Commercial Division Blog
Class Must be Certified Even When Named Plaintiff No Longer Has Claim
On May 1, 2015, Justice Kornreich of the New York County issued a decision in Vasquez v. National Sec. Corp., 2015 NY Slip Op. 25143, discussing class certification when the named plaintiff no longer has a claim.
In Vasquez, the plaintiff brought a putative class action alleging Labor Law claims against his former employer and its owner. The defendants move to dismiss on the ground that the plaintiff's individual claim had been paid, and thus the defendant lacked standing to bring a claim. The plaintiff did not oppose dismissal, but argued that the class should be nonetheless certified. The court agreed, explaining:
CPLR 908 provides that "[a] class action shall not be dismissed, discontinued, or compromised without the approval of the court. Notice of the proposed dismissal, discontinuance, or compromise shall be given to all members of the class in such manner as the court directs."
New York law requires notice to the class where, as here, an individual settlement is reached prior to a decision on the merits of a motion to dismiss or a motion for class certification. See Avena v Ford Motor Co., 85 AD2d 149, 152-53 (1st Dept 1982).
The wisdom of this rule has been questioned by many, including the CPLR commentary, which explains:
The court in Avena held that the court-approval and notice provisions of CPLR 908 were mandatory in the case of pre-certification agreements that settle only the named plaintiffs' claims. Although the court's interpretation of the statute may be correct, the wisdom of requiring notice in all such cases is debatable. Notice can be expensive, such settlements have no res judicata impact on the potential class members, and the court's screening of the settlement terms, particularly in injunctive and declaratory actions, may be enough to insure protection for all. On the other hand, some settlements present the risk of a "sell out" by the named plaintiffs, the court may be better informed about potential collusion if interested parties are put on notice, and notice may protect potential class members against the running of the statute of limitations.
See CPLR 908, C908:2. Indeed, Fed. R. Civ. P. 23(e)(1) no longer requires such notice prior to class certification.
Defendants' briefs echo this position and urge the court to follow modern federal case law, which differs from the rule set forth in Avena and its progeny. Defendants argue that Avena rests its reasoning on cases which have not withstood the test of time. Further, as defendants correctly observe, it is well established that our state courts look to Rule 23 of the Federal Rules of Civil Procedures to inform New York's class action law. Nonetheless, this action is brought under Article 9, and this court must follow the Appellate Division's clear precedent. While defendants and respected commentators persuasively argue why the holdings in Avena (a First Department case) and Naposki (a Second Department case) are outdated and do not reflect the current state of federal class action practice, it is up to the appellate courts or legislature to undo clear New York precedent and change policy.
(Internal quotations and citations omitted).