION CORPORATION, ) HUTCHENS, McCALLA, ) RAYMER & ECHEVARRIA ) and DAVID MITCHELL, ) Defendants. ) ) GENE C. BAUER, CAROL A. BAUER, on behalf of themselves and all others similarly situated, Plaintiffs,

ORDER
AND NOW, upon consideration of Plaintiffs Motion for Class Certification (the Motion) and Memorandum of Law in support thereof, and defendants response thereto, IT IS, this day of , 1999, HEREBY ORDERED that the Motion is GRANTED. This action shall be maintained as a class action in accordance with Federal Rule of Civil Procedure 23(a) and (b) pursuant to the following findings of fact: 1. The Class, defined as all persons in the United States who, during the one year prior to the filing of this action, received letters or other communications from Defendants substantially in the form of Exhibit A and Exhibit B to Plaintiffs Complaint, is so numerous that joinder of all members is impracticable; 2. There are questions of law and/or fact common to the Class; 3. The claims of Plaintiffs Gene C. Bauer and Carol A. Bauer are typical of the claims of the Class; 4. Plaintiffs will fairly and adequately protect the interests of the Class;

291

Appx. K.2

Consumer Class Actions: A Practical Litigation Guide


The Amended Complaint alleges that LVB and the home improvement contractors with which it dealt, induced consumers to enter into binding contracts without complying with federal and state laws providing that consumers who sign home improvement contracts have three business days after their transaction is concluded and all terms are disclosed to reconsider and cancel the transaction, without obligation. The Mounts allege that LVBs practice violates the federal Truth in Lending Act (Count I), the Illinois Consumer Fraud Act (Count II) and constitutes common law fraud (Count III). Plaintiff seeks certification of a class consisting of all persons who satisfy the following criteria: 1. They signed a contract with a home improvement contractor. 2. They also signed a retail installment obligation that was purchased by Lake View Bank, directly or indirectly. 3. The date on the contract with the home improvement contractor is earlier than the date of credit approval by Lake View Bank. 4. The obligation to Lake View Bank is secured by real estate. 5. The address of the real estate securing the obligation is the same as the consumers residence, as shown by the transaction file. The class includes persons who signed contracts within three years next before the filing of this action, for purposes of Count I, persons whose contracts were outstanding at any time within three years next before the filing of this action, for purposes of Count II, and persons whose contracts were outstanding at any time within five years next before the filing of this action, for purposes of Count III. The grounds for this motion are stated in the accompanying memorandum of law. Respectfully Submitted, [Attorney]

5. The prosecution of separate actions by individual members of the Class would create a risk of inconsistent or varying adjudications with respect to individual members which would establish incompatible standards of conduct for the parties opposing the Class, as well as a risk of adjudications with respect to individual members which would as a practical matter be dispositive of the interests of other members not parties to the adjudications or substantially impair or impede their ability to protect their interests; 6. Defendants have acted or refused to act on grounds generally applicable to the Class; 7. The questions of law and/or fact common to the members of the Class predominate over any questions affecting only individual members; 8. A class action is superior to other available methods for the fair and efficient adjudication of this controversy; and it is further ORDERED, that Plaintiffs Gene Bauer and Carol Bauer are certified as Class representatives; and it is further ORDERED, that excluded from the Class are all officers and directors of the Defendants; and it is further ORDERED, that M.D. Marler of Ross & Marler, P.C. and M.D. Justin of Justin Hunt, LLC shall serve as Co-Lead Counsel, with responsibility for coordinating the work of other Class Counsel; and it is further ORDERED, that Plaintiffs shall submit a proposed form of notice to the Class within thirty (30) days of entry of this Order. [United States District Court Judge]

K.2 TIL Rescission and Deceptive Practices CaseHome Improvement Contract (Mount)
IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION ) MATTHEW MOUNT and ) LESLIE MOUNT, on behalf ) of themselves and all others ) similarly situated, ) Plaintiffs, ) ) v. ) ) LASALLE BANK LAKE VIEW, ) Defendant. ) ) PLAINTIFFS MOTION FOR CLASS CERTIFICATION Plaintiffs Matthew Mount and Leslie Mount respectfully requests that this Court enter an order pursuant to Rule 23 of the Federal Rules of Civil Procedure that Counts IIII of the Amended Complaint may proceed against defendant LaSalle Bank Lake View (LVB) as a class action.

K.3 TIL Disclosure CaseHidden Finance Charge in Car Sale (Willis)


IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION ) ) ) ) ) ) v. ) ) HARVEY CYCLE & ) CAMPER, INC., doing business ) as WATSON MOTORSPORT, ) LTD.; and WONDERLIC & ) ASSOCIATES, INC., doing ) business as WONDERLIC ) FINANCE, ) Defendants. ) ) CHRSITINE WILLIS, on behalf of herself and all others similarly situated, Plaintiff,

292

Sample Motions for Class Certification


PLAINTIFFS MOTION FOR CLASS CERTIFICATION Plaintiff respectfully requests that the Court enter an order providing that Counts I and II of the complaint may proceed on behalf of a class against defendants Harvey Cycle & Camper, Inc., d/b/a Watson Motorsport, Ltd. (Watson) and Wonderlic & Associates, Inc., d/b/a Wonderlic Finance (Wonderlic). In support of this motion, plaintiff states: 1. Counts I and II (Counts III and IV raise individual warranty claims) allege that defendants understated the finance charge and annual percentage rate on retail installment contracts, primarily for the purchase of used cars. Count I is based on the Truth in Lending Act, 15 U.S.C. 1601 et seq. (TILA), and implementing Federal Reserve Board Regulation Z, 12 C.F.R. part 226. Count II is based on the Illinois Sales Finance Agency Act, and implementing regulations, 38 Ill.Admin.Code part 160, which effectively require finance companies such as Wonderlic to comply with TILA as a matter of state law and provide additional remedies for aggrieved consumers. The disclosures were generated by computer and typed onto printed forms disseminated by Wonderlic to used car dealers, such as Watson. 2. Plaintiff seeks to represent a class of all persons who signed a retail installment contract on Wonderlics printed form that included a charge for V.S.I. insurance in the amount financed and did not include it in the finance charge and the annual percentage rate. For purposes of Count I, the TILA claim, the class includes all such persons whose contracts are dated within one year prior to the filing of this action. For purposes of Count II, the Sales Finance Agency Act claim, the class nominally extends back five years and includes only persons with addresses in the State of Illinois.1 3. All requirements of Rule 23 of the Federal Rules of Civil Procedure have been met. a. The class is so numerous that joinder of all members is impractical. Prior to filing suit, plaintiffs counsel were informed by the car dealer involved in this case, Watson, that they alone generated several hundred transactions containing the disclosure item at issue. b. There are questions of law and fact common to the class, which predominate over any questions affecting only individual class members. The principal question is whether defendants standardized disclosures violated TILA and Regulation Z. c. There appear to be no individual questions, other that whether a class member received a TILA statement containing the offending disclosures, which can be determined by ministerial inspection of defendants records.

Appx. K.4

d. Plaintiffs claim is typical of the claims of the class, which all arise from the same operative facts and are based on the same legal theory. e. Plaintiff will fairly and adequately protect the interests of the class. They have retained counsel experienced in handling class claims and claims involving unlawful business practices. Neither plaintiff nor her counsel have any interests which might cause them not to vigorously pursue this claim. f. A class action is a superior method for the fair and efficient adjudication of this controversy. Most of the class members are working-class persons who are probably unaware that the finance charges and annual percentage rates on their transactions were understated. The interest of class members in individually controlling the prosecution of separate claims against defendants is small because the maximum damages in an individual action are $1,000. Management of this class claim is likely to present significantly fewer difficulties than those presented in many class claims, e.g., for securities fraud. These grounds are further explained and supported by the accompanying memorandum of law. WHEREFORE, plaintiff requests that this action may proceed as a class action. Respectfully Submitted, [Attorney]

K.4 TIL Untimely Disclosure Case (Diaz)


IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION ) ) ) ) ) ) v. ) ) WESTGATE LINCOLN ) MERCURY, INC., ) Defendant. ) ) SALVATOR DIAZ, on behalf of himself and all others similarly situated, Plaintiff, PLAINTIFFS CORRECTED MOTION FOR CLASS CERTIFICATION

1 Our preliminary investigation indicates that the actual composition of the classes defined for each count may be substantially identical; i.e., the violations complained of began less than five years ago and may have been limited to Illinois. Plaintiff has propounded discovery (Appendix A [not attached herein]) to identify the class members. Each class definition also includes the requirement that the underlying retail installment contract have been documented as one for personal, family or household purposes; since the transactions at issue involved used cars, it is highly unlikely that there are any others.

Plaintiff, Salvator Diaz, respectfully requests, pursuant to Rule 23 of the Federal Rules of Civil Procedure, that the Court certify this action as a class action. Plaintiff seeks certification of a class consisting of all persons who, on or after September 2, 1993 (one year before the filing of this action), signed the same printed form as Exhibit A [not attached herein] with Westgate, without previously or simultaneously receiving Truth in Lending disclosures relating to Exhibit A. In support of this motion, plaintiff states:

293

Appx. K.5

Consumer Class Actions: A Practical Litigation Guide


MOTION TO PROCEED AS A CLASS Plaintiff Carmen Ortiz, by her attorneys, moves pursuant to 2-801 et seq. of the Illinois Code of Civil Procedure, Ill. Rev. Stat. ch. 110, 2-801 et seq., for a determination that this action may proceed as a class action. In support of her motion plaintiff alleges as follows. 1. Plaintiffs complaint alleges that: (a) defendants business procedures regarding single interest physical damage insurance violate the Illinois Consumer Fraud and Deceptive Business Practices Act, Ill. Rev. Stat. ch. 121 1/2, 261 et seq. (Count I); (b) defendants breached the contract of insurance by failing to pay claims of class members whose cars were damages while the insurance was in force (Count II); (c)defendant GMAC breached its fiduciary duty in the purchase of single interest physical damage insurance for class members (Count III); and (d) defendant GMAC violated the Illinois Sales Finance Agency Act, Ill. Rev. Stat. ch. 17, 5201 et seq. in the purchase of single interest physical damage insurance for class members (Count IV). 2. The class is composed of all persons who: a. financed purchases of motor vehicles for their own personal and/or household use through General Motors Acceptance Corporation (hereafter GMAC); b. purchased the vehicle from an automobile dealer located within the state of Illinois; c. had single interest physical damage insurance purchased for them by GMAC through Motors Insurance Corporation (hereafter MIC) after December 2, 1990. There is a subclass of plaintiffs who also: d. sustained motor vehicle damage while the MIC policy was in force and either received no payment or credit from the MIC insurance policy or were required to surrender the automobile to GMAC in order to receive the payment or credit. 3. The class is so numerous that joinder of all members is impracticable. 4. There are questions of fact and law common to the class, which common questions predominate over any questions affecting only individual members. 5. The representative party will fairly and adequately protect the interests of the class. 6. A class action is an appropriate method for the fair and efficient adjudication of the controversy. WHEREFORE, plaintiff Ortiz prays that this Court allows this action to proceed as a class action. Respectfully Submitted, [Attorney]

1. This is a Truth in Lending action. The complaint alleges that Westgate had plaintiff and others sign notes without providing any of the disclosures required by the Truth in Lending Act. 2. Exhibit A is a standard printed form document which Westgate has consumers sign. 3. Such a claimin essence, that a standard printed form fails to comply with disclosure requirements imposed by a federal statute and regulationsis eminently suitable for class certification. 4. All requirements of Rules 23(a) and (b)(3) of the Federal Rules of Civil Procedure have been met: a. The class is so numerous that joinder of all members is impracticable. Exhibit A is a standard form that was consistently used by Westgate since prior to the beginning of the class period. b. There are questions of law and fact common to the entire class. These common questions predominate over any questions affecting only individual members of the class. c. The claims of plaintiffs as representative parties are typical of the claims of the class. d. Plaintiff will fairly and adequately protect the interests of the class, and the class representative will vigorously prosecute this case through his attorneys. e. A class action is superior to other available methods of resolving the controversy. These grounds are further explained and supported by the accompanying memorandum. Respectfully Submitted, [Attorney]

K.5 Deceptive Practices Case Vendors Single Interest Insurance (Ortiz)


IN THE CIRCUIT COURT OF COOK COUNTY, ILLINOIS COUNTY DEPARTMENT, LAW DIVISION ) ) ) ) ) ) v. ) ) GENERAL MOTORS ) ACCEPTANCE ) CORPORATION, INC. and ) MOTORS INSURANCE ) CORPORATION, INC., ) Defendants. ) ) CARMEN ORTIZ, individually and on behalf of all others similarly situated, Plaintiffs,

294

Appendix L

Sample Opening Memoranda in Support of Class Certification

This appendix provides eight sample memoranda in support of class certification. Additional examples of memoranda in support of class certification (in print and on a WordPerfect disk) are included in National Consumer Law Center, Consumer Law Pleadings With Disk, Numbers One through Five. These sample opening memoranda will be listed below by volume number, such as CLP#1 or CLP#2: 1 Abuses related to forced-placed automobile insurance, CLP#1 2.2, CLP#5 5.3; 1 Odometer rollback case, CLP#1 3.6; 1 Case involving car dealers race discrimination against customers and rebate theft, CLP#3 3.6; 1 Used car financing case, CLP#1 4.9; 1 Automobile lease case, CLP#1 9.4; 1 Automobile pawn case, CLP#3 4.3.5; 1 Rent-to-own case, CLP#4 11.2; 1 Home improvement financing scheme, CLP#4 2.1.1; 1 Uninhabitable mobile home park conditions, CLP#2 2.1.7; 1 Membership campground case, CLP#1 6.6; 1 Real estate broker fraud case, CLP#2 4.2.3; 1 Land installment sale case, CLP#3 10.3; 1 Fair Debt Collection Practices Act case, CLP#3 3.2; 1 Collection agency litigation abuse case, CLP#2 11.2.5; 1 Trade school abuses and student loan collections, CLP #2 13.8.1; and 1 Tax agency filing baseless proof of claims in chapter 13 bankruptcies, CLP#3 7.2.4.

L.1 Fair Debt Collection Practices Act Case (Bauer)


UNITED STATES DISTRICT COURT EASTERN DISTRICT OF PENNSYLVANIA ) ) ) ) ) ) v. ) ) CIVIL ACTION NO: 98FIRST UNION MORTGAGE ) CORPORATION, HUTCHENS, ) CLASS ACTION McCALLA, RAYMER & ) ECHEVARRIA and DAVID ) MITCHELL, ) Defendants. ) ) GENE C. BAUER, CAROL A. BAUER, on behalf of themselves and all others similarly situated, Plaintiffs, MEMORANDUM OF LAW IN SUPPORT OF PLAINTIFFS MOTION FOR CLASS CERTIFICATION I. BACKGROUND Plaintiffs, by counsel, respectfully submit this memorandum in support of their Motion for Class Certification (the Motion) pursuant to Rules 23(a), 23(b)(1), (2) and (3) of the Federal Rules of Civil Procedure (the Rules), seeking certification of this action as a class action and Plaintiffs Gene C. Bauer and Carol A. Bauer as class representatives. This is a consumer class action brought on behalf of all persons in the United States who, during the one year prior to the filing of this action, received letters or other communications from Defendants substantially in the form of Exhibit A and Exhibit B attached to Plaintiffs Complaint [not reprinted herein]. Plaintiffs assert claims under the federal Fair Debt Collection Practices Act, 15 U.S.C. 1692, et seq. (FDCPA) for declaratory and injunctive relief, actual, statutory and punitive damages, costs and attorneys fees. Plaintiffs filed a ComplaintClass Action in this case on October 8, 1998. In response, Defendant First Union Mortgage Corporation (First Union) filed an Answer on November 25, 1998 and Defendants Hutchens, McCalla, Raymer & Echevarria (HMRE) and David Mitchell (Mitchell) filed

295

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nership composed of various attorneys located and doing business in Florida, Georgia, Tennessee and North Carolina. Contrary to the letterhead set forth at the top of each page of the Letters, neither Hutchens nor any of the individual attorneys named in the letterhead maintains a principal office at 1100 Corporate Center Drive, Raleigh, North Carolina. Rather, the address and telephone number reflected on the letterhead and represented as belonging to HMRE are actually the address and telephone number of First Unions corporate headquarters. In addition, under the applicable least sophisticated consumer standard, the letterhead deceptively and falsely represents that each one of HMREs partners is licensed to practice law in the State of North Carolina when, in fact, three of the partners are not licensed to practice law in North Carolina. The Letters are signed by HMRE by Defendant Mitchell. Contrary to the representation of the Letters, Mitchell is not an attorney. Rather, the Complaint alleges that Mitchell was an employee of First Union and worked in the mortgage foreclosure division of First Union in Raleigh, North Carolina. Plaintiffs believe that Mitchell and First Union used the HMRE name and the misleading letterhead to collect a debt by means of a name other than the true name. Furthermore, the Letters sent by HMRE are even coded according to First Unions own internal coding sequence for in-house documents and letters. Plaintiffs believe that the Defendants acted in a false, deceptive and unethical manner when they designed, compiled and furnished the HMRE letterhead knowing that it would be used to create the false belief in consumers that a large established law firm was participating in the collection of a debt when in fact no such law firm was so participating. Additionally, Plaintiffs believe that no attorney reviewed or participated in a review of the Letters before they were mailed to Plaintiffs. See, e.g., Taylor, supra; Littles v. Lieberman, 90 B.R. 700 (E.D. Pa. 1988). The Letters were the only communications, written or otherwise, made to Plaintiffs by the Defendants. In violation of Section 1692g(a) of the FDCPA, none of the Letters advised Plaintiffs that they had a right to dispute the validity of the alleged debt and that the Defendants would provide verification of the alleged debt if the Plaintiffs disputed the validity of the alleged debt and/or requested verification of the debt. Further, regardless of whether the above validation/verification language was effectively conveyed to the least sophisticated consumer, it was contradicted, overshadowed and obscured by extraneous language contained in the Letters so as to confuse or make uncertain what the least sophisticated consumers rights are under the law. Plaintiffs believe that the objective least sophisticated consumer would interpret the communications contained in the Letters as being issued, authorized or approved by an attorney and meaning that unless the consumer made the requisite payment in the time allotted, the Defendants would start a lawsuit to foreclose on that consumers mortgaged property and also sue the consumer personally. A legal action to foreclose on Plaintiffs mortgaged property and to sue them personally could only be brought in the county and state in which the consumers and their property are located. Since Plaintiffs

an Answer on December 17, 1998. The parties are currently negotiating and finalizing a proposed Case Management Stipulation and Order setting forth a schedule for discovery and for this Motion and responses thereto, which is anticipated to be filed shortly. In essence, the Complaint alleges that First Union used the name of HMRE in the process of collecting or attempting to collect First Unions own debts. A creditor is a debt collector even though it is collecting its own debt, where it uses a lawyers letterhead on its dunning letters, falsely indicating that a third person was collecting the debt. Taylor v. Perrin, Landry, deLaunay & Durand, 103 F.3d 1232 (5th Cir. 1997); Young v. Citicorp Retail Services, Inc., 1997 WL 280508 (D. Conn. 1997). The debt collection was attempted through the use of standard printed form letters sent to Plaintiffs (the Letters). The Letters violated the FDCPA in a variety of ways, as set forth in the Complaint. For example, under the applicable least sophisticated consumer test, see Graziano v. Harrison, 950 F.2d 107, 111 (3d Cir. 1991), the Letters represented, albeit incorrectly, that they were from an attorney. Each page of the Letters contains full letterhead representing that HMRE maintained a principal office at 1100 Corporate Center Drive. The Letters state we may also sue you personally for the unpaid balance and all other sums due under the mortgage. However, not only were the Letters signed by Mitchell, who is not an attorney, but neither HMRE nor any of its members or employees are licensed to practice law in Pennsylvania, the venue where such a suit would have to be filed. A collection letter purporting to be from an attorney but that is actually signed by a non-attorney violates the FDCPAs prohibition against falsely representing or implying that an individual is an attorney. 15 U.S.C. 1692e(3). A collection notice also violates the FDCPA if a consumer would reasonably believe that the notice threatens legal action and the collector cannot, or does not intend to, take legal action. United States v. National Financial Services, Inc., 98 F.3d 131, 135 (4th Cir. 1996); Crossley v. Lieberman, 868 F.2d 506 (3d. Cir. 1989); Wilborn v. Dun & Bradstreet Corporation, 1998 U.S. Dist. LEXIS 12618, *23 (N. D. Ill. 1998); In re Belile, 209 B.R. 658 (Bankr. E.D. Pa. 1997). II. FACTS The facts in this case are simple and straightforward. First Union holds a first mortgage on Plaintiffs property at [Street], [City], Pennsylvania. Two debt collection letters dated March 6, 1998, bearing First Unions address at 1100 Corporate Center Drive, Raleigh, North Carolina, but under the name of HMRE, were sent to Plaintiffs at their home. Copies of the Letters are attached to Plaintiffs Complaint as Exhibits A and B [not reprinted herein]. Plaintiffs believe that First Union used the name of HMRE in the process of collecting or attempting to collect the amount allegedly owed by Plaintiffs to First Union. As such, First Union is a debt collector within the meaning of Sections 1692a(6) and 1692j of the FDCPA. Although HMRE purported to be a law firm that was hired by First Union to collect debts, Plaintiffs believe that the evidence will show that HMRE is not a law firm but is instead a marketing part-

296

Sample Opening Memoranda in Support of Class Certification


and their property are located in [City], Pennsylvania, any legal action described above must be brought in [County], Pennsylvania. However, at the time that the Plaintiffs received the Letters, HMRE and Mitchell were not licensed to practice law in the Commonwealth of Pennsylvania and had no legal standing to institute suit against Plaintiff in [County]. Despite this fact, Defendants Letters stated falsely that we may also sue you personally for the unpaid principal balance and all other sums due under the mortgage. As a result of the acts alleged above, Plaintiffs suffered actual damages and out-of-pocket expenses. III. ARGUMENT A. General Legal Standards Governing Class Certification For a suit to be maintained as a class action under Rule 23, Plaintiffs must allege facts establishing each of the four threshold requirements of subsection (a) of the Rule, which provides: One or more members of a class may sue or be sued as representative parties on behalf of all only if (1) the class is so numerous that joinder of all members is impracticable; (2) there are questions of law or fact common to the class; (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class; and (4) the representative parties will fairly and adequately protect the interests of the class. See Wetzel v. Liberty Mut. Ins. Co., 508 F.2d 239, 246 (3d Cir.), cert. denied, 421 U.S. 1011 (1975). Plaintiffs must also allege that this action qualifies for class treatment under at least one of the subdivisions of Rule 23(b). Under Rule 23(b)(1), a class action may be maintained where prosecution of separate actions by individual members of the class would create a risk of (A) inconsistent or varying adjudications with respect to individual members which would establish incompatible standards of conduct for the parties opposing the class, or (B) adjudications with respect to individual members which would as a practical matter be dispositive of the interests of other members not parties to the adjudications or substantially impair or impede their ability to protect their interests. Under Rule 23(b)(2), a class action will be appropriate where the party opposing the class has acted or refused to act on grounds generally applicable to the class, thereby making appropriate final injunctive relief or corresponding declaratory relief with respect to the class as a whole. Under Rule 23(b)(3), a class action will be appropriate where the court finds that the questions of law or fact common to the members of the class predominate over any questions affecting only individual members, and that a class action is superior to other available methods for the fair and efficient adjudication of the controversy. Plaintiffs bear the initial burden of advancing reasons why a putative class action meets the requirements of Rule 23. However, Plaintiffs burden is not a heavy one. See Piel v. National Semiconductor Corp., 86 F.R.D. 357, 368 (E.D. Pa. 1980). See also Anderson v. City of Albuquerque, 690 F.2d 796, 799 (10th Cir. 1982); Paxton v. Union Natl Bank, 688 F.2d 552,

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562 (8th Cir. 1982). Once a plaintiff has demonstrated a preliminary legal showing that the requirements of Rule 23 have been met, the burden of proof is upon the defendant to demonstrate otherwise. 2 H. Newberg, Newberg on Class Actions (3d Ed. 1992) (Newberg) 7.22 at 7-74 to 7-75. Provided that a plaintiffs contentions regarding the class issues are based upon a reasonable foundation, the court should not deny certification because of a defendants challenge. See Sollenbarger v. Mountain States Tel. & Tel. Co., 121 F.R.D. 417 (D.N.M. 1988); In re Industrial Gas Antitrust Litig., 100 F.R.D. 280 (N.D. Ill. 1983); Kuck v. Berkey Photo, Inc., 81 F.R.D. 736 (S.D.N.Y. 1979). B. The Proposed Class Satisfies the Requirements of Rule 23(a) The Supreme Court has noted that [c]lass actions serve an important function in our system of civil justice. Gulf Oil Co. v. Bernard, 452 U.S. 89, 99 (1981). The Court has also recognized that the class action procedure is necessary for private rights of action to be initiated. Deposit Guar. Natl Bank v. Roper, 445 U.S. 326, rehg. denied, 446 U.S. 947 (1980). As stated in Roper, class actions serve an important function in our system of civil justice because they permit plaintiffs to vindicat[e] the rights of individuals who otherwise might not consider it worth the candle to embark on litigation in which the optimum result might be more than consumed by the cost. Id. at 338. The determinations called for by Rule 23 are questions addressed to the sound discretion of the district court. Gulf Oil Co., 452 U.S. at 100. A decision to grant class certification is not a final order; it may be altered or amended as the case progresses towards resolution on the merits. Fed.R.Civ.P. 23(c)(1); In re School Asbestos Litig., 789 F.2d 996, 1011 (3d Cir. 1986); 7B C. Wright & A. Miller, Federal Practice and Procedure 1785, at 128 (1986) (Wright & Miller). Moreover, the Third Circuit has adopted a liberal construction of Rule 23. See, e.g., Eisenberg v. Gagnon, 766 F.2d 770, 785 (3d Cir.), cert. denied sub nom Wasserstrom v. Eisenberg, 474 U.S. 946 (1985); Kahan v. Rosenstiel, 424 F.2d 161 (3d Cir.), cert. denied, 398 U.S. 950 (1970); Peil v. Speiser, 97 F.R.D. 657 (E.D. Pa. 1983). Therefore, in a close case, the court should find the prerequisites to class certification established. Eisenberg, 766 F.2d at 785; Spark v. MBNA Corporation, 178 F.R.D. 431 (D. Del. 1998). The focus is simply whether the prerequisites of Rule 23 have been met. Dawes v. The Philadelphia Gas Commission, 421 F. Supp. 806, 813 (E.D. Pa. 1976). In determining whether an action may be maintained as a class action, the issue is merely whether the representative plaintiffs have demonstrated the probability of the existence of a sufficient number of persons inclined and similarly situated. The court is not to conduct an exploration of the merits when deciding upon certification of a class. Eisen v. Carlisle & Jacqueline, 417 U.S. 156, 17778 (1974); Kahan, 424 F.2d at 168; Spark v. MBNA Corporation, supra; Chestnut Fleet Rentals, Inc. v. Hertz Corp., 72 F.R.D. 541, 543 (E.D. Pa. 1976). Moreover, since class determination is made at the pleading stage of the action, the substantive allegations in the complaint are accepted as true for purposes of the class motion. Shelter Realty Corp. v. Allied Maintenance Corp., 574 F.2d 656, 661 n.15 (2d Cir. 1978); Blackie v. Barrack, 524 F.2d 891, 901 n.16 (9th Cir. 1975), cert. denied, 429 U.S. 816 (1976); Vine v. Beneficial Fin. Co., 374 F.2d 627,

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to Plaintiffs Complaint [not reprinted herein]. As to the exact number of Class members, Defendants possess documents which will establish that figure. Accordingly, it is indisputable that the numerosity requirement is easily satisfied as to the Class. 2. There are questions of law and fact common to the Class Rule 23(a)(2) requires a showing of the existence of questions of law or fact common to the class. Fed.R.Civ.P. 23 (a)(2). This threshold of commonality is not high. In re School Asbestos Litig., 789 F.2d at 1010 (quoting Jenkins v. Raymark Indus., Inc., 782 F.2d 468 (5th Cir. 1986), cert. denied, 479 U.S. 852 (1987)). The rule does not require that all questions be common or even that common questions predominate. Hummel v. Brennan, 83 F.R.D. 141, 145 (E.D. Pa. 1979); Kuhn v. Philadelphia Electric Co., 80 F.R.D. 681, 684 (E.D. Pa. 1978). All class members need not share identical claims; factual differences among the claims of the putative class members do not defeat certification. Baby Neal v. Casey, 43 F.3d 48, 56 (3d. Cir. 1994). Indeed, a single common question is sufficient to satisfy the requirements of Rule 23(a)(2). In re Prudential Insurance Company America Sales Practice Litigation Agent Actions, 148 F.3d 283, 310 (3d Cir. 1998); Baby Neal v. Casey, 43 F.3d at 56. A common question is one which arises from a common nucleus of operative facts regardless of whether the underlying facts fluctuate over the class period and vary as to individual claimants. In re School Asbestos Litig., 104 F.R.D. at 429; Cohen v. Uniroyal, Inc., 77 F.R.D. 685, 69091 (E.D. Pa. 1977); Muth v. Dechert, Price & Rhoads, 70 F.R.D. 602, 607 (E.D. Pa. 1976); In re Corrugated Container Antitrust Litig., 80 F.R.D. 244, 250 (S.D. Tex. 1978). Courts have typically found a common nucleus of operative facts where, as in the present action, the defendant engaged in standardized conduct toward putative class members. Keele v. Wexler, 1998 U.S. App. LEXIS 15029 (7th Cir. 1998) (class certified in FDCPA action on behalf of all Colorado residents who received debt collection letters from defendant); Wilborn v. Dun & Bradstreet Corporation, 1998 U.S. Dist. LEXIS 12618 (N.D. Ill. 1998) (FDCPA class certified regarding form collection letter); West v. Costen, 558 F. Supp. 564 (W. D. Va. 1983) (FDCPA class certified regarding alleged failure to provide required validation notices). See also Prudential, 148 F.3d at 309310 (Prudentials orchestrated sales presentations, the plaintiffs common legal theories, Prudentials common defenses, and other common issues undoubtedly satisfy the commonality and predominance requirements); Chandler v. Southwest Jeep-Eagle, 162 F.R.D. 302, 308 (N.D. Ill. 1995) (common nucleus of operative facts where defendants engaged in standardized conduct toward members of the proposed class); Heartland Communications v. Sprint Corp., 161 F.R.D. 111 (D. Kan. 1995) (class certification granted where the contracts signed by all proposed class members contained virtually the same provision as that challenged by the named class representative). Moreover, it is well established that the presence of some individualized issues does not overshadow the common nucleus of operative fact presented when the defendant has engaged in standardized conduct toward the Class. See Prudential, supra (individual damages do not undermine predominance of common issues); Dawes, 421 F. Supp. at 814 (pres-

63233 (2d Cir.), cert. denied, 389 U.S. 970 (1967), and if any doubt exists, any error, if there is to be one, should be committed in favor of allowing the class action. Hoffman Elec., Inc. v. Emerson Elec. Co., 754 F. Supp. 1070, 1075 (W. D. Pa. 1991). See also Moskowitz v. Lopp, 128 F.R.D. 624, 628 (E.D. Pa. 1989); Ettinger v. Merrill Lynch Pierce, Fenner & Smith, Inc., 122 F.R.D. 177, 179 (E.D. Pa. 1988). Further, judicial economy requires that this action proceed through the class action vehicle. The Plaintiffs and the Class members only alternative to proceeding as a class action is to file individual claims. To do so would be time consuming and redundant, as each Plaintiff would be required to conduct discovery into Defendants business practices to prove exactly the same allegations and proffer exactly the same evidence. Each Plaintiff would then be required to brief and argue the same questions of law. This action should be certified as a class action because, as discussed below, all of the requirements of Rule 23(a) have been met. 1. The Class is so numerous that joinder of all members is impracticable Rule 23(a)(1) requires that the proponent of a class action demonstrate that the class is so numerous that joinder of all members is impracticable. Fed.R.Civ.P. 23(a)(1). The Rule does not require that joinder be impossible; rather, joinder of all members is impracticable when the procedure would be inefficient, costly, time-consuming, and probably confusing. Ardrey v. Federal Kemper Ins. Co., 142 F.R.D. 105, 111 (E.D. Pa. 1992). This Court may make common sense assumptions in order to support the finding of numerosity. Snider v. Upjohn Co., 115 F.R.D. 536, 539 (E.D. Pa. 1987) (quoting Wolgin v. Magic Marker Corp., 82 F.R.D. 168, 171 (E.D. Pa. 1979)). Moreover, precise enumeration of the members of a class is not necessary for the action to proceed as a class action. See, e.g., Epstein v. Moore, [198889 Transfer Binder] Fed. Sec. L. Rep. (CCH) k 93, 957 at 90,442 (D.N.J. 1988). It is permissible to estimate class size. In re ORFA Sec. Litig., 654 F. Supp. 1449, 1464 (D.N.J. 1987). In applying this rule, it has consistently been held that joinder is impracticable where the class is composed of hundreds of potential claimants; indeed, impracticability of joinder has often been found where the class is composed of less than 100 members. See, e.g., Eisenberg, 766 F.2d at 78586 (90 class members meet numerosity requirement); Weiss v. York Hospital, 745 F.2d 786, 808 (3d Cir. 1984), cert. denied, 470 U.S. 1060 (1985) (92 class members meet numerosity requirement); Zeffiro v. First Pennsylvania Banking & Trust Co., 96 F.R.D. 567, 569 (E.D. Pa. 1983) (51 class members sufficient); Philadelphia Electric Co. v. Anaconda American Brass Co., 43 F.R.D. 452 (E.D. Pa. 1968) (certification of class with 25 members); Korn v. Franchard Corp., 456 F.2d 1206, 1209 (2d Cir. 1972) (70 members); Leyva v. Buley, 125 F.R.D. 512 (E.D. Wash. 1989) (joinder of 50 migrant workers impracticable); Basile v. Merrill Lynch Pierce, Fenner & Smith, Inc., 105 F.R.D. 506 (S.D. Ohio 1985) (23 members). Plaintiffs seek certification of a class of all persons in the United States who, during the one year prior to the filing of this action, received letters or other communications from Defendants substantially in the form of Exhibit A and Exhibit B

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ence of individual damage claims does not justify denial of class treatment of common issues); Heartland Communications, 161 F.R.D. at 11415 (minor differences in contracts signed by class members did not suffice to preclude a finding of commonality). This action is appropriate for class certification because, as set forth in the Complaint, there are numerous questions of fact and law common to the Class in that all members received the same form collection letter. Each member of the proposed Class is a victim of Defendants false and misleading representations, threats and attempts to collect debt.1 Accordingly, given the presence of the common questions raised by the form letters, it is indisputable that Rule 23(a)(2)s requirement for the existence of common questions of fact or law is satisfied. 3. The claims of the representative parties are typical of the claims of the Class Rule 23(a)(3) requires that the claims of the class representatives be typical of the claims . . . of the class. Fed.R.Civ.P. 23(a)(3). Rule 23(a)(3) and the adequacy of representation requirement set forth in subsection (a)(4), are designed to assure that the interests of unnamed class members will be adequately protected by the named class representatives. See, e.g., General Telephone Co. of Southwest v. Falcon, 457 U.S. 147, 157 n.13 (1982); Bogosian v. Gulf Oil Corp., 561 F.2d 434, 449 (3d Cir. 1977), cert. denied, 434 U.S. 1086 (1978); In re School Asbestos Litig., 104 F.R.D. at 42930. The threshold for establishing typicality is low. Typicality does not require that the claims of the class members be identical. Eisenberg, 766 F.2d at 786. Rule 23 does not require that the representative plaintiff have endured precisely the same injuries that have been sustained by the class members, only that the harm complained of be common to the class. . . . Hassine v. Jeffes, 846 F.2d 169, 177 (3d Cir. 1988) (emphasis in original). The measure of whether a plaintiffs claims are typical is whether the nature of plaintiffs claims, judged from both a factual and a legal perspective, are such that in litigating his personal claims he can reasonably be expected to advance the interest of absent class members. See, e.g., Falcon, 457 U.S. at 156157; Weiss, 745 F.2d at 80910 n.36; Scott v. University of Delaware, 601 F.2d 76, 84 (3d Cir.), cert. denied, 444 U.S. 931 (1979). Under a frequently employed formulation, typicality is demonstrated where the plaintiff can show that the issues of law or fact he or she shares in common with the class occupy the same degree of centrality to his or her claims as to those of unnamed class members. See Weiss, 745 F.2d at 80910 n.36 (citing Donaldson v. Pillsbury, 554 F.2d 825 (8th Cir.), cert. denied, 434 U.S. 856 (1977)). Put another way, [c]laims [are considered] typical when the essence of the allegations concerning liability, and not the particularities, sug1 Commonality is not defeated by slight differences in class members positions, Blackie v. Barrack, 524 F.2d at 902, or because all of the allegations of the class do not fit together like pieces of a jigsaw puzzle. Green v. Wolf Corp., 406 F.2d 291, 300 (2d Cir. 1968), cert. denied, 395 U.S. 977 (1969). Rather than considering the merits of the substantive claims, the courts inquiry should be limited to verifying the existence of common questions of law or fact. Moskowitz v. Lopp, 128 F.R.D. at 629.

