Case Name: Heritage Pacific Financial LLC v. Rosita Gonzalez, et al.

Case No.: 2010-1-CV-173203

This is a class action arising from alleged unfair debt collection practices by plaintiff and cross-defendant Heritage Pacific Financial, LLC, dba Heritage Pacific Financial (“Heritage”) connected with foreclosed promissory notes it purchased in bulk from institutional lenders during the residential mortgage foreclosure crisis. (Second Amended Class Action Cross-Complaint, ¶ 1.) Heritage’s counsel, Brad A. Mokri, is also a cross-defendant. On February 8, 2012, the Court entered an order certifying the class and five subclasses. The parties engaged in discovery and motion practice until January 16, 2014, when Heritage filed a notice of bankruptcy stay.

A number of case management statements were filed during the stay. As recently as June 15, 2015, cross-complainants indicated that they “plan[ned] to proceed with the class action litigation against cross-defendant Brad Mokri. The next step is class notice. This court has previously ruled that cross-defendants must pay the cost of class notice due to failure to respond to discovery requests.” A mediation was scheduled and vacated. On October 15, 2015, the bankruptcy stay was lifted to allow class counsel to seek to decertify the class on the ground that there are insufficient assets to pursue a class judgment against Heritage. In a case management statement filed the same day, cross-complainants indicated that, pursuant to the bankruptcy court’s order, they “will henceforth move to decertify the classes. Cross-complainants anticipate that a settlement of all individual claims against [Heritage] will be reached with the Bankruptcy Trustee after such decertification.”

Cross-complainants filed their motion to decertify the class, which is unopposed, on December 7, 2015, and their motion is now at issue.

With their motion, cross-complainants submit a declaration by their counsel stating that he has followed Heritage’s bankruptcy since it was commenced, and has confirmed from publicly available records and statements by the bankruptcy trustee that the estate has approximately $235,000 in assets. (Decl. of Daniel J. Mulligan ISO Mot., ¶¶ 2-5.) Priority administrative claims will consume more than $50,000, and the Internal Revenue Service has a priority lien for $200,000. (Id., ¶ 5.) The trustee advises that he is unable to find any more assets and has offered to “settle with the claims filed on behalf of plaintiff, at a steep discount, to close out the bankruptcy.” (Ibid.) It appears that no creditor other than the IRS will be paid in the bankruptcy, and Heritage’s principals, the “Gantner brothers,” do not appear to have significant assets, either. (Id., ¶ 7.) Counsel’s declaration does not address whether cross-complainants could continue to pursue their claims against Mokri.

“Any party may file a motion to…[d]ecertify a class.” (Cal. Rules of Court, rule 3.764(a)(4).) “Before judgment, a class action shall be decertified ‘only where it is clear there exists changed circumstances making continued class action treatment improper.’ ” (Fireside Bank. v. Superior Court (Gonzalez) (2007) 40 Cal.4th 1069, 1081-1082.) Decertification may be appropriate where the defendant has no assets with which to provide notice or satisfy any judgment. (See Smith v. Georgia Energy USA, LLC (S.D. Ga., Dec. 1, 2014, No. CV 208-020) 2014 WL 6769503, at *2 [granting decertification where “the combined assets of all remaining defendants are insufficient to pay the administrative costs of publishing the required notices, much less any compensatory damages to the class members should Plaintiffs prevail in the end”]; Day v. Check Brokerage Corp. (N.D. Ill., Dec. 15, 2009, No. 05 C 4912) 2009 WL 4931739, at *1 [“There can be no class without notice and CBC has no assets with which to provide notice or to satisfy the judgment. Accordingly the court decertifies the class.”]; see also Eisen v. Carlisle and Jacquelin (2d Cir. 1968) 391 F.2d 555, 567 [remanding the action for a further hearing on initial class certification where any potential recovery might be absorbed by administrative costs and attorney fees; “If as a practical matter class members are not likely ever to share in an eventual judgment, we would probably not permit the class action to continue.”].)

In Gradisher v. Check Enforcement Unit, Inc. (W.D. Mich. 2002) 209 F.R.D. 392, the court granted plaintiffs’ motion to decertify the class following a de minimis damages award. The court noted, howver, that it may be inappropriate to decertify a class where the defendant has some assets, and decertification would allow the named class representative to recover the assets and leave nothing for the other class members. (At p. 394 [discussing an unpublished case in which the court denied a joint motion to decertify on this ground].) The circumstances here raise similar concerns. Cross-complainants do not indicate the value of the proposed settlement of their individual claims against Heritage or show that it would not be feasible to achieve a class settlement instead. Nor do they address the fact that Mr. Mokri remains a party to this action or discuss the potential to continue pursuing class claims against him.

In light of these issues, cross-complainants’ motion is July 22, 2016 to permit the cross-complainants to submit supplemental papers in support thereof. Cross-complainants’ supplemental brief shall not exceed 10 pages and shall be filed and served 10 court days before the continued hearing. In addition to the issues identified above, cross-complainants shall address the propriety of providing some form of notice to absent class members in the event the class is decertified, as in Barnett v. Experian Information Solutions, Inc. (E.D. Tex. 2006) 236 F.R.D. 307, 308-309 (ordering notice of decertification to be published on class counsel’s web site under similar circumstances to those presented here).