Thursday, April 1, 2010

Overdraft “Re-sequencing” Class Withstands Daubert Challenge to Damage/Restitution Model: Gutierrez v. Wells Fargo & Co.

On March 26, 2010, Northern District Judge, William Alsup, denied Wells Fargo’s motion for summary judgment and motion for decertification predicated largely upon a challenge to the plaintiffs’ proposed statistical damage model. The plaintiffs’ certified case alleges that Wells Fargo engaged in unfair and deceptive business practices by re-sequencing the order of debit card transactions from highest to lowest, rather than chronological posting, to maximize overdraft charges. As the certified class encompasses over one-million banking customers, each of whom was charged at least one overdraft fee of $34, the viability of the plaintiff’s damages model was unquestionably a lynch-pin issue to the ongoing viability of the case.

As reasoned by the Court, the fact that the methodology underlying the plaintiffs’ damage model was incapable of calculating damages with 100% accuracy was not a sufficient grounds for exclusion under FRE 702, especially when the primary issue with computation of damages was the direct result of Wells Fargo’s own failure to capture and maintain data:
While Wells Fargo is correct that neither methodology is perfect, the rules of evidence do not demand perfection. Rather, a court need only determine whether the reasoning and methods underlying the expert testimony are reliable, and whether they have been properly applied to the facts. See Daubert, 509 U.S. at 592-93; FRE 702. Here, even Wells Fargo's own damages expert, Dr. Cox, freely admits that "[fee] reversals are not tied to particular transactions" (Cox Dep. at 13-15). Given this reality, Wells Fargo cannot cry "foul" when plaintiffs' damages study fails to account for the subjective intent behind each and every fee reversal granted by their banks. Stated differently, plaintiffs cannot be expected to determine, with 100% accuracy, the exact overdraft charge associated with a particular fee reversal when defendant's own data system did not capture and store this information. Indeed, even if the claims were brought individually rather than on a class-wide basis, the same ambiguities in transaction data would be present for each individual customer. In sum, defendant cannot object to a damage study that is as close to the best possible using its own data, especially if class-wide methods of proof would be no less imprecise than individual methods of proof. See, e.g., Bigelow v. RKO Radio Pictures, 327 U.S. 251, 66 S. Ct. 574, 90 L. Ed. 652 (1946).
In light of this analysis, this order declines to exclude either method used by plaintiffs to account for overdraft fee reversals. Given the data available for their damages study, both methods -- to varying degrees -- employ reasonable inferences necessitated by the facts and circumstances of this case. Neither defendant nor its expert, Dr. Cox, knew of or presented any better alternatives to account for reversals, either individually or on a class-wide basis (Opp. 8). Moreover, Wells Fargo gave no indication of the magnitude of "inflated" damages produced by either method. Under Daubert, plaintiffs have met the threshold of reliability.
See Gutierrez, 2010 U.S. Dist. LEXIS 29117, at 33-35.

Moreover, for the same reasons, the Court rejected Wells Fargo’s argument that that the model could not be used to calculate “restitution” for purposes of the UCL due to the use of “approximations” where data was lacking:

Finally, Wells Fargo correctly points out that Section 17200 is equitable in nature, and therefore remedies are limited to restitution or injunctive relief. See Korea Supply Co. v. Lockheed Martin Corp., 29 Cal.4th 1134, 1152, 131 Cal. Rptr. 2d 29, 63 P.3d 937 (2003). This order [sic] disagrees, however, with defendant's assertion that the revised study conducted by plaintiffs fails to present an adequate measurement of restitution "supported by substantial evidence, without approximations," and that summary judgment is warranted (Reply 23). As explained above, Olsen's report is aimed at determining the amount of overdraft fees Wells Fargo allegedly unfairly assessed on individual customers. The calculations were based upon all the data, and where approximations were made, they were necessitated by insufficient detail in defendant's own record-keeping process. As such, this order declines to find that Olsen's report is inadmissible to prove restitution.
See Gutierrez, 2010 U.S. Dist. LEXIS 29117, at 38-39.

Finally, the Court denied Wells Fargo’s motion to decertify the class, based in large part on the viability of plaintiff’s damage model, as well as the fact that the small-value damages at issue rendered each class member’s claims substantively dependent on the class action mechanism:

The legal claims of the "re-sequencing" class target the alleged overcharging of overdraft fees for over a million different Wells Fargo customers (Dkt. No. 285, Exh. A at 37-38). All members of the "re-sequencing" class were charged overdraft fees due to defendant's accused high-to-low posting of transactions. The fees themselves, however, were only around $ 34 each. Given this backdrop, it cannot be disputed that a denial of class-certification would close the door of justice to a staggering amount of claimants. The deterrent value of class litigation and the desirability of providing recourse for the injured consumer who would otherwise be financially incapable of bringing suit clearly render the class action a viable and important mechanism in challenging an alleged fraud on the public. This is especially important here, where the allegedly unlawful practice disproportionately gouges those who maintain, due to choice or (more likely) financial hardship, a shallow amount of funds in their checking accounts.
On the other hand, this order must give full consideration to whether plaintiffs' revised damages study is sufficient to establish class-wide proof of actual injury and/or damages for each absent class member. Otherwise, Rule 23 would be used to truncate the required substantive elements of proof by each claimant in violation of the Rules Enabling Act, 28 U.S.C.2071-77. Having considered the various limitations inherent in Wells Fargo's transaction data (discussed in detail by this order), and the fact that proving actual injury if suits were brought individually would still require the same types of assumptions made by Olsen in his report, this order [sic] finds that plaintiffs have presented sufficient class-wide proof of actual injury to survive defendant's motion for decertification. Given this showing, there is no question that common questions predominate in this action. As such, defendant's motion for class decertification is DENIED.
See Gutierrez, 2010 U.S. Dist. LEXIS 29117, at 40-41.

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