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gest adequate representation of the interests of the proposed class members. In re School Asbestos Litig., 104 F.R.D. at 430 (citing Piel, 97 F.R.D. at 659); Prudential, 148 F.3d at 311312. Where, as here, the Plaintiffs allege a common pattern of wrongdoing, and will present the same evidence (based on the same legal theories) to support both their claims and the claims of the Class members, courts have held the typicality requirement to be satisfied, notwithstanding factual variances in the position of each class member. As recently held by the Third Circuit in Prudential, where the named plaintiffs, as well as members of the proposed class, all have overarching claims arising from a fraudulent scheme, the typicality requirement is satisfied regardless of whether different facts underlie each class members claim. Prudential, 148 F.3d at 311312. Typicality is even more easily satisfied in an FDCPA action such as the one at bar because the claims are based on the nature of the Letters. Keele v. Wexler, 1998 U.S. App. LEXIS 15029 at *1516; Wilborn v. Dun & Bradstreet Corporation, 1998 U.S. Dist. LEXIS 12618 at *11. The representative Plaintiffs are typical victims of Defendants improper practices. Plaintiffs claims arise out of the same course of conduct, i.e., the use of form collection letters, and are based on the same legal theories as those of the Class members. For example, whether First Unions sending collection letters in the name of HMRE rendered First Union a debt collector within the meaning of Section 1692a(6) and constituted a violation of Section 1692j of the FDCPA, see Masuda v. Thomas Richards & Co., 759 F. Supp. 1456 (C.D. Cal. 1991), is a typical issue for each member. The essence of each putative Class members claim is precisely the same. Accordingly, the common issues necessarily share the same degree of centrality, Weiss, 745 F.2d at 80910 n.36, to the named representatives claims such that in litigating the liability issues, the representative Plaintiffs can reasonably be expected to advance the interests of all Class members toward a favorable determination with respect to each such issue. The claims of the representative Plaintiffs are typical of the claims of the Class. 4. The Plaintiffs will fairly and adequately protect the interests of the Class The requirement of Rule 23(a)(4) is met if it appears that (1) Plaintiffs attorneys are qualified, experienced and generally able to conduct the litigation and (2) Plaintiffs interests are not antagonistic to those of the class they seek to represent. See, e.g., Prudential, 148 F.3d at 312; Lewis v. Curtis, 671 F.2d 779, 788 (3d Cir.), cert. denied, 459 U.S. 880 (1982); Bogosian, 561 F.2d at 449; Wetzel, 508 F.2d at 247. The existence of the elements of adequate representation are presumed and [t]he burden is on the defendant to demonstrate that the representation will be inadequate. In re School Asbestos Litig., 104 F.R.D. at 430 (citing Lewis, 671 F.2d at 788). As the court explained in Cook v. Rockwell Intl Corp., 151 F.R.D. 378, 386 (D. Colo. 1993): [A]dequate representation presumptions are usually invoked in the absence of contrary evidence by the party opposing the class. On the issue of no conflict with the class, one of the tests for adequate representation, the presumption fairly arises be-

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relief or corresponding declaratory relief with respect to the class as a whole; or (3) the court finds that the questions of law or fact common to the members of the class predominate over any questions affecting only individual members . . . Fed.R.Civ.P. 23(b)(1), (2), (3). This action qualifies as a class action under Rule 23(b)(1) because it would make little sense for individual members of the Class to prosecute separate actions, given the possibility of inconsistent adjudications which would not be helpful to the Defendants in establishing appropriate procedures under the FDCPA. Such individual prosecutions would also risk adjudications that might dispose of the interests of other members who had not filed suit, and might present obstacles to the protection of those individuals interests. This action qualifies as a class action under Rule 23(b)(2) because the Letters designed and mailed by Defendants represent actions of general applicability to all members of the Class. This case also qualifies for certification under Rule 23(b)(3).3 As discussed above, there are numerous questions of law and fact common to the Class. Once common questions of liability are resolved, all that remains is the mechanical act of computing the amount of damages suffered by each Class member. See Blackie v. Barrack, 524 F.2d at 905. Plaintiffs have alleged a uniform practice and policy conducted by Defendants against Plaintiffs and the Class members. Accordingly, the issues of law and fact which flow from Defendants uniform activity predominate over any individual issue.4 Common issues predominate over individual issues where plaintiffs have alleged a common course of conduct on the part of a defendant. Prudential, 148 F.3d at 314315. In addition to finding the predominance of common questions, Rule 23(b)(3) also requires that the Court determine that a class action is superior to other available methods for the fair and efficient adjudication of the controversy. It has been widely recognized that a class action is superior to other available methodsparticularly, individual lawsuitsfor the fair and efficient adjudication of a suit that affects a large number of persons injured by violations of consumer protection laws or common law. Prudential, 148 F.3d at 316. Consumer class actions such as the case at bar easily satisfy the superiority requirement of Rule 23. Wilborn v. Dun & Brad3 Courts have often certified classes for the purposes of both equitable relief and damages. Crempan v. Automobile Club, 22 FEP Cas (BNA) 180 (E.D. Mich. May 19, 1977) (in employment discrimination case, (b)(2) class certified for injunctive relief and (b)(3) class certified for back pay); see also Williams v. Empire Funding Corp., supra, slip op. at 1718, n.14 (attached hereto as Exhibit B) [not reprinted herein]. 4 Obviously, there may be individual differences in the amount of damages claimed by different Class members. However, the need for individual damage calculations does not defeat class certification where common questions as to liability predominate. Prudential, 148 F.3d at 311312; Seidman v. American Mobile Systems, Inc., 157 F.R.D. 354, 360 (E.D. Pa. 1994).

cause of the difficulty of proving negative facts. On the issue of professional competence of counsel for the class representative, the presumption fairly arises that all members of the bar in good standing are competent. Finally, on the issue of intent to prosecute the action vigorously, the favorable presumption arises because the test involves future conduct of persons, which cannot fairly be prejudged adversely. If there are any doubts about adequate representation or potential conflicts, they should be resolved in favor of upholding the class, subject to later possible reconsideration, or subclasses might be created initially. Id., (quoting 2 Newberg, 7.24 at pp. 7-81, 7-82). Both prongs of the adequacy test are met here. First, Plaintiffs have retained counsel highly experienced in class action litigation to prosecute their claims and those of the Class. Attached hereto as Exhibit A is a copy of the biographies of Plaintiffs counsel [not reprinted herein]. See also Williams v. Empire Funding Corp., (E.D. Pa. 1998 WL 813429 November 24, 1998) (attached hereto as Exhibit B) (appointing one of Plaintiffs counsel, Justin Hunt, LLC, as class counsel in consumer protection class action) [not reprinted herein]. Second, there is nothing to suggest that the representative Plaintiffs have any interest antagonistic to the vigorous pursuit of the Class claims against Defendants.2 Plaintiffs share with the Class the interest in establishing that the Letters violate the FDCPA. Accordingly, the representative Plaintiffs adequately represent the interests of the Class. C. The Conditions of Rule 23(b) Have Been Met In addition to meeting the prerequisites of Rule 23(a), an action must satisfy at least one of the three conditions of subdivision (b) of Rule 23. Plaintiffs proceed here under Rule 23(b)(1), (2) and (3) which provides in pertinent part: An action may be maintained as a class action if the prerequisites of subdivision (a) are satisfied, and in addition: (1) the prosecution of separate actions by or against individual members of the class would create a risk of (A) inconsistent or varying adjudications with respect to individual members of the class which would establish incompatible standards of conduct for the party opposing the class, or (B) adjudications with respect to individual members of the class which would as a practical matter be dispositive of the interests of the other members not parties to the adjudications or substantially impair or impede their ability to protect their interests; or (2) the party opposing the class has acted or refused to act on grounds generally applicable to the class, thereby making appropriate final injunctive
2 Because of the difficulty in proving the negative, it is Defendants burden to prove any antagonism. See Lewis, 671 F.2d at 788.

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street Corporation, 1998 U.S. Dist. LEXIS 12618 at *3133. See also Lake v. First Nationwide Bank, 156 F.R.D. 615, 626 (E.D. Pa. 1994) (public interest in seeing that rights of consumers are vindicated favors disposition of claims in a class action). Defendants improper collection activities have been directed toward a large number of geographically dispersed persons to such an extent that the cost of pursuing individual litigation to seek recovery against a well-financed adversary is not feasible. Thus, the alternatives to a class action are either no recourse for hundreds of injured consumers, or even in the unlikely event that they all become aware of their rights and could locate counsel, a multiplicity of scattered suits resulting in the inefficient administration of litigation. In addition, in the absence of class certification, the very short statute of limitations provided by Section 1692k(d) of the FDCPA would begin to run and would require scores of unsophisticated consumers, many of whom are unaware that they have claims, to commence suit immediately to obtain any recovery. Accordingly, a class action is superior to other available methods for the fair and efficient adjudication of this matter. There is no question but that this class action would be easily manageable. This case presents no manageability difficulties that would preclude class certification. IV. CONCLUSION For all the foregoing reasons, Plaintiffs respectfully request that this Court grant their motion for an order certifying this action as a class action pursuant to Rule 23 of the Federal Rules of Civil Procedure on behalf of the proposed Class of individuals defined herein, and certifying Plaintiffs Gene C. Bauer and Carol A. Bauer as proper representatives of the Class. Respectfully submitted, ROSS & MARLER, P.C. By: M.D. Marler Address Phone Number JUSTIN HUNT, LLC M.D. Justin D.A. Reardon Address Phone Number Attorneys for Plaintiffs and the Class Dated: January 7, 1999

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L.2 TIL, UDAP, and Breach of Contract CaseCredit Card Issuers Failure to Refund Credit Balance (Coe)
UNITED STATES DISTRICT COURT DISTRICT OF DELAWARE ) ) ) ) ) CIVIL ACTION NO. 98) v. ) CLASS ACTION ) ADVANTA NATIONAL BANK, ) Defendant. ) ) GEORGE L. COE, III and JANET R. COE, on behalf of themselves and all those similarly situated, MEMORANDUM OF LAW IN SUPPORT OF PLAINTIFFS MOTION FOR CLASS CERTIFICATION I. PRELIMINARY STATEMENT A. Background and Nature of the Case Plaintiffs, by counsel, respectfully submit this memorandum in support of their Motion for Class Certification pursuant to Rules 23(a), 23(b)(2) and 23(b)(3) of the Federal Rules of Civil Procedure (the Rules), seeking certification of this action as a class action and plaintiffs George L. Coe, III and Janet R. Coe as class representatives. This is a consumer class action brought on behalf of consumer credit cardholders as to whom defendant Advanta National Bank (Advanta) failed and refused to refund credit balances within a reasonable time. Plaintiffs assert claims under the federal Truth in Lending Act (TILA), Regulation Z of the Federal Reserve Board (Regulation Z), for breach of contract and for violations of the Delaware Consumer Fraud Act (CFA). B. Procedural History Plaintiffs filed a Class Action Complaint (the Complaint) in this case on May 7, 1998. In response, Advanta filed an Answer on August 10, 1998. The parties filed a Proposed Discovery Plan under Rule 26(f) on September 24, 1998 and exchanged Rule 26(a)(1) disclosures on October 16, 1998. With respect to discovery that has taken place to date, plaintiffs have propounded interrogatories and document requests to which Advanta responded on November 2, 1998. In addition, plaintiffs have noticed depositions of twelve Advanta witnesses, two of which have commenced as of the date of this Motion. Those depositions revealed that there may yet be documents that Advanta has not produced and the plaintiffs will be following up with defendant to obtain that discovery. C. The Class As set forth in the Complaint, plaintiffs seek certification of a class of all persons who, from May 6, 1994 had a credit card account with Advanta with a credit balance in excess of

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fund check for another seven to ten days and, thereafter, a customer can expect additional delay due to the time for mailing and receipt. Mrs. Coe advised Advantas representative that such a practice was a violation of, among other things, federal law which required credit balance refunds within seven days. The Advanta representative responded that Advanta followed and was subject to Delaware law, not federal law. Eventually, Advanta undertook to refund the credit balance and a check in the amount of $822.75 was mailed out to the Coes. The check was dated February 3, 1998, more than seven business days after the January 22 request. See Exhibit P1 included in Exhibit A attached hereto [not reprinted herein]. B. Facts as to the Class Plaintiffs do not anticipate that Advanta will dispute that, in fact, it is subject to Regulation Z of TILA in that it regularly extends consumer credit more than 25 times a year. In fact, F. Ralph Dim, Advantas manager of customer service, estimated that Advanta has approximately 7 million cardholders. Although discovery has not yet been completed in this case, the documents produced and the two as yet untranscribed depositions of Advanta representatives that have commenced so far provide support for plaintiffs belief that they are not the only Advanta customers whose refunds have been withheld in violation of law. This is because Advanta has failed to structure a system that is guaranteed to forward credit balance refunds to their customers in the time required by the TILA. For example, Advantas computer system is not programmed to automatically generate credit balance refunds due to customers. In other words, if a payment in excess of the existing balance is received by Advanta, even if that payment comes from another recognized financial institution, the computer will not automatically generate a check in the amount of the resulting credit and send it to the cardholder. Rather, Advanta waits for the customer to contact Advanta and affirmatively request that a credit balance refund be issued. See Exhibit A42 included in Exhibit A attached hereto (training of customer service representatives to refund overpayments or credit balances to customers only upon request). It is only at that point that Advanta, through the entry of data into the system by one of its customer service representatives, begins the research process that eventually culminates in the issuance of a check to the customer. Further, Advanta also employs a policy that a request for an account to be closed, such as Mr. Coes request on December 4, 1997, is not interpreted by Advanta as a request for a credit balance refund, even though there is obviously nothing else to do with the money upon closing an account other than to return the credit balance to its owner. Instead, according to Ms. Little, the customer must specifically ask for the refund. As such, a cardholder who does not use the magic words required by Advanta will be left to wait interminably for his or her refund. That these policies have affected other consumers in addition to the plaintiffs has been borne out by documents produced by Advanta to date. Among those documents are apparent complaints of two other Advanta customers who did not

one dollar ($1.00) and as to whom Advanta failed to refund the credit balance within a reasonable time. Excluded from the Class are all officers and directors of the defendant. II. FACTS A. Facts as to the Plaintiffs The facts in this case are simple and straightforward. Plaintiffs were the holders of a credit card issued by Advanta. In late October 1997 or early November 1997, plaintiffs accepted a credit card offer at a much lower interest rate from another bank. As is common in such situations, the new card issuer will pay off the account balance owed to the previous bank (in this case, Advanta) and debit the new card in the amount of the payoff of the prior card. Also, it is common in such situations that the previous bank will receive a payoff amount in excess of the amount necessary to cover the actual account balance. On November 9, 1997, funds were transmitted to Advanta in excess of the amount needed to clear the plaintiffs balance. Specifically, the transfer of funds to Advanta resulted in a credit balance of $822.75 due to the plaintiffs. Thereafter, the plaintiffs made verbal and written requests for a refund of their $822.75 credit balance being held by Advanta. For example, one of the documents produced by Advanta to date shows that Mr. Coe telephoned Advanta on December 4, 1997, almost one month after the creation of the credit balance and requested that the account be closed because of the balance transfer to the other credit card company, First USA of Atlanta, Georgia. See Exhibits A34, A37-39 included in Exhibit A attached hereto [not reprinted herein]. Notwithstanding, Advanta did not issue the Coes their credit refund. Thereafter, by letter dated January 5, 1998, Mrs. Coe wrote to Advanta and requested the account be closed and the refund be mailed to their home. See Exhibit B to Complaint [not reprinted herein]. Again, Advanta failed to respond. The Coes called yet again, on January 22, 1998. See Exhibit A37. Having received no response to their repeated requests for a refund of the credit balance, Mrs. Coe again telephoned Advanta on or about February 2, 1998.5 Mrs. Coe, at that time, again demanded an immediate refund of the credit balance. A person, who identified herself as a representative of Advanta, advised Mrs. Coe that Advanta receives thousands and thousands of credit balance transfers a month, which usually result in excess credit balances to the cardholders. The representative further advised that it was Advantas policy and practice for any credit refund in excess of $100 to search for the check which usually takes fourteen days. Then, according to Advantas policy and practice, it will not issue the re5 Although Advanta retained a record of some of the Coes calls, as per the exhibits referenced above, Advanta does not have a system whereby each and every contact from a customer is recorded. According to as yet untranscribed deposition testimony of C. Spencer, an Advanta customer service representative, a phone call or letter from an Advanta customer will be recorded only if the representative affirmatively takes action to record the contact on the computer system. Such a system explains why Advanta may have records of some, but not all, contacts from the Coes and members of the Class.

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receive refunds within the requisite time. See Exhibits A51A72 and A86-A100 included in Exhibit A attached hereto. In the case of customer Jake Green, a written request for refund was received by Advanta on May 19, 1997. The refund check was not mailed out until June 11, 1997, according to the envelopes postmark, over three weeks later. Explaining the delay, a letter from an Advanta executive stated that all customer correspondence is reviewed within 30 days. I do not feel that this is unacceptable. Ex. A68. In the case of customer Lucy Lu, the customer wrote on November 3, 1997 that she had been calling customer service constantly almost everyday for over a month to request this refund check & the status of the check. Ex. A87. She later recounts in subsequent correspondence, dated November 11, 1997, her various conversations with customer service representatives and a supervisor who promised the issuance of her check on November 6, 1997. Exs. A88-A89. Not until she wrote a letter to Advantas president, Ex. A90-A91, did she receive the refund check requested months earlier. Plaintiffs believe that the facts in this case will show that Advanta has knowingly and intentionally implemented a policy and practice of withholding or delaying credit balance refunds, in violation of federal law, in order to generate additional profits in the form of investment or interest earnings on its customers credit balances for each day it can delay making refunds. III. ARGUMENT A. General Legal Standards Governing Class Certification For a suit to be maintained as a class action under Rule 23, plaintiffs must allege facts establishing each of the four threshold requirements of subsection (a) of the Rule which provides: One or more members of a class may sue or be sued as representative parties on behalf of all only if (1) the class is so numerous that joinder of all members is impracticable; (2) there are questions of law or fact common to the class; (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class; and (4) the representative parties will fairly and adequately protect the interests of the class. See Wetzel v. Liberty Mut. Ins. Co., 508 F.2d 239, 246 (3d Cir.), cert. denied, 421 U.S. 1011 (1975). Plaintiffs must also allege that this action qualifies for class treatment under at least one of the subdivisions of Rule 23(b). Under Rule 23(b)(2), a class action will be appropriate where the party opposing the class has acted or refused to act on grounds generally applicable to the class, thereby making appropriate final injunctive relief or corresponding declaratory relief with respect to the class as a whole. Under Rule 23(b)(3), a class action will be appropriate where the court finds that the questions of law or fact common to the members of the class predominate over any questions affecting only individual members, and that a class action is superior to other available methods for the fair and efficient adjudication of the controversy.

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Plaintiffs bear the initial burden of advancing reasons why a putative class action meets the requirements of Rule 23. However, plaintiffs burden is not a heavy one. See Piel v. National Semiconductor Corp., 86 F.R.D. 357, 368 (E.D. Pa. 1980). See also Anderson v. City of Albuquerque, 690 F.2d 796, 799 (10th Cir. 1982); Paxton v. Union Natl Bank, 688 F.2d 552, (8th Cir. 1982). Once a plaintiff has demonstrated a preliminary legal showing that the requirements of Rule 23 have been met, the burden of proof is upon the defendant to demonstrate otherwise. 2 H. Newberg, Newberg on Class Actions (3d Ed. 1992) (Newberg) 7.22 at 7-74 to 7-75. Provided that a plaintiffs contentions regarding the class issues are based upon a reasonable foundation, the court should not deny certification because of a defendants challenge. See Sollenbarger v. Mountain States Tel. & Tel. Co., 121 F.R.D. 417 (D.N.M. 1988); In re Industrial Gas Antitrust Litig., 100 F.R.D. 280 (N.D. Ill. 1983); Kuck v. Berkey Photo, Inc., 81 F.R.D. 736 (S.D.N.Y. 1979). B. The Proposed Class and Subclasses Satisfy the Requirements of Rule 23(a) of The Federal Rules of Civil Procedure The Supreme Court has noted that [c]lass actions serve an important function in our system of civil justice. Gulf Oil Co. v. Bernard, 452 U.S. 89, 99 (1981). The Court has also recognized that the class action procedure is necessary for private rights of action to be initiated. Deposit Guar. Natl Bank v. Roper, 445 U.S. 326, rehg. denied, 446 U.S. 947 (1980). As stated in Roper, class actions serve an important function in our system of civil justice because they permit plaintiffs to vindicat[e] the rights of individuals who otherwise might not consider it worth the candle to embark on litigation in which the optimum result might be more than consumed by the cost. Id. at 338. The determinations called for by Rule 23 are questions addressed to the sound discretion of the district court. Gulf Oil Co., 452 U.S. at 100. A decision to grant class certification is not a final order; it may be altered or amended as the case progresses towards resolution on the merits. Fed.R.Civ.P. 23(c)(1); In re School Asbestos Litig., 789 F.2d 996, 1011 (3d Cir. 1986); 7B C. Wright & A. Miller, Federal Practice and Procedure, 1785, at 128 (1986) (Wright & Miller). Moreover, the Third Circuit has adopted a liberal construction of Rule 23. See, e.g., Eisenberg v. Gagnon, 766 F.2d 770, 785 (3d Cir.), cert. denied sub nom Wasserstrom v. Eisenberg, 474 U.S. 946 (1985); Kahan v. Rosenstiel, 424 F.2d 161 (3d Cir.), cert. denied, 398 U.S. 950 (1970); Peil v. Speiser, 97 F.R.D. 657 (E.D. Pa. 1983). Therefore, in a close case, the court should find the prerequisites to class certification established. Eisenberg, 766 F.2d at 785; Spark v. MBNA Corporation, 178 F.R.D. 431 (D. Del. 1998). The focus is simply whether the prerequisites of Rule 23 have been met. Dawes v. The Philadelphia Gas Commission, 421 F. Supp. 806, 813 (E.D. Pa. 1976). In determining whether an action may be maintained as a class action, the issue is merely whether the representative plaintiffs have demonstrated the probability of the existence of a sufficient number of persons inclined and similarly situated. The court is not to conduct an exploration of the merits when deciding upon certification of a class. Eisen v. Carlisle & Jacqueline, 417 U.S. 156, 17778 (1974); Kahan, 424 F.2d at 168; Spark v. MBNA Corporation, supra; Chestnut Fleet Rentals, Inc. v. Hertz Corp., 72

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1989) (joinder of 50 migrant workers impracticable); Basile v. Merrill Lynch Pierce, Fenner & Smith, Inc., 105 F.R.D. 506 (S.D. Ohio 1985) (23 members). Plaintiffs seek certification of a class of all persons who, from May 6, 1994 had a credit card account with Advanta with a credit balance in excess of one dollar ($1.00) and as to whom Advanta failed to refund the credit balance within a reasonable time. As to the exact number of Class members, defendant possesses documents which will establish that figure. Accordingly, it is indisputable that the numerosity requirement is easily satisfied as to the Class. 2. There are questions of law and fact common to the Class Rule 23(a)(2) requires a showing of the existence of questions of law or fact common to the class. Fed.R.Civ.P. 23 (a)(2). This threshold of commonality is not high. In re School Asbestos Litig., 789 F.2d at 1010 (quoting Jenkins v. Raymark Indus., Inc., 782 F.2d 468 (5th Cir. 1986), cert. denied, 479 U.S. 852 (1987)). The rule does not require that all questions be common or even that common questions predominate. Hummel v. Brennan, 83 F.R.D. 141, 145 (E.D. Pa. 1979); Kuhn v. Philadelphia Electric Co., 80 F.R.D. 681, 684 (E.D. Pa. 1978). All class members need not share identical claims; factual differences among the claims of the putative class members do not defeat certification. Baby Neal v. Casey, 43 F.3d 48, 56 (3d. Cir. 1994). Indeed, a single common question is sufficient to satisfy the requirements of Rule 23(a)(2). In re Prudential Insurance Company America Sales Practice Litigation Agent Actions, 148 F.3d 283, 310 (3d. Cir. 1998); Baby Neal v. Casey, 43 F.3d at 56. A common question is one which arises from a common nucleus of operative facts regardless of whether the underlying facts fluctuate over the class period and vary as to individual claimants. In re School Asbestos Litig., 104 F.R.D. at 429; Cohen v. Uniroyal, Inc., 77 F.R.D. 685, 69091 (E.D. Pa. 1977); Muth v. Dechert, Price & Rhoads, 70 F.R.D. 602, 607 (E.D. Pa. 1976); In re Corrugated Container Antitrust Litig., 80 F.R.D. 244, 250 (S.D. Tex. 1978). Courts have typically found a common nucleus of operative facts where, as in the present action, the defendant engaged in standardized conduct toward putative class members. Prudential, 148 F.3d at 309310 (Prudentials orchestrated sales presentations, the plaintiffs common legal theories, Prudentials common defenses, and other common issues undoubtedly satisfy the commonality and predominance requirements); Chandler v. Southwest Jeep-Eagle, 162 F.R.D. 302, 308 (N.D. Ill. 1995) (common nucleus of operative facts where defendants engaged in standardized conduct toward members of the proposed class); Heartland Communications v. Sprint Corp., 161 F.R.D. 111 (D. Kan. 1995) (class certification granted where the contracts signed by all proposed class members, while not identical, contained virtually the same provision as that challenged by the named class representative); Fogie v. Rent-A-Center, 867 F. Supp. 1398, 1402 (D. Minn. 1993) (common issues of fact and law where all class members signed the same contract); In re United Energy Corp. Solar Power Modules Tax Shelter Inv. Sec. Litigation, 122 F.R.D. 251 (C.D. Cal. 1988) (class certification appropriate where the class claims were primarily grounded on misrepresentations and omissions contained in a common core of documents); Lessard v. Metropoli-

F.R.D. 541, 543 (E.D. Pa. 1976). Moreover, since class determination is made at the pleading stage of the action, the substantive allegations in the complaint are accepted as true for purposes of the class motion. Shelter Realty Corp. v. Allied Maintenance Corp., 574 F.2d 656, 661 n.15 (2d Cir. 1978); Blackie v. Barrack, 524 F. 2d 891, 901 n.16 (9th Cir. 1975), cert. denied, 429 U.S. 816 (1976); Vine v. Beneficial Fin. Co., 374 F.2d 627, 63233 (2d Cir.), cert. denied, 389 U.S. 970 (1967), and if any doubt exists, any error, if there is to be one, should be committed in favor of allowing the class action. Hoffman Elec., Inc. v. Emerson Elec. Co., 754 F. Supp. 1070, 1075 (W.D. Pa. 1991). See also Moskowitz v. Lopp, 128 F.R.D. 624, 628 (E.D. Pa. 1989); Ettinger v. Merrill Lynch Pierce, Fenner & Smith, Inc., 122 F.R.D. 177, 179 (E.D. Pa. 1988). Further, judicial economy requires that this action proceed through the class action vehicle. The plaintiffs and the Class members only alternative to proceeding as a class action is to file individual claims. To do so would be time consuming and redundant, as each plaintiff would be required to conduct discovery into defendants business practices to prove exactly the same allegations and proffer exactly the same evidence. Each plaintiff would then be required to brief and argue the same questions of law. This action should be certified as a class action because, as discussed below, all of the requirements of Rule 23(a) have been met. 1. The Class is so numerous that joinder of all members is impracticable Rule 23(a)(1) requires that the proponent of a class action demonstrate that the class is so numerous that joinder of all members is impracticable. Fed.R.Civ.P. 23(a)(1). The Rule does not require that joinder be impossible; rather, joinder of all members is impracticable when the procedure would be inefficient, costly, time-consuming, and probably confusing. Ardrey v. Federal Kemper Ins. Co., 142 F.R.D. 105, 111 (E.D. Pa. 1992). This Court may make common sense assumptions in order to support the finding of numerosity. Snider v. Upjohn Co., 115 F.R.D. 536, 539 (E.D. Pa. 1987) (quoting Wolgin v. Magic Marker Corp., 82 F.R.D. 168, 171 (E.D. Pa. 1979)). Moreover, precise enumeration of the members of a class is not necessary for the action to proceed as a class action. See, e.g., Epstein v. Moore, [198889 Transfer Binder] Fed. Sec. L. Rep. (CCH) k 93, 957 at 90,442 (D.N.J. 1988). It is permissible to estimate class size. In re ORFA Sec. Litig., 654 F. Supp. 1449, 1464 (D.N.J. 1987). In applying this rule, it has consistently been held that joinder is impracticable where the class is composed of hundreds of potential claimants; indeed, impracticability of joinder has often been found where the class is composed of less than 100 members. See, e.g., Eisenberg, 766 F.2d at 78586 (90 class members meets numerosity requirement); Weiss v. York Hospital, 745 F.2d 786, 808 (3d Cir. 1984), cert. denied, 470 U.S. 1060 (1985) (92 class members meets numerosity requirement); Zeffiro v. First Pennsylvania Banking & Trust Co., 96 F.R.D. 567, 569 (E.D. Pa. 1983) (51 class members sufficient); Philadelphia Electric Co. v. Anaconda American Brass Co., 43 F.R.D. 452 (E.D. Pa. 1968) (certification of class with 25 members); Korn v. Franchard Corp., 456 F.2d 1206, 1209 (2d Cir. 1972) (70 members); Leyva v. Buley, 125 F.R.D. 512 (E.D. Wash.

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tan Life Ins. Co., 103 F.R.D. 608 (D. Me. 1984) (class certification granted where all proposed class members were parties to the same contract and subject to the same standardized conduct by the defendant). Moreover, it is well established that the presence of some individualized issues does not overshadow the common nucleus of operative fact presented when the defendant has engaged in standardized conduct toward the Class. See Prudential, supra (individual damages do not undermine predominance of common issues); Dawes, 421 F. Supp. at 814 (presence of individual damage claims does not justify denial of class treatment of common issues); Heartland Communications, 161 F.R.D. at 11415 (minor differences in contracts signed by class members did not suffice to preclude a finding of commonality); In re United Energy Corp. Solar Power Modules Tax Shelter Inv. Sec. Litigation, 122 F.R.D. at 254 (where the allegations concerning issues of common conduct, standardized documents and common misrepresentations, individualized issues of reliance, causation and damages do not render the case unsuitable for class certification). This action is appropriate for class certification because, as set forth in the Complaint, there are numerous questions of fact and law common to the Class. Additional examples include whether Advantas policies of not programming its computer to automatically generate refund checks to consumers with credit balances, of requiring consumers to affirmatively request a refund and of not treating a request to close an account as a request for a refund are in violation of the TILA, Regulation Z and state law. Each member of the proposed Class is a victim of defendants improper withholding of property and was victimized by the same or substantially similar unfair and deceptive conduct.6 Accordingly, given the presence of so many common questions, it is indisputable that Rule 23(a)(2)s requirement for the existence of common questions of fact or law is satisfied. 3. The claims of the representative parties are typical of the claims of the Class Rule 23(a)(3) requires that the claims of the class representatives be typical of the claims . . . of the class. Fed.R.Civ.P. 23(a)(3). Rule 23(a)(3) and the adequacy of representation requirement set forth in subsection (a)(4), are designed to assure that the interests of unnamed class members will be adequately protected by the named class representatives. See, e.g., General Telephone Co. of Southwest v. Falcon, 457 U.S. 147, 157 n.13 (1982); Bogosian v. Gulf Oil Corp., 561 F.2d 434, 449 (3d Cir. 1977), cert. denied, 434 U.S. 1086 (1978); In re School Asbestos Litig., 104 F.R.D. at 42930. The threshold for establishing typicality is low. Typicality does not require that the claims of the class members be identical. Eisenberg, 766 F.2d at 786. Rule 23 does not require
6 Commonality is not defeated by slight differences in class members positions, Blackie v. Barrack, 524 F.2d at 902, or because all of the allegations of the class do not fit together like pieces of a jigsaw puzzle. Green v. Wolf Corp., 406 F.2d 291, 300 (2d Cir. 1968), cert. denied, 395 U.S. 977 (1969). Rather than considering the merits of the substantive claims, the courts inquiry should be limited to verifying the existence of common questions of law or fact. Moskowitz v. Lopp, 128 F.R.D. at 629.

