302 F.R.D. 505
D. Minnesota2014Background
- Plaintiff Jared Rapp alleges Green Tree Servicing, LLC (Green Tree) forced-placed insurance on his condominium loan and charged borrowers amounts exceeding the “cost of the insurance,” while Green Tree Insurance Agency, Inc. (GTIA) received commissions (alleged kickbacks).
- Rapp sued for breach of contract (against Green Tree) and unjust enrichment (against GTIA). The Court previously allowed those two claims to proceed past the motion to dismiss stage.
- Rapp moved to certify a nationwide class of borrowers with materially identical mortgage forms who were charged for lender-placed insurance since November 1, 2004; he excluded bankruptcies, short sales, and loan-mods.
- Each mortgage contains a choice-of-law clause applying federal law and the law of the jurisdiction where the property is located; thus state law of the mortgaged property governs breach claims.
- The Court found major obstacles to nationwide class treatment: need to apply the laws of many states (choice-of-law), individualized proof of the “true cost” of insurance per borrower, varying admissibility of extrinsic evidence, divergent statutes of limitations and tolling doctrines, filed-rate doctrine differences, and state-by-state affirmative defenses (e.g., first-material-breach, waiver).
- Because unjust-enrichment claims against GTIA are intertwined with contract interpretation, the mortgage choice-of-law clause applies to them as well; therefore unjust-enrichment claims would likewise require applying many states’ laws.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a nationwide class of breach-of-contract claims may be certified under Rule 23(b)(3) | Rapp: contracts are materially identical and common questions (meaning of “the cost of the insurance”) predominate; subclasses can address limited state-law differences | Green Tree: state-law differences, individualized proof of true cost, extrinsic evidence admissibility, SOL/tolling and filed-rate issues create predominating individual questions | Denied — individual questions (state-law variations, individualized factual issues) predominate over common questions |
| Whether unjust-enrichment claims against GTIA can be certified nationwide | Rapp: either unjust-enrichment law is materially uniform or mortgage choice-of-law doesn’t bind GTIA, so Minnesota law applies or uniform law can be used | GTIA/Green Tree: unjust-enrichment law varies materially; mortgage choice-of-law applies to tort claims intertwined with contract; if not, choice-of-law analysis still points to each property’s state law | Denied — choice-of-law clause applies and/or common-law choice-of-law requires applying each property’s state law; conflicts and individualized issues predominate |
| Whether GTIA (a non-signatory) can invoke the mortgage choice-of-law clause | Rapp: GTIA is not a party to the mortgage so cannot enforce its clause | Defendants: equitable estoppel permits a non-signatory to invoke the clause where the plaintiff’s claims rely on the contract and allege interdependent misconduct | Held — GTIA can enforce the mortgage choice-of-law clause because the unjust-enrichment claim is intertwined with contract breach allegations |
| Whether class treatment is manageable given state regulatory doctrines (e.g., filed-rate) and statutes of limitations | Rapp: subclasses or limiting rules can manage variations; filed-rate won’t apply broadly | Defendants: filed-rate, different accrual/tolling rules, and differing remedies/limits vary widely across states and would require individualized inquiries | Held — these state-law doctrines and SOL/tolling differences make class adjudication unmanageable and defeat predominance |
Key Cases Cited
- Gen. Tel. Co. of Sw. v. Falcon, 457 U.S. 147 (U.S. 1982) (Rule 23 requires a rigorous analysis of commonality and predominance)
- Blades v. Monsanto Co., 400 F.3d 562 (8th Cir. 2005) (if prima facie proof requires member-specific evidence, the question is individual)
- Avritt v. Reliastar Life Ins. Co., 615 F.3d 1023 (8th Cir. 2010) (extrinsic evidence may be necessary to interpret ambiguous standard-form contract terms)
- MS Dealer Serv. Corp. v. Franklin, 177 F.3d 942 (11th Cir. 1999) (equitable estoppel permits non-signatory to invoke contractual provisions when claims rely on the contract or allege interdependent misconduct)
- In re Wholesale Grocery Prods. Antitrust Litig., 707 F.3d 917 (8th Cir. 2013) (non-signatory enforcement of contractual terms where claims are intertwined with the contract)
- Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487 (U.S. 1941) (federal courts sitting in diversity must apply state choice-of-law rules)