Argued
September 7, 2018
Appeal
from the United States District Court for the Southern
District of Indiana, Indianapolis Division. No.
l:14-cv-01589-TWP-DML - Tanya Walton Pratt, Judge.
Before
WOOD, Chief Judge, and ROVNER and Brennan, Circuit Judges.
ROVNER, CIRCUIT JUDGE.
This
appeal presents us with only the narrow issue of whether the
district court erred in rescinding class certification. The
defendant-appellee, NextGear Capital, Inc., formerly known as
Dealer Services Corporation, provided lines of credit for
financing the operations of used car dealerships. The
plaintiffs Red Barn Motors, Inc., Platinum Motors, Inc. and
Mattingly Auto Sales, Inc., operated used car dealerships,
and were solicited by NextGear to enter into a contract
called a Demand Promissory Note and Security Agreement (the
"Agreement"), whereby NextGear would issue a line
of credit for them to access in purchasing used vehicles at
automobile auctions. Those agreements provided the plaintiffs
with a revolving line of credit, called a floorplan
agreement, to purchase vehicles at the auction which they
subsequently would sell at their dealerships.
In the
typical auction and financing transaction, a new car dealer
provides a trade-in vehicle to an auction company, which
presents the vehicle to used car dealers at an auction. If a
used car dealer's bid is accepted, that dealer takes
possession of the vehicle. The dealer then either pays the
auction company directly or utilizes an automotive financing
company such as NextGear, which pays the auction company and
provides financing by means of the floorplan agreement to the
dealer for repayment. The auction company forwards the title
to the entity that paid for the vehicle-either the used car
dealer or the financing company. According to the plaintiffs,
NextGear deviated from that sequence. It did not pay the
auction house at the time that possession was delivered,
instead paying only after it received the title to the
vehicles purchased. Although it could take as long as eight
weeks for NextGear to receive that title and pay the money to
the auction company, NextGear nevertheless charged interest
and curtailment fees to the plaintiffs from the date of the
initial purchase. The plaintiffs brought this action
challenging that imposition of interest fees during the
period prior to the receipt of title, when NextGear was not
yet paying any funds to the auction house. They sought class
certification to pursue that challenge on behalf of all other
dealers who were subject to the same Agreement with NextGear
and were charged such interest.
Federal
Rule of Civil Procedure 23(a) sets forth explicit
requirements for a case to proceed as a class action:
(1)the class is so numerous that joinder of all members is
impracticable (numerosity);
(2)there are questions of law or fact common to the class
(commonality);
(3)the claims or defenses of the representative parties are
typical of the claims or defenses of the class (typicality);
and
(4) the representative parties will fairly and adequately
protect the interests of the class (adequacy of
representation).
Chicago Teachers Union, Local No. 1 v. Bd. of Educ. of
City of Chicago, 797 F.3d 426, 433 (7th Cir. 2015). In
addition, one of the four categories set forth in Federal
Rule of Civil Procedure 23(b) must be met in order for a case
to proceed as a class action. The plaintiffs in this case
assert that the case falls within Rule 23(b)(3) which
considers whether "questions of law or fact common to
class members predominate over any questions affecting only
individual members, and ... a class action is superior to
other available methods for fairly and efficiently
adjudicating the controversy."
The
plaintiffs' amended complaint included numerous claims
including breach of contract, constructive fraud, tortious
interference with business relationships, unjust enrichment,
RICO violations, and RICO conspiracy. The district court
granted class certification as to the breach of contract
claim against NextGear and the substantive RICO claim against
NextGear, Cox Automotive and John Wick pursuant to Federal
Rule of Civil Procedure 23(a). In an extensive 30-page
analysis, the court determined that the plaintiffs met all of
the requirements of the Rule 23(a) factors-ascertainability,
numerosity, commonality, typicality, and adequacy of
representation-and that the plaintiffs had also demonstrated
under Rule 23(b)(3) that a class action was superior to other
methods of adjudication. Accordingly, on June 29, 2017, it
granted class status as to those claims.
Approximately
two weeks later, NextGear filed a Motion to Reconsider and/or
Modify Class Certification Order. It argued that the court
failed to consider evidence and arguments submitted after the
initial class certification briefing. Specifically, NextGear
maintained that the plaintiffs had asserted for the first
time in summary judgment briefing that the floorplan
agreements are ambiguous on their face, and that under such a
theory courts must resort to extrinsic evidence on a
plaintiff-by-plaintiff basis to determine the parties'
intent regarding the contract. NextGear argued to the
district court that "when ambiguity in a contract has
'open[ed] the door for extrinsic evidence/ then
'liability to the entire class for breach of ...