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that the representative plaintiff have endured precisely the same injuries that have been sustained by the class members, only that the harm complained of be common to the class . . . Hassine v. Jeffes, 846 F.2d 169, 177 (3d Cir. 1988) (emphasis in original). The measure of whether a plaintiffs claims are typical is whether the nature of plaintiffs claims, judged from both a factual and a legal perspective, are such that in litigating his personal claims he can reasonably be expected to advance the interest of absent class members. See, e.g., Falcon, 457 U.S. at 156157; Weiss, 745 F.2d at 80910 n.36; Scott v. University of Delaware, 601 F.2d 76, 84 (3d Cir.), cert. denied, 444 U.S. 931 (1979). Under a frequently employed formulation, typicality is demonstrated where the plaintiff can show that the issues of law or fact he or she shares in common with the class occupy the same degree of centrality to his or her claims as to those of unnamed class members. See Weiss, 745 F.2d at 80910 n.36 (citing Donaldson v. Pillsbury, 554 F.2d 825 (8th Cir.), cert. denied, 434 U.S. 856 (1977)). Put another way, [c]laims [are considered] typical when the essence of the allegations concerning liability, and not the particularities, suggest adequate representation of the interests of the proposed class members. In re School Asbestos Litig., 104 F.R.D. at 430 (citing Piel, 97 F.R.D. at 659); Prudential, 148 F.3d at 311312. Where, as here, the plaintiffs allege a common pattern of wrongdoing, and will present the same evidence (based on the same legal theories) to support both their claims and the claims of the Class members, courts have held the typicality requirement to be satisfied, notwithstanding factual variances in the position of each class member. As recently held by the Third Circuit in Prudential, where the named plaintiffs, as well as members of the proposed class, all have overarching claims arising from a fraudulent scheme, the typicality requirement is satisfied regardless of whether different facts underlie each class members claim. Prudential, 148 F.3d at 311312. See also, Robinson v. Countrywide Credit Industries, 1997 U.S. Dist. LEXIS 15712 (E.D. Pa. October 8, 1997) (a fraud perpetrated on numerous persons by the use of similar misrepresentations may be an appealing situation for a class action, and it may remain so despite the need, if liability is found, for separate determination of the damages suffered by individuals within the class); Hanrahan v. Britt, supra (typicality established where claims of all class members are based on the same systematic conduct and legal theories); Mathews, 1996 U.S. Dist. LEXIS 17790 at *8-9 (plaintiffs allegations of common course of fraudulent conduct and large unitary scheme satisfy the typicality requirement). The representative plaintiffs are typical victims of defendants improper practices. Plaintiffs claims arise out of the same course of conduct and are based on the same legal theories as those of the Class members. The gravamen of plaintiffs claims is that Advantas failure to refund credit balances within a reasonable time deprived plaintiffs of the unrestricted use of their money, caused them to incur interest charges owed to the transferee credit card issuer and effectively converted the funds to Advantas own use and benefit. The essence of each putative Class members claims is precisely the same. Accordingly, the common issues necessarily share the same degree of centrality, Weiss, 745 F.2d at 80910 n.36, to the named representatives claims such that in litigating the liabil-

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establishing that Advantas refusal to timely refund credit balances violates federal and state law. Accordingly, the representative plaintiffs adequately represent the interests of the Class. C. The Conditions of Rule 23(b)(2) and (3) Have Been Met In addition to meeting the prerequisites of Rule 23(a), an action must satisfy at least one of the three conditions of subdivision (b) of Rule 23. Plaintiffs proceed here under Rule 23(b) (2) and (3) which provide in pertinent part: An action may be maintained as a class action if the prerequisites of subdivision (a) are satisfied, and in addition: *** (2) the party opposing the class has acted or refused to act on grounds generally applicable to the class, thereby making appropriate final injunctive relief or corresponding declaratory relief with respect to the class as a whole; or (3) the court finds that the questions of law or fact common to the members of the class predominate over any questions affecting only individual members . . . Fed.R.Civ.P. 23(b)(2), (3). This action qualifies as a class action under Rule 23(b)(2) because Advantas practice and policy of delaying and withholding refunds of credit balances is an action of general applicability to all members of the Class. This action also qualifies for certification under Rule 23(b)(3).8 As discussed above, there are numerous questions of law and fact common to the Class. Once common questions of liability are resolved, all that remains is the mechanical act of computing the amount of damages suffered by each Class member. See Blackie v. Barrack, 524 F.2d at 905. Plaintiffs have alleged a uniform practice and policy conducted by Advanta against plaintiffs and the Class members. Accordingly, the issues of law and fact which flow from defendants uniform activity predominate over any individual issue.9 Common issues predominate over individual issues where plaintiffs have alleged a common course of conduct on the part of defendant. Prudential, 148 F.3d at 314315.

ity issues, the representative plaintiff can reasonably be expected to advance the interests of all Class members toward a favorable determination with respect to each such issue. The claims of the representative plaintiffs are typical of the claims of the Class. 4. The plaintiffs will fairly and adequately protect the interests of the Class The requirement of Rule 23(a)(4) is met if it appears that (1) plaintiffs attorneys are qualified, experienced and generally able to conduct the litigation and (2) plaintiffs interests are not antagonistic to those of the class they seek to represent. See, e.g., Prudential, 148 F.3d at 312; Lewis v. Curtis, 671 F.2d 779, 788 (3d Cir.), cert. denied, 459 U.S. 880 (1982); Bogosian, 561 F.2d at 449; Wetzel, 508 F.2d at 247. The existence of the elements of adequate representation are presumed and [t]he burden is on the defendant to demonstrate that the representation will be inadequate. In re School Asbestos Litig., 104 F.R.D. at 430 (citing Lewis, 671 F.2d at 788). As the court explained in Cook v. Rockwell Intl Corp., 151 F.R.D. 378, 386 (D. Colo. 1993): [A]dequate representation presumptions are usually invoked in the absence of contrary evidence by the party opposing the class. On the issue of no conflict with the class, one of the tests for adequate representation, the presumption fairly arises because of the difficulty of proving negative facts. On the issue of professional competence of counsel for the class representative, the presumption fairly arises that all members of the bar in good standing are competent. Finally, on the issue of intent to prosecute the action vigorously, the favorable presumption arises because the test involves future conduct of persons, which cannot fairly be prejudged adversely. If there are any doubts about adequate representation or potential conflicts, they should be resolved in favor of upholding the class, subject to later possible reconsideration, or subclasses might be created initially. Id., (quoting 2 Newberg, 7.24 at pp. 7-81, 7-82). Both prongs of the adequacy test are met here. First, plaintiffs have retained counsel highly experienced in class action litigation to prosecute their claims and those of the Class. Attached hereto as Exhibit B is a copy of the biographies of plaintiffs counsel [not reprinted herein]. See also Williams v. Empire Funding Corp., C.A. No. 97-4518 (E.D. Pa. November 24, 1998) (attached hereto as Exhibit C) (appointing one of plaintiffs counsel, Justin Hunt, LLC as class counsel in consumer protection class action under TILA) [not reprinted herein]. Second, there is nothing to suggest that the representative plaintiffs have any interest antagonistic to the vigorous pursuit of the Class claims against Advanta.7 Plaintiffs share with the Class the interest in

7 Because of the difficulty in proving the negative, it is defendants burden to prove any antagonism. See Lewis, 671 F.2d at 788.

8 Courts have often certified classes for the purposes of both equitable relief and damages. Crempan v. Automobile Club, 22 FEP Cas (BNA) 180 (E.D. Mich. May 19, 1977) (in employment discrimination case, (b)(2) class certified for injunctive relief and (b)(3) class certified for back pay); see also Williams v. Empire Funding Corp., supra, slip op. at 1718, n.14 (attached hereto as Exhibit C) [not reprinted herein]. 9 Obviously, there will be individual differences in the amount of damages claimed by different Class members. However, the need for individual damage calculations does not defeat class certification where common questions as to liability predominate. Prudential, 148 F.3d at 311312; Seidman v. American Mobile Systems, Inc., 157 F.R.D. 354, 360 (E.D. Pa. 1994).

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In addition to finding the predominance of common questions, Rule 23(b)(3) also requires that the Court determine that a class action is superior to other available methods for the fair and efficient adjudication of the controversy. It has been widely recognized that a class action is superior to other available methodsparticularly, individual lawsuitsfor the fair and efficient adjudication of a suit that affects a large number of persons injured by violations of consumer protection laws or common law. Prudential, 148 F.3d at 316. Consumer class actions such as the case at bar easily satisfy the superiority requirement of Rule 23. See Lake v. First Nationwide Bank, 156 F.R.D. 615, 626 (E.D. Pa. 1994) (public interest in seeing that rights of consumers are vindicated favors disposition of claims in a class action). Defendant has inflicted economic injury on a large number of geographically dispersed persons to such an extent that the cost of pursuing individual litigation to seek recovery against a well-financed adversary is not feasible. Thus, the alternatives to a class action are either no recourse for hundreds of injured consumers, or even in the unlikely event that they all become aware of their rights and could locate counsel, a multiplicity of scattered suits resulting in the inefficient administration of litigation. Accordingly, a class action is superior to other available methods for the fair and efficient adjudication of this matter. There is no question but that this class action would be easily manageable. This case presents no manageability difficulties that would preclude class certification. D. Plaintiffs State Law Claims Should Be Certified Class certification of plaintiffs pendent state claims under the CFA and for common law breach of contract is also appropriate. Certifying a class for the common law claims presents the same Rule 23 analysis as does certifying the federal law claims. Numerous courts in this Circuit favor certifying classes with respect to pendent common law claims. See Eisenberg, 766 F.2d at 786; In re Fiddlers Wood Bondholders Litig., 102 F.R.D. 291, 292 (E. D. Pa. 1984); In re IGI Sec. Litig., 122 F.R.D. 451, 460 (D.N.J. 1988); In re ORFA Sec. Litig., 654 F. Supp. at 1461; Dekro v. Stern Bros. & Co., 540 F. Supp. 406, 418 (W.D. Mo. 1982). The same proof which will be introduced to establish the TILA violations is also highly relevant to the common law claim. Accordingly, common questions predominate as to those claims. Similarly, courts have certified state law consumer protection claims. See Spark v. MBNA Corporation, 178 F.R.D. 431 (D. Del. 1998) (class action certified as to claim under CFA arising from defendants misleading advertisements for credit card accounts); Rosen v. Fidelity Fixed Income Trust, 169 F.R.D. 295, 302 (E.D. Pa. 1995) (court conditionally certified class as to claims under Pennsylvania consumer protection law); Lake v. First Nationwide Bank, supra (court certified a class for purposes of settlement which was based on claims under, inter alia, consumer protection law). All of the requirements of Rule 23 are met with respect to the CFA and common law claims. The same systematic conduct which gave rise to the TILA claims also gave rise to these pendent claims, and common questions exist as to whether defendants activities were in violation of applica-

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ble law. Hence, common questions of fact predominate over any individual questions, and certification of the pendent claims is superior to other available methods for litigating those claims. IV. CONCLUSION For all the foregoing reasons, plaintiffs respectfully request that this Court grant their motion for an order certifying this action as a class action pursuant to Rule 23 of the Federal Rules of Civil Procedure on behalf of the proposed Class of individuals defined herein, and certifying plaintiffs George L. Coe, III and Janet R. Coe as proper representatives of the Class. Respectfully submitted, By: BALDWIN & BALDWIN Address Phone Number JUSTIN HUNT, LLC M.D. Justin D.A. Reardon Address Phone Number Date: Attorneys for Plaintiffs and the Class

L.3 TIL Rescission and Deceptive Practices CaseHome Improvement Contract (Mount)
UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION ) ) ) ) ) ) ) v. ) ) LASALLE BANK LAKE ) VIEW, ) Defendant. ) ) MATTHEW MOUNT and LESLIE MOUNT, on behalf of themselves and all others similarly situated, Plaintiffs, PLAINTIFFS MEMORANDUM IN SUPPORT OF MOTION FOR CLASS CERTIFICATION I. NATURE OF THE CASE LaSalle Bank Lake View (LVB) is engaged in the business of extending consumer credit and purchasing consumer credit contracts originated by home improvement contractors.

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federal and state law,11 a consumer who signs a home improvement contract has three business days after the transaction is concluded and all terms are disclosed to reconsider and cancel the transaction, without obligation. (Am.Cmplt. k24) The consumer must be furnished with a written notice stating that he or she has until a specified time in which to reconsider and cancel the transaction, without obligation. (Am.Cmplt. k25) The three days are supposed to commence when a binding agreement, including the financing terms, is entered into. Id. The dealers would, as a regular practice, evade the threeday cancellation right by inducing consumers to sign binding obligations prior to finalization and approval of the financing terms. (Am.Cmplt. k27) Then, after three days had elapsed and the consumers were no longer at liberty to cancel the first contracts, the dealers would present them with the second contracts, containing the financing terms. The second contracts were assigned to LVB. The segmentation of the transaction through the twocontract practice effectively defeats the consumers right to cancel. At the time the first contract is presented, the consumer is ignorant of the total cost of the transaction. When the financing terms are later presented in the second contract, the first contract is a binding obligation and the consumer is no longer free to simply walk away from the obligation. The two-contract procedure was addressed in a recent opinion of the Attorney General of Kentucky. Opinion No. 92-41, 1992-2 Trade Cas. (CCH) k69,916 (Exhibit H) [not attached herein]. The Attorney General had no difficulty concluding that it violated TILA and state law, and warned that it is extremely important that the seller not do anything to lead the consumer to believe that she is bound prior to [the time she signs the credit contract]. Id. The Attorney General explained: [A] consumer unable to pay cash might be forced to sign a credit contract she had never seen simply because her right to cancel the sales [first] contract had expired. This would eliminate the protection of the state and federal cooling off periods. (1992-2 Trade Cas. at p. 88,383) An article, K. Keest, Spiking and Loan-Splitting in Home Improvement Financing: Artful Dodges, Clearinghouse Review, August 1992, pp. 415421 (Exhibit I) [not attached herein] also warns of the unacceptable results of the two-contract scheme: the problem with the second transactions rescission notice, of course, is that if the consumer tries to cancel it within three days after learning of the full financed cost for
11 TILA gives the consumer three days in which to cancel a credit transaction secured by his or her principal residence and not entered into to finance the initial acquisition or construction of the residence. 15 U.S.C. 1635. The Federal Trade Commission home solicitation sales regulation, 16 C.F.R. part 429, gives a corresponding three-day cancellation right with respect to transactions in which a seller calls upon the consumer at home. Illinois (and most other states) have enacted statutes that are substantially identical to the FTC regulation. ICFA 2B, Ill.Rev.Stats., ch. 121-1/2, 262B, 815 ILCS 505/2B.

(Amended Complaint [Am.Cmplt.] k5) LVB enters into standard form agreements with multiple home improvement dealers (dealers) to generate consumer installment obligations secured by mortgages on the properties on which the work is done. (Am.Cmplt. k17) Examples of the LVB-dealer agreements are in Group Exhibit A [not attached herein]. The Mounts allege that the dealers use an illegal twocontract procedure to generate these obligations. First, the dealers procure consumers signatures on purportedly binding contracts which do not disclose LVBs financing terms. (The one used in the case of the Mounts is Exhibit B. [not attached herein]) Then, after the consumers are no longer at liberty to cancel the first contract, the dealers present them with second contracts, containing onerous financing terms from LVB. (Am.Cmplt., k1) (The second contract used in the case of the Mounts is Exhibit C. [not attached herein]) The second contract is assigned to LVB. LVB had an extensive credit approval process for the second, installment contract (Exhibit D [not attached herein]; Deposition of Joseph Moskal [Exhibit E] [not attached herein], pp. 1619, 4546). The process included an appraisal and title search, and necessarily took some time to complete. (In the case of the Mounts, it took several months, see Exhibit F; Moskal Dep. [Exhibit E], pp. 6670.) The execution of the first contract insured that the customer would not back out of the deal while this process was taking place, or as a result of sticker shock when the cost of the financing was made known. LVB required that the first contract be presented at the time the credit application was presented to it for approval. (Deposition of Nicholas Anthony [Exhibit G], pp. 2728, 4849) [not attached herein] Count I of the complaint alleges that this two-contract practice violates the federal Truth in Lending Act (TILA), 15 U.S.C. 1601 et seq. Count II alleges that it violates the Illinois Consumer Fraud Act (ICFA), Ill.Rev.Stats., ch. 1211/2, k262, 815 ILCS 505/2. Count III alleges that it constitutes common law fraud. LVB is liable for the acts of the dealers on three grounds: (1) It knew of the dealers use of the first contracts and agreed to or acquiesced in their use. (Moskal Dep. [Exhibit E], pp. 4, 19) (2) LVB is automatically liable for TILA rescission violations under 15 U.S.C. 1641. (3) LVB is automatically liable for the dealers acts under the following provision, which is required by law10 and included in all retail installment contracts purchased by LVB: ANY HOLDER OF THIS CONSUMER CREDIT CONTRACT IS SUBJECT TO ALL CLAIMS AND DEFENSES WHICH THE DEBTOR COULD ASSERT AGAINST THE SELLER OF GOODS OR SERVICES OBTAINED PURSUANT HERETO OR WITH THE PROCEEDS HEREOF. RECOVERY HEREUNDER BY THE DEBTOR SHALL NOT EXCEED AMOUNTS PAID BY THE DEBTOR HEREUNDER. (Am.Cmplt. k19) The challenged two contract practice is a clever circumvention of a consumers three-day right to rescind. Under both
10 16 C.F.R. part 433.

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the first time, the contractors cash or credit contract is, in theory, still there to be paid . . . the consumers right to think about the purchase, to be fully informed of the financial consequences, and to cancel without penalty if he or she chooses has been negated. (p. 419) In many cases, the first contracts purportedly obligate the consumers to pay substantial penalties (1535% of the full contract price) to the dealer for any attempted cancellation more than three days after the date of the first contract.12 Often, the first contracts purport to allow the dealer to confess judgment against the consumer.13 In addition, they often promise the consumers financing and security terms other than those ultimately approved (i.e., a lower interest rate or more attractive payment structure was promised, or a mortgage not initially required). (Am.Cmplt. k31, 32) In some cases, such as that involving the Mounts, the dealer would commence work prior to the presentation of the final financing terms. (Am.Cmplt. k33) This practice is known as spiking in the home improvement business, and serves no purpose other than to prevent the consumer from backing out of the deal. The artificial bifurcation of transactions into a first and second contract thus effectively deprives consumers of the right to three business days in which to reconsider and cancel the entire transaction after all of the terms are known. It is well established that the use of deception, coercion or artifice to circumvent a consumers rescission rights is a violation of TILA, 5 of the Federal Trade Commission Act and state laws, such as ICFA 2, which prohibit unfair and deceptive acts and practices in consumer transactions. Complaints alleging unfair and deceptive practices based on the same scenario involved in this case have been upheld in Fidelity Financial Services, Inc. v. Hicks, 214 Ill.App.3d 398, 574 N.E.2d 15 (1st Dist. 1991); Santiago v. Turner Acceptance Corp., 76 C 1247 (N.D.Ill., April 21, 1980) (Exhibit J) [not attached herein]; Reid v. North Jersey Home Energy Center, Inc., L-084324-85 (Superior Court of New Jersey, March 2, 1989) (Exhibit K) [not attached herein]; and Doggett v. County Sav. & L. Co., 373 F.Supp. 774, 777 (E.D.Tenn. 1974). For purposes of plaintiffs motion for class certification, it is important to point out that the violation exists in any case in which the consumer signs a binding contract prior to written disclosure of the financing terms. It is not essential to show (i) that the first contract contains a cancellation penalty, (ii)
12 The inclusion of cancellation charges in a home improvement contract that are not related to the actual loss incurred upon cancellation has been held to be an unfair and deceptive practice in decisions long antedating the plaintiffs transactions. In re American Aluminum Corp, 84 F.T.C. 21 (1974), affd per curiam, 522 F.2d 1278 (5th Cir. 1975); In re Capital Builders, Inc., 92 F.T.C. 274 (1978); In re United Builders, Inc., 92 F.T.C. 291 (1978); In re Tri-West Construction Co., 86 F.T.C. 1051 (1975); Gonzalez v. Schmerler Ford, 397 F.Supp. 323 (N.D.Ill. 1975). In light of these decisions, the only purpose of providing for such charges was to provide a means of coercing unsophisticated consumers not familiar with Federal Trade Commission law. 13 The use of a confession of judgment provision in a consumer contract is a violation of the FTC credit practices regulation, 16 C.F.R. part 444. Most consumers are not familiar with this FTC regulation.

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that the first contract allows the dealer to confess judgment against the consumer, (iii) that the first contract affirmatively misrepresents the financing terms ultimately presented in the second contract, or (iv) that the dealer began work prior to disclosure of the financing terms. The penalty or confession of judgment clause and spiking are aggravating factors, ensuring that a consumer will not exercise a right to cancel. The three day right of rescission is a bright line test. If a consumer is not given an unequivocal three day right to cancel the transaction without penalty, that consumers rights have been violated, whether or not aggravating circumstances are present. II. EVIDENCE OF THE PRACTICE Plaintiffs will introduce documentary evidence establishing systematic and classwide implementation of the two contract practice. The practice was aggravated by penalties and spiking, and plaintiffs will prove the aggravating factors at trial. However, the basic violation is made out in the cases of both the plaintiffs and the class by documentary and statistical evidence from LVBs files. A. PLAINTIFFS The Mounts entered into a binding agreement (first contract) with Budget Construction Company on November 8, 1990 for a room addition to be added to their home for a price of $26,000. (Exhibit B). At the same time, Budget took a credit application. (Am.Cmplt. k8) Indeed, the first contract promises that the Mounts would receive an FHA loan for $17,500 with an annual percentage rate of 14% with payments of $273.21 for 10 years. In addition the Mounts would pay Budget $8,500 in 36 monthly payments of $292.11 each. (Am.Cmplt. k9) Budget thereupon proceeded to commence performance of the work. (Am.Cmplt. k10) LVB was aware of the spiking because LVBs agent inspected the Mount residence on December 7, 1990. (Deposition of Elyse Paulus Mount [Exhibit L] [not attached herein], p. 19) On December 20, 1990, after Budget had begun work, the Mounts were presented with and signed a retail installment contract (Exhibit C), which provided for an annual percentage rate of 16%, an amount financed of $29,550, finance charges of $30,220.80 and 120 monthly payments of $498.09 each for a total of $59,770.80. The total payment obligation under Exhibit C, presented to the Mounts after the work was begun, is thus more than $16,000 higher than the total payment obligation under Exhibit B [not attached herein]. The Mounts complained about Budget proceeding with the work. Budgets response was to tell the Mounts that they were required to proceed with the contract, or Budget would sue them. (E. Mount Dep. [Exhibit L], p. 53 [not attached herein]) In January 1991, the Mounts were given a Notice of Right to Cancel dated December 20, 1990. (Exhibit M) [not attached herein] When the Mounts complained about the document being dated December 20, 1990, they were told that the cancellation was rather a moot point since the work was in progress. (E. Mount Dep. [Exhibit J], pp. 7273) Furthermore, Exhibit

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Exhibit OO [not attached herein], a set of documents obtained from the Better Business Bureau, illustrates the use of the two-contract procedure by Paul Construction and LVB. On June 6, 1991, the consumers signed an ostensibly binding contract with Paul. The contract refers to financing over a term of 180 months, but does not contain the required TILA disclosures. It also states that the consumers had three business daysuntil June 10, 1991to On September 10, 1991, LVB approves financing termsbut over 120 months only. If the consumers were not comfortable with the new financing terms, or simply did not want to pay the total amount of finance charges shown on the TILA disclosures, they could not just walk away. The first contracts were prepared on printed forms, and it is obvious that each of the dealers used the same contract forms with each of its customers. LVB required the dealer to provide it with the first contract for every second contract that it purchased. (Moskal Dep. [Exhibit E], pp. 6364). Hence, each of the LVB customers whose dealer is one of these listed above was subjected to the same practice. (There are likely others, but the use of illegal form documents by 23 dealers who finance through LVB clearly establishes a class.) C. SUMMARY The suitability for class adjudication of the claims regarding the practice of interfering with a consumers three day right to rescind is established by Judge Aspens certification of essentially identical classes in a virtually identical case, Heastie v. Community Bank of Greater Peoria, 125 F.R.D. 669 (N.D.Ill. 1989), and Judge Prentice Marshalls certification of a substantially identical unlawful inducement claim in Santiago v. Turner Acceptance Corp., 76 C 1247 (N.D.Ill., April 21, 1980) (Exhibit J). See also Reid v. North Jersey Home Energy Center, Inc., L-084324-85 (Superior Court of New Jersey, March 2, 1989) (Exhibit K). Proof of the violation is made through documents, such as those referenced above. III. FACTORS TO BE CONSIDERED IN CERTIFYING A CLASS ACTION In determining whether a class action will be allowed, the substantive allegations of the complaint should be taken as true. Blackie v. Barrack, 524 F.2d 891, 901 n. 16 (9th Cir. 1975); Heastie v. Community Bank of Greater Peoria, supra, 125 F.R.D. 669 (N.D.Ill. 1989); Sharif by Salahuddin v. New York State Education Department, 127 F.R.D. 84, 87 (S.D.N.Y. 1989). The Court should resolve any doubt regarding the propriety of certification in favor of allowing the class action, so that it will remain an effective vehicle for deterring corporate wrongdoing. Esplin v. Hirschi, 402 F.2d 94, 101 (10th Cir. 1968); accord, In re Folding Cartons Antitrust Litigation, 75 F.R.D. 727 (N.D.Ill. 1977). As demonstrated below, this is an ideal case for a class action. Each of the prerequisites for a class action is met. Indeed, the nature of the practice complained ofsubverting the rights of large numbers of customers whose claims are too small to make individual litigation practicableis such as to make a class action essential.

M refers only to the right to cancel the December 20, 1990 transaction, not to the November 8, 1990 transaction. Any right to cancel the second contract was compromised by the same circumstances that led the Mounts to sign it in the first place. The Mounts believed that they could not cancel the November transaction, because the work had begun and that they would be liable to Budget. (E. Mount Dep. [Exhibit L], p. 53) B. CLASS MEMBERS LVB has produced lists of all of the home improvement dealers that it dealt with. (Exhibit N) [not attached herein] Most of those dealers use first contracts which contain penalty clauses purporting to obligate the home owners in the event of cancellation or clauses allowing the dealer to confess judgment. Plaintiffs have collected the first contract forms used by 23 dealers which do business with LVB.14 All are purportedly binding contracts. All contain cancellation clauses, confession of judgment clauses or both. (All Exterior Installations, Inc., Exhibit O [not attached herein]; All Season Windows, Exhibit P [not attached herein]; American Thermal Window Products, Inc., Exhibit Q [not attached herein]; Archway Construction Co., Exhibit R [not attached herein]; A. W. Aluminum & Construction Co., Exhibit S [not attached herein]; Blue Ribbon Remodeling, Exhibit T [not attached herein]; Brighton Heating & Cooling, Inc., Exhibit U [not attached herein]; Budget Construction Company, Exhibit V [not attached herein]; Correct General Contractors, Exhibit W [not attached herein]; Creative Exteriors, Inc., Exhibit X [not attached herein]; Danleys Garage World, Exhibit Y [not attached herein]; 1st Choice Remodeling Co., Exhibit Z [not attached herein]; Fortune Lumber & Building Co., Exhibit AA [not attached herein]; Globe Builders Co., Exhibit BB [not attached herein]; Hallmark Builders, Inc., Exhibit CC [not attached herein]; Key Energy Systems, Inc., Exhibit DD [not attached herein]; Lake County Window & Door, Inc., Exhibit EE [not attached herein]; Modern General Contractors, Inc., Exhibit FF [not attached herein]; Paul Construction Company, Exhibit GG [not attached herein]; Rossi Home Improvers Co., Exhibit HH [not attached herein]; 2nd City Construction Co., Exhibit II [not attached herein]; Superior Exteriors, Inc., Exhibit JJ [not attached herein]; Wilson Builders, Exhibit KK [not attached herein] There is no legitimate reason for having a first contract form with illegal cancellation penalties, confession-of-judgment clauses, and the like except to perpetrate the two-contract practice. A number of the exhibits show that is precisely what is happening. For example, Exhibits R, T, Z, AA, FF, GG and II show that the consumers were being assured of financing on undisclosed terms. Other exhibits show that the dealers in fact enforce the first contracts by demanding payment of the penalties by homeowners if they attempt to cancel, in many cases filing lawsuits to collect the penalties. See Exhibits R, T, DD and II. As noted above, similar threats were directed against the Mounts.
14 Some of these contracts were obtained from court files, so they do not necessarily evidence transactions that were financed or financed by LVB.

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A. NUMEROSITY The first requirement of Rule 23(a) is that the class members are so numerous that joinder is not practicable. The numerosity prerequisite is satisfied if it is reasonable to conclude that the number of members of the proposed class is greater than the minimum number required for class certification, which is about 30-40. Swanson v. American Consumer Industries, 415 F.2d 1326 (7th Cir. 1969)(18 sufficient); Riordan v. Smith Barney, 113 F.R.D. 60 (N.D.Ill. 1986) (1029 sufficient); Sala v. National Railroad Passenger Corp., 120 F.R.D. 494, 497 (E.D.Pa. 1988) (4050 sufficient). It is not necessary that the precise number of class members be known. McCleery Tire Service, Inc. v. Texaco, Inc., 1975-2 Trade Cas. (CCH) k60,581 (E.D.Pa. 1975). It is sufficient that the record gives rise to a reasonable inference that numerosity is satisfied. A class action may proceed upon estimates as to the size of the proposed class. In re Alcoholic Beverages Litigation, 95 F.R.D. 321 (E.D.N.Y. 1982). In the present case, LVB has stated that it will not contest numerosity. (Exhibit LL) [not attached herein] LVB has some 1942 home improvement contracts. (Defendants Responses to Plaintiffs First Set of Requests for Production of Documents, k3 [Exhibit MM] [not attached herein]). Furthermore, it is obvious from the fact that dealers use form contracts and that LVB went to the trouble of creating and documenting a relationship with each dealer that multiple consumers were financed through LVB by each dealer. Thus, the 23 dealers alone likely generated enough contracts so as to make joinder impracticable. Despite the fact that the plaintiffs have received little class discovery from the defendants, it is clear that the numerosity requirement is met. B. COMMON QUESTIONS OF LAW AND FACT The commonality requirement is satisfied if there are common questions linking the class members that are substantially related to the outcome of the litigation. Jordan v. County of Los Angeles, 669 F.2d 1311, 1320 (9th Cir. 1982); Blackie v. Barrack, 524 F.2d 891, 910 (9th Cir. 1975). A number of such questions are presented in this case. These questions include, among others: a. Whether the two-contract practice was carried out, as alleged. b. Whether the two-contract practice violates TILA. c. Whether the two-contract practice is unfair and deceptive. d. Whether the two-contract practice is a scheme to defraud. e. Whether class members are entitled to a declaration of a continuing right to rescind (which they can elect to exercise upon the receipt of notice). f. The liability of LVB for the two-contract practice under TILA, the FTC-required contract language, or on a theory of concerted action. The only individual questions are: (i) whether a class member signed a first contract; and (ii) whether the date on the first contract is prior to that on the second retail installment contract assigned to LVB. The answers to both require nothing more than the ministerial examination of the files of

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LVB. Indeed, it may not even be necessary to examine all of the files: once it is apparent that, e.g., Budget had a practice of getting consumers to sign first contracts, the jury may reasonably infer that it was consistently carried out. In any event, an individual issue which can be readily answered by inspection of files is not a barrier to class certification. Heastie v. Community Bank of Greater Peoria, supra, 125 F.R.D. 669 (N.D.Ill. 1989). An action challenging the legality of a standardized business practice applied to an entire group of customers is wellsuited for class certification. Haynes v. Logan Furniture Mart, Inc., 503 F.2d 1161 (7th Cir. 1974) (propriety of disclosure documents under Truth in Lending Act); Haroco v. American National Bank & Trust Co., 121 F.R.D. 664, 669 (N.D.Ill. 1988) (improper computation of interest); Kleiner v. First National Bank of Atlanta, 97 F.R.D. 683 (N.D.Ga. 1983) (same); Heastie v. Community Bank of Greater Peoria, supra. C. TYPICALITY The typicality requirement of Fed.R.Civ.P. 23(a)(3) is satisfied if the representatives claim arises from the same event or practice or course of conduct that gives rise to the claims of other class members and [the representatives] claims are based on the same legal theory. De La Fuentes v. Stokely-Van Camp, Inc., 713 F.2d 225, 232 (7th Cir. 1983); Jordan v. County of Los Angeles, 669 F.2d 1311, 1321 (9th Cir. 1982). Typicality . . . does not require the named plaintiff to be in the identical situation as every member of the class. United States v. Davis, 756 F.Supp. 1162, 1169 (E.D.Wis. 1991). In the present case, the claims of plaintiffs and the class members all arise from the same events and course of conduct. The claims of plaintiffs and the class members all arise from the use of a two-contract practice with respect to LVBs customers. The fact pattern is the same with respect to all class members, and the same legal theories are asserted on behalf of all. Accordingly, the typicality requirement has been satisfied. D. ADEQUACY OF REPRESENTATION The adequacy of representation requirement is satisfied if plaintiffs counsel is qualified, experienced, and generally able to conduct the proposed litigation and there are no antagonistic interests between the representative party and the class. Lerwill v. Inflight Motion Pictures, Inc., 582 F.2d 507, 512 (9th Cir. 1978); Jordan v. County of Los Angeles, supra, 669 F.2d at 1323; Wetzel v. Liberty Mutual Ins. Co., 508 F.2d 239, 247 (3d Cir. 1975); In re Alcoholic Beverages Litigation, supra, 95 F.R.D. 321 (E.D.N.Y. 1982). The extensive experience and expertise of plaintiffs counsel in class actions and consumer litigation will ensure a vigorous prosecution of the rights of the class members. See, Declaration of [Attorney], Exhibit NN. [not attached herein] E. CERTIFICATION UNDER RULE 23(B)(2) An action may be maintained as a class action under Rule 23(b)(2) if:

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(C) the desirability or undesirability of concentrating the litigation of the claims in the particular forum; (D) the difficulties likely to be encountered in the management of a class action. G. PREDOMINANCE OF COMMON QUESTIONS The discussion above regarding common questions of law and fact shows not only that common questions exist but that they predominate over individual questions. Plaintiffs can prove, on a classwide basis, that large numbers of LVB transactions were originated by the illegal two-contract practice, and the affected transactions are readily identifiable. H. SUPERIORITY OF CLASS ACTION A class action is the only appropriate means of resolving this controversy. The claim of each individual class member is such that it is unlikely that he or she could afford to take on LVB. This is precisely the sort of case contemplated by the class action statutea scheme to violate the rights of many unsophisticated consumers. [O]ne of the primary functions of the class suit is to provide a device for vindicating claims, which, taken individually, are too small to justify legal action but which are of significant size if taken as a group. Brady v. LAC, Inc., 72 F.R.D. 22, 28 (S.D.N.Y. 1976). To permit the defendants to contest liability with each claimant in a single, separate suit, would, in many cases give defendants an advantage which would be almost equivalent to closing the door of justice to all small claimants. Hohmann v. Packard Instr. Co., 399 F.2d 711, 715 (7th Cir. 1968). Furthermore, even if individual actions were feasible, there is no reason to burden the court system with multiple actions where one will suffice. What we obviously are looking for is achieving the maximum bang for the judicial buck. Skelton v. General Motors Corp., 1985-2 Trade Cas. (CCH) k66,683 (N.D.Ill. 1985), at p. 63,218. III. MANAGEABILITY OF THE CLASS It is clear from the discussion above that the once this Court determines the common questions of law and fact concerning the legality of LVBs practices, identification of class members will easily ascertained by reference to LVBs records. Furthermore, LVB has agreed not to contest the manageability of the class. (Exhibit LL) IV. CONCLUSION For the reasons stated above, plaintiffs request this Court certify that Counts IIII of the Amended Complaint may proceed as a class action. Respectfully submitted, [Attorney]

the party opposing the class has acted or refused to act on grounds generally applicable to the class, thereby making appropriate final injunctive relief or corresponding declaratory relief with respect to the class as a whole . . . In Counts IIII, plaintiffs seek a declaratory judgment declaring that each class member has a right to rescind his or her transaction. A declaration establishing a group of people have a right to rescind is an appropriate form of relief. Tcherepnin v. Franz, 461 F.2d 544 (7th Cir. 1972); Vasquez v. Superior Court, 4 Cal.3d 800, 94 Cal.Rptr. 796, 484 P.2d 964 (1971); Smyth v. Kaspar American State Bank, 6 Ill.App.2d 64, 127 N.E.2d 149 (1st Dist. 1955), affd, 9 Ill.2d 27, 136 N.E.2d 796 (1956); Hess v. I.R.E. Real Estate Income Fund, 1993 Ill.App. LEXIS 263 (Ill.App., 1st Dist., Feb. 26, 1993). The archetypical case for (b)(2) certification is one where policies applicable to a large number of persons are challenged as unlawful. Certification of a suit seeking declaratory relief concerning the policies of a financial institution applicable to an entire class of persons is clearly appropriate under Rule 23(b)(2). Probe v. State Teachers Retirement System, 780 F.2d 776, 780 (9th Cir. 1986); Musto v. American General Corp., 615 F.Supp. 1483 (D.Tenn. 1985), revd other grounds, 861 F.2d 897 (6th Cir. 1988); Heastie v. Community Bank of Greater Peoria, supra, 125 F.R.D. 669 (N.D.Ill. 1989); Simon v. World Omni Leasing, Inc., 146 F.R.D. 197 (S.D.Ala. 1992). A case seeking substantial and meaningful declaratory and injunctive relief on the basis of a classwide practice may be certified under (b)(2) even though damages are also sought. Williams v. Lane, 129 F.R.D. 636, 639 (N.D.Ill. 1990) (certification under Rule 23(b)(2) may be appropriate even where plaintiffs seek damages, as long as [declaratory or] injunctive relief is additionally appropriate); Patrykus v. Gomilla, 121 F.R.D. 357, 363 (N.D.Ill. 1988) ((b)(2) certification appropriate where [d]eclaratory and injunctive relief are sought as an integral part of the relief for the entire class); Simon v. World Omni, supra; Ventura v. New York City Health & Hospitals Corp., 125 F.R.D. 595, 601 (S.D.N.Y. 1989); Brandt v. Owens-Illinois, Inc., 62 F.R.D. 160 (S.D.N.Y. 1973). F. CERTIFICATION UNDER 23(B)(3) Alternatively or in addition, plaintiffs seek certification under Fed.R.Civ.P. 23(b)(3), which provides that the Court may certify a class if: (3) the court finds that the questions of law or fact common to the members of the class predominate over any questions affecting only individual members, and that a class action is superior to other available methods for the fair and efficient adjudication of the controversy. The matters pertinent to the findings include: (A) the interest of members of the class in individually controlling the prosecution and defense of separate actions; (B) the extent and nature of any litigation concerning the controversy already commenced by or against members of the class;

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Appx. L.4

L.4 TIL Disclosure CaseHidden Finance Charge in Car Sale (Willis)


IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION ) ) ) ) ) ) v. ) ) HARVEY CYCLE & ) CAMPER, INC., Gottschall ) doing business as WATSON ) MOTORSPORT, LTD.; ) and WONDERLIC & ) ASSOCIATES, INC., doing ) business as WONDERLIC ) FINANCE, ) Defendants. ) ) CHRISTINE WILLIS, on behalf of herself and all others similarly situated, Plaintiff, MEMORANDUM IN SUPPORT OF PLAINTIFFS MOTION FOR CLASS CERTIFICATION I. INTRODUCTION Several years ago, a federal judge in Pennsylvania noted that The instant little adversarial proceeding presents to us a glimpse of the dark side of the marketplace, revealing that, as in the 1960s, the poor may still pay far more for everyday consumer goods than more affluent members of the community. See D. Caplovitz, The Poor Pay More, 81104 (1967); and W. Magnuson & J. Carper, The Dark Side of the Marketplace, 43241, 7576, 11820 (1968). As described in those documentaries, describing the lot of low-income consumers in the 1960s, we find that merchants who chargeand getexorbitant prices for consumer goods and finance companies which protect them through probable feigned innocence of the merchants activities are alive and well. . . . In re Stewart, 93 B.R. 878, 879 (Bankr. E.D.Pa. 1988). The genesis of the present case was a February 1994 purchase of a 1985 Buick by one such low-income consumer. Watson, the car dealer defendant, charged Christine Willis $4,135.28 for a car listed in the Blue Book for $2,400. Watson then arranged financing through Wonderlic, the finance company defendant, at an annual percentage rate of 43%. Notwithstanding the exorbitant price of the car, Watson delivered a vehicle that died after a couple of days, giving rise to the individual claims in Counts III and IV. Watson and Wonderlic also included some charges in Ms. Willis contract that are legally required to be in the finance charge and annual percentage rate, but were not so included. It is these charges that are the subject of class Counts I and II. Thus, as

in Stewart, defendants may be required to do that which equity and good conscience requires. Counts I and II are based on a standard $50 charge for V.S.I. insurance that Wonderlic had car dealers, such as Watson, include in the amount financed on the retail installment contracts it purchased. Plaintiff contends that the charge was legally part of the finance charge and annual percentage rate, as those terms are defined in TILA and Regulation Z, and that its inclusion in the amount financed resulted in the finance charge and annual percentage rate being understated. The complaint alleges that it was the standard policy and practice of Wonderlic and car dealers with which Wonderlic did business, such as Watson, to include the $50 charge in the amount financed and to exclude it from the finance charge and the annual percentage rate. Count I alleges that Watson and Wonderlic thereby violated TILA and Regulation Z. Count II is based on the Illinois Sales Finance Agency Act, 205 ILCS 606/1 et seq., and implementing regulations, 38 Ill.Admin. Code part 160, which among other things prohibits a sales finance agency from knowingly purchasing contracts from anyone who [u]ses a security instrument or document which is not in conformance with the provisions of . . . the Federal Consumer [Credit] Protection Act, of which TILA is Title I. 38 Ill.Admin. Code 160.230(h)(2). II. STANDARD FOR CLASS CERTIFICATION In determining whether a class will be certified, the merits of the case are not examined and the substantive allegations of the complaint should be taken as true. Blackie v. Barrack, 524 F.2d 891, 901 n. 16 (9th Cir. 1975); Heastie v. Community Bank of Greater Peoria, 125 F.R.D. 669, 671 n. 2 (N.D.Ill. 1989); Riordan v. Smith Barney, 113 F.R.D. 60, 62 (N.D.Ill. 1986). The Seventh Circuit has said that Rule 23 must be liberally interpreted and read to favor maintenance of class actions. King v. Kansas City Southern Industries, 519 F.2d 20, 2526 (7th Cir. 1975). Class actions are essential to enforce laws protecting consumers. As the Illinois Appellate Court stated in Eshaghi v. Hanley Dawson Cadillac Co., 214 Ill.App.3d 995, 574 N.E.2d 760 (1st Dist. 1991): Even without resort to the relaxed standards of proof envisioned by the Consumer Fraud Act, Illinois has been hospitable to maintenance of class actions and has been willing to recognize that common questions of law and fact predominate in a great many situations. . . . In a large and impersonal society, class actions are often the last barricade of consumer protection. . . . To consumerists, the consumer class action is an inviting procedural device to cope with frauds causing small damages to large groups. The slight loss to the individual, when aggregated in the coffers of the wrongdoer, results in gains which are both handsome and tempting. The alternatives to the class actionprivate suits or governmental actionshave been so often found wanting in controlling consumer frauds that not even the ardent crit-

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the car dealer involved in this case, Watson, that it alone generated several hundred transactions containing the disclosure item at issue. Since other car dealers are involved, it is probable that the number of printed form documents containing the challenged disclosure exceeds the 1040 required for a class. The fact that we are dealing with a standard form document itself indicates that the numerosity requirement is satisfied. Swiggett v. Watson, 441 F.Supp. 254, 256 (D.Del. 1977) (in action challenging transfers of title pursuant to Delaware motor vehicle repairers lien, fact that Department of Motor Vehicles issued printed form for such transfer in and of itself sufficient to show that numerosity requirement was satisfied). Plaintiff has propounded discovery to confirm this and determine the exact number of class members. (Appendix A) [not attached herein] B. RULE 23(A)(2)COMMONALITY Fed.R.Civ.P. 23(a)(2) requires that there be a common question of law or fact. Not all factual or legal questions raised in the litigation need be common so long as at least one issue is common to all class members. Spencer v. Central States Pension Fund, 778 F.Supp. 985, 989 n.2 (N.D.Ill. 1991). Where a question of law involves standardized conduct of the defendants toward members of the proposed class, a common nucleus of operative facts is typically presented, and the commonality requirement . . . is usually met. Franklin v. City of Chicago, 102 F.R.D. 944, 949 (N.D.Ill. 1984); Patrykus v. Gomilla, 121 F.R.D. 357, 361 (N.D.Ill. 1988). In the present case, common questions of law and fact clearly predominate over individual concerns. Plaintiff alleges that a computer-generated entry on a standard printed form contract is illegal. That question is common to the class and the central issue in the case. Accordingly, numerous decisions hold that TILA disclosure claims are eminently suitable for class certification. Haynes v. Logan Furniture Mart, Inc., 503 F.2d 1161 (7th Cir. 1974); Adiel v. Chase Fed. S. & L. Assn, 810 F.2d 1051 (11th Cir. 1987); Hughes v. Cardinal Fed. S. & L. Assn, 566 F.Supp. 834 (S.D.Ohio 1983); Fetta v. Sears, Roebuck & Co., 77 F.R.D. 411 (D.R.I. 1977); Bantolina v. Aloha Motors, Inc., 419 F.Supp. 1116, 1122 (D.Haw. 1976); Jones v. Goodyear Tire & Rubber Co., 442 F.Supp. 1157 (E.D.La. 1977); Simon v. World Omni Leasing, Inc., 146 F.R.D. 197 (S.D.Ala. 1992); Johnson v. Steven Sims Subaru and Subaru Leasing, 1993 U.S.Dist. LEXIS 8078 (N.D.Ill., June 9, 1993) (Magistrate Judges recommendation). There are no issues of reliance under the Truth in Lending Act claim. Anyone who received a defective disclosure is entitled to recover, without proof of reliance or the like. Brown v. Marquette S. & L. Assn, 686 F.2d 608, 614 (7th Cir. 1982); Wright v. Tower Loan of Mississippi, 679 F.2d 436, 445 (5th Cir. 1982); In re Steinbrecher, 110 B.R. 155, (Bankr. E.D.Pa. 1990); Shepeard v. Quality Siding & Window Factory, Inc., 730 F.Supp. 1295, 1299 (D.Del. 1990); In re Russell, 72 B.R. 855 (Bankr. E.D.Pa. 1987). An objective standard is used to determine violations of the TILA, based on the representations contained in the relevant disclosure documents; it is unnecessary to inquire as to the subjective deception or misunderstanding of particular consumers. Zamrippa v. Cys Car Sales, Inc., 674

ics of class actions seriously contend that they are truly effective. The consumer class action, when brought by those who have no other avenue of legal redress, provides restitution to the injured, and deterrence of the wrongdoer. (574 N.E.2d at 764, 766) Congress expressly recognized the propriety of a class action under TILA by providing special damage provisions and criteria for TILA class action cases in 15 U.S.C. 1640(a). In 1976, Congress increased the statutory damages for class actions in 15 U.S.C. 1640. Pub. L. 94-240 (90 Stat. 257). The legislative history of the amendment clearly states: The chief enforcement tool will continue to be private actions for actual damages and civil penalties. Much of the testimony received in the hearings, and much of the debate in Subcommittee and Committee centered on the adequacy of the recovery ceiling for civil penalties in class actions. . . . . (Sen.R. No. 94-590, 94th Cong., 2d Sess., p. 8, 1976 USCCAN 438) In revising 15 U.S.C. 1640 to expressly refer to class actions, Congress recognized that potential class action liability is an important encouragement to the voluntary compliance which is so necessary to insure nationwide adherence to uniform disclosure. Bantolina v. Aloha Motors, 419 F.Supp. 1116, 1120 (D.Haw. 1976). The possibility of class-action exposure is essential to the prophylactic intent of the Act, and is necessary to elevate truth-in-lending lawsuits from the ineffective nuisance category to the type of suit which has enough sting to insure that management will strive with diligence to achieve compliance. Bantolina, 419 F.Supp. at 1120, citing the 1972 Federal Reserve Board annual report on the Truth in Lending Act. III. THE PROPOSED CLASS MEETS THE REQUIREMENTS FOR CERTIFICATION A. RULE 23(A)(1)NUMEROSITY Fed.R.Civ.P. 23(a)(1) requires that the class be so numerous that joinder of all members is impracticable. When the class is large, numbers alone are dispositive. . . . Riordan v. Smith Barney, 113 F.R.D. 60, 62 (N.D.Ill. 1986). Where the class numbers at least 40, joinder is generally considered impracticable. Swanson v. American Consumer Industries, 415 F.2d 1326, 1333 (7th Cir. 1969) (40 sufficient); Riordan v. Smith Barney, 113 F.R.D. 60 (N.D.Ill. 1986) (1029 sufficient); Sala v. National Railroad Passenger Corp., 120 F.R.D. 494, 497 (E.D.Pa. 1988) (4050 sufficient); Kulins v. Malco, 121 Ill.App.3d 520, 530, 459 N.E.2d 1038 (1st Dist. 1984) (19 and 47 sufficient). It is not necessary that the precise number of class members be known. McCleery Tire Service, Inc. v. Texaco, Inc., 1975-2 Trade Cas. (CCH) k60,581 (E.D.Pa. 1975). A class action may proceed upon estimates as to the size of the proposed class. In re Alcoholic Beverages Litigation, 95 F.R.D. 321 (E.D.N.Y. 1982). Plaintiffs complaint challenges the propriety of an item which was inserted by computer in a standard printed form contract. Prior to filing suit, plaintiffs counsel were told by

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F.2d 877, 879 (11th Cir. 1982). TILA is a prophylactic measure that creates a system of private attorneys general to aid its enforcement. [citations] In order to penalize noncomplying creditors and to deter future violations, these private attorneys general may recover the statutory penalties even if they have not sustained any actual damages, or even if the creditors are guilty of only minute deviations from the requirements of TILA and implementing Regulation Z. [citations] Davis v. Werne, 673 F.2d 866, 869 (5th Cir. 1982). While plaintiff claims actual damages on behalf of the class under TILA, the damages are simply the $50 by which the finance charge was understated plus interest. The majority of decisions hold that the imposition of charges at an amount or rate exceeding that disclosed inflicts damage and entitles the consumer to restitution of the overcharge. Goldman v. First Natl of Chicago, 532 F.2d 10, 15 (7th Cir. 1976) (if in fact a finance charge was imposed and an interest rate applied when proper disclosures not made, actual damages would result); First Acadiana Bank v. FDIC, 833 F.2d 548 (5th Cir. 1988) (affirming FDIC order directing restitution of fee imposed by Bank that should have been, but was not, disclosed as part of finance charge); Sentinel Fed. S. & L. Assn v. OTS, 946 F.2d 85 (8th Cir. 1991) (same); Ransom v. S & S Food Center of Florida, 700 F.2d 670, 677 (11th Cir. 1983), affg Civ.A. 76-383-H (S.D.Ala., Sept. 11, 1979) (Appendix B) (affirming award of actual damages under Truth in Lending equal to the additional finance charge paid by each class member which exceeded the legally permissible finance charge); In re Russell, 72 B.R. 855 (Bankr. E.D.Pa. 1987) (same principle used in governmental enforcement actions such as Sentinel and Acadiana governs determination of whether there are actual damages under Truth in Lending Act); In re Stewart, 93 B.R. 878, 883, 886 (Bankr. E.D.Pa. 1988) (the failure to disclose an excess finance charge imposed in the transaction gives rise to an additional claim for actual damages in that amount under 15 U.S.C. 1640(a)(1)); Preston v. First Bank of Marietta, 16 Ohio App.3d 4, 473 N.E.2d 1210 (1983) (lender failed to disclose a variable-rate feature as required by TILA; court held that such a violation would inflict actual damage equal to the amount of the excess interest over the original contract terms, and that instead of enforc[ing] the contract to require the mortgagors to pay the excess interest and then grant[ing] the mortgagors actual damages equal to the sum it just ordered them to pay, the court could restrain enforcement of the improperly-disclosed term with respect to future interest increases); First S. & L. Assn v. Kern, 55 Ill.App.3d 838, 370 N.E.2d 1326, 1330 (1977) (where TILA statement disclosed lesser charges than provided for in note, disclosure estopped the plaintiff from demanding the larger payment which was set forth in the note).15 It is not necessary for the consumer to prove that he or she could have gotten credit at a rate less than that actually imposed.

Appx. L.4

With respect to Count II, the Illinois Sales Finance Agency Act provides for statutory damages in an amount not more than 25% of the principal amount of the retail contract . . . which is the subject of the action. 205 ILCS 660/16. If plaintiffs contract is indicative, the 25% approximates the overcharge on the car. C. RULE 23(A)(3)TYPICALITY The rule requires that the claims of the named plaintiff be typical of the claims of the class: A plaintiffs claim is typical if it arises from the same event or practice or course of conduct that gives rise to the claims of other class members and his or her claims are based on the same legal theory. The typicality requirement may be satisfied even if there are factual distinctions between the claims of the named plaintiffs and those of other class members. Thus, similarity of legal theory may control even in the face of differences of fact. De La Fuente v. Stokely-Van Camp, Inc., 713 F.2d 225, 232 (7th Cir. 1983) (citation omitted). See also, Rosario v. Livaditis, 963 F.2d 1013, 1018 (7th Cir. 1992). In the instant case, typicality is inherent in the class definition. By definition, each of the class members has received a disclosure statement similar to the one plaintiff received. All class members claims arise from the same practice of defendants which gave rise to the named plaintiffs claims: the provision of defective disclosures. D. RULE 23(A)(4)ADEQUACY OF REPRESENTATION Rule 23 also requires that the named plaintiff provide fair and adequate protection for the interests of the class. That protection involves two factors: (a) the plaintiffs attorney must be qualified, experienced, and generally able to conduct the proposed litigation; and (b) the plaintiff must not have interests antagonistic to those of the class. Rosario v. Livaditis, supra, 963 F.2d 1013, 1018 (7th Cir. 1992). Plaintiff understands her obligations as class representative (Appendix C) 16 [not attached herein] and has retained experienced counsel, as is indicated by Appendix D, [not attached herein] which sets forth counsels qualifications. The second relevant consideration under Rule 23(a)(4) is whether the interests of the named plaintiff is coincident with the general interests of the class. Here, both plaintiff and the class members seek money damages as the result of defendants unlawful disclosures. Given the identity of claims between the plaintiffs and the class members, there is no potential for conflicting interests in this action. There is no antagonism between the interests of the named plaintiffs and those of the class. E. RULE 23(B)(3)COMMON QUESTIONS OF LAW OR FACT PREDOMINATE Rule 23(b)(3) requires that the questions of law or fact common to all members of the class predominate over ques16 This exhibit would be the plaintiffs affidavit.

15 The Uniform Guidelines for Enforcement of Regulation Z, issued before Congress adoption of the policy of restitution, provide that [w]hen there is an understated finance charge and the APR is correct, the creditor shall reimburse the overcharge (the difference between the actual and the overstated finance charge). 44 F.R. 1222 (Jan. 4, 1979).

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tions pertaining to individual members. This criterion is normally satisfied when there is an essential common factual link between all class members and the defendants for which the law provides a remedy. Halverson v. Convenient Food Mart, Inc., 69 F.R.D. 331 (N.D.Ill. 1974). In this case, the common nucleus of operative fact, Id. at 335, is that defendants have provided the same illegal disclosures to all class members. The dispositive issueindeed, the only issue under Count Iis whether defendants disclosures comply with TILA. Count II also involves an issue as to defendants culpability in issuing defective disclosures, but this is also a common question. As noted above, Truth in Lending disclosure claims have frequently been certified as class actions and, where based on standardized disclosure documents, are almost ideal class actions. F. RULE 23(B)(3)CLASS ACTION IS SUPERIOR TO OTHER AVAILABLE METHODS TO RESOLVE THIS CONTROVERSY Efficiency is the primary focus in determining whether the class action is the superior method for resolving the controversy presented. Eovaldi v. First Natl Bank, 57 F.R.D. 545 (N.D.Ill. 1972). The Court is required to determine the best available method for resolving the controversy in keeping with judicial integrity, convenience, and economy. Scholes, 143 F.R.D. at 189; Hurwitz v. R.B. Jones Corp., 76 F.R.D. 149 (W.D.Mo. 1977). The Seventh Circuit has held that it is proper for a court, in deciding the best available method, to consider the . . . inability of the poor or uninformed to enforce their rights, and the improbability that large numbers of class members would possess the initiative to litigate individually. Haynes v. Logan Furniture Mart, Inc., supra, 503 F.2d 1161 (7th Cir. 1974). In this case there is no better method available for the adjudication of the claims which might be brought by each individual consumer. The special efficacy of the consumer class action has been noted by the courts and is applicable to this case: A class action permits a large group of claimants to have their claims adjudicated in a single lawsuit. This is particularly important where, as here, a large number of small and medium sized claimants may be involved. In light of the awesome costs of discovery and trial, many of them would not be able to secure relief if class certification were denied. . . . In Re Folding Carton Antitrust Litigation, 75 F.R.D. 727, 732 (N.D.Ill. 1977) (citations omitted). Class certification will provide an efficient and appropriate resolution of the controversy. IV. CONCLUSION The proposed class meets the requirements of Rules 23(a) and (b)(3). Plaintiff respectfully requests that the Court certify Counts I and II of this action as a class action. Respectfully Submitted, [Attorney]

L.5 TIL Untimely Disclosure Case (Diaz)


IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION ) ) ) ) ) ) v. ) ) WESTGATE LINCOLN ) MERCURY, INC., ) Defendant. ) ) SALVATOR DIAZ, on behalf of himself and all others similarly situated, Plaintiff, MEMORANDUM IN SUPPORT OF PLAINTIFFS MOTION FOR CLASS CERTIFICATION Plaintiff, Salvator Diaz, has moved for an order determining that this action may proceed as a class action against defendant Westgate Lincoln Mercury, Inc. (Westgate). This memorandum is submitted in support of this motion. I. NATURE OF THE CASE This is an action under the Truth in Lending Act, 15 U.S.C. 1601 et seq. Westgate, a car dealer, uses the printed form document attached as Exhibit A [not attached herein] in connection with proposed purchases of cars on time. Westgate has consumers who seek to purchase on time sign Exhibit A prior to the disclosure of the intended financing terms for the transaction. Exhibit A is a note obligating the consumer to pay the entire balance of the purchase price, plus interest at 20%. Exhibit A also provides for a confession of judgment against the consumer. For years, the use of confession of judgment clauses in consumer contracts has been outlawed by Federal Trade Commission regulations, 16 C.F.R. part 444; most consumers do not know this. The purpose and effect of Exhibit A is to attempt to lock in the consumer to a binding credit contract without giving the disclosure of the financing terms required by the Truth in Lending Act. At the time the financing terms are disclosed, the consumer is already party to a purportedly binding contract obligating him to purchase on credit and pay a high rate of interest, and which can supposedly be enforced in court against the consumer without notice or an opportunity to be heard. The obvious advantage of such a preliminary contractual document as Exhibit A is that [i]t is a device to avoid the possibility that the applicant will change his mind and revoke his application, or deal with a rival company. Armstrong v. United Ins. Co., 98 Ill.App.3d 1132, 1142, 424 N.E.2d 1216, 1223 (1st Dist. 1981), quoting Prudential Ins. Co. v. Lamme, 83 Nev. 146, 425 P.2d 346 (1967). See generally, Gonzales v. Sch-

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merler Ford, 397 F.Supp. 323 (N.D.Ill. 1975); Doggett v. County Savings & Loan Co., 373 F.Supp. 774, 777 (E.D.Tenn. 1974). When the document binds the consumer to proceed with a credit transaction, embodying specified credit terms, but is not accompanied with appropriate Truth in Lending disclosures, the purpose of TILA is subverted.17 Plaintiff brought suit on behalf of a class of all persons who, within the one-year limitations period, signed the same printed form as Exhibit A with Westgate, without previously or simultaneously receiving Truth in Lending disclosures. II. STANDARD FOR CLASS CERTIFICATION Class actions are essential to enforce laws protecting consumers. As the court stated in Eshaghi v. Hanley Dawson Cadillac Co., 214 Ill.App.3d 995, 574 N.E.2d 760 (1st Dist. 1991): In a large and impersonal society, class actions are often the last barricade of consumer protection. . . . To consumerists, the consumer class action is an inviting procedural device to cope with frauds causing small damages to large groups. The slight loss to the individual, when aggregated in the coffers of the wrongdoer, results in gains which are both handsome and tempting. The alternatives to the class actionprivate suits or governmental actionshave been so often found wanting in controlling consumer frauds that not even the ardent critics of class actions seriously contend that they are truly effective. The consumer class action, when brought by those who have no other avenue of legal redress, provides restitution to the injured, and deterrence of the wrongdoer. (574 N.E.2d at 764, 766) Moreover, Congress expressly approved of class actions to enforce the Truth in Lending Act. In response to judicial decisions declining to certify Truth in Lending cases as class actions, Congress specifically provided for classwide statutory damages in 15 U.S.C. 1640. The amount of statutory dam-

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ages applicable to class actions was increased in 1976, Pub. L. 94-240 (90 Stat. 257), and the legislative history of that amendment states: The chief enforcement tool will continue to be private actions for actual damages and civil penalties. Much of the testimony received in the hearings, and much of the debate in Subcommittee and Committee centered on the adequacy of the recovery ceiling for civil penalties in class actions. . . . . (Sen.R. No. 94-590, 94th Cong., 2d Sess., p. 8, 1976 USCCAN 438) In revising 15 U.S.C. 1640 to expressly refer to class actions, Congress recognized that potential class action liability is an important encouragement to the voluntary compliance which is so necessary to insure nationwide adherence to uniform disclosure. Bantolina v. Aloha Motors, 419 F.Supp. 1116, 1120 (D.Haw. 1976). The possibility of class-action exposure is essential to the prophylactic intent of the Act, and is necessary to elevate truth-in-lending lawsuits from the ineffective nuisance category to the type of suit which has enough sting to insure that management will strive with diligence to achieve compliance. Bantolina, 419 F.Supp. at 1120, citing the 1972 Federal Reserve Board annual report on the Truth in Lending Act. In determining whether a class action will be allowed, the substantive allegations of the complaint should be taken as true. Blackie v. Barrack, 524 F.2d 891, 901 n. 16 (9th Cir. 1975); Heastie v. Community Bank of Greater Peoria, 125 F.R.D. 669 (N.D.Ill. 1989); Sharif by Salahuddin v. New York State Education Department, 127 F.R.D. 84, 87 (S.D.N.Y. 1989). The Court should resolve any doubt regarding the propriety of certification in favor of allowing the class action, so that it will remain an effective vehicle for deterring corporate wrongdoing. Esplin v. Hirschi, 402 F.2d 94, 101 (10th Cir. 1968); accord, In re Folding Cartons Antitrust Litigation, 75 F.R.D. 727 (N.D.Ill. 1977). Finally, the class action determination is to be made as soon as practicable after the commencement of an action brought as a class action, and before any consideration of the merits. Koch v. Stanard, 962 F.2d 605, 607 (7th Cir. 1992). As demonstrated below, this is an ideal case for a class action. Each of the prerequisites for a class action is met. Indeed, the nature of the practice complained offailing to provide disclosures required by the Truth in Lending Actis such as to make a class action essential. In the balance of this memorandum, we show that this action satisfies each of the requirements for class certification. III. THE REQUIREMENTS FOR CLASS CERTIFICATION ARE SATISFIED. A. RULE 23(A)(1)NUMEROSITY The numerosity requirement of Fed.R.Civ.P. 23(a)(1) is satisfied if it is reasonable to conclude that the number of members of the proposed class is greater than the minimum number required for class certification, which is about 2040. Swanson v. American Consumer Industries, 415 F.2d 1326, 1333 (7th Cir. 1969) (40 class members sufficient); Cypress v. Newport News General & Nonsectarian Hosp. Assn, 375 F.2d 648, 653

17 The appropriate procedure to avoid violation of TILA and state unfair or deceptive acts or practices statutes is to provide that there is no binding contract of any sort until the disclosures required by Truth in Lending are furnished. Contract forms so providing are reproduced in the reported decisions, e.g., Strick v. Biener Pontiac Nissan, Inc., 136 Misc.2d 13, 517 N.Y.S.2d 365 (1987), and are in common use. For example, the contract in Strick provided: IF YOU AGREE TO ASSIST ME IN OBTAINING FINANCING FOR ANY PART OF THE PURCHASE PRICE, THIS ORDER SHALL NOT BE BINDING UPON YOU OR ME UNTIL ALL OF THE CREDIT TERMS ARE PRESENTED TO ME IN ACCORDANCE WITH REGULATION Z (TRUTH IN LENDING) AND ARE ACCEPTED BY ME. IF I DO NOT ACCEPT THE CREDIT TERMS WHEN PRESENTED, I MAY CANCEL THIS ORDER AND MY DEPOSIT WILL BE REFUNDED.

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which is not forthright, specific and unconditional . . . will be treated as an admission); County of Shelby v. Dow Chemical Co., 6 F.R.Serv.2d 1047, 105052 (W.D.Tenn. 1986) (answers which are ambiguous, or which claim that party cannot understand common English words used in the request, deemed admitted); Havenfield Corp. v. H & R Block, Inc., 67 F.R.D. 93, 97 (W.D.Mo. 1973) (evasive answers may thereby amount to an admission). B. RULES 23(A)(2) AND (B)(3)COMMONALITY AND PREDOMINANCE Fed.R.Civ.P. 23(a)(2) requires that there be a common question of law or fact. Rule 23(b)(3) requires that the common questions predominate over individual issues. The commonality requirement is satisfied if there are common questions linking the class members that are substantially related to the outcome of the litigation. Blackie v. Barrack, 524 F.2d 891, 910 (9th Cir. 1975). Common questions predominate if classwide adjudication of the common issues will significantly advance the adjudication of the merits of all class members claims. McClendon v. Continental Group, Inc., 113 F.R.D. 39, 4344 (D.N.J. 1986); Genden v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 114 F.R.D. 48, 52 (S.D.N.Y. 1987); Spicer v. Chicago Board Options Exchange, CCH Fed.Sec. L.Rptr. [198990 Transfer Binder] k94,943, at p. 95,254 (N.D.Ill. 1990); Alexander Grant & Co. v. McAlister, 116 F.R.D. 583, 590 (S.D.Ohio 1987). Where a case involves standardized conduct of the defendants toward members of the proposed class, a common nucleus of operative facts is typically presented, and the commonality requirement . . . is usually met. Franklin v. City of Chicago, 102 F.R.D. 944, 949 (N.D.Ill. 1984); Patrykus v. Gomilla, 121 F.R.D. 357, 361 (N.D.Ill. 1988). A Truth in Lending disclosure claim is ideally suited for classwide adjudication. Haynes v. Logan Furniture Mart, Inc., 503 F.2d 1161 (7th Cir. 1974); Adiel v. Chase Fed. S. & L. Assn, 810 F.2d 1051 (11th Cir. 1987); Hughes v. Cardinal Fed. S. & L. Assn, 566 F.Supp. 834 (S.D.Ohio 1983); Fetta v. Sears, Roebuck & Co., 77 F.R.D. 411 (D.R.I. 1977); Bantolina v. Aloha Motors, Inc., 419 F.Supp. 1116, 1122 (D.Haw. 1976); Jones v. Goodyear Tire & Rubber Co., 442 F.Supp. 1157 (E.D.La. 1977); Simon v. World Omni Leasing, Inc., 146 F.R.D. 197 (S.D.Ala. 1992); Johnson v. Steven Sims Subaru and Subaru Leasing, 1993 U.S.Dist. LEXIS 8078 (N.D.Ill., June 9, 1993) (Magistrate Judges recommendation). The controlling issue in this case is whether a consumer must be furnished with Truth in Lending disclosures when he is presented with Exhibit A for signature. The sorts of individual issues usually invoked by class action defendants as a barrier to certification are simply not present. For example, there is no requirement of reliance. White v. Arlen Realty & Development Corp., 540 F.2d 645, 64850 (4th Cir. 1975); In re Perkins, 106 B.R. 863, 864 (Bankr. E.D.Pa. 1989); Shepeard v. Quality Siding & Window Factory, Inc., 730 F.Supp. 1295, 1299 (D.Del. 1990); Pearson v. Easy Living, Inc., 534 F.Supp. 884, 890 (S.D.Ohio 1981). Anyone who received a disclosure statement containing the offending disclosure is entitled to recover statutory damages. An objective standard is used to determine violations of the TILA, based on the representations contained in the relevant disclosure documents; it is unnecessary to inquire as to the subjective deception or

(4th Cir. 1967) (18 sufficient); Riordan v. Smith Barney, 113 F.R.D. 60 (N.D.Ill. 1986) (1029 sufficient); Sala v. National Railroad Passenger Corp., 120 F.R.D. 494, 497 (E.D.Pa. 1988) (4050 sufficient); Scholes v. Stone, McGuire & Benjamin, 143 F.R.D. 181, 184 (N.D.Ill. 1992) (72 class members); Kulins v. Malco, 121 Ill.App.3d 520, 530, 459 N.E.2d 1038 (1st Dist. 1984) (19 and 47 sufficient). It is not necessary that the precise number of class members be known. McCleery Tire Service, Inc. v. Texaco, Inc., 1975-2 Trade Cas. (CCH) k60,581 (E.D.Pa. 1975). A class action may proceed upon estimates as to the size of the proposed class. In re Alcoholic Beverages Litigation, 95 F.R.D. 321 (E.D.N.Y. 1982). In the present case, Westgate has used Exhibit A throughout the class period. Defendants Response to Plaintiffs First Discovery Request [Exhibit B] [not attached herein], response to Interrogatory No. 6 (Westgate filed suit against another consumer based on the form represented by Exhibit A in 1991). Westgate admits that it enters into credit transactions with more than 25 consumers each year. Defendants Response to Plaintiffs First Discovery Request [Exhibit B], response to Requests to Admit Nos. 23. Westgate admits that Exhibit A is a printed or mechanically reproduced form which Westgate uses in its business. Defendants Response to Plaintiffs First Discovery Request [Exhibit B], response to Request to Admit No. 7. The fact that Westgate carried out the practice complained of through the use of standard printed form documents makes it is reasonable to infer that the numerosity requirement is satisfied. Swiggett v. Watson, 441 F.Supp. 254, 256 (D.Del. 1977) (in action challenging transfers of title pursuant to Delaware motor vehicle repairers lien, fact that Department of Motor Vehicles issued printed form for such transfer in and of itself sufficient to show that numerosity requirement was satisfied). Furthermore, when specifically asked the number of persons who signed Exhibit A without simultaneously or previously receiving a TILA disclosure statement, Westgate objected that plaintiffs question incorrectly assumed that TILA disclosures were required. Exhibit B, response to Requests to Admit Nos. 1417. This is frivolousWestgate can state whether a TILA disclosure statement was furnished without acknowledging that one was legally required. Westgate also refused to produce all other examples of Exhibit A signed within the class period, Exhibit B, response to Document Request No. 3, claiming that the request was irrelevant, overly broad and burdensome!18 Westgates attempt at evasion amounts to an admission that the requisite number of class members exist. ASEA, Inc. v. Southern P. Transp. Co., 669 F.2d 1242, 1245 (9th Cir. 1981) (It is also clear that an evasive denial, one that does not specifically deny the matter, or a response that does not set forth in detail the reasons why the answering party cannot truthfully admit or deny the matter, may be deemed an admission); Southern Ry. v. Crosby, 201 F.2d 878, 880 (4th Cir. 1953) (evasive responses treated as admissions); United States v. American Tel. & Tel. Co., 83 F.R.D. 323, 333 (D.D.C. 1979) (denial
18 Westgate also claimed that the request was unlimited in time and scope even though the introduction to plaintiffs discovery request clearly stated that responses should be made for the period September 1, 1992 to present unless otherwise stated. (Exhibit D) [not attached herein]

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misunderstanding of particular consumers. Zamrippa v. Cys Car Sales, Inc., 674 F.2d 877, 879 (11th Cir. 1982). The only individual issues concern identification of the class members. This requires nothing more than ministerial examination of defendants files to determine who signed a document similar to Exhibit A. This type of individual issue is not a barrier to class certification. Heastie v. Community Bank of Greater Peoria, 125 F.R.D. 669 (N.D.Ill. 1989). C. RULE 23(A)(3)TYPICALITY Rule 23(a)(3) requires that the claims of the named plaintiff be typical of the claims of the class members. A plaintiffs claim is typical if it arises from the same event or practice or course of conduct that gives rise to the claims of other class members and his or her claims are based on the same legal theory. De La Fuente v. Stokely-Van Camp, Inc., 713 F.2d 225, 232 (7th Cir. 1983). The typicality requirement may be satisfied even if there are factual distinctions between the claims of the named plaintiffs and those of other class members. Id.; accord, Rosario v. Livaditis, 963 F.2d 1013, 1018 (7th Cir. 1992). Here, the class is defined as everyone within the period of limitations who signed the same form agreement with Westgate. Thus, the same legal and factual issues are presented on behalf of the entire class. D. RULE 23(A)(4)ADEQUACY OF REPRESENTATION Rule 23(a)(4) requires that the named plaintiff provide fair and adequate protection for the interests of the class. That protection involves two factors: (a) the plaintiffs attorney must be qualified, experienced, and generally able to conduct the proposed litigation; and (b) the plaintiff must not have interests antagonistic to those of the class. Rosario v. Livaditis, supra, 963 F.2d 1013, 1018 (7th Cir. 1992). Plaintiff has retained experienced counsel, as is indicated by Exhibit D [not attached herein]. He understands his obligations as class representative, see Exhibit E [not attached herein]. No conflicts of interests are apparent.19 E. RULE 23(B)(3)A CLASS ACTION IS SUPERIOR TO OTHER AVAILABLE METHODS TO RESOLVE THIS CONTROVERSY Efficiency is the primary focus in determining whether the class action is an appropriate method for resolving the controversy presented. Eovaldi v. First Natl Bank, 57 F.R.D. 545 (N.D.Ill. 1972). The Court is required to determine the best available method for resolving the controversy in keeping with judicial integrity, convenience, and economy. Scholes, supra, 143 F.R.D. 181, 189 (N.D.Ill. 1992); Hurwitz v. R.B. Jones Corp., 76 F.R.D. 149 (W.D.Mo. 1977). A court must consider the inability of the poor or uninformed to enforce their rights, and the improbability that large numbers of class members would possess the initiative to litigate individually. Haynes v. Logan Furniture Mart, supra, 503

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F.2d 1161 (7th Cir. 1974). In such a case, failure to certify a class will result in a failure of justice. Here, the individual claims are too small to make individual litigation against Westgate economically feasible. This strongly militates in favor of a class action: [O]ne of the primary functions of the class suit is to provide a device for vindicating claims which, taken individually, are too small to justify legal action but which are of significant size if taken as a group. Brady v. LAC, Inc., 72 F.R.D. 22, 28 (S.D.N.Y. 1976). In this case, there is no better method available for the adjudication of the claims which might be brought by each consumer who signed a document such as Exhibit A without the required disclosures. The special efficacy of the consumer class action has been noted by the courts and is applicable to this case: A class action permits a large group of claimants to have their claims adjudicated in a single lawsuit. This is particularly important where, as here, a large number of small and medium sized claimants may be involved. In light of the awesome costs of discovery and trial, many of them would not be able to secure relief if class certification were denied. . . . (In Re Folding Carton Antitrust Litigation, 75 F.R.D. 727, 732 (N.D.Ill. 1977) (citations omitted).) Moreover, as noted previously, Congress has selected the class action as the principal enforcement mechanism for the Truth in Lending Act. In Haynes, the Seventh Circuit noted the need for class actions to prevent violators of the [Truth in Lending] Act from limiting recovery to a few individuals where actual, wide-spread noncompliance is found to exist (503 F.2d at 1164). The facts of this case underscore the need for class action enforcement of the Truth in Lending Act. Plaintiff contends that Westgate uses a printed form that violates TILA for the purpose of locking consumers into credit transactions without disclosure of financing terms. This sort of conduct is inherently misleading and oppressive, and serves no legitimate purpose. No significant management problems are anticipated. Plaintiffs claim, presenting a straightforward question concerning the legality of a printed form, is significantly simpler than many claims routinely certified as class actions, such as securities and price-fixing cases. IV. CONCLUSION For the reasons stated above, the Court should certify a class as requested by plaintiff. Respectfully Submitted, [Attorney]

19 Only a substantial conflict relating to the subject matter of the litigation will render representation inadequate. Marshall v. Holiday Magic, 550 F.2d 1173 (9th Cir. 1977).

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early termination. 12 C.F.R. 213.4(g)(12). The form specifies a very onerous charge that is almost certainly unenforceable in an apparent effort to deter terminations; defendants in fact use a different method of calculating early termination liability. Moreover, part of the information necessary to determine early termination liability is set forth on a separate addendum, violating the requirement that all required disclosures be on two sides of a single paper. These omissions are quite seriousaccording to a 1989 study by the Attorney General of New York (Attachment A)[not attached herein], such charges typically amount to several thousand dollars. 2. The lease does not provide [a] statement identifying any express warranties or guarantees available to the lessee made by the lessor or manufacturer with respect to the leased property. 12 C.F.R. 213.4(g)(7). Item 36 of the form states that VFNA agrees to assign you its assignable rights under the manufacturers limited warranties, apparently on the theory that the average consumer sitting in a Volvo dealership will pull out a copy of the Uniform Commercial Code and look up what rights under a warranty are assignable. 3. The lease fails to disclose [t]he total amount paid or payable by the lessee during the lease term for official fees, registration, certificate of title, license fees, or taxes. 12 C.F.R. 213.4(g)(4). Item 7 on the VFNA form provides for estimated additional payments on account of these matters during the life of the lease, but no item on the form provides for disclosure of the information required by 12 C.F.R. 213.4(g)(4). 4. The lease fails to disclose [t]he amount or method of determining the amount of any penalty or other charge for . . . late payments (12 C.F.R. 213.4(g)(10)). The form is ambiguous as to the amount of the charge if part of the payment is timely and part is late. 5. The form fails to contain a required disclosure of the lessees appraisal rights. Although Item 35 provides that the lessees liability upon default is based on the value of the leased car, the form fails to disclose that the consumer has the right to use an appraisal of the cars value where liability upon default or early termination is based on the value of the leased property, as required by 12 C.F.R. 213.4(g)(14). As discussed in greater detail below, determination of these claims involves a comparison of the printed form, viewed through the eyes of an unsophisticated lay consumer, with the requirements of Regulation M. Such a claim is ideally suited for classwide adjudication. Truth in Lending disclosure claims have frequently been certified as class actions. Haynes v. Logan Furniture Mart, Inc., 503 F.2d 1161 (7th Cir. 1974); Adiel v. Chase Fed. S. & L. Assn, 810 F.2d 1051 (11th Cir. 1987); Hughes v. Cardinal Fed. S. & L. Assn, 566 F.Supp. 834 (S.D.Ohio 1983); Fetta v. Sears, Roebuck & Co., 77 F.R.D. 411 (D.R.I. 1977); Bantolina v. Aloha Motors, Inc., 419 F.Supp. 1116, 1122 (D.Haw. 1976); Jones v. Goodyear Tire & Rubber Co., 442 F.Supp. 1157 (E.D.La. 1977). At least seven automobile leasing class actions have been certified or recommended for certification, four by federal district courts in Alabama and Illinois, Simon v. World Omni Leasing, Inc., 146 F.R.D. 197 (S.D.Ala. 1992); Wesley v. General Motors Accept. Corp., 91 C 3368 (Attachment B) [not attached herein]; Kedziora v. Citicorp Natl Services, Inc., 91 C 3428 (Attachment C) [not attached herein]; Johnson v. Steven Sims Subaru and Subaru Leasing, 1993 U.S.Dist. LEXIS 8078 (N.D.Ill., June 9, 1993) (Magistrate Judges recommen-

L.6 Consumer Leasing Act and Deceptive Practices CaseCar Lease (Shepherd)
IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF GEORGIA ATLANTA DIVISION ) ) Plaintiff, ) ) v. ) ) VOLVO FINANCE NORTH ) AMERICA, INC. and VOLVO ) CAR FINANCE, INC., ) Defendants. ) ) IAN SHEPHERD, MEMORANDUM IN SUPPORT OF PLAINTIFFS MOTION FOR CLASS CERTIFICATION WITH RESPECT TO COUNT I I. INTRODUCTION Plaintiff, Ian Shepherd (Shepherd), submits this memorandum in support of his request that the Court certify a class with respect to Count I of the complaint under Fed.R.Civ.P. 23(b)(3). Count I alleges that a standard printed form of automobile lease used by defendant Volvo Finance North America (VFNA) and serviced by defendant Volvo Car Finance, Inc. (VCFI) fails to comply with the disclosure requirements imposed by the federal Consumer Leasing Act, 15 U.S.C. 1667 et seq., and implementing Federal Reserve Board Regulation M, 12 C.F.R. part 213 (Regulation M), and Staff Commentary, 12 C.F.R. part 213 Supp. I (Commentary). The Consumer Leasing Act, Regulation M and Staff Commentary require extensive disclosures in consumer lease transactions, analogous to those required in the case of credit transactions by the Truth in Lending Act. 15 U.S.C. 1667a. The disclosures must be made clearly, conspicuously, [and] in meaningful sequence, 12 C.F.R. 213.4(a), and must be in a reasonably understandable form. (Commentary, 213.4(a)(1)) Disclosures can be made as part of the lease or in a separate statement; however, all disclosures must be on both sides of a single piece of paper. VFNA elected to incorporate the disclosures in the lease. Count I alleges that VFNAs standard printed form contract/ disclosure statement, form VFNA-82-0888, does not comply with these disclosure requirements. Shepherd alleges that the form fails to comply with the disclosure requirements in the following respects: 1. It does not disclose, in a reasonably understandable manner, [t]he amount or method of determining the amount of any penalty or other charge for delinquency [or] default (12 C.F.R. 213.4(g)(10)) and [a] statement of the conditions under which the lessee or lessor may terminate the lease prior to the end of the lease term and the amount or method of determining the amount of any penalty or other charge for

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dation); two by the Circuit Court of Cook County, Illinois, for litigation purposes, Lynch Leasing Co. v. Moore, 90 CH 876 (Attachment D) [not attached herein]; Maryland Natl Bank v. Goodman, 91 M1 157394 (Attachment E) [not attached herein], and another by the Circuit Court of Cook County for settlement purposes, Blank et al. v. Nissan Motor Acceptance Corp., 91 L 8516 (Attachment F) [not attached herein]. (Lynch was also settled, after a partial summary judgment on liability.) Indeed, Congress expressly approved of class actions to enforce the Truth in Lending and Consumer Leasing Acts. The same Public Act that enacted the Consumer Leasing Act in 1976 also increased the statutory damages for class actions in 15 U.S.C. 1640, applicable to both Consumer Leasing and Truth in Lending suits. Pub. L. 94-240 (90 Stat. 257). The legislative history of the amendment clearly states: The chief enforcement tool will continue to be private actions for actual damages and civil penalties. Much of the testimony received in the hearings, and much of the debate in Subcommittee and Committee centered on the adequacy of the recovery ceiling for civil penalties in class actions. . . . . (Sen.R. No. 94-590, 94th Cong., 2d Sess., p. 8, 1976 USCCAN 438) In revising 15 U.S.C. 1640 to expressly refer to class actions, Congress recognized that potential class action liability is an important encouragement to the voluntary compliance which is so necessary to insure nationwide adherence to uniform disclosure. Bantolina v. Aloha Motors, 419 F.Supp. 1116, 1120 (D.Haw. 1976). The possibility of class-action exposure is essential to the prophylactic intent of the Act, and is necessary to elevate truthin-lending lawsuits from the ineffective nuisance category to the type of suit which has enough sting to insure that management will strive with diligence to achieve compliance. Bantolina, 419 F.Supp. at 1120, citing the 1972 Federal Reserve Board annual report on the Truth in Lending Act. In determining whether a class action will be allowed, the substantive allegations of the complaint should be taken as true. Blackie v. Barrack, 524 F.2d 891, 901 n. 16 (9th Cir. 1975); Heastie v. Community Bank of Greater Peoria, 125 F.R.D. 669 (N.D.Ill. 1989); Sharif by Salahuddin v. New York State Education Department, 127 F.R.D. 84, 87 (S.D.N.Y. 1989). The Court should resolve any doubt regarding the propriety of certification in favor of allowing the class action, so that it will remain an effective vehicle for deterring corporate wrongdoing. Esplin v. Hirschi, 402 F.2d 94, 101 (10th Cir. 1968); accord, In re Folding Cartons Antitrust Litigation, 75 F.R.D. 727 (N.D.Ill. 1977). Finally, the class action determination is to be made as soon as practicable after the commencement of an action brought as a class action, and before any consideration of the merits. Koch v. Standard, 962 F.2d 605, 607 (7th Cir. 1992). II. COUNT I MEETS THE REQUIREMENTS FOR CERTIFICATION A. NUMEROSITY The numerosity prerequisite is satisfied if it is reasonable to conclude that the number of members of the proposed class is greater than the minimum number required for class

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certification, which is about 40. Swanson v. American Consumer Industries, 415 F.2d 648, 653 (4th Cir. 1967) (18 sufficient); Riordan v. Smith Barney, 113 F.R.D. 60 (N.D.Ill. 1986) (1029 sufficient); Sala v. National Railroad Passenger Corp., 120 F.R.D. 494, 497 (E.D.Pa. 1988) (4050 sufficient). In the present case, there are at least 24,756 persons (besides Shepherd) in the class. (Attachment G, pp. 1922) [not attached herein] (Plaintiff has excluded from the class 7,527 New York lessees because a separate action was filed on their behalf; the 24,756 number is the 32,284 on p. 22 of Attachment G minus the 7,527 New York leases disclosed on p. 21 and plaintiffs lease.) There may in fact be more; several of defendants other interrogatory answers suggest that there might be a total of 49,813 leases. (Attachment G, pp. 8, 11) Whichever number is correct, the number clearly meets the numerosity requirement. B. COMMON QUESTIONS AND PREDOMINANCE The commonality requirement is satisfied if there are common questions linking the class members that are substantially related to the outcome of the litigation. Blackie v. Barrack, 524 F.2d 891, 910 (9th Cir. 1975). Common questions predominate if classwide adjudication of the common issues will significantly advance the adjudication of the merits of all class members claims. McClendon v. Continental Group, Inc., 113 F.R.D. 39, 4344 (D.N.J. 1986); Genden v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 114 F.R.D. 48, 52 (S.D.N.Y. 1987); Spicer v. Chicago Board Options Exchange, CCH Fed.Sec. L.Rptr. [198990 Transfer Binder] k94,943, at p. 95,254 (N.D.Ill. 1990); Alexander Grant & Co. v. McAlister, 116 F.R.D. 583, 590 (S.D.Ohio 1987). In this case, Count I presents a single, overriding common questionwhether VFNAs printed form lease complies with the requirements of the Consumer Leasing Act and Regulation M. Not only is this issue common to the entire class sought to be certified, but adjudication of this issue is essentially dispositive of the Count I claim. Indeed, a Truth in Lending or Consumer Leasing disclosure claim is almost an ideal case for a class action. The sorts of individual issues usually invoked by class action defendants are simply not present. There is no requirement of reliance.20 Anyone who received a disclosure statement containing the offending disclosure is entitled to recover statutory damages.21 The only individual issues appear to concern identification of the class members. This requires nothing more than ministerial examination of defendants files. This type of individual issue is not a barrier to class certification. Heastie v. Community Bank of Greater Peoria, 125 F.R.D. 669 (N.D.Ill. 1989).

20 White v. Arlen Realty & Development Corp., 540 F.2d 645, 648-50 (4th Cir. 1975); In re Perkins, 106 B.R. 863, 864 (Bankr. E.D.Pa. 1989); Shepeard v. Quality Siding & Window Factory, Inc., 730 F.Supp. 1295, 1299 (D.Del. 1990); Pearson v. Easy Living, Inc., 534 F.Supp. 884, 890 (S.D. Ohio 1981). 21 See authorities cited in n. 20.

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C. TYPICALITY In Haynes the court likewise noted the need for class actions to prevent violators of the [Truth in Lending] Act from limiting recovery to a few individuals where actual, widespread noncompliance is found to exist (503 F.2d at 1164). Moreover, as noted above, Congress expressly authorized class actions to enforce the Truth in Lending and Consumer Leasing Acts. The facts of this case underscore the need for class action enforcement of the Truth in Lending and Consumer Leasing Acts. Shepherd contends that VFNA uses a printed form lease that threatens consumers with default/early termination charges amounting to thousands of dollars, when defendants neither impose nor can legally collect any such charges. This sort of conduct is inherently misleading and serves no legitimate purpose. This is an appropriate forum for the maintenance of this action. Although defendants lease vehicles in almost all states, only New York and New Jersey have a greater number of leases than Georgia, and New York lessees are being excluded from the class. No significant management problems are anticipated. Plaintiffs claim, presenting a straightforward question concerning the legality of a printed form, is significantly simpler than many claims routinely certified as class actions, such as securities and price-fixing cases. III. CONCLUSION For the reasons stated above, the Court should certify a class with respect to Count I as requested by plaintiff. Respectfully Submitted, [Attorney]

The typicality requirement of Rule 23(a)(3) is satisfied if the representatives claim arises from the same event or practice or course of conduct that gives rise to the claims of other class members and [the representatives and class members] claims are based on the same legal theory. De La Fuentes v. Stokely-Van Camp, Inc., 713 F.2d 225, 232 (7th Cir. 1983). In the present case, Shepherds claim and the claims of the class members are legally and factually identical insofar as Count I is concerned. The same violationnoncompliance with the disclosure requirements of the Consumer Leasing Actis asserted on behalf of all. The factual basis for the claimthe existence of a printed form leaseis also the same with respect to everyone. D. ADEQUACY OF REPRESENTATION The adequacy of representation requirement is satisfied if plaintiffs counsel is qualified, experienced, and generally able to conduct the proposed litigation and there are no antagonistic interests between the representative party and the class. Lerwill v. Inflight Motion Pictures, Inc., 582 F.2d 507, 512 (9th Cir. 1978); Jordan v. County of Los Angeles, supra, 669 F.2d at 1323; Wetzel v. Liberty Mutual Ins. Co., 508 F.2d 239, 247 (3d Cir. 1975); In re Alcoholic Beverages Litigation, supra. In the present case, plaintiffs counsel have ample experience in prosecuting class actions and actions involving unlawful business practices. An affidavit setting forth their experience is attached as Attachment H [not attached herein]. There are no conflicts between Shepherds interests and those of the class. Shepherd understands the obligations of a class representative and will vigorously assert the claims of the class members. Attachment I [not attached herein]. E. SUPERIORITY OF THE CLASS ACTION The class action mechanism is essential to enforce consumer protection laws. Haynes v. Logan Furniture Mart, Inc., 503 F.2d 1161 (7th Cir. 1974); Eshaghi v. Hanley Dawson Cadillac Co., 214 Ill.App.3d 995, 574 N.E.2d 760 (1st Dist. 1991); Vasquez v. Superior Court, 4 Cal.3d 800, 94 Cal.Rptr. 796, 484 P.2d 964 (1971). As the court held in Eshaghi: In a large and impersonal society, class actions are often the last barricade of consumer protection. . . . To consumerists, the consumer class action is an inviting procedural device to cope with frauds causing small damages to large groups. The slight loss to the individual, when aggregated in the coffers of the wrongdoer, results in gains which are both handsome and tempting. The alternatives to the class actionprivate suits or governmental actionshave been so often found wanting in controlling consumer frauds that not even the ardent critics of class actions seriously contend that they are truly effective. The consumer class action, when brought by those who have no other avenue of legal redress, provides restitution to the injured, and deterrence of the wrongdoer. (574 N.E.2d at 764, 766)

L.7 Deceptive Practices Case Vendors Single Interest Insurance (Ortiz)


IN THE CIRCUIT COURT OF COOK COUNTY, ILLINOIS COUNTY DEPARTMENT, LAW DIVISION ) CARMEN ORTIZ, et al., ) Plaintiffs, ) ) v. ) ) GMAC, INC. and MIC, INC., ) Defendants. ) ) MEMORANDUM IN SUPPORT OF MOTION TO PROCEED AS A CLASS ACTION I. INTRODUCTION Plaintiff Carmen Ortiz filed this action against defendants General Motors Acceptance Corporation (GMAC) and Motors Insurance Corporation (MIC) individually and on behalf of all persons similarly situated. The complaint is based on defendants business procedures concerning the purchase and

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sale of MIC single interest physical damage insurance when customers, who are having GMAC finance their motor vehicle purchases, experience a lapse of their own insurance policy. Mrs. Ortiz experience with the MIC physical damage insurance policy illustrates the problems created for class members by the defendants contract forms, form letters, and business procedures. When Mrs. Ortiz bought her car on September 18, 1981 her GMAC retail installment sales contract had, in small print on the reverse side, provisions allowing GMAC to purchase physical damage insurance. See a-d reverse side attached at Exhibit A [not attached herein]. When Mrs. Ortiz purchased the car she had Allstate insurance, however, that policy was later canceled. Compl. kk 13, 14. Mrs. Ortiz then received a call from a GMAC employee who told her that her insurance had lapsed, Mrs. Ortiz said she would call Allstate. Ortiz Dep. p. 79-81. A few days later on November 11, 1981 she received a form letter advising her that GMAC had purchased single interest insurance for her and added the $914.00 premium and $170.10 interest to her account. Compl. Exhibits B, C [not attached herein]. Her payments were increased from $185.02 a month to $208.58. On January 28, 1982 Mrs. Ortiz had an accident while driving her car and over $1,900 damage was done to it. Compl. k 27. Shortly after the accident she called GMAC to have the MIC policy repair it and was told by an employee that in order for the MIC policy to pay for damage to the car she would have to return the car to GMAC to be treated as a repossession, leaving her liable for the balance due on the contract, or she could pay to fix the car herself. Compl. k 28. Mrs. Ortiz asked the employee what she could do without a car and asked why she was paying for something (the insurance) that didnt cover her. Ortiz Dep. pp. 107-8, 109-110. She got upset and hung up the phone. Ortiz Dep. p. 110. She paid a friend $350 to make repairs so she could drive the car. Ortiz Dep. pp. 128-9, 133. Later she canceled the MIC physical damage insurance. Ortiz Dep. Exhibit 10. The complaints first count alleges that GMAC and MIC violated the Consumer Fraud and Deceptive Business Practices Act, Ill. Rev. Stat. ch. 121-1/2, 261 et seq. by: concealing the coverage of the policy and its limitations; concealing the name of the insurance company and that the purchase was from a subsidiary; charging an excessive premium for the policy; and failing to pay any sums when the car was damaged unless plaintiff turned the car over to GMAC. The second count of the complaint, also against both defendants, is based on breach of the insurance contract. Count three, against GMAC only, alleges a breach of its fiduciary duty as plaintiffs agent by: purchasing the insurance at an excessively high rate; making profit through a subsidiary; concealing the actual coverage of the policy and failing to purchase through an independent insurance company. The fourth count, against GMAC only, alleges a violation of the Sales Finance Agency Act, Ill. Rev. Stat. ch. 17, 5201 et seq., by: failing to provide a copy of the policy, using misleading forms regarding the type of insurance; and misrepresenting and concealing the terms, benefits and limitations of the policy. II. THE REQUIREMENTS FOR CLASS CERTIFICATION ARE MET.

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A. THE CLASS IS SO NUMEROUS THAT JOINDER OF ALL CLASS MEMBERS IS IMPRACTICABLE. The numerosity requirement is simply that the class be sufficiently large so that it would be impracticable to join the class members. The class in this case is state wide and includes persons who fit the class definitions dating back to December 1, 1980. Defendants attorneys have indicated they will provide a projection of the number of the class members shortly. Plaintiffs will provide that number for the court in the class reply memorandum. At the present plaintiff can make a rough projection of over 800 class members each year. This projection is based on MICs premiums earned of $878,387 in the year ending June 30, 1981 and premiums of $1,211,909 in the year ending 1982.22 Mrs. Ortiz was charged nearly $1,000 for her premium. Assuming that is a typical premium charge, approximately 878 policies were brought in the year ending June 30, 1981 and 1,211 policies the following year ending June 30, 1982. Recognizing that this is a very rough projection, it is still inescapable that the class here numbers several thousand members for the period December 2, 1980 to the present. In Tassem v. United Development Co., 88 Ill. App.3d 581, 410 N.E.2d 902, 913 (1980) the court ruled that 150 people was enough to satisfy the numerosity requirement. The class in this case is sufficiently large to satisfy numerosity. B. THERE ARE QUESTIONS OF FACT OR LAW COMMON TO THE CLASS WHICH PREDOMINATE OVER ANY QUESTIONS AFFECTING ONLY INDIVIDUAL MEMBERS. The second requisite for class certification is that common questions of law or fact predominate over questions affecting only individual members. The Illinois Supreme Court has addressed this requirement on two occasions. In Miner v. Gillette Co., 87 Ill.2d 7, 428 N.E.2d 478 (1981) cert. dismissed 103 S. Ct. 484 (1982), the court, reversing dismissal of a class action, pointed out that this section is couched in the disjunctive and that the predominance requirement was satisfied even where some individual questions regarding class members are present. Miner, supra, 428 N.E.2d at 891, 893. In Steinberg v. Chicago Medical School, 69 Ill.2d 320, 371 N.E.2d 634 (1977) the court also made clear that the predominance requirements was to be construed to permit class treatment although some individual differences in proof between members of the class might be present. In the case before the court common question of both fact and law predominate as defendants business procedures were essentially identical regarding the purchase of single interest physical damage insurance for all class members. All class members had GMAC finance their car purchases. They all signed contracts that, on the reverse side, had a provision allowing GMAC to buy physical damage insurance on the car if the buyer didnt keep such insurance in force. GMAC form contract k 3 (reverse side), attached as Exhibit A [not attached
22 These earned premium figures are from correspondence MIC had with the Illinois Department of Insurance which were provided pursuant to document requests.

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Count III alleges that defendant GMAC breached its fiduciary duty to class members. The common question of law is whether a fiduciary duty was present when the policy was issued. The common questions of fact which give rise to the breach of the fiduciary duty are whether GMAC purchased the insurance at an excessively high rate, made a profit through its subsidiary, concealed the coverage of the policy, or failed to obtain insurance through an independent company. Compl. Count III, k 38. In Count IV the common question of law is whether defendant GMAC violated the Sales Finance Agency Act. The common questions of fact are whether GMAC concealed the terms, benefits and limitations of the policy, failed to provide copies of the policy or used misleading forms as to the type of insurance. Compl. Count IV, kk 36-39. Since all written disclosures to class members were the same (the retail installment contract and notices) these fact questions are essentially identical for each class member. C. PLAINTIFF ORTIZ WILL FAIRLY AND ADEQUATELY REPRESENT THE CLASS. Miner v. Gillette Co., supra, 428 N.E.2d at 482 set a three part test to determine adequacy of representation. The first issue is to determine whether the interests of the named plaintiff are the same as those not joined. In this case the interest of plaintiff is identical to all class membersto recover damages. The second part of the test requires the attorneys representing the plaintiff to be qualified experienced and generally able to conduct the proposed litigation. The attorneys for the Legal Assistance Foundation of Chicago and Cook County Legal Assistance Foundation, Inc., who are of record in this case, have successfully litigated a number of consumer class actions in both state and federal courts. The final requirement, also satisfied here, is that the action not be collusive or friendly. D. THE CLASS ACTION IS AN APPROPRIATE METHOD FOR THE FAIR AND EFFICIENT ADJUDICATION OF THE CONTROVERSY. The facts in this case demonstrate that a class action is an appropriate method for the fair and efficient adjudication of this controversy. A successful class action in this litigation will: allow recovery to all class members subject to the alleged statutory and common law violations by defendants, as well as prevent a multiplicity of suits and adjudicate the practices of defendants in one cause. Certification of a class in this case will best secure economies of time, effort, and expense, and promise uniformity of decision or accomplish other ends of justice . . ., the ultimate ends of Section 57.2, Forde, Class Actions in Illinois, 26 DePaul L. Rev., 211, 225 (1977). Illinois Courts, on several occasions have ruled that class certification is appropriate in cases alleging violation of the Consumer Fraud and Deceptive Business Practices Act, Miner v. Gilette, 89 Ill. App.3d 315, 411 N.E.2d 1092, 87 Ill.2d 7, 428 N.E.2d 484 (1982), cert. denied, 103 S. Ct. 484 (1982); Brooks v. Midas International Corp., 47 Ill. App.3d 266, 361 N.E.2d 815 (1977).

herein]. When insurance cancellation notices on customer accounts were received at GMACs offices a customer representative sent a form letter to the customer. Grummon Dep. p. 28-29. The form letter, is attached as Exhibit C, p. 1 and 2 [not attached herein]. Grummon Dep. Ex. 1, pp. 1, 2. Exhibit Cs reverse side (p. 2) asks the customer to: indicate that they have procured their own insurance, pay the single interest premium by check or have the premium plus interest added to their account. If there is no response to the letter, a call is made by a GMAC customer representative or account representative urging them to get their own insurance and advising them that GMAC will get single interest for their account if they do not. Grummon Dep. p. 30, 32, 45-47. If a customer does not procure their own insurance, GMAC purchases a single interest physical damage insurance policy from MIC. Grummon Dep. pp. 65-66. After the bill is received from MIC, a second form letter is sent to the customer advising them that the insurance has been added to their account. Grummon Dep. pp. 66, 69. The form letter is attached as Exhibit D [not attached herein]. Grummon Dep. Ex. 5. This letter indicates the premium and interest. GMAC does not send copies of the MIC policy to customers at the time the insurance is purchased. Grummon Dep. p. 98. MIC does not send the customer a copy of the policy either. If the customers vehicle is in an accident while the insurance is in force the procedure, set out in the GMAC U.S. branch operations manual, is to first arrange for MIC to inspect the car. After the inspection the customer is told they have the option of repairing the vehicle and continuing the payments or turning the vehicle over to GMAC to be treated as a repossession. The customer is also advised that a deficiency will result and that they will be held liable for the unpaid balance. Exhibit E, Operations Manual 1408-1 [not attached herein]. Neither the contract nor any of the form letters sent to the customers advise them that the insurance will be purchased by GMAC from its wholly owned subsidiary MIC. The common question of law and fact for all class members certainly predominate under all four counts of plaintiffs complaint. In Count I the common question of law is whether the defendants violated the Consumer Fraud Act. The common question of fact are whether defendants concealed the coverage of the policy, the name of the company (and that it was GMACs subsidiary), charged an excessive rate for the insurance, failed to send a copy of the policy, or falsely represented that damage to customers cars was not covered by the policy and failed to pay damages that were covered. Compl. Count I, kk 37, 38. Since defendants procedures, as to the written disclosures made to all class members were identical and all subclass members making claims were told essentially the same thing, it is clear that common questions of fact predominate in Count I. Count II alleges that defendants breached the contract of insurance which is Exhibit A to the complaint. Whether the contract was breached is the common question of law for all class members since the contract of insurance was the same for all of them. The common question of fact for all class members is whether the insurance was in force when their cars were damaged and defendants refused to pay.

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Similarly class actions have been found appropriate for contract claims. Steinberg v. Chicago Medical School, supra; Carillo v. Jam Productions Ltd., 108 Ill. App.3d 126, 438 N.E.2d 1197 (1982) (class of persons who attended fight on closed circuit TV); Carrao v. Health Care Services Corp., 118 Ill. App.3d 417, 454 N.E.2d 781 (1983) (class of persons denied benefits by health care insurer) and Society of St. Francis v. Dulman, 98 Ill. App.3d 16, 424 N.E.2d 59 (1981) (class of persons who brought their dogs to animal hospital for inoculations that were allegedly not given in accord with state law). In Hoover v. May Department Stores Co., 62 Ill. App.3d 106, 378 N.E.2d 762 (1978), revd on other grounds, 77 Ill.2d 93, 395 N.E.2d 541 (1979) the court certified a plaintiff class of retail credit customers who were required to pay undisclosed finance charges in violation of the Illinois Retail Installment Sales Act, Ill. Rev. Stat. ch. 121-1/2, 501 et seq. The court noted: All class members were treated uniformly under defendant Eagles policy. If it was unlawful as to one members transactions, it was unlawful as them all. Hoover v. May Dept. Store Co., supra, at 773. Like Hoover, the plaintiff class members herein were all treated in the same manner by defendants procedures for the purchase of MIC physical damage insurance. III. CONCLUSION For the reasons stated the Court should certify this cause as a class action under all four counts of plaintiffs complaint. Respectfully Submitted, [Attorney]

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tory Finances practice of imposing unlawful prepayment charges on residential mortgages, in violation of Ill. Rev. Stat. ch. 17, k 6409(b)(5). Mrs. Adams is presently requesting certification of a class of all persons who obtained a loan secured by residential property in Illinois, which loan was (a) made or held by Predatory Finance Company and (b) provided for a rebate of interest upon prepayment computed according to a method other than the actuarial method of computing interest. It is believed that all such loans are evidenced by a note in the form represented by Exhibit A, attached [not attached herein]. Certification is sought with respect to both American Funding, which made the loan to Mrs. Adams, and Reckless Savings & Loan Association (Reckless Savings) which purchased Mrs. Adamss loan from American Funding. II. NATURE OF THE ACTION The complaint alleges that American Funding imposed unlawful prepayment charges on residential mortgages, including Mrs. Adamss. American Funding uses a very unusual form of promissory note. Most notes executed in connection with residential mortgages provide that the borrower must repay principal and such interest as is earned through the date the loan is paid off. American Funding, however, uses a note which contains a promise by the borrower to pay an amount consisting of all principal and interest that would be due if the loan were not prepaid. See Exhibit A, attached [not attached herein]. The standard form American Funding promissory note then provides for a rebate of the interest upon prepayment under the Rule of 78s, which means that American Funding retains substantial unearned interest. With respect to the rebate upon prepayment, American Fundings standard form promissory note provides: Upon prepayment of this Note in full or in part or acceleration of maturity, Borrower will receive a rebate of the unearned interest portion of the FINANCE CHARGE computed by the Rule of 78s; no portion of prepaid finance charges will be refunded. Under the Rule of 78s, a borrower who pays off a oneyear loan after 320 days will pay not less than 77/78s (98.72%) of the total interest which would have been paid had the loan be outstanding for a year. Under the actuarial method, the borrower would pay 320/360 (88.89%) of the total interest; i.e., an amount directly proportional to the length of time the borrower had the use of the lenders money. In short, the Rule of 78s is generally more favorable to the lender than the actuarial method. Furthermore, most consumers neither understand what the Rule of 78s is nor examine, when they get their loans, the manner in which interest will be computed upon prepayment. Consumer borrowers who sign mortgage notes containing Rule of 78s prepayment provisions are thus likely to find themselves facing a substantial and unexpected deprivation of their equity if they either seek to prepay their loans or the lender accelerates their loans (the Rule of 78s provision applies to both voluntary and involuntary prepayments).

L.8 State Usury Case (Adams)


IN THE CIRCUIT COURT OF COOK COUNTY, ILLINOIS COUNTY DEPARTMENT, CHANCERY DIVISION ) ) Plaintiff ) ) v. ) ) MARINE MIDLAND ) BANK and AMERICAN ) FUNDING, LTD., ) Counterdefendants. ) ) PATRICIA ADAMS, PLAINTIFFS MEMORANDUM IN SUPPORT OF PLAINTIFFS MOTION FOR CLASS CERTIFICATION I. INTRODUCTION Plaintiff, Patricia Adams (Mrs. Adams) brought this action against Reckless Savings & Loan Association (Reckless Savings) and Predatory Finance Company (Predatory Finance) as a class action. The complaint is based on Preda-

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2. There are questions of fact or law common to the class, which common questions predominate over any questions affecting only individual members. 3. The representative parties will fairly and adequately protect the interest of the class. 4. The class action is an appropriate method for the fair and efficient adjudication of the controversy. In determining whether a class action will be allowed, the substantive allegations of the complaint should be taken as true, except to the extent that they are contradicted by evidence. Blackie v. Barrack, 524 F.2d 891, 901 n. 16 (9th Cir. 1975), cert. denied, 429 U.S. 816 (1976). The Court should resolve any doubt regarding the propriety of certification in favor of allowing the class action, so that it will remain an effective vehicle for deterring corporate wrongdoing. Esplin v. Hirschi, 402 F.2d 94, 101 (10th Cir. 1968), cert. denied, 394 U.S. 928 (1969); accord, In re Folding Cartons Antitrust Litigation, 75 F.R.D. 727 (N.D. Ill. 1977). As the court explained in Esplin: Without the class action device, many actionable wrongs would go uncorrected and persons affected thereby unrecompensed. In essence, the class action device is a bona fide method for redressing violations of the . . . laws and for compelling compliance with their mandates. Accordingly, the interests of justice require that in a doubtful case, . . . any error, if there is to be one, should be committed in favor of allowing the class action. Finally, the class action determination is to be made [a]s soon as practicable after the commencement of an action brought as a class action. Code of Civil Procedure 2-802. B. NUMEROSITY The numerosity prerequisite is satisfied if it is reasonable to conclude that the number of members of the proposed class is greater than the minimum number required for class certification, which is about 1840. Cypress v. Newport News General & Nonsectarian Hospital Assn, 375 F.2d 648, 653 (4th Cir. 1967) (18 sufficient); Swanson v. American Consumer Industries, 415 F.2d 1326 (7th Cir. 1969) (40 sufficient). It is not necessary that the precise number of class members be known. McCleery Tire Service, Inc. v. Texaco, Inc., 1975-2 Trade Cas. (CCH) k 60,581 (E.D. Pa. 1975). A class action may proceed upon estimates as to the size of the proposed class. In re Alcoholic Beverages Litigation, 95 F.R.D. 321 (E.D.N.Y. 1982). Attached as Exhibit B [not attached herein] is the report American Funding filed with the Office of the Savings & Loan Commissioner of the State of Illinois, the agency with regulatory jurisdiction over American Funding. This exhibit shows that American Funding made about 300 loans in Illinois during 1986. Clearly, this group of borrowers would satisfy the numerosity requirement. C. COMMON QUESTIONS There is one overriding, central issue raised by the class claim. It is whether the Rule of 78s prepayment provision

In Dechow v. Sho-Fed Credit, 181 Ill. App. 3d 367 (2d Dist. 1989), leave to appeal denied, October 5, 1989, the Appellate Court held that the use of the Rule of 78s in a residential mortgage results in an excessive and illegal charge for prepayment, in violation of Ill. Rev. Stat., ch. 17, k 6404(b)(3). This statutes provides: In any contract or loan which is secured by a mortgage, deed of trust, or conveyance in the nature of a mortgage, on residential real estate, the interest which is computed, calculated, charged, or collected pursuant to such contract or loan, or pursuant to any regulation or rule promulgated pursuant to this Act, may not be computed, calculated, charged, or collected for any period of time occurring after the date on which the total indebtedness, with the exception of late payment penalties, is paid in full. For purposes of this Section, a prepayment shall mean the payment of the total indebtedness, with the exception of late payment penalties if incurred or charged, on any date before the date specified in the contract or loan agreement on which the total indebtedness shall be paid in full, or before the date on which all payments, if timely made, shall have been made. In the event of a prepayment of the indebtedness which is made on a date after the date on which interest on the indebtedness was last computed, calculated, charged, or collected but before the next date on which interest on the indebtedness was to be calculated, computed, charged, or collected, the lender may calculate, charge and collect interest on the indebtedness for the period which elapsed between the date on which the prepayment is made and the date on which interest on the indebtedness was last computed, calculated, charged or collected at a rate equal to 1/360 of the annual rate for each day which so elapsed, which rate shall be applied to the indebtedness outstanding as of the date of prepayment. The lender shall refund to the borrower any interest charged or collected which exceeds that which the lender may charge or collect pursuant to the preceding sentence. . . . Mrs. Adams contends, and the Appellate Court in Dechow held, that the language requires use of the actuarial method in calculating the amount due upon prepayment of a loan. Although the lender in Dechow strenuously argued that the decision of the Appellate Court was incorrect, the Supreme Court concluded otherwise and denied review. III. THE CLASS MEETS THE REQUIREMENTS FOR A CLASS ACTION A. FACTORS TO BE CONSIDERED IN CERTIFYING A CLASS ACTION Section 2-801 of the Illinois Code of Civil Procedure sets forth four prerequisites for a class action: 1. The class is so numerous that joinder of all members is impracticable.

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in American Fundings form document is illegal. Any defenses raised by American Funding are also likely to apply on a classwide basis. The only individual questions concern the amounts of interest provided for by each note, the amount outstanding under each note at the date of judgment, and whether the address of the property on which American Funding recorded a mortgage is the same as that listed as the residence of the borrower. All of these questions can be resolved by a ministerial examination of the loan files, and thus do not militate against class certification. Heastie v. Community of Greater Peoria, 125 F.R.D. 669 (N.D. Ill. 1989). This action is thus similar to a Truth in Lending case or similar case involving a question as to the legality of provision in a form document. Such actions are considered ideal for class certification, presenting few or no individual issues. Haynes v. Logan Furniture Mart, 503 F.2d 1161 (7th Cir. 1974). D. ADEQUACY OF REPRESENTATION The adequacy of representation requirement is satisfied if plaintiffs counsel is qualified, experienced,and generally able to conduct the proposed litigation and there are no antagonistic interests between the representative party and the class. Carillo v. Jam Productions, Ltd., 108 Ill. App. 3d 126, 438 N.E.2d 1197 (1982); Wetzel v. Liberty Mutual Ins. Co., 508 F.2d 239, 247 (3d Cir.), cert. denied, 421 U.S. 1011 (1975); In re Alcoholic Beverages Litigation, supra. In the present case, Mrs. Adams is committed to litigating this matter. She has retained counsel with substantial experi-

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ence in class actions, actions against financial institutions, and actions involving unlawful business practices. Counsel recently obtained certification of a much larger class of borrowers injured by a financial institution, Heastie v. Community Bank of Greater Peoria, supra, 125 F.R.D. 669 (N.D. Ill. 1989). E. APPROPRIATENESS OF CLASS ACTION For two reasons, a class action is the only appropriate means of resolving this controversy. First, most of the affected individuals are relatively unsophisticated. Capitol Funding appears to have specialized in lending in the inner city. Unless they obtain relief through this class action, most of the class members will not obtain relief at all. Second, there is no reason why the courts should be clogged with multiple actions presenting what is essentially an identical legal issue. IV. CONCLUSION As demonstrated above, this is an ideal case for a class action. Each of the prerequisites for a class action is met. Indeed, the nature of the practice complained ofsubverting the rights of large numbers of unsophisticated and generally poor borrowers whose claims are too small to make individual litigation practicableis such as to make a class action essential. An identical class was recently certified by Judge Sheridan in Jones v. Alliance Funding Co., 89 CH 5555. Respectfully Submitted, [Attorney]

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Sample Reply Memoranda in Support of Class Certification

M.1 Fair Debt Collection Practices Act Case (Bauer)


UNITED STATES DISTRICT COURT EASTERN DISTRICT OF PENNSYLVANIA ) ) ) ) ) ) ) v. ) CIVIL ACTION NO: 98) FIRST UNION MORTGAGE ) CLASS ACTION CORPORATION, HUTCHENS, ) McCALLA, RAYMER ) & ECHEVARRIA and ) DAVID MITCHELL, ) Defendants. ) ) GENE C. BAUER, CAROL A. BAUER, on behalf of themselves and all others similarly situated, Plaintiffs, PLAINTIFFS REPLY MEMORANDUM IN SUPPORT OF CLASS CERTIFICATION I. INTRODUCTION Plaintiffs filed their Motion for Class Certification on January 8, 1999. On March 19, 1999, defendants Hutchens, McCalla, Raymer and Echevarria (HMRE) and David Mitchell (Mitchell) filed a response consenting to certification of the class defined in the Motion. On March 29, 1999, defendant First Union Mortgage Corporation (First Union) filed a consolidated Memorandum in Opposition to Motion for Class Certification and in Support of Motion for Summary Judgment (the Memorandum).1 In their Motion, plaintiffs sought to represent all persons in the United States who have received written communications substantially in the form of the standard form letters
1 Plaintiffs are filing simultaneously herewith an Opposition to First Unions Motion for Summary Judgment, as well as their own Cross-Motion for Partial Summary Judgment. In addition, plaintiffs are filing a Motion for Leave to Amend Class Action Complaint. None of the issues presented by these other pleadings should have any bearing on this Courts decision on class certification.

(the Letters) attached to plaintiffs Complaint. Discovery to date has shown, however, the Letters were drafted only for mailing to Pennsylvania residents. (Deposition of S. Raines, Exh. G at pp. 3233).2 Discovery has also indicated that approximately 288 individuals were sent the Letters. (First Unions Answers to Plaintiffs First Set of Interrogatories, # 13, Exh. R). As such, plaintiffs seek to represent a class of those Pennsylvania borrowers and hereby modify the proposed definition of the class to the following: All persons in the Commonwealth of Pennsylvania who received letters substantially in the form of Exh. A and Exh. B to the Complaint. Inasmuch as HMRE has consented to an even broader class definition, it cannot reasonably object to the more confined class dictated by discovery. With respect to First Union, class certification should be granted because there are a number of legal and factual issues common to the class, including: 1. Whether the Letters violated the provisions of the FDCPA; 2. Whether First Union is liable under the FDCPA; and 3. Whether First Union is liable for the actions of HMRE and Mitchell. As discussed below, each of these issues is common to the class and justifies class certification. II. REPLY STATEMENT OF FACTS First Union contests very little of the factual statement contained in plaintiffs Motion for Class Certification. First Unions contentions center only on two issues: one, whether First Union is a creditor and two, whether plaintiffs received the Letters from First Union. As discussed below and in plaintiffs accompanying Opposition to First Unions Motion for Summary Judgment, the record is replete with evidence showing that First Unions version of the facts is wrong. In any event, First Unions factual disputes implicate the merits of the case, which are not subject to inquiry at the class certification stage of this case. First Union initially claims it stands on a different footing with plaintiffs because it does not hold plaintiffs loan. First Union contends it is just a loan servicer, and not a creditor, because plaintiffs true creditor is the Federal National Mortgage Association (FNMA). But this purported distinction
2 All references to exhibits herein refer to the exhibits attached to the Declaration of D.A. Reardon (Reardon Declaration) filed simultaneously herewith [not reprinted herein].

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the borrowers owe for late charges (compensation for the use of money) and the costs of collection. Nor can First Union realistically contend that it did not send the Letters to plaintiffs and the class. That contention basically takes refuge in the fact that the Letters all contained HMRE letterhead. That fact alone, however, does not definitively identify the sender.4 As plaintiffs Opposition to First Unions Motion for Summary Judgment recites in detail, and which is incorporated herein by reference, First Union was intimately involved in compiling, designing and furnishing the Letters to HMRE. The collection operations were located on the third floor of First Unions headquarters in Raleigh, North Carolina, within the Delinquency Resolution section of First Union. There was no sign or other demarcation indicating that a separate entity, HMRE, was located or doing business at that location. Instead, the HMRE staff was indistinguishable from First Unions staff, sitting sideby-side in identical cubicle space, using telephones, fax machines and postage supplied and paid for by First Union. There were no HMRE attorneys onsite to review individual borrower files and approve the Letters. Rather, First Unions team leader for Delinquency Resolution Support, not an attorney, reviewed and supplied her written blanket approval of the Letters. First Union facilities, computers and mailing processes were all utilized in sending out the Letters. Money collected in response to the Letters was deposited into First Union accounts, not HMREs. Thus, while First Union denies it sent the Letters, there is significant and substantial evidence developed in the case to date that establishes the contrary. Further, whether First Union sent the Letters to plaintiffs and to class members is, at the very least, a common issue on the merits of the case for a factfinder to resolve. Any dispute in this regard, at this stage of the case, does not preclude class certification. In re Prudential Ins. Co. of Am., 962 F. Supp. 450, 468 n.6 (D.N.J. 1997), affd, 148 F.3d 283 (3d Cir. 1998) (in determining appropriateness of class certification, courts are not to conduct preliminary inquiry into the merits). III. REPLY ARGUMENT This Class of 288 Pennsylvania residents who received the Letters is eminently suited for certification. By definition, each member was mailed a written communication virtually identical to the ones the plaintiffs received and all members claims arise from the same practice and course of conduct giving rise to plaintiffs claims: the mailing of a communication which violated the FDCPA. See Peoples v. Wendover Funding, Inc., 179 F.R.D. 492 (D. Md. 1998) (certifying class treatment of FDCPA claims of persons who received standard notices of intention to foreclose mortgage from a loan servicer); Gammon v. GC Services Ltd. Partnership, 162 F.R.D. 313 (N.D. Ill. 1995) (court certified class of persons who had received same form collection letter).
4 Many cases find FDCPA liability where a creditor sends out collection letters under an attorneys letterhead where the attorney was not actually involved in handling the file. See, e.g., Taylor v. Perrin, Landry, deLaunay & Durand, 103 F.3d 1232 (5th Cir. 1997); Avila v. Rubin, 84 F.3d 222 (7th Cir. 1996); Clomon v. Jackson, 988 F.2d 1314 (2d Cir. 1993); Veillard v. Mednick, 24 F. Supp. 2d 863 (N.D. Ill. 1998); Young v. Citicorp, 1997 U.S. Dist. LEXIS 22669 (D. Conn. 1997).

between mortgages held or serviced by First Union makes no difference to class certification. Even assuming First Union was just a servicer, class certification would still be proper for all other loans serviced by First Union which received the Letters. Like plaintiffs, each of the class members (likely the vast majority of recipients) would share the common issue of First Unions creditor status. In addition, in the foreclosure context of this case, First Union is both a creditor and a servicer. The FNMA Servicing Guide, along with the Servicing Contract,3 governs the relationship with FNMAs servicers such as First Union. (Exh. A, pp. 1, 111). Under the Servicing Guide, First Union is required to advance monthly payments to FNMA and then reimburse itself from the collections it obtains from the borrowers. (Id., p. 122). First Union must also advance all costs and expenses incurred in performing its obligations under the Servicing Contract. For example, costs related to the preservation and protection of the mortgaged property, the enforcement of judicial proceedings and the management and disposition of acquired properties are all required to be paid by First Union in the first instance. (Id.). Those advances must then be recovered from the mortgagor . . . or other available sources. (Id.). The Servicing Guide also provides that First Union is allowed to retain late charges and fees charged for special services. (Id., pp. 125, 130). These charges are the very charges First Union sought to collect from the Bauers and members of the class. See Exh. A to Complaint (Exh. K to Reardon Declaration), demanding payment of late charges of $123.44 and NSF check and other charges of $22.25. Without even seeing all the Letters sent to each of the 288 members of the class, it is obvious that First Union also demanded payment of late fees and similar charges in those Letters because the Letters would not have been sent in the first place if the members monthly payment had not been late. By the very nature of mortgage securitization, First Union is necessarily a creditor of mortgage borrowers whenever such borrowers are delinquent or in default on their mortgage payments, because First Union is owed its own debts from the borrowers. First Union also collects servicing fees pursuant to the Servicing Guide and the Servicing Contract, which in most cases are a fractional percentage of the mortgage. (Exh. A, p. 126). First Union can obtain that compensation in several ways: a) deducting the fee from the mortgagors monthly payment; b) writing itself a check from its FNMA custodial account; c) deducting the fee from the amount sent to FNMA when the mortgagor pays off the mortgage; and, d) deducting the fee from the proceeds of a third party foreclosure sale or from the amount remitted to redeem an acquired property. (Id.). All the costs that First Union attempts to recover from mortgagors constitute debts that are owed to First Union. The costs and charges all represent an obligation of a consumer to pay money arising out of a transaction in which the money . . . [is] primarily for personal, family or household purposes, see 15 U.S.C. 1692a(5). The debts are owed to First Union, see 15 U.S.C. 1692a(4), because First Union must cover its advances to FNMA from the contractual obligations
3 Plaintiffs have requested that First Union produce a copy of the Servicing Contract with FNMA, but First Union has not to date complied with the request. See Reardon Declaration.

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While First Union has not contested the numerosity and adequacy of representation requirements of Rule 23(a), it has challenged plaintiffs showing of commonality and typicality. First Union also contends that individual issues predominate, thus defeating certification under Rule 23(b)(3). These arguments will be addressed in turn. A. Commonality and Typicality First Unions Memorandum makes three points in contesting commonality and typicality: that plaintiffs cannot prove they received the Letters from First Union; that First Union has a meritorious defense because of its position that it is not a creditor; and, that a unique defense stems from its allegations that one of plaintiffs counsel, Ross & Marler, P.C. (R&M), is prohibited from representing plaintiffs in this case. None of these contentions should defeat certification. First, as discussed supra, there is substantial evidence in the record from which a reasonable factfinder could conclude that First Union did indeed participate in, if not orchestrate, the sending of the Letters. The very nature of the outsourcing relationship between First Union and HMRE makes First Unions mailing of the Letters a common issue for the class as a whole See Peoples, 179 F.R.D. at 498 ([a]ccordingly, the class shares the common factual issue of receipt of Defendants notices of intent to foreclose, and the legal issue of whether those notices violated the FDCPA); Gammon, 162 F.R.D. at 317 n.4 (fact that same standard letter was sent to all members sufficed to provide common nucleus of operative fact, satisfying commonality). Second, First Unions defense that it is not subject to the FDCPA, is a common defense applicable to virtually all class members as most of the mortgages, if not all, are serviced by First Union. Therefore, plaintiffs claim that First Union is in fact subject to the FDCPA is typical of the class claims. An inquiry into typicality should, of course, focus on whether the named plaintiffs circumstances or their legal theories are markedly different from those of other class members. Eisenberg v. Gagnon, 766 F.2d 770, 786 (3d Cir.), cert. denied sub nom Wasserstrom v. Eisenberg, 474 U.S. 946 (1985). Courts will liberally construe the typicality requirement as long as no express conflicts exist between the class representatives and the class. Spark v. MBNA Corporation, 178 F.R.D. 431 (D. Del. 1998), quoting Friedman v. Lansdale Parking Authority, 1993 U.S. Dist. LEXIS 12019 (E.D. Pa. August 30, 1993). Typicality is satisfied regardless of whether different facts underlie each class members claim, as long as the named plaintiffs and the class members all have overarching claims arising from a uniform practice. Barnes v. American Tobacco Co., 161 F.3d 127, 140141 (3d Cir. 1998); In re Prudential Insurance Company America Sales Practice Litigation Agent Actions, 148 F.3d 283, 311312 (3d Cir. 1998); Baby Neal v. Casey, 43 F.3d 48, 58 (3d Cir. 1994); Williams v. Empire Funding Corp., 183 F.R.D. 428, 439 (E.D. Pa. 1998). Here, the overarching practice is the common outsourcing scheme and the use of the form Letters to imply to Pennsylvania borrowers that a large law firm was about to foreclose on their homes. Because the plaintiffs and the class have suffered the same type of injury (receipt of the misleading and deceptive Letters) based on the same set of facts (sending the Letters) which produces the same legal theory (violation of the FDCPA), typi-

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cality is satisfied. Peoples, 179 F.R.D. at 499; Gammon, 162 F.R.D. at 317 n.4 (typicality satisfied where claim rested on theory that standard collection letter violated FDCPA). Even if the facts of each class members claim differ slightly, that alone does not defeat typicality because the claims all arise from the same conduct and are based on the same legal theory. This is not a case where there are drastic factual differences among class members. Cf. Boley v. Principi, 144 F.R.D. 305, 308 (E.D.N.C. 1992), affd, 10 F.3d 218 (4th Cir. 1993) (typicality not satisfied where due process claims turned on whether notice to each member complied with due process and whether a statute was satisfied as to each class member on differing facts). First Unions desperate challenge to the ability of Plaintiffs counsel to prosecute this case (Memorandum at p. 13, referencing Release Agreement and Covenant Not to Sue (Release), Exh. K thereto) borders on the improper. Under the guise of raising a unique defense, First Union is actually attempting to deprive plaintiffs of counsel of their choice. There are several reasons why this challenge should be rejected. The Release, selectively quoted in the Memorandum, does not say what First Union implies it says. Read in its proper context, paragraph 5 of the Release merely represents the agreement of the Spaulding plaintiffs and R&M not to bring a class action in the future with the Spauldings as participants or as representative parties; in other words, the settlement of the Spaulding litigation was to be a final settlement of those particular plaintiffs claims. Significantly, paragraph 6 of the Release, which First Union conveniently omits from its discussion, states as follows: Notwithstanding the above, nothing herein shall be construed to preclude M.D. Marler and/or his firm, Ross and Marler, P.C., from zealously representing future clients in actions against [HMRE] and/or First Union. Taken together, these two paragraphs simply reflect the parties understanding that while the Spauldings were giving up all rights to future litigation in consideration of the settlement of their claims, R&M was free to represent other clients, such as the Bauers and members of the class, in future FDCPA actions against the same defendants. First Unions purported5 interpretation of the Release would result in an improper and possibly unethical limitation on an attorneys right to practice law and vigorously represent his clients. Further, depriving plaintiffs of the services of R&M would have no bearing on the litigation and the certification of the class. Plaintiffs and the class will continue to be represented by their other counsel, Justin Hunt, LLC, as to whom no challenge has been mounted. There is absolutely no appearance of impropriety presented by R&Ms representation of the plaintiffs. The case cited by First Union, Zlotnick v. Tie Communications, Inc., 123 F.R.D. 189, 194 (E.D. Pa. 1988), involved an attorney representing his father as class representative. Judge Johnson found, under the particular circumstances of that casethe son was the moving force behind the case and stood to gain fees in the event he won the casethat the father was not an adequate
5 The sincerity of First Unions argument in this regard must be questioned in view of the fact that First Union has filed no motion to disqualify R&M and has not objected to R&Ms active participation in depositions or filings in this case to date.

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1 The FDCPA provides the same legal remedy to all class members. 1 First Unions liability, if any, stems from the FDCPA. These common features easily predominate over any individual issues. Peoples, 179 F.R.D. at 498 ([t]he virtually identical nature of the notices, and the scope of the class . . ., vitiate any need to analyze each class members claim). While there may be individual differences in the damages sustained by class members, that does not defeat class certification where common questions as to liability predominate. Prudential, 148 F.3d at 311312. The cases cited by First Union are factually distinguishable. In Lewis v. Jesse L. Riddle, P.C., 1998 U.S. Dist. LEXIS 20465 (W.D. La. 1998), there was a substantial question whether the debts at issue were business or consumer debts; that is not an issue here. The other two cases did not arise under the FDCPA and are totally unhelpful to the analysis here. Blake v. Chemlawn Services Corporation, 1988 U.S. Dist. LEXIS 534 (E.D. Pa. 1988), involved highly individualized causation and damages issues emanating from the spraying of pesticide products. In Zlotnick v. Tie Communications, Inc., 123 F.R.D. at 19495, a shareholder class action, certification was denied due to extraordinarily complex questions of reliance requiring highly individualized proof, including each members knowledge of and experience in the market, an accounting of information, advice or rumors received and testimony as to each members actual state of mind. No such issues are presented in this case. C. A Class Action Is Superior to Other Available Methods of Fair and Efficient Adjudication The superiority requirement of Rule 23(b)(3) is also met. As Judge Robreno of this Court noted in Lake v. First Nationwide Bank, 156 F.R.D. 615 (E.D. Pa. 1994), a mortgage overcharge case: The superiority finding requires at a minimum (1) an informed consideration of alternative available methods of adjudication of each issue, (2) a comparison of the fairness to all whose interests may be involved between such alternative methods and a class action, and (3) a comparison of the efficiency of adjudication of each method. . . . The interests that should be taken into account include those of the judicial system, the putative class, the instant plaintiffs and defendant and their attorneys, and the general public. . . . Furthermore, the four fairness and efficiency criteria in 23(b)(3) should be considered in making the evaluation. 156 F.R.D. at 625 (citations omitted). In concluding that a class action was the superior method for resolving the claims asserted in Lake, the court enumerated the advantages of litigating consumer cases as class actions: The Court has little difficulty in finding that the class action form is the superior method of resolving the claim that the Lakes seek to prosecute. The alternative to pursuing a class action is a series of state court actions by a large number of scattered plaintiffs, an inefficient allocation of judicial and

representative. First Union has presented no evidence that plaintiffs here are not adequate representatives of the class. See Barnes v. American Tobacco Co., 161 F.3d at 141 (determination of adequacy of proposed representative involves (1) whether plaintiffs counsel is qualified, and (2) whether plaintiffs interests are antagonistic). B. Individual Issues Do not Predominate First Unions stretch to come up with purported individualized questions is pure exaggeration and should be rejected by the Court.6 Certification under Rule 23(b)(3) is appropriate when settling the parties differences in a single proceeding serves their interests by achieving economies of time, effort, and expense, and by promoting uniformity of decision as to similarly situated class members without sacrificing fairness. Amchem Products, Inc. v. Windsor, 521 U.S. 591, 117 S.Ct. 2231, 2246 (1997) (quoting Rule 23(b)(3) advisory committees note). The Rule lists four factors relevant to determining whether common questions predominate and whether class treatment is the best method of adjudication: the class members interests in pursuing individual actions; the extent and nature of any existing litigation concerning the controversy; the desirability of concentrating the litigation in a particular forum; and, the difficulties of managing a class action. These factors are not exhaustive. Amchem Products, 117 S. Ct. at 2246. This case contains the following common features: 1 Each class member had a mortgage held or serviced by First Union. 1 Each class member received the identical Letters.

6 Plaintiffs seek class certification under all subsections of Rule 23(b). They do so because this case meets the requirements for all three subsections. Nothing in Rule 23 precludes class certification on more than one ground. As a noted commentator has pointed out, for example, if a defendants conduct makes injunctive or declaratory relief appropriate, the full panoply of the courts equitable powers is introduced and monetary relief can be granted on a classwide basis. 1 Newberg on Class Actions 4.14 at 4-46. The commentator goes on to say: When the parties dispute which form of relief is predominant with respect to the appropriateness of Rule 23(b)(2) for any class certification, it is counterproductive for the court to expend time to try to resolve this largely discretionary question, which does not address the merits of the case. Rather, the court should conclude that when the Rule 23(a) prerequisites are satisfied and declaratory or injunctive relief is sought as an integral part of relief for the class, then Rule 23(b)(2) is applicable regardless of the presence or dominance of additional prayers for damages relief for class members . . . [This procedure] substitutes a more efficient and predictable determination that promotes the objectives of Rule 23 and is consistent with the purposes and rational for the creation of the Rule 23(b)(2) class category. 1 Newberg on Class Actions 4.14, at 4-50 to 4-52; see also Williams, 183 F.R.D. at 436 n. 14.

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public resources. Upon the representations of counsel, the actual amount due to each class member is small, amounting to no more than a few hundred dollars per member. Given the relatively small amount recoverable by each potential litigant, it is unlikely that, absent the class action mechanism, any one individual would pursue his claim, or even be able to retain an attorney willing to bring the action. As Professors Wright, Miller, and Kane have discussed in analyzing consumer protection class actions such as the instant one, typically the individual claims are for small amounts, which means that the injured parties would not be able to bear the significant litigation expenses involved in suing a large corporation on an individual basis. These financial barriers may be overcome by permitting the suit to be brought by one or more consumers on behalf of others who are similarly situated. . . . The public interest in seeing that the rights of consumers are vindicated favors the disposition of the instant claims in a class action form. Additionally, there is no indication that other litigation is pending, that there is any strong interest on the part of individual class members to control the proposed litigation interpose, or that concentrating the litigation form is in the least undesirable. 156 F.R.D. at 626 (citations omitted). As in Lake, in this case, there is no other litigation pending. There is no indication that there is any interest on the part of individual class members to control the litigation. Even assuming, arguendo, that First Unions speculation is correct that the class members claims were of sufficient value to make individual actions feasible, which they are not,7 the inefficiency and unfairness of denying class certification on this basis is clear. As one court noted in certifying an FDCPA class, [c]lass actions were designed not only to compensate victimized members . . . but also to deter violations of the law, especially when small individual claims are involved. Gammon, 162 F.R.D. at 321. Speculation that class members would pursue individual claims is just that and is not a sufficient basis to decline to certify a class. Id. at 322. See also Heastie v. Community Bank of Greater Peoria, 125 F.R.D. 669, 677 (N.D. Ill. 1989) (superiority requirement met when the individual claims were perhaps larger than in many consumer credit
7 The fact that another FDCPA claimant made his way to one of plaintiffs counsel should not obscure the fact that a class action is a superior vehicle for adjudication of this controversy. Courts have recognized the feature of FDCPA cases that actual damages of each member can often be small; as such, the parties have little incentive to litigate their claims individually. Peoples, 179 F.R.D. at 50102. A class action best resolves this issue by permitting the airing of common grievances in a single proceeding. Id.; Brewer v. Friedman, 152 F.R.D. 142, 144 (N.D. Ill. 1993) (class certified under FDCPA because the class action provides a large group of litigants an opportunity to adjudicate their common claims in a single lawsuit where the costs of discovery, motions and trial would dissuade many of them from asserting their rights).

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class actions, but still relatively small and therefore wellsuited for class action treatment).8 IV. CONCLUSION For all the foregoing reasons, as well as for the reasons stated in plaintiffs opening brief, the proposed class should be certified with the plaintiffs as the named class representatives. Respectfully submitted, ROSS & MARLER, P.C. J.A. Francis M.D. Marler Address Phone Number JUSTIN HUNT, LLC By: M.D. Justin D.A. Reardon Address Phone Number Dated: April 30, 1999 Attorneys for Plaintiffs and Class

M.2 TIL, UDAP, and Breach of Contract CaseCredit Card Issuers Failure to Refund Credit Balance (Coe)
UNITED STATES DISTRICT COURT DISTRICT OF DELAWARE ) ) ) ) ) ) CIVIL ACTION NO. 98) v. ) CLASS ACTION ) ADVANTA NATIONAL BANK, ) Defendant. ) ) GEORGE L. COE, III and JANET R. COE, on behalf of themselves and all those similarly situated, Plaintiffs

8 First Union is obviously aware, but has failed to advise the Court, that if class certification is denied there will be relatively narrow window under the FDCPAs very short statute of limitations for an individual class member to learn about her claims, retain counsel and file an action. Thus, First Unions contention that individual actions are feasible and will be more fair to the class is just a self-interested sham argument.

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As discussed below, each of these issues is common to the class and justifies class certification. Advantas Memorandum of Law in opposition to the Motion (the Memorandum), filed on January 8, 1999, offers several arguments, none of which have merit. Advanta disputes numerosity, but its own witnesses have testified to tens of thousands of credit balance refund requests each year. While Advanta challenges typicality, the record shows that the plaintiffs circumstances and legal theories are identical to those of the class and predominate over individual questions. Advanta contends that the plaintiffs are not adequate class representatives, but has offered nothing but speculation to support that contention. Finally, the class definition is not overbroad or inconsistent with the law; rather, the definition specifically encompasses the class members who were subjected to Advantas uniform practices and policies. Because this case meets the requirements of Rule 23, the Motion should be granted. II. COUNTERSTATEMENT OF FACTS A. Advantas Uniform Policies and Practices Advanta essentially emphasizes two distinct points in the Memorandum that it believes serve as justification for its treatment of the plaintiffs: (a) that plaintiff George Coe did not make a written request for a refund, so that it was under no obligation to refund him his credit balance; and, (b) that it did not consider his wife, plaintiff Janet Coe, anything more than an authorized user of the credit card, so that it was not required to act upon her written or verbal requests for a refund. Both arguments raise legal and factual issues common to thousands of Advanta cardholders because they spring from at least four different uniform policies, practices or procedures followed by Advanta. These will be addressed in turn. 1. Not Treating a Request to Close an Account as a Request for a Credit Balance Refund The primary policy employed by Advanta that affected the plaintiffs and members of the class in this case was the refusal to treat a customers request to close an account as a request for the refund of the resulting credit balance. In other words, if a customer requested to close a credit card account, and that closing resulted in a credit balance (such as was the case with the Coes), Advanta did not immediately begin to process that refund to the customer. Instead, it was Advantas policy and practice to require the customer to specifically request a refund before taking any action.9 (Exhibit A to Motion, p. A42customer service representatives are trained to refund credit balances to customers only upon request) [not reprinted herein]. This policy was confirmed by Bobbie Horton, Advantas quality assurance supervisor:

PLAINTIFFS REPLY MEMORANDUM IN SUPPORT OF THEIR MOTION FOR CLASS CERTIFICATION TABLE OF CONTENTS TABLE OF AUTHORITIES I. INTRODUCTION II. COUNTERSTATEMENT OF FACTS A. Advantas Uniform Policies And Practices 1. Not Treating a Request to Close an Account as a Request for a Credit Balance Refund 2. Advantas Contractual Representations in the Cardholder Agreement 3. Taking up to 30 Days to Refund a Credit Balance Requested by Telephone 4. Advantas Common Defense That a Cardholders Spouse May Not Request a Credit Balance Refund, Either Verbally or in Writing B. The Plaintiffs Claims All Arise From Advantas Uniform Policies and Practices III. REPLY ARGUMENT A. Rule 23(a) 1 Numerosity 2. Typicality and Adequacy B. Rule 23(b)(2) and (3) C. The Class Definition Is Not Deficient IV. CONCLUSION I. INTRODUCTION Plaintiffs George L. Coe and Janet R. Coe filed this class action case on May 7, 1998. The Complaint raises claims under the federal Truth in Lending Act, 15 U.S.C. 1601 et seq. (TILA) and Regulation Z, 12 C.F.R. 226, the Delaware Consumer Fraud Act, 6 Del. Code 2511 et seq. (CFA) and common law breach of contract, all arising from the practice of defendant Advanta National Bank (Advanta) of not returning credit balance refunds to its credit card customers in a timely manner. Plaintiffs moved for class certification on December 1, 1998 (the Motion). Class certification should be granted because there are a number of legal and factual issues common to the class, including: 1. Whether Advantas policy of not treating a request to close an account as a request for a credit balance refund violates TILA, the CFA and the Cardholder Agreement; 2. Whether Advantas contractual representation that it will refund a credit balance to a cardholder upon request requires Advanta to provide the refund within the time frame required by Regulation Z, regardless of whether the request is verbal or written; 3. Whether Advantas uniform practice of not acting upon verbal requests for a credit balance refund within the time frame required by Regulation Z violates TILA, the CFA and the Cardholder Agreement; and, 4. Whether Advantas common defense that a spouse of a cardholder may not request a credit balance refund, either verbally or in writing, is meritorious, given the nature of Advantas solicitation of cardholders and its contractual representations.

9 The one exception to that custom, which is not an issue in this case, is that Advanta does have a policy of providing an automatic refund when the balance has been outstanding for three months. (Cardholder Agreement k 21, Exhibit A hereto) [not reprinted herein].

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Q. Given your familiarity, what Im asking is, is the request to close an account a different work flow from a credit balance refund request? A. Yes, it is. Q. Is there any connection between those two work flows, in other words, does the [closure then] kick into the credit balance refund? A. No, it does not. Q. And thats something uniform. Is that right? A. Correct. (Deposition of Bobbie Horton, Exhibit B hereto at p. 29) [not reprinted herein]. Q. When a cardholder requests that an account be closed, its Advantas policy not to send out the credit balance if it happens to be there, unless the cardholder also says, oh, send out my credit balance as well, at the same time that you request closure. Is that correct? A. There is not a policy around when you are taking an account closing request, to go and search for a credit balance refund and send that out. Q. So the work flows are totally separated in this system. Is that correct? A. Yes, that is correct. Q. My question to you is, why is that so? (Objection) A. I dont know. (Id. at pp. 7677). The practice of treating a request to close an account as not being a request for a refund of the resulting credit balance was also confirmed by Belinda Jones, an Advanta customer service manager: A. . . .if a cardholder called to close the account, the associate would go through the closed flow to close that account. Q. Okay. A. Thats what would happen. Q. Would anything happen in addition if there was a credit balance on that account that was being closed? A. No. Q. Was it your understanding that the way the RMS system was set up, that a request to close an account that had a credit balance would not automatically generate a request to refund the credit balance? A. That is not how RMS is set up. Q. So the policy or practice, as reflected in the RMS, is that a request to close the account will not automatically generate a credit balance refund request, correct? A. Thats correct. Q. My question to you is, why not? A. I dont know.

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(Deposition of Belinda Jones, Exhibit C hereto at pp. 5253) [not reprinted herein]. Todd Martin, Vice President of Corporate Audit at Advanta with supervisory responsibility for auditing the credit balance refund process, who testified as a corporate designee for Advanta under Rule 30(b)(6), corroborated that Advanta had no policy to treat a request to close an account as a request for a refund: Q. Sitting here today and knowing that youre a corporate designee you dont have any knowledge one way or the other as to whether a request to close would generate automatically a credit balance refund request? A. My understanding is that would be logical, but I dont- didnt specifically review that policy. Q. Okay. All right. You dont have any understanding as to whether there was a contrary policy? A. No. Q. That a request to close would not generate a credit balance refund. A. Not that Im aware of. Q. You just dont know one way or the other. Correct? A. Not specifically. Q. Generally? A. No, no. (Deposition of Todd D. Martin, Jr., Exhibit D hereto at pp. 8586) [not reprinted herein]. Advantas manager of the settlement area, which accounted for booking transactions and monitoring the overall settlement of who owes what to whom, was Katherine Bell. Ms. Bell testified similarly that Advanta would not refund an existing credit balance without a customers specific request: Q. So nothing is done with credit balance refunds that are just 30 days old? A. Correct. Q. So theres no policy of issuing checks or anything like that? A. Not if the customer has not initiated the request. (Deposition of Katherine Bell, Exhibit E hereto at pp. 89, 25) [not reprinted herein]. The foregoing testimony clearly establishes that Advanta, as a matter of uniform practice, did not treat a request to close an account as a request to refund the resulting credit balance. Rather, it was the practice to require a customer to affirmatively request the refund. Indeed, Advanta does not dispute that such was its practice. Memorandum at 1112 [not reprinted herein]. As such, whether this policy, which was uniformly applied to all Advanta customers, violated TILA, the CFA and the Cardholder Agreement is one of the common questions in this case particularly suited to class-wide determination.

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ment. Boilerplate language differentiating between payment obligations for a joint account holder, as opposed to an authorized user, communicated nothing to the cardholders because the Cardholder Agreement lacked anything additional that identified which individual cardholder was considered by Advanta as having restricted rights. Further, nothing in the Cardholder Agreement drew any distinction between written and oral requests for credit balance refunds. The subject of credit balance refunds was addressed in paragraph 21 of the Cardholder Agreement, which states in its entirety as follows: 21. Credit Balances Any credit balance outstanding on your Account will be applied to any subsequent amounts due. We will refund credit balances of more than $1.00 which are outstanding on your Account either upon your request or automatically if outstanding for more than three months. This provision says nothing about the request being required to be in writing, or that the request could only be made by one of the cardholders. Rather, paragraph 21 constitutes a contractual representation that any cardholder can request, either verbally or in writing, that a credit balance be refunded.11 Ms. Horton, the quality assurance supervisor, confirmed that the Cardholder Agreement meant what it said: Q. Does that say upon request of primary account holder? A. No. Q. Does it say upon request of secondary account holder? A. No. Q. Does it say that it has to be a written request? A. No. ... Q. So if I understand this agreement correctly, you can request a credit balance by phone. Is that correct? A. Yes. It doesnt tell you that, however, it says request. So I guess you could e-mail it , fax it, call it in. Some form of request, yes. ...

2. Advantas Contractual Representations in the Cardholder Agreement Advantas statement of facts in the Memorandum attempts to direct the focus on its practices away from the Cardholder Agreement itself. Most likely, Advanta recognizes that the plain meaning of the terms of the Cardholder Agreement, which Advanta itself drafted and imposed on its customers as a condition of obtaining an Advanta credit card, directly contradicts Advantas position in this litigation because of the express contractual representations made therein by Advanta to its thousands of customers. The Cardholder Agreement is a standard form contract drafted by Advanta for use with its credit card customers. The Cardholder Agreement sent by Advanta to Mr. and Mrs. Coe arrived in the mail with a card carrier addressed by Advanta to both plaintiffs and containing two credit cards. Copies of the Cardholder Agreement and the card carrier are attached hereto as Exhibits A and F, respectively [not reprinted herein]. Nothing in the card carrier or the Cardholder Agreement informed the Coes that they did not have equal status on the account or that one or the others rights were somehow limited. Rather, the Cardholder Agreement, in paragraph 1, referred to both of the addressees as you or cardholders and did not label one as the primary cardholder and the other as a secondary cardholder, or as an authorized user. Bobbie Horton confirmed in her deposition that such was the meaning of the Cardholder Agreement: They were both considered cardholders. (Deposition of Bobbie Horton, Exhibit F hereto at pp. 4445) [not reprinted herein]. The Cardholder Agreement represented that each cardholder was entitled to equality of treatment because nothing therein notified the Coes, or any Advanta customer, that they would be treated differently, or that one of them had more control or authority over the account than the other.10 The only mention of a difference in treatment between a so-called authorized user and a different type of cardholder is in paragraph 7 of the Cardholder Agreement, which states in pertinent part: 7. Payments You promise to pay all amounts due on your Account. If your Account is a joint account, you and your joint account holder each promise to pay and are jointly and individually responsible for all amounts due on the Account. We may also issue additional Cards to other persons you authorize to use your Account if you ask us to do so. However, you and any joint account holder are responsible for all charges made by any person(s) authorized by your Account. (Cardholder Agreement, Exhibit A) [not reprinted herein]. Nothing in this language notified the Coes that Advanta intended to treat Mr. Coe differently from Mrs. Coe because nothing identified one of them as anything other than a cardholder with full rights and obligations under the Cardholder Agree10 The use of the term cardholder in the Cardholder Agreement is consistent with the definition of the term under TILA: any person to whom a credit card is issued. 15 U.S.C. 1602(m).

11 This provision in the contract between the parties is also consistent with TILA: Whenever a credit balance in excess of $1 is created in connection with a consumer credit transaction . . ., the creditor shall . . . (B) refund any part of the amount of the remaining credit balance, upon request of the consumer;. . . . 15 U.S.C. 1666d(B). Thus, TILA, like the Cardholder Agreement, does not require that the request be in writing. Nor does it differentiate among cardholders; it simply empowers the consumer to make the request. Regulation Z defines consumer as a cardholder or a natural person to whom consumer credit is offered or extended. 12 C.F.R. 226.2(a)(11).

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Q. Is there any indication here as to whether the credit balance refund request has to come from a primary account holder, a secondary account holder or an authorized user? A. No. (Deposition of Bobbie Horton, Exhibit B at pp. 66, 68, 70) [not reprinted herein]. Nor did Advanta apparently employ any other written means to inform cardholders that they were considered to be in a different status. For example, another Advanta witness, Laura Brown, a supervisor of customer service representatives, confirmed that Advanta had no policy in place that would provide written notification to a so-called authorized user that he or she could not request a credit balance refund: Q. What youre telling me to the best of your knowledge, Ms. Brown, no letter is generated to the primary cardholder to say, hey, look, this request that we received from your wife, we cant act on it, even though wed like to, could you please send it in, nothing like that ever happens? A. Not to my knowledge. Im not aware of it. Q. And as far as you know, is there any document or anything like that that says we will not acknowledge or do anything to an account for information requested by an authorized user? I mean, is there any document that says that? A. If theyre an authorized user, they only have the privileges to use the account, they have no privileges to make any changes to the account. Q. I know thats what Advanta believes, I know that. Where does Advanta tell its customers that? A. I wouldnt know. (Deposition of Laura Brown, Exhibit G hereto at pp. 7778) [not reprinted herein]. Thus, a standard form contract, drafted by Advanta, contains representations that any cardholder can request a refund of a credit balance, either orally or in writing. Whether these uniform provisions were violated by Advanta as to the Coes and the class is a determination eminently appropriate for class-wide treatment. 3. Taking up to 30 Days to Refund a Credit Balance Requested by Telephone As set forth in paragraph 21 of the Cardholder Agreement, Advanta undertook to refund credit balances to its customers upon your request. (Cardholder Agreement, Exhibit A) [not reprinted herein]. As discussed supra, the Cardholder Agreement does not set forth the manner of the request or a time frame in which the refund must be provided, although Regulation Z indicates that seven business days is appropriate for written requests. 12 C.F.R. 226.11(b). Discovery in this case has shown that it was Advantas practice in general, and as occurred in the case of the Coes, to take up to 30 days, or even more, to refund a credit balance that is requested by a customer over the telephone.12 Whether this practice violates
12 This is the procedure described to Mrs. Coe in January 1998 by a customer service representative. (Complaint k 18;

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TILA, the CFA and the Cardholder Agreement is a class issue. According to Todd Martin, the Vice President of Corporate Audit at Advanta, internal audits found that credit balance refunds were not always processed in a timely fashion: Q. Okay. During the course of performing your audits of areas such as credit balance refunds at least from 1995 through 1996 you determined that credit balance refunds were not always processed within the policy time frame set by Customer Service. Right? (Objection). Q. You had responsibility for auditing credit balance refund processes. Is that right? A. I had supervisory responsibility, yes. Q. And as part of that supervisory responsibility you made some general observations during this time frame about what was happening in the processing. Correct? A. Yes. Q. All right. At least from the testing there was a conclusion was there not, if you can recall, that credit balance refunds were not always processed within the procedural time frame that Customer Service established. Correct? (Objection). A. Yes. ... Q. Okay. Now, on the last page 0168 of Martin-4 there is a note there. I take it this is taken from the prior year. Credit balance refunds are not always processed timely in accordance with the CFS Customer Service policies and procedures and potentially Reg Z. Is that what you are checking for this year? A. That is correct. Q. And thats per a discussion item? A. Yes. (Deposition of Todd D. Martin, Jr., Exhibit D at pp. 4445, 78 and Martin-4 at A0168) [not reprinted herein]. Advantas policy of delaying refunds requested by telephone apparently emanated from its legal department. According to Mr. Martin, the Advanta legal department had defined 30 days as a reasonable time for responding to telephone requests for credit balance refunds: Q. Well, there was some understanding that the auditors had obtained from the Legal Department at Advanta that 30 days was something that was determined would be reasonable to process telephonic requests in? A. Yes. My understanding would be that our auditors would have talked to management about practice and policy, which isour responsibility in Audit is to audit against policy not necessarily audit against the Reg.
deposition of Janet Coe, Exhibit H hereto at pp. 3839) [not reprinted herein].

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The above described policies and procedures demonstrate Advantas practice of not honoring verbal requests for refunds within the time frame of seven days mandated by Regulation Z, 12 C.F.R. 226.11(b). Again, a classic class-wide issue is presented as to whether Advantas uniform practice, which resulted in the Coes unsuccessful efforts to obtain their credit balance refund within a reasonable time, violates TILA, the CFA and the Cardholder Agreement. 4. Advantas Common Defense That a Cardholders Spouse May Not Request a Credit Balance Refund, Either Verbally or in Writing Advanta has attempted to defend against this action by asserting what it labels as defenses unique to the Coes. Those very defenses are, in fact, not at all unique; they will arise in every case where a cardholders spouse, also a cardholder, seeks a credit balance refund. This case thus presents the class-wide issue whether Advantas defenses have any merit, given the provisions of the Cardholder Agreement, discussed supra, as well as the nature of the standard solicitation of every Advanta cardholder by Advanta representatives. Because the Memorandum makes much about the distinction drawn by Advantas policy between the terms authorized user and primary cardholder (Memorandum at p. 4) [not reprinted herein], one might expect that Advanta would take pains to ensure that its representatives would convey that distinction to applicants for credit cards. Instead, Advanta deliberately omits that explanation from the script its representatives use when taking applications. The standard script followed by Advanta customer service representatives in taking credit card applications is attached hereto as Exhibit I [not reprinted herein]. The script is nine pages in length. At Question 12, the script prompts an inquiry whether the applicant would like an additional card for an authorized user. If the answer is yes, the representative is only instructed to ask for the name and social security number of the authorized user. Nowhere does the script inform the applicant that authorized user is a term of art, at least in Advantas view, or that such a user would have different responsibilities or different rights under the account. Also, nowhere in the script is there any mention of the term primary cardholder which Advanta relies upon in its attempt to distinguish the Coes situation from others. (Prescreened Gold Inbound Script, Exhibit I hereto [not reprinted herein]). Thus, although Advanta no longer has the tape13 of the telephone conversation where Mr. Coe was solicited for a credit card, the script produced by Advanta in discovery unequivocally supports Mr. Coes testimony that he was not furnished with any explanation or information about the different statuses Advanta intended for him and for his wife when he accepted the representatives offer to supply a card for her as well. Because the script, Exhibit I [not reprinted herein], is a standardized presentation that Advantas customer service representatives all were required to follow, presumably no customer who applied for an Advanta credit card was provided with an explanation of the terms authorized user and pri13 Advantas counsel has informed plaintiffs counsel that tapes of telephone conversations from January 1997, the time when Mr. Coe was first telephoned by Advanta and solicited for a card, no longer exist.

Q. So the 30 days was something that somebody had come up with from the Legal Department. Is that what youre telling me? A. I cantI dont have firsthand knowledge of where the 30 days originated. Q. Lets go back to Martin-3, I think it is. In that general note thats written there although its somewhat difficult to read there is a description. Starting on line 17 it says, CBRs are also governed by Regulation Z for timely processing. Written requests must be processed within seven business days and phone requests in a reasonable time period. I think that says, parenthesis Legal defines this as 30 days. Do you see that? A. Yes. Q. Was that your understanding as to what you were going to audit these things for? A. Yes, its my understanding that we would audit, again, against policy. (Id. at pp. 6263 and including Martin-3, at A0155) [not reprinted herein]. Mr. Martin himself was under the impression that the 30 days was not a requirement of Regulation Z, but he acknowledged that it was an internal procedure and that internal audits found that there were times when Advanta failed to process requests even in that length of a period: Q. All right. Mr. Martin, can you tell me what Martin-6 is? A. This is what we call a Process Narrative, which would explain the credit balance refund process during the period of the audit. Q. All right. Now, in here, again, we see the reference to if the request was made over the phone, the credit balance must be refunded within 30 business days. These time frames are required by Regulation Z. Thats, once again, something we see in these documents, but its your testimony today that that wasnt something that was required by Reg Z. It was just an internal procedure. A. Thats been my understanding that its not required by Reg Z. It is an internal procedure and these statements are inaccurate in the work papers. Q. In your experience performing the audit function at Advanta had you observed any credit balance refund requests that were not processed within 30 days? A. Yes. Q. And youre looking at something to refer to that. Where is that on this document? Just read it for me. A. Four of the eleven requests were 66 days over the required time frame. (Id. at pp. 8283 and Martin-6 at A0171Based on Corporate Audits review it appears that 11 refund requests were not processed within 7 (written) / 30 (phone) business days of the cardholders request. Four of the eleven requests were 66 days over the required time frame.) [not reprinted herein].

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mary cardholder or told that Advanta may later treat cardholders differently based on that undisclosed distinction. The Cardholder Agreement is a standard form contract and the solicitation script is an equally uniform practice of Advanta. Both those documents rebut Advantas assertion that spouses of cardholders may not request, orally or in writing, credit balance refunds. Thus presented is another common question appropriate for class determination. B. The Plaintiffs Claims All Arise From Advantas Uniform Policies and Practices The Coes supplied a broad outline of the facts alleged in the Complaint in their Motion, and those factual averments are incorporated by reference as if fully set forth herein. Plaintiffs will point out here additional details that are relevant to the issues raised by Advanta in its opposition to class certification. The material facts are that plaintiffs, at all times, acted consistently with their understanding of their rights as disclosed to them by Advanta, but that their reasonable and legitimate attempts to obtain a credit balance refund in a timely manner were thwarted by practices and procedures employed by Advanta, on a uniform basis, as to all its customers. The account with Advanta originated when Mr. Coe was solicited by Advanta over the phone and he agreed to apply for a credit card. At that time, Mr. Coe requested that his wife, Janet, be a joint account holder. Mr. Coe was not aware of any distinction between the terms authorized user and a joint account holder when he applied for the credit card. His understanding was that either he or his wife could deal with Advanta concerning the account. (Affidavit of George L. Coe, III, attached hereto as Exhibit J) [not reprinted herein].14 In November, 1997, the Coes decided that they wanted to close their credit card account with Advanta. At the request of George Coe, First U.S.A., another credit card issuer, issued a check to Advanta that paid more than Coes outstanding balance, resulting in a credit balance of $822.75. What happened next is detailed in the Complaint and in the deposition testimony of both George and Janet Coe, attached hereto respectively as Exhibits K and H [not reprinted herein]. In essence, that testimony shows repeated, unsuccessful attempts by both Mr. and Mrs. Coe to get Advanta to refund the credit balance: 1 In early December, 1997, George Coe telephoned Advanta and requested that the amount be closed and the credit balance be forwarded to First U.S.A. 1 Mr. Coe was informed in response by Advantas customer service representative that no refund could be issued15
14 Mr. Coe acknowledges in his Affidavit, Exhibit J [not reprinted herein], that he testified in his deposition that his wife was an authorized user on the account. As the Affidavit explains, however, Mr. Coe did not understand the distinction made by defense counsel in the deposition. Neither the standard script used by Advantas representatives who take credit card applications, nor the Cardholder Agreement between the parties, discussed supra, make any such distinction. 15 Apparently, Advantas computer system was set up so that a cardholder was not permitted to close an account and direct that the credit balance be sent to another credit card

Appx. M.2

without First U.S.A.s written authorization. 1 When Mr. Coe was told by First U.S.A. that it could not provide that written instruction, he called Advanta again and requested that the credit balance be refunded directly to him. Advanta refused because the account had been closed and told him the request had to be in writing. 1 Mr. Coe then requested assistance from his wife, Janet, an attorney, because I knew she could write the letter, and I had no more conversation with Advanta after that point. I was pretty upset. (Deposition of George L. Coe, III, Exhibit K hereto at p. 23) [not reprinted herein]. 1 Continuing in December, 1997 and on into January and February, 1998, Janet Coe telephoned Advanta and repeatedly requested that the refund be issued. 1 In her first phone call to Advanta, Mrs. Coe was told the refund would be issued. When it did not arrive, she called again and the Advanta representative suggested if she were to write a letter, she would probably have a better chance of getting it back more quickly. 1 On January 5, 1998, Janet Coe sent a letter to Advanta requesting the refund. (Exhibit B to Complaint) [not reprinted herein]. 1 When the refund still did not come, Mrs. Coe again telephoned Advanta. This time she referred the customer service representative to the legal requirement that the refund be issued within seven days. She was told by the Advanta representative that Advanta followed Delaware law, not federal law. The representative further advised that Advanta receives thousands and thousands of credit balance transfers a month, which usually result in excess credit balances to the cardholders, that it was Advantas policy and practice for any credit refund in excess of $100 to search for the check which usually takes fourteen days, and then, Advantas policy and practice was not to issue the refund check for another seven to ten days. Thereafter, she stated, a customer can expect additional delay due to the time for mailing and receipt.

company. Carol Spencer, a customer service representative, testified: Q. So I guess its possible for a customer to request that the account be closed and that the credit balance be transferred to another credit card company? A. No. Q. Why not? A. Because you cannot do a balance transfer on a closed account. Q. That would be why? I dont understand that. I mean, if Im closing my account and money is owed to me, why cant I tell you where I want it sent? A. Its the procedures and the rules that we have to follow. We cannot send a balance transfer on a closed account. The computer wont process it. (Deposition of Carol Spencer, Exhibit L [not reprinted herein] hereto at pp. 3839). However, that policy is not communicated to the customer. (Deposition of Katherine Bell, Exhibit E at pp. 6364).

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thing else; it represented that any cardholder could request a credit balance refund and that the request could be verbal or in writing. 1 Refunds pursuant to telephone requests would be delayed for up to 30 days or more instead of the 7 days required by Regulation Z. 1 The card carrier addressed to more than one cardholder did not differentiate between an authorized user and any other type of cardholder. 1 Cardholders were solicited to apply for credit card accounts without an explanation of what Advanta meant by the term authorized user or that Advantas position was that an authorized user was not entitled to request a credit balance refund. The cases cited by Advanta are all distinguishable. In each case, a class was not certified because the plaintiff could only produce evidence of isolated instances of the challenged conduct. Here, the plaintiffs have produced uncontroverted evidence of a number of uniform practices of Advanta that contradict its position that it complies with applicable law. Or, put another way, Advanta cannot enter into contracts with its customers that create certain expectations and obligations that are beyond the minimum statutory rights of the customers, and then attempt to avoid enforcement of those obligations by taking refuge in those very statutes. In re Porter, 961 F. 2d 1066, 1077 (3d. Cir. 1992) (TILA does not forbid giving borrowers more rights than are in statute). Thus, it is not plaintiffs burden to identify each Advanta customer who failed to receive a credit balance refund in a reasonably timely manner. Rather, the proof of Advantas practices that are inconsistent with their contractual undertakings is sufficient to show that thousands of cardholders were affected. 2. Typicality and Adequacy The typicality requirement of Rule 23(a) tends to merge with the commonality requirement. Baby Neal v. Casey, 43 F.3d 48, 56 (3d Cir. 1994). Although Advanta has, significantly, not disputed that plaintiffs have established commonality, it argues that plaintiffs claims are subject to a unique defense that renders those claims atypical and prevents them from adequately representing the Class.16 However, it is that very defense raised by Advanta that makes this case appropriate for class treatment.
16 While Advanta raises Mrs. Coes professional association with a law firm that had previously represented plaintiffs in the case as an adequacy issue, it offers no evidence to support its baseless assertion that she is therefore an inadequate class representative. Mrs. Coe fully explained in her deposition the tragic circumstances that led to the dissolution of her former firm and her decision to become of counsel to the firm of [Law Firm] as well as the fact that her new firm then withdrew from the case and will not receive any fees. (Deposition of Janet Coe, Exhibit H, [not reprinted herein] pp. 632). Nor is the Coes adequacy as class representatives impacted by the nature of Mrs. Coes profession. This Court has recently ruled that there is nothing inherently problematic with an attorney serving as a class representative. Spark v. MBNA Corporation, 178 F.R.D. 431 (D. Del. 1998).

1 Ultimately, a refund check dated February 3, 1998 was finally sent to the Coes, two full months after it was first requested by Mr. Coe. (Exhibit A, page P1, to Motion). (Complaint, kk 1419; deposition of George L. Coe, III, Exhibit K at pp. 1326; deposition of Janet Coe, Exhibit H at pp. 83102) [not reprinted herein]. All of these facts establish that the Coes are more than adequate class representatives, their claims are typical and the common issues are appropriate for class treatment. III. REPLY ARGUMENT A. Rule 23(a) 1. Numerosity Plaintiffs class consists of all persons who, from May 6, 1994 had a credit card account with Advanta with a credit balance in excess of one dollar ($1.00) and as to whom Advanta failed to refund the credit balance within a reasonable time. Due to the number of credit card accounts administered by Advanta, numerosity is hardly an issue. Advanta contends that plaintiffs have not met the numerosity requirement because the internal documents and the testimony of its employees show that it is Advantas policy to issue credit balance refunds within the time required by TILA and Regulation Z. (Memorandum at 14). However, Advanta made that argument prior to the depositions of the employees whose testimony was described above and prior to production of all the documents requested in discovery by the plaintiffs. Ralph Dim, Advantas manager of customer service, estimated that Advanta had approximately 7 million cardholders. (Deposition of Ralph Dim, Exhibit M hereto at p. 70) [not reprinted herein]. Each of those cardholders was subject to the Cardholder Agreement that failed to disclose the credit balance refund policies that Advanta has sought to raise as a bar to this action. Mr. Dim also testified that there were approximately 500600 daily requests for credit balance refunds in 1997. (Id.). Todd Martin testified that there was on average approximately 80,000 to 100,000 requests for credit balance refunds a year in 1995 and 1996, 85%90% of which were over the telephone. (Deposition of Todd Martin, Exhibit D at pp. 53-55). Katherine Bell estimated that her settlement department issued approximately 1,5002,000 credit balance refunds daily. (Deposition of Katherine Bell, Exhibit E at p. 95) [not reprinted herein]. Clearly, thousands and thousands of people were subject to Advantas credit balance refund policies. Advantas own witnesses and documents establish that the following practices and procedures were applied to those thousands of cardholders: 1 Requests for closing an account, resulting in a credit balance, were not treated as requests for refunds; rather, the Advanta computer was only programmed, and customer service representatives trained, to process a credit balance refund if that refund was specifically requested by the customer. 1 The Cardholder Agreement did not identify a specific individual cardholder as an authorized user or as some-

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Advanta describes its defense as two-fold: 1) Mr. Coe, who Advanta characterizes as a primary cardholder, did not make a written request for the refund, and 2) Mrs. Coe, who did make a written request, was a so-called authorized user who was not entitled to request a refund at all. (Memorandum at pp. 19-20). As explained above, that defense is not available to Advanta, as to either the Coes or the class. Advanta entered into a contract with the Coes and with class members which was a contract that Advanta drafted itself, the Cardholder Agreement. That contract does not identify who is an authorized user and does not provide that only a primary cardholder17 can request a credit balance refund, or that the request has to be in writing. Basic principles of waiver and estoppel now operate to preclude Advanta from asserting a defense outside the contract that it imposed on its customers. See, e.g., Restatement (Second) of Contracts 90 (1981) (A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise). An inquiry into typicality should focus on whether the named plaintiffs circumstances or their legal theories are markedly different from those of other class members. Eisenberg v. Gagnon, 766 F.2d 770, 786 (3d Cir.), cert. denied sub nom Wasserstrom v. Eisenberg, 474 U.S. 946 (1985). Courts will liberally construe the typicality requirement as long as no express conflicts exist between the class representatives and the class. Spark v. MBNA Corporation, 178 F.R.D. 431 (D. Del. 1998), quoting Friedman v. Lansdale Parking Authority, 1993 U.S. Dist. LEXIS 12019 (E.D. Pa. August 30, 1993). Typicality is satisfied regardless of whether different facts underlie each class members claim, as long as the named plaintiffs and the class members all have overarching claims arising from a uniform practice. Barnes v. American Tobacco Co., 161 F.3d 127, 140141 (3d Cir. 1998); In re Prudential Insurance Company America Sales Practice Litigation Agent Actions, 148 F.3d 283, 311312 (3d Cir. 1998); Baby Neal, 43 F.3d at 58; Williams v. Empire Funding Corp., 183 F.R.D. 428, 439 (E.D. Pa. 1998). In the case at bar, Advanta has been shown to have employed, on a uniform basis, numerous practices and policies that interfered with plaintiffs and class members rights to a timely credit balance refund. Plaintiffs contracted with Advanta for a credit card pursuant to certain representations and containing certain provisions about their rights to obtain a credit balance refund. Thousands of class members entered into the identical contract. Class members were also all affected by Advantas policies to not refund a credit balance resulting from the closing of the account, unless the customer specifically asked for the refund, and the policy of delaying refunds requested over the telephone. Plaintiffs claims that these policies deprived them of their right to a timely refund are clearly typical of the claims of class members. Advanta has no defense unique to Mr. and Mrs. Coe; whatever defense it might have is equally applicable to any customer who obtained a credit card pursuant to the terms of the Cardholder Agreement.
17 In fact, the term primary cardholder does not even appear in the Cardholder Agreement. (Exhibit A).

Appx. M.2

Thus, this case is critically different from the cases cited by Advanta. In Marian Bank v. Electronic Payment Services, Inc., 1997 U.S. Dist. LEXIS 21021, *52 (D. Del. Dec. 30, 1997), the court found a unique defense where the named plaintiff did not have the authority to pursue claims and causes of action. In Zhang v. Haven-Scott Assocs., 1996 U.S. Dist. LEXIS 8738, *16 n.4 (E.D. Pa. June 21, 1996), the court, in dicta, pointed out that the time in which to file a class certification motion had lapsed, and did not reach the issue. The other cases are similarly inapposite. This is not a case where the presence of even an arguable defense peculiar to the proposed representative may destroy typicality. Irvin E. Schermer Trust v. Sun Equities Corp., 116 F.R.D. 332, 33637 (D. Minn. 1987). Rather, while Advantas defenses, assuming they have merit, might affect the Coes ultimate right to recover, they do not affect the presentation of the case on the liability issues for the class. See 1 Newberg on Class Actions, 3.16 at 3-90 (3d ed. 1992). B. Rule 23(b)(2) and (3) Plaintiffs seek class certification under both Rule 23(b)(2) and (b)(3). They do so because Advanta has acted or refused to act on grounds generally applicable to the class and because questions of law or fact common to the class predominate over questions affecting only individual members. Nothing in Rule 23 precludes class certification on both grounds. As a noted commentator has pointed out, if a defendants conduct makes injunctive or declaratory relief appropriate, the full panoply of the courts equitable powers is introduced and monetary relief can be granted on a class-wide basis. 1 Newberg on Class Actions 4.14 at 4-46. The commentator goes on to say: When the parties dispute which form of relief is predominant with respect to the appropriateness of Rule 23(b)(2) for any class certification, it is counterproductive for the court to expend time to try to resolve this largely discretionary question, which does not address the merits of the case. Rather, the court should conclude that when the Rule 23(a) prerequisites are satisfied and declaratory or injunctive relief is sought as an integral part of relief for the class, then Rule 23(b)(2) is applicable regardless of the presence or dominance of additional prayers for damages relief for class members . . . [This procedure] substitutes a more efficient and predictable determination that promotes the objectives of Rule 23 and is consistent with the purposes and rational for the creation of the Rule 23(b)(2) class category. 1 Newberg on Class Actions 4.14, at 4-50 to 4-52; Williams, 183 F.R.D. at 436. Plaintiffs also satisfy the predominance requirement of Rule 23(b)(3). The common questions of law and fact discussed above are broad and overriding, so there is no need for an individualized inquiry into each class members situation. The elements of plaintiffs claimsthe failure to treat a request to close an account as a request for the refund, the uniform contractual representations of the Cardholder Agreement that

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any cardholder can request a refund, verbally or in writing, the refusal to treat verbal requests as requiring refunds within the time frame established by Regulation Z and the uniform representations contained in the solicitation scriptare applicable to all class members and predominate over whatever individual issues there may be. Heastie v. Community Bank of Greater Peoria, 125 F.R.D. 669, 67475 (N.D. Ill. 1989) (elements necessary to establish fraudulent scheme were all common issues). Even if this were a close case on predominance, which it is not, it should still be resolved in favor of class certification. Esplin v. Hirschi, 402 F.2d 94, 101 (10th Cir. 1968), cert. denied, 394 U.S. 928 (1969) (the interests of justice require that in a doubtful case, . . . any error, if there is to be one, should be committed in favor of allowing the class action). C. The Class Definition Is Not Deficient While Advanta complains that the proposed class definition is deficient, Advanta has only its own documents and practices to blame for the phrasing of the definition. It is true that neither TILA nor Regulation Z uses reasonable time as the measurement by when a credit balance should be refunded. However, as discussed throughout this brief, the regulatory standard establishes what the bank regulators consider reasonable and sets a presumptive reasonableness standard. That Advanta chose to accept both verbal and written requests on an equal basis in its Cardholder Agreement, and thus subject itself to the 7 day requirement, is the common question. What is more, the evidence establishes that Advanta did not even comply with its own undisclosed reasonableness standard of 30 days for verbal requests. Hence, the reasonable time definition properly embraces both Advantas violation of the federal standard and its violation of its own undisclosed policy. (Deposition of Todd D. Martin, Jr., Exhibit D at pp. 44-45, 62-63 and including Martin-3) [not reprinted herein]. Finally, the proposed class period of May 6, 1994 to the present is consistent with the four year statute of limitations that is applicable to actions brought under the Delaware CFA. 6 Del. C. 2-725. IV. CONCLUSION For all the foregoing reasons, plaintiffs George and Janet Coe respectfully request that the Motion be granted and that the proposed class be certified. Respectfully submitted, By: BALDWIN & BALDWIN Address Phone Number JUSTIN HUNT, LLC M.D. Justin D.A. Reardon Address Phone Number Date: Attorneys for Plaintiffs and the Class

M.3 TIL Rescission and Deceptive Practices CaseHome Improvement Contract (Mount)
IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION MATTHEW MOUNT and LESLIE MOUNT, on behalf of themselves and all others similarly situated, Plaintiffs, v. LASALLE BANK LAKE VIEW, ) ) ) ) ) ) ) ) ) ) ) Defendant. ) )

REPLY MEMORANDUM IN SUPPORT OF PLAINTIFFS MOTION FOR CLASS CERTIFICATION Plaintiffs Matthew Mount and Leslie Mount (the Mounts) have moved this Court to enter an order pursuant to Rule 23 of the Federal Rules of Civil Procedure that Counts IIII of the Amended Complaint may proceed against defendant LaSalle Bank Lake View (LVB) as a class action. In its response to the Mounts motion, LVB argues that a class should not be certified in this action because: A. The class is not sufficiently numerous; B. The class definition is overbroad; C. The Mounts claims are atypical. LVB also argues that this case cannot be certified under Rule 23(b)(2). As discussed below, LVBs positions on each of the issues are without merit and the motion for class certification should be granted. I. THE CLASS DISCOVERY Early in this litigation, plaintiffs requested copies of class members documents. LVB resisted producing the records. At one point, to lessen the burden on the defendant, plaintiffs counsel suggested that a sample of documents be produced only the documents of putative class members whose last names begin with R. LVB continued to resist, and faced with a motion to compel, agreed to stipulate that the class plaintiffs sought to certify was numerous. In its response to the motion for class certification, LVB changed its position and itself reviewed the documents of class members whose last names began with the letter R. LVB argues that review of those files reveals that the class definition is overbroad and the class is not sufficiently numerous. Def. Mem. at 57 and 1112. The documents were produced to plaintiffs counsel on October 1. Plaintiffs review of the documents reveals that the LVBs conclusions are unsupported. See, Declaration of Cathleen M. Combs, attached as Appendix A [not attached herein].

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II. THE CLASS IS NUMEROUS Ninety-one files were produced to plaintiffs. Plaintiffs counsel found that eight of those files contained dealer contracts dated before the LVB retail installment contracts were signed, not six as LVB asserts. Appendix A LVB has responded to discovery requests asserting that LaSalle has a total of 1292 files. Appendix B [not attached herein]. By extrapolation, if 91 files contain 8 transactions with dealer contracts dated before the retail installment contracts, then 170 of the 1942 would contain that violation. A class of 170 borrowers is sufficient to meet the numerosity requirement. Swanson v. American Consumer Industries, 415 F.2d 1326 (7th Cir. 1969)(18 sufficient); Riordan v. Smith Barney, 113 F.R.D. 60 (N.D.Ill. 1986) (1029 sufficient); Sala v. National Railroad Passenger Corp., 120 F.R.D. 494, 497 (E.D.Pa. 1988) (4050 sufficient). Further review of the files indicated that, 33 of the remaining files contained dealer first contracts with penalty clauses or confession of judgment clauses. Appendix A. Those dealer first contracts included forms with penalty or confession of judgment clauses from nine dealers in addition to the 23 that plaintiffs had identified in the their opening memorandum. Pl. Mem at 910. (A & W Aluminum & Construction Co., Appendix C [not attached herein]; First Chicago Builders, Appendix D [not attached herein]; First Choice Remodeling, Appendix E [not attached herein]; First Metropolitan Builders, Inc., Appendix F [not attached herein]; Hometown Builders & Supply Co., Appendix G [not attached herein]; House of Beauty Builders, Appendix H [not attached herein]; Pacific Construction Co., Inc., Appendix I [not attached herein]; Tri City Builders, Inc., Appendix J [not attached herein]; Windy City Exteriors, Inc.; Appendix K [not attached herein]. Plaintiffs also found 12 files which did not contain dealer first contracts, but which were issued by dealers which use first contracts containing penalty or confession of judgment clauses. Appendix A. Included in that group is a transaction that was originated by Alard Home Improvements Corp., a dealer not listed by LVB as one with which it does business (Pl. Mem., Exhibit N), but one which plaintiffs counsel was aware used a first contract with a penalty clause and a confession of judgment clause. Appendix L [not attached herein]. Hence, 53 of the 91 files have documents which indicate that the borrowers rescission rights were compromised. If LVB has 1292 files, a fair estimate of the number of borrowers in LVBs entire portfolio whose rescission rights were violated would be 750. A class of 750 is numerous. Furthermore, the remaining 38 loan files could also contain violations. Many of the files do not contain the first contract. In other cases, they contain copies of only parts of the first contracts. Plaintiffs are entitled in discovery to establish that the dealers involved in those transaction also used practices which compromised the borrowers right to rescind. This might be accomplished by reviewing additional LVB loan files which do contain first contracts or by subpoenaing documents of the dealers. Indeed of the 91 files, the only ones in which it was clear that no violations exist were two: one in which no loan was made and one which was a home equity line of credit. These files are not representative of the other 89 and appear to have been produced in error.

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III. THE CLASS DEFINITION IS NOT OVERBROAD LVB argues that the class definition is overbroad in that it encompasses persons who do not have a cause of action. Def. Mem at 6. LVB is wrong. Moreover, the entire matter is completely immaterial to the issue of whether a class should be certified. It is well established that on a motion for class certification, the issue is whether plaintiffs allegations, if assumed to be true and to state a valid cause of action, are suitable for class resolution. Blackie v. Barrack, 524 F.2d 891, 901 n. 16 (9th Cir. 1975); In re Bank of Boston Corporation Securities Litigation, 762 F.Supp. 1525 (D.Mass. 1991); Sharif by Salahuddin v. New York State Education Department, 127 F.R.D. 84, 87 (S.D.N.Y. 1989); Ventura v. New York City Health & Hospitals Corp., 125 F.R.D. 595, 598 (S.D.N.Y. 1989); Heastie v. Community Bank of Greater Peoria, 125 F.R.D. 669 (N.D.Ill. 1989). A court should not consider the merits, but instead determine whether the claim articulated by plaintiffs, assuming that it has merit, is of a type suitable for class treatment. Eisen v. Carlisle & Jacquelin, 417 U.S. 156, 177-78 (1974); Eagleston v. Chicago Journeymen Plumbers Local Union No. 130, 657 F.2d 890, 895 (7th Cir. 1981); Issen v. GSC Enterprises. Inc., 508 F.Supp. 1298, 1299 (N.D.Ill. 1981); Steiner v. Equimark Corp., 96 F.R.D. 603, 606 (E.D.Pa. 1983). The court must not prejudge the merits of the case in order to make a class certification decision. In re Corrugated Container Antitrust 80 F.R.D. 244, 251 (S.D.Tex. 1978). Thus, [t]he determination whether there is a proper class does not depend on the existence of a cause of action. A suit may be a proper class action, conforming to Rule 23, and still be dismissed for failure to state a cause of action. Kahan v. Rosensteil, 424 F.2d 161, 169 (3d Cir. 1970). A. DATING RETAIL INSTALLMENT CONTRACTS LVB first argues that the class should be limited to those persons whose retail installment contract bears a date subsequent to the signing of the dealer first contract. Def. Mem. at 7. LVBs definition is overly narrow. As described above, it excludes persons whose rescission rights have been compromisedpersons who were purportedly bound to dealer first contracts containing cancellation or confession judgment clauses. It is quite clearly a violation to inform a borrower that he will owe money upon cancellation or is subject to having a judgment entered against him by confession. Federal Reserve Board Regulation Z, issued to implement TILA, provides (12 C.F.R. 226.5(h), Imposition Of Nonrefundable Fees: Neither a creditor nor any other person may impose a nonrefundable fee in connection with an application [for credit] until three business days after the consumer receives the disclosures and brochure required under this section. The FTC Home Solicitation Sales Regulation, 16 C.F.R. 429.1, states: In connection with any door-to-door sale, it constitutes as unfair and deceptive act or practice for any seller to: . . . (b) fail to furnish each buyer, at the

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from an unspecified third party. Subsequently, the broker altered the arrangement and made the loan itself on the same terms. The court held that the transaction was consummated, and disclosures were required to be made, i.e. when there was a definite source of credit. Since the consumer had not been given until three days after that date to rescind the deal, her rescission rights had not been complied with, and she was allowed to rescind the transaction several years later. In the present case, each consumer was given a credit application bearing the name of LVB. The retail installment contract was provided either at the same time as the credit application (if one accepts LVBs contention that the contracts were accurately dated) or later (if, as appears to be the case, the retail installment contracts were often backdated18). On its face, the retail installment contract states that payment will be made at the offices of LVB. The documents, which contemplated payment to LVB, could not be used without alteration if the transaction was disapproved by LVB and financed by the dealer. The unmistakable inference that the reasonable consumer would derive from being presented with a credit application is that he or she was applying for credit, and that a credit transaction would exist if the application were approved. Most importantly, the evidence will show that the dealers did not in fact extend credit if LVB did not. Rather, the dealers would attempt to either arrange credit with someone else (who would use their own documentation) or enforce the first contract. Consequently, the class is appropriately defined to include all persons who signed a cash contract and a retail installment contract with LVB , and whose loan was approved by LaSalle after the date of the installment loan contract. Of the 91 files produced by LaSalle, all but one or two are included. Appendix A. IV. THE MOUNTS CLAIMS ARE TYPICAL LVB argues that the claims of the Mounts are not typical of the claims of the rest of the class because: 1. The Mounts needed financing to pay for their new construction; 2. The Mounts were unhappy with the construction work done on their home; 3. The Mounts refused to sign a completion certificate;
18 The files contain clues that documents were frequently backdated. For example, the file of Edgar and Maria Ramos (Appendix O) [not attached herein] contains two contracts purportedly dated 10/17/87. However, one of them has a note that states This contract & trust deed are void-new contract w/3rd party signing was recd. Indeed, that contract has Maria and Edgar Ramos as buyers and only their signatures appear. The second contract, also dated 10/17/ 87, contains the name of Mayra Ramos Salgado above the Ramos names as buyers, and all three signatures appear. It seems unlikely that both of these contracts were signed on the same day. The file of Domingo and Edna Rios shows a dealer contract and a retail installment contract both dated March 8, 1986. Appendix P. However the handwriting on each of the documents is different, again raising the question as to whether the documents were both actually dated the same date.

time the buyer signs the door-to-door sales contract or otherwise agrees to buy consumer goods or services from the seller, a completed form in duplicate, captioned . . . NOTICE OF CANCELLATION, which shall contain . . . the following information . . . YOU MAY CANCEL THIS TRANSACTION, WITHOUT ANY PENALTY OR OBLIGATION, WITHIN THREE BUSINESS DAYS FROM THE ABOVE DATE . . . (g) fail or refuse to honor any valid notice of cancellation by a buyer. . . . This includes failing to refund all payments made, failing to return any goods or property traded in, and failing to cancel and return any negotiable instrument executed by the consumer in connection with the contract or transaction. 16 C.F.R. 429.1(b), (g). B. DATE OF CREDIT APPROVAL BY LVB LVB further argues it is inappropriate to include in the class definition the date of credit approval by LVB. Def. Mem. at 67. LVB argues that if a particular contract is not accepted by LVB, the dealer would have to carry the paper. Id. This analysis is faulty. The reason that dealers finance paper through LVB is that they do not have the financial resources to carry the paper themselves. Further, the most likely reason for LVB turning a deal down is lack of credit worthiness, in which case is difficult to believe the dealers would carry the risk. From a legal standpoint, a consumer is required to be given notice of his right to rescission upon consummation of the transaction. When a seller arranges credit for his purchaser from a third party, and the documents presented show that the approval of the third party is required for the arrangement to take effect as written, consummation does not occur until that approval is given. Clark v. Troy & Nichols, Inc., 864 F.2d 1261, 1264 (5th Cir. 1989); Jackson v. Grant, 876 F.2d 764 (9th Cir. 1989); Baxter v. Sparks Oldsmobile, Inc., 579 F.2d 863, 864 (4th Cir. 1978); Gary v. W. T. Grant, CCH Consumer Credit Guide [197480 Transfer Binder] k98,550 (N.D.Ga. 1975) (where approval of a transaction by a third party is contemplated transaction is not consummated prior to approval); Hartford Fed. S. & L. Assn v. Green, 36 Conn.Sup. 506, 412 A.2d 709 (App.Div. 1979); Evans v. Graves Pontiac-BuickGMC Truck, Inc., 576 So.2d 1025, 1029 (La.App. 1991); State of New York v. Dartmouth Plan, Inc., CV-91-1579 (N.D.N.Y. 1992) attached as Appendix N [not attached herein]. For example, in Hartford Fed. S. & L. Assn v. Green, 36 Conn.Sup. 506, 412 A.2d 709 (App.Div. 1979), a home improvement contractor entered into an installment agreement with a consumer on June 17, 1971, providing for 96 installments of $43.87 each. The parties contemplated that the transaction would be submitted to Hartford for approval and purchase. On August 20, 1971, Hartford agreed to purchase the obligation, the note was dated, and the dates for payment of the installments were inserted. The court held that the transaction was consummated on August 20, 1971, not on June 17, 1971. Similarly, in Jackson v. Grant, 876 F.2d 764 (9th Cir. 1989), a loan broker undertook to arrange credit on specified terms

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4. The Mounts have excessive finance charges; 5. The Mounts have elected to rescind; 6. Under Count III, the Mounts must demonstrate reliance, which destroys typicality. LVBs position is without merit. The Mounts claims are typical of the class. A plaintiff is an appropriate representative if the facts and legal theories he or she must establish are similar to the facts and legal theories that the class members must establish. When it is alleged that the same unlawful conduct was directed at or affected both the named plaintiff and the class sought to be represented, the typicality requirement is met irrespective of varying fact patterns which underlie individual claims. Edmonson v. Simon, 86 F.R.D. 375, 381 (N.D.Ill. 1980). There is no requirement that all of the circumstances of each class members claim must be common. The test is whether the questions of fact or law common to the classthat is, the factual and legal elements of the causes of action alleged predominate. Common questions predominate if there is a common nucleus of operative facts relevant to the dispute. E.g., Esplin v. Hirschi, 402 F.2d 94, 99 (10th Cir. 1968); Blackie v. Barrack, 524 F.2d 891, 90508 (9th Cir. 1975); Bisgier v. Fotomat Corp., 62 F.R.D. 113 (N.D.Ill. 1972); Steiner v. Equimark Corp., 96 F.R.D. 603, 607 (W.D.Pa. 1983). In making the class determination, the Court looks to the operative facts on which the plaintiffs legal claims are based, not the interesting, but legally irrelevant, stories about how the named plaintiffs or class members came into contact with the defendant. Edmonson v. Simon, supra, 86 F.R.D. 375, 381 (N.D.Ill. 1980) (court looks to the nature of the claim or defense of the class representative and not to the specific facts from which it arose or to the relief sought). Very few if any class actions could ever be certified if there were some sort of requirement that the circumstances surrounding everyones dealings with the defendant had to be the same. For example, in Heastie v. Community Bank of Greater Peoria, 125 F.R.D. 669 (N.D.Ill. 1989), the court certified a class in a case in which a bank was alleged, as here, to have acted in concert with a number of home improvement contractors to utilize a two contract procedure whereby low-income homeowners were induced to sign binding contracts before legallyrequired disclosures of financing terms were provided, with the purpose and effect of locking consumers into interest rates materially higher than rates available elsewhere and of making it difficult or impossible for consumers to reconsider and cancel their contracts. Like this case, there was enormous variety in the details of the 6,000+ individual home improvement transactionsthe consumers dealt with different contractors and contracted for different repairs on unique properties, and each of the transactions was individually negotiated. A large percentage of the class members had construction problems. (The case has settled, an arbitration procedure set up to handle defect claims and about 800 defect claims are filed.) However, the court was concerned only with the specific elements of the causes of action alleged by plaintiffs. Plaintiffs in Heastie alleged, as here, (i) that certain provisions in standard form documents were unlawful and (ii) that there was a practice of executing certain standard form documents in a sequence that resulted in consumers being obligated before required disclosures were furnished. Those facts were common

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the first was the subject of a classwide summary judgment, 727 F.Supp. 1133 and 1140 (N.D.Ill. 1989), and the second could be established on a classwide basis by testimony and documents showing what the banks standard loan origination practice was and by the dates of papers in transaction files. The fact that each of the class members might have a different story to tell was not material. Under the applicable legal standard, LVBs arguments are without merit. 1. LVBs argument that the Mounts claims are not typical because they needed financing to pay for the construction to the loan is silly. All of the putative class members received financing for the construction to their homes. The Mounts, with their income level, are quite possibly the most affluent of the persons who ended up having their home construction loans financed by LVB. Many of the persons in the sample files produced by LVB had were persons who had Spanish surnames. Appendix A Nearly all of the loans are for smaller amounts than the Mounts. Id. This, of course, illustrates the need for a class action in this matter since few of the class members would have the resources necessary to pursue the claim individually. 23. The fact that the Mounts were unhappy with the construction work done on their home, refused to sign the completion certificate and received some money from the dealer for work improperly completed, likewise does not make their claim atypical. They merely have additional individual claims. One of the reasons that home improvement transactions were singled out for rescission rights was to give consumers an additional opportunity to investigate the contractor and avoid problems of this sort. 4. The fact that the Mounts finance charges were in excess of the amount that they were told they would be required to pay is also not atypical. On the contrary, their claim is illustrative of the problems with the practices of LVB and its dealers. The purpose and effect of trapping borrowers into contracts before they have had an effective three day cooling off period is to increase the cost of debt. In Heastie, plaintiffs expert estimated that costs were increased by several percentage points. The practice tends to increase the cost of credit irrespective of whether there are specific financing terms in the first contract. Presence of the financing terms dramatically illustrates the abusewhy would anyone agree to an increase in the interest rate. The proof at trial would involve having an expert compare rates at financial institutions which service similar borrower populations but have lower rates. It is a little like an antitrust suit, where and anticompetitive practice plus a super competitive price equals proof of injury. 5. LVB argues that the Mounts must demonstrate that there are numerous persons within the class who want to rescind the contract and their failure to do so means that their claim is atypical. Def. Mem. at 89. This conclusion is without merit. The procedure of declaring class members right to rescind has been expressly adopted by both state and federal courts in Illinois. Smyth v. Kaspar American State Bank, 6 Ill.App.2d 64, 127 N.E.2d 149 (1st Dist. 1955), affd, 9 Ill.2d 27, 136 N.E.2d 796 (1956). The complaint in Smyth sought rescission of the surrender of certain certificates, allegedly induced by fraud. The court endorsed a procedure whereby the trial court would declare that each former certificate holder was entitled to

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fully interfered with and given a choice of whether or not to rescind is appropriate. Logically then a class representative who seeks rescission on his own behalf can represent persons who when notified of their right to rescind, chose not to rescind. Hence, the Mounts here can appropriately represent class members who may ultimately decide not to rescind and need not establish now what class members choices will be. Bryan v. Amrep Corp., 429 F.Supp. 313 (S.D.N.Y. 1977). 6. LVB argues that Count III, a common law fraud count which seeks rescission for LVBs practice of causing or permitting dealers to misstate dates by which rescission rights had to be exercised, requires the showing of oral representations which destroys typicality. Def. Mem. at 910. LVB also argues that plaintiff must also show the extent of reliance by class members on the representation, which also purportedly destroys reliance. Id. In fact plaintiffs proof of the practice consists of documentary evidence produced by LVB in its business records. Plaintiffs do not rely on any oral representations. Hence this case is distinguishable from the factual allegations in Spencer v. Central States Pension Fund, 778 F. Supp. 985 (N.D.Ill. 1991), cited by LVB, where the plaintiffs claims hinged solely on oral representations made by union officials and fund trustees at 27 different local union meetings. V. RULE 23(b)(2) CERTIFICATION IS APPROPRIATE LVB argues that certification under Rule 23(b)(2) is not appropriate here because the Mounts request for the relief of rescission is simply a predicate for a money judgment. Def. Mem. at 12. LVB further argues that rescission is not appropriate because the parties can not be placed in the same position they were in before the financing occurred. Id. LaSalle cites Puskar v. Hughes, 533 N.E.2d 962 (Ill.App. 2 Dist. 1989) for the proposition that the class members cannot rescind because the parties cannot be placed in the positions they were in before the financing occurred. This does not actually do justice to the language of Puskar. Citing the Restatement, 2d of Contracts, the case states if a party has received land, goods or other property he is expected to return it. The fact that he has benefitted from possession of them does not preclude restitution since he can compensate the other party in money for this benefit. Puskar cites a case, Williams v. Dunas, 40 Ill.App.3d 782, 352 N.E.2d 266 (1976) in which the court held that the purchaser had to put the seller in the position he was in at the beginning of the contract by paying the reasonable rental value of the land for the period when he had possession. The case actually seems to say that rescission is allowed when the consideration is returned or the benefits received are offset. The slant put on Puskar by LaSalle thus is too narrow. Indeed, U.S. Minerals and Mining, Inc. v. Licensed Processors, Ltd., 194 Ill.App.3d 428 (Ill.App. 5 Dist. 1990) cites Puskar for the proposition that rescission requires the return of consideration and the accounting for any benefits received. If the party claims costs that do not represent any benefit conferred, they are disallowed. Furthermore, in a later case, Felde v. Chrysler Credit Corp., 580 N.E.2d 191, 199 (Ill.App. 2 Dist. 1991), Puskar is cited for the proposition that rescission requires a return of consider-

rescind the surrender if he desired, and which will require the filing and proving of claims by the individual holders who have surrendered their certificates,within a time and in a manner fixed by the court. 6 Ill.App.2d at 83. The class judgment would merely . . . establish by decree a condition precedent to the right of themselves and each member of Group II, at his election, to assert his claim against the common fund. Id. at 84. It was recently applied by the Illinois intermediate appellate court to a class action under the state Blue Sky law. Hess v. I.R.E. Real Estate Income Fund, 1993 Ill.App. LEXIS 263 (Ill.App., 1st Dist., Feb. 26, 1993). Similarly, in Tcherepnin v. Franz, 461 F.2d 544 (7th Cir. 1972) the Court of Appeals affirmed a classwide judgment providing that the plaintiffs and their class had been defrauded within the meaning of the anti-fraud provisions of the Securities Exchange Act and that [a]s defrauded purchasers of securities, they had a right to rescind their purchase agreements and, upon the rescission, were entitled to assert a claim against [certain funds]. The procedure of issuing a judgment declaring that the class members have the right to rescind has been applied on numerous occasions in cases arising under the securities laws, which also provide a statutory rescission remedy. Harris v. Palm Springs Alpine Estates, Inc., 329 F.2d 909 (9th Cir. 1964) (reversing denial of class certification in securities case over objection that counts 2 and 3 seek rescission and return of consideration as to those investors who still own the securities and damages as to those who do not); Pistoll v. Lynch, 96 F.R.D. 22 (D.Haw. 1982) (certifying class in 10b-5 case where relief sought was, in the alternative, money damages or rescission for each class member). Other TILA cases have approved of the procedure of entering a classwide declaration establishing the class members right to rescind. Anderson v. Federal National Mortgage Assn., 87-0236-R (E.D.Va.); Ried v. North Jersey Home Energy Center, L-084324-85 (Passaic Co., New Jersey, Superior Court, Jan. 13, 1989); Security Pacific v. Jefferson, No. 88 CH 9268 (Circuit Court of Cook County, Illinois, May 17, 1989) (rejecting lenders argument on motion to dismiss that TILA claim was inappropriate for class treatment). The same option-to-rescind procedure has been followed under other state and federal consumer protection statutes. Richmond v. Dart Industries, Inc., 29 Cal.3d 462, 629 P.2d 23, 174 Cal.Rptr. 515 (1981) (expressly endorsing option procedure and rejecting argument that rescission claim can never be maintained on class basis); Vasquez v. Superior Court, 4 Cal.3d 800, 94 Cal.Rptr. 796, 484 P.2d 964 (1971) (relief sought was judgment permitting class members to rescind their contracts); Olive v. Graceland Sales Corp., 61 N.J. 182, 293 A.2d 658 (1972) (permitting a class action for relief including rescission to be maintained, as long as each class member was specifically asked if he or she desired rescission); Bryan v. Amrep Corp., 429 F.Supp. 313 (S.D.N.Y. 1977) (class certified in case arising under the antifraud provisions of the Interstate Land Sales Full Disclosure Act despite objection that relief sought for each class member was either damages or rescission, as that person might elect); OQuinn v. Beach Associates, 272 S.C. 95, 249 S.E.2d 734 (1978); Lonsdale v. Chesterfield, 99 Wash.2d 353, 662 P.2d 385 (1983). Hence, a class action seeking a procedure whereby class members are notified of their right to rescind, which was wrong-

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ation and setoff of benefits received. In contrast to LaSalles interpretation, these cases do not preclude rescission when the benefits are setoff or returned. Here, since the work has already been done, the minimal benefits received by the Mounts (because the work was so shoddy) can be offset. VI. CONCLUSION For the reasons stated above and in our initial memorandum, the Court should certify a class as requested by plaintiffs. Respectfully Submitted, [Attorney]

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M.4 TIL Untimely Disclosure Case (Diaz)


IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION ) ) ) ) ) ) v. ) ) WESTGATE LINCOLN ) MERCURY, INC., ) Defendant. ) ) SALVATOR DIAZ, on behalf of himself and all others similarly situated, Plaintiff, PLAINTIFFS REPLY IN SUPPORT OF MOTION FOR CLASS CERTIFICATION Plaintiff, Salvator Diaz (Diaz), respectfully submits this reply in support of his motion for an order that this action may proceed as a class action against defendant Westgate Lincoln Mercury, Inc. (Westgate). INTRODUCTION Plaintiff alleges that Westgate violated the Truth in Lending Act, 15 U.S.C. 1601 et seq., through the use of a printed form which purports to bind consumers to car purchases on credit, without providing the disclosures required by the Truth In Lending Act (TILA). (Complaint, kk 811) The printed form is a note obligating the consumer to pay the entire balance of the purchase price, plus interest at 20%. (Exhibit A) [not attached herein] The form also provides for a confession of judgment against the consumer. For years, the use of confession of judgment clauses in consumer contracts has been outlawed by Federal Trade Commission regulations, 16 C.F.R. part 444; however most consumers do not know this.19
19 The fact that a contract may not be valid does not affect the applicability of TILA. Madewell v. Marietta Dodge, Inc., 506 F.Supp. 286, 287 n. 1 (N.D.Ga. 1980).

The natural effect of Exhibit A, and most likely its purpose, is to attempt to lock the consumer into a binding credit contract without providing disclosure of the financing terms as required by the Truth in Lending Act. By the time substitute financing terms are disclosed, the consumer is already party to a purportedly binding contract obligating him to purchase on credit and pay a high rate of interest, and which can supposedly be enforced in court against the consumer without notice or an opportunity to be heard. Plaintiff brought suit on behalf of a class of all persons who, within the one-year limitations period, signed the same printed form as Exhibit A with Westgate, without previously or simultaneously receiving Truth in Lending disclosures. Defendant admits that it has used a contract in the form of Exhibit A in over 400 transactions (Affidavit of John Moroni, k3) and therefore admits that the numerosity element of Rule 23 is satisfied. (Def.Mem.Opp. Class Cert., p. 2). Defendant further admits that there is a common question of law presented: whether the printed form violates TILA. (Def.Mem.Opp. Class Cert., p. 5; Def.Mem.Opp. Sum.J., p. 12) Defendant nevertheless argues that a class should not be certified. DEFENDANTS ARGUMENTS Defendant contends that the class should not be certified because (a) Mr. Diaz has only made a claim for statutory damages; (b) some class members may have actual damages that exceed the statutory damages which they might recover as a result of this class action, creating a purported conflict of interest between Diaz and those class members; and (c) individual issues predominate because the extent of actual damages will differ among those class members. (Def.Mem., pp. 34) Defendant additionally argues that the relatively small recovery for the individual class members while exposing defendants to large administrative costs and requiring substantial amounts of court time for supervision means that a class action is not a superior or efficient method of adjudication of this controversy. (Def.Mem., p. 4) Defendants arguments against class certification are wrong. I. TRUTH IN LENDING ACT DISCLOSURE CLAIMS ARE APPROPRIATE FOR CLASS CERTIFICATION, EVEN IF ONLY STATUTORY DAMAGES ARE REQUESTED Truth in Lending disclosure claims have frequently been certified as class actions. Goldman v. First Nat. Bank, 532 F.2d 10, 16 (7th Cir. 1976); Haynes v. Logan Furniture Mart, Inc., 503 F.2d 1161 (7th Cir. 1974); Adiel v. Chase Fed. S. & L. Assn, 810 F.2d 1051 (11th Cir. 1987); Simon v. World Omni Leasing, Inc., 146 F.R.D. 197 (S.D. Ala. 1992)(Truth in Leasing Act); Hughes v. Cardinal Fed. S. & L. Assn, 566 F.Supp. 834 (S.D.Ohio 1983); Fetta v. Sears, Roebuck & Co., 77 F.R.D. 411 (D.R.I. 1977); Bantolina v. Aloha Motors, Inc., 419 F.Supp. 1116, 1122 (D.Haw. 1976); Jones v. Goodyear Tire & Rubber Co., 442 F.Supp. 1157 (E.D.La. 1977). Since they usually involve a straightforward question regarding the legality of a written instrument, and there are no issues of reliance, causation, or the like, they are almost ideal class actions. Defendant cites Parker v. George Thompson Ford, Inc., 83 F.R.D. 378 (N.D.Ga. 1979), and Watkins v. Simmons and Clark,

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total time sales price, rather than deferred payment price as required by the regulations). Watkins, 618 F.2d at 403 n. 10. The Sixth Circuit held that class certification of TILA actions was not mandatory, and that there had been no abuse of discretion in denying class certification for such a trivial violation. Significantly, however, the court noted the dramatic reversal of the judicial trend against the certification of classes in Truth-in-Lending actions since the passage of amendments specifying class remedies under TILA (Id. at 402). The court further stated that class certification in TILA actions is desirable and to be encouraged. Id. at 404. In fact the Watkins court said that it may well have certified a class had the matter been up on de novo review. Id. Here, the violations are most assuredly not technical or trivial. Westgate is attempting to evade the key purpose of TILA. The plain purpose of getting consumers signature on a judgment note is to use the threat of interest at 20% and a confession of judgment to coerce people into taking substitute credit terms that they might not take if they could simply walk away from the deal. The purpose of [the two-note] procedure is only to allow a salesman to get a floor commitment from the buyer that can be used to counteract the buyers remorse while he awaits clearance in the credit office. Since most of the sellers sales are on credit, the salesman knows when he gets the customers signature on the purchase order the likelihood of a credit transaction is great. Disclosure is of little help to a buyer who is told in the credit office that he has a choice of either signing the [retail installment contract] or of having collection procedures instituted against him because he is unable to come up with the cash. Gonzales v. Schmerler Ford, 397 F.Supp. 323, 327 (N.D.Ill. 1975). The facts of the Candia case amply demonstrate how defendants use of Exhibit A results in the attempted (and probably most often successful) binding of consumers to a credit transaction without prior disclosure of financing terms as required by TILA. Defendant contends that the customer is not bound by Exhibit A if financing is unattainable, and may simply return the vehicle to defendant. (Def.Mem. p. 3; Moroni Affid., k4) However, if financing is attainable, but at a previously undisclosed annual percentage rate or monthly payment amount the customer is not willing to accept, he or she is bound by the terms of Exhibit A to accept either the substitute financing offered by defendant, or the 20% rate in the note. Or, as in the Candia case, defendant may refuse to return the customers trade-in vehicle, and tell the customer that he or she is legally bound to purchase a vehicle from defendant. (Candia counterclaim, k23, Def.Mem. Exhibit 2); (Diaz affid., k 8, Pl.Mem. Exhibit E[not attached herein]). Defendant contends that a class should not be certified because plaintiff suffered no actual damages, since the purchase was never consummated and his trade in vehicle was returned to him. (Def.Mem., p. 3) In fact, the trade in vehicle was not returned to Mr. Diaz until after two written requests, the second from his attorney. Obviously, a consumer who did not hire an attorney would have a much harder time getting his or her vehicle back from defendant. The practice complained of is clearly harmful and detrimental to consumers. The practice inflicts harm in terms of diminished bargaining power and diminished ability to shop for

Inc., 618 F.2d 398, 402 (6th Cir. 1980), for the proposition that a class action is not appropriate in this case. Defendants position is not well taken. A. THE DAMAGE CAP IN 1640 CANNOT BE RELIED UPON AS AUTHORITY FOR DENYING CLASS CERTIFICATION Parker held that a TILA class action was not a superior method of adjudication because the statutory damages cap means that class members will recover less as members of a class than they could as individuals in separate actions. Because in almost all TILA class actions the recovery for each class member will be less than in an individual action, the Parker decision in effect works a judicial repeal of the specific authorization for TILA class actions contained in 15 U.S.C. 1640. As demonstrated in plaintiffs opening memorandum, class actions are the principal enforcement mechanism of TILA. Watkins, 618 F.2d at 403 n. 9. [P]otential class action liability is an important encouragement to the voluntary compliance which is so necessary to insure nationwide adherence to uniform disclosure. The possibility of class-action exposure is essential to the prophylactic intent of the Act, and is necessary to elevate truth-in-lending lawsuits from the ineffective nuisance category to the type of suit which has enough sting to insure that management will strive with diligence to achieve compliance. Bantolina v. Aloha Motors, 419 F.Supp. 1116, 1120 (D.Haw. 1976). Congress expressly approved of class actions to enforce the Truth in Lending and Truth in Leasing Acts. In 1976, Congress increased the s