Thursday, April 27, 2006

Fourth Circuit Decertifies Class Based on Superiority of Pending Bankruptcy Proceedings

Per Gregory v. Finova Capital Corp., 442 F.3d 188 (4th Cir. March 14, 2006):

Appellee-noteholders filed a class action suit against the principal lender of the now-bankrupt company that issued the notes. The district court certified the class action. However, there is a currently pending bankruptcy adversary proceeding dealing with most of the same questions at issue in the class action. We reverse the class certification because, in light of the adversary proceeding, the class action is not the superior method for the fair and efficient adjudication of the controversy.

. . .

It was an abuse of discretion for the district court to find the class action superior without analyzing whether it was superior to the adversary proceeding--the only other pending, collective proceeding having to do with the same controversy as the class action. By failing to analyze whether the class action was superior to the adversary proceeding, the district court did not consider “the extent and nature of any litigation concerning the controversy already commenced by or against members of the class,” as Rule 23(b)(3)(B) advises.

. . .

Our conclusion is reinforced by the fact that the class action plaintiffs have acknowledged that, if successful in the adversary proceeding, they could be made “more or less whole.” The fact that the relief sought in the two actions differs slightly is not enough to persuade us that the class action is superior.